Scholastic Corporation

2017/2018
ANNUAL REPORT

 
 Î “ 

The future depends on young people having 

access to reading, literature and information. We 

have a huge stake in establishing a level playing 

field where children can learn how to read and 

think, understand dimensions of the human spirit 

through stories, and comprehend how the world 

works through information and nonfiction. This 

will ensure that all people can have a voice in 

determining the direction of society.

—Richard Robinson,  
Scholastic Chairman, President and  
Chief Executive Officer

accepting the 2017 National Book Foundation Literarian Award 

557 Broadway, New York, NY 10012  •  212 343 6100  •  scholastic.com

Fellow Shareholders,

As I write this, nearly four million teachers and 60 million children in the U.S. are preparing for the new school 
year, each with their own hopes and concerns for the year ahead. Scholastic will be there for them, as we 
have been for nearly a century of “back-to-school” first days. We will continue to contribute to children’s 
education by providing them with stories that help them understand themselves and their place in the world, 
and nonfiction that helps them develop critical thinking and make sense of the world they will inherit. 

Scholastic has always looked to the future, working as we do with young people whose lives are ahead of 
them. To ensure we are preparing students for the more complex global society of the future, we must 
provide them with the ability to be flexible and creative. With this in mind, we announced Scholastic 2020 
this time last year, our plan to propel the Company forward to its 100th year and set the stage for the next 
100 years. Technology-driven Scholastic 2020 initiatives are expected to substantially increase operating 
income, expand marketing and sales capacity, and improve our efficiency and management, while 
enabling us to reach parents, students and teachers with the media they are accustomed to using.  

We have made exciting progress since beginning our technology transformation. Some highlights:  

 Î We have retired over half of our legacy systems;

 Î 95% of our customer-facing applications have been migrated to the Cloud;

 Î Our e-commerce sites are all now powered by a new cloud-based solution, benefiting from 

reduced costs, improved site conversion and higher quality traffic to select online Scholastic stores;

 Î We have implemented a new customer relationship management system for our education and 

book fairs businesses;

 Î Across education and fairs, we have introduced web-based intelligence dashboards that highlight 

leads and allow managers to proactively monitor business drivers;

 Î We are producing better information leading to reduced fulfillment and transportation costs. 

We also see efficiencies through labor optimization and improvements in procurement, storage, 
fulfillment and distribution; reduced inventory carrying costs; and lower cost of product through 
improved vendor communications.

Turning to financial results, we are pleased to have delivered on our guidance for earnings per share, as 
adjusted, and free cash use for fiscal year 2018; and we begin this next reporting year with strong strategies 
for our core children’s book, education and international businesses, a lower tax rate as a result of tax 
reform, and continued optimism about the dynamic leasing environment for our SoHo retail space. 

Recognizing that fiscal 2018 was a transition year due to the combined impact of Harry Potter and the 
Cursed Child Parts One and Two in 2017 and Scholastic 2020 investments, here are key results:

 Î Revenues were $1.63 billion, a solid performance in light of last year’s blockbuster releases of 
Harry Potter and the Cursed Child, and J.K. Rowling’s original screenplay for the film Fantastic 
Beasts and Where to Find Them. Excluding the impact of those releases, fiscal 2018 trade sales 
were actually higher, with top-selling titles across all genres.

 Î Excluding onetime items, earnings per diluted share from continuing operations were $1.43, 
towards the high end of our previously revised guidance range, versus $1.83 in fiscal 2017.

 Î We made significant investments in new technologies, new products and upgraded facilities to 

drive our long-term profitable growth initiatives.

 Î We distributed $21 million in dividends and returned an additional $27 million to our shareholders 

through open market purchases of our common stock.

 
Looking to our Children’s Book Publishing and Distribution segment, our strength in trade publishing 
is bolstered by exciting new titles and growing core series like Dav Pilkey’s Dog Man, the blockbuster 
follow-up series to Captain Underpants. The first four Dog Man books have topped the bestseller charts, 
and we recently announced a landmark three million-copy first run printing of Dog Man: Lord of the 
Fleas, the fifth book in the series. In fiscal 2019, the marketing program supporting the 20th anniversary 
of the U.S. publication of Harry Potter is expected to drive an increase in revenue. An example of this 
exciting program is the release of anniversary editions of the original series with new cover artwork by 
Caldecott Medal-winner Brian Selznick, featured on the cover of this annual report.  

In book clubs, we expect to grow revenue modestly by providing more titles for early grades, as well 
as increasing student incentives to drive participation. Improved analytics and new e-commerce 
capabilities should lead to lower costs and improved margins. In book fairs, we expect to continue 
to target growth in the higher-value fair segments through increased customer segmentation and 
differentiated merchandizing, while leveraging our investment in a new POS system for greater 
efficiencies and lower costs.

In the Education segment, while classroom magazines continue to improve circulation and profitability, 
expansion in core curriculum is a major part of our growth strategy. During this school year, we plan 
to launch Scholastic Literacy™, a complete, balanced literacy program to meet the needs of K–6 
students. Scholastic Literacy positions us as an important player in the estimated $2 billion reading 
materials market, expanding our reach with a core curriculum reading solution. The significant size of 
this opportunity is the primary reason for increased investment in our sales force and new publishing 
programs. We also have launched three significant digital programs: Ooka Island®, foundational phonics 
for K–2; W.O.R.D., vocabulary for grades K–5; and Literacy Pro™, providing better management of 
independent reading, including light assessment. These programs will serve both as components within 
Scholastic Literacy and as stand-alone subscription products.

Looking to our International segment, we will leverage strategic technology investments to improve 
profitability in our major markets and enable more rapid growth in Asia. We will also make focused 
product and marketing investments in education and trade across international.

We begin fiscal 2019 with the future in our sights, embracing new ways of working and technologies 
that maximize our unique ability to reach millions of children around the world, largely through schools 
and teachers. We remain focused on our mission to provide them with captivating and relevant content, 
which can inspire a lifelong love of reading, and develop the higher-level thinking skills every child needs 
to succeed now and in the years to come.

I want to extend my thanks to educators and families for allowing us to serve you and your children, 
and to Scholastic employees all over the world for your passion and sense of mission. Thanks, too, to 
Marianne Caponnetto, a distinguished member of the Scholastic Board of Directors since 2010 who is 
retiring this year. And finally, to our shareholders, thank you for your continued support of Scholastic. 

Richard Robinson 

Chairman, President and Chief Executive Officer 

August 7, 2018

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, 2018   |   Commission File No. 000-19860 

Scholastic Corporation 

(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

557 Broadway, New York, New York
(Address of principal executive offices)

13-3385513
(IRS Employer Identification No.)

10012
(Zip Code)

Registrant’s telephone number, including area code: (212) 343-6100
Securities Registered Pursuant to Section 12(b) of the Act: 

Title of class

Common Stock, $0.01 par value

Name of Each Exchange on Which Registered

The NASDAQ Stock Market LLC

Securities Registered Pursuant to Section 12(g) of the Act:
NONE 

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes 

  No 

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes 

  No 

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 (§ 229.405) 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, smaller reporting 
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and 
“emerging growth company” in Rule 12b-2 of the Exchange Act.

  Large accelerated filer

  Accelerated filer

  Non-accelerated filer 

(Do not check if a smaller reporting company)

  Smaller reporting company

 Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying 

with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 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, 2017, was approximately 

$1,216,319,611. 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, 2018 was as follows: 33,332,614
shares of Common Stock and 1,656,200 shares of Class A Stock.

Part III incorporates certain information by reference from the Registrant’s definitive proxy statement for the Annual Meeting of 

Stockholders to be held September 26, 2018.

Documents Incorporated By Reference

 
 
 
 
 
 
 
 
 
 
 
 
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
Summary
Signatures
Power of Attorney
Schedule II: Valuation and Qualifying Accounts and Reserves

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Item 1 | Business

Overview

Part I

Scholastic Corporation (the “Corporation” and together with its subsidiaries, “Scholastic” or the “Company”) is the 
world’s largest publisher and distributor of children’s books, a leading provider of print and digital instructional 
materials for grades pre-kindergarten ("pre-K") to grade 12 and a producer of educational and entertaining children’s 
media. The Company creates quality books and ebooks, print and technology-based learning materials
and programs, classroom magazines and other products that, in combination, offer schools customized and 
comprehensive solutions to support children’s learning both at school and at home. Since its founding in 1920, 
Scholastic has emphasized quality products and a dedication to reading, learning and literacy. The Company is the 
leading operator of school-based book club and book fair proprietary channels. It distributes its products and services 
through these 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 and throughout the world including Canada, 
the United Kingdom, Australia, New Zealand and Asia and, through its export business, sells products in approximately 
135 countries around the world. 

The Company currently employs approximately 6,400 people in the United States and approximately 2,600 people 
outside the United States.

Segments – Continuing Operations

The Company categorizes its businesses into three reportable segments: Children’s Book Publishing and Distribution; 
Education; and International.

The following table sets forth revenues by reportable segment for the three fiscal years ended May 31: 

Children’s Book Publishing and Distribution
Education
International
Total

(Amounts in millions)

2018

2017

2016

$

961.5
297.3
369.6
1,628.4 $

$

1,052.1
312.7
376.8
1,741.6 $

1,000.9
299.7
372.2
1,672.8

$

$

Additional financial information relating to the Company’s reportable segments is included in Note 3 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 

(59.0% of fiscal 2018 revenues)

General

The Company’s Children’s Book Publishing and Distribution segment includes the publication and distribution of 
children’s books, ebooks, media and interactive products in the United States through its school book clubs and 
school book fairs channels and through its 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 marketing channels in the United States. The Company is also a leading publisher 
of children’s print books, ebooks and audiobooks distributed through the trade channel. Scholastic offers a broad 
range of children’s books through its school and trade channels, many of which have received awards for excellence 
in children’s literature, including the Caldecott and Newbery Medals.

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 

1

 
 
 
 
 
 
 
 
 
channels of distribution in the United States and, to a lesser extent, internationally. Scholastic’s second source of titles 
is through obtaining licenses to publish books exclusively in specified channels of distribution, including reprints of 
books originally published by other publishers for which the Company acquires rights to sell in the school market. The 
third source of titles is the Company’s purchase of finished books from other publishers. 

School-Based Book Clubs

Scholastic founded its first school-based book club in 1948. The Company's school-based book clubs consist of 
reading clubs for pre-K through grade 8. In addition to its regular 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 classrooms in the vast majority of the pre-K to 
grade 8 schools in the United States. Classroom teachers who wish to participate in a school-based book club provide 
the promotional materials to their students, who may choose from curated selections at substantial reductions from 
list prices. The teacher aggregates the students’ orders and forwards them to the Company. Approximately 64% of 
kindergarten ("K") to grade 5 elementary school teachers in the United States who received promotional materials in 
fiscal 2018 participated in the Company’s school-based book clubs. In fiscal 2018, approximately 94% of total book 
club revenues were placed via the internet through the Company’s online ordering platform, which allows parents, as 
well as teachers, to order online. Products are shipped to the classroom for distribution to the students. Teachers 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 entered the school-based book fairs channel in 1981 under the name Scholastic Book Fairs. The 
Company is now the leading distributor of school-based book fairs in the United States serving schools in all 50 states. 
Book fairs provide 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 book fairs product from its warehouses to schools principally by a fleet of 
Company-owned and leased vehicles. Sales and customer service representatives, working from the Company’s 
regional offices and 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 maximizing participation 
through increasing attendance at each book fair event. Approximately 92% of the schools that conducted a book fair 
in fiscal 2017 hosted a fair in fiscal 2018.

Trade

Scholastic is a leading publisher of children’s books sold through bookstores, internet retailers and mass 
merchandisers in the United States. Scholastic’s original publications include Harry Potter™, The Hunger Games, The 
39 Clues®, Spirit Animals®, The Magic School Bus®, I Spy™, Captain Underpants®, Dog Man®, Goosebumps® and 
Clifford The Big Red Dog® and licensed properties such as Star Wars®, Lego®, Pokemon® 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 Sew Mini Treats, Lego Chain Reactions and Make Your Own Bath Bombs. 

The Company’s trade organization focuses on publishing, marketing and selling books to bookstores, internet retailers, 
mass merchandisers, specialty sales outlets and other book retailers, and also supplies books for 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 two decades. Bestsellers in the 
trade division during fiscal 2018 included Harry Potter and the Prisoner of Azkaban: The Illustrated Edition, Harry 
Potter: A Journey Through a History of Magic, all four titles in the Dog Man series including Dog Man and Cat Kid and 
Dog Man: A Tale of Two Kitties, Refugee and successful series, including Captain Underpants, The Baby-Sitters Club 
(Graphix), The Bad Guys, Wings of Fire and I Survived.

Also included in the Company's trade organization are Weston Woods Studios, Inc. ("Weston Woods") and Scholastic 
Audio, as well as Scholastic Entertainment Inc. ("SEI"). Weston Woods creates audiovisual adaptations of classic 

2

 
 
 
 
 
 
children's picture books distributed through the school and retail markets. Scholastic Audio provides audiobook 
productions of popular children's titles. SEI is responsible for exploiting the Company's film and television assets, 
which include a large television programming library based on the Company's properties.

EDUCATION 

(18.3% of fiscal 2018 revenues)

Education includes the publication and distribution to schools and libraries of children’s books, other print and on-line 
reference, non-fiction and fiction focused products, classroom magazines and classroom materials for core and 
supplemental literacy instruction, as well as consulting services and related products supporting professional 
development for teachers and school and district administrators, including professional books, coaching, workshops 
and seminars which in combination cover grades pre-K to 12 in the United States.

The Company is a leading provider of classroom libraries and paperback collections, including best-selling titles and 
leveled books for guided reading, to individual teachers and other educators and schools and school district 
customers. Additionally, the Company provides books and consulting services to community-based organizations and 
other groups engaged in literacy initiatives through Scholastic Family and Community Engagement (FACE). Scholastic 
helps schools build classroom collections of high quality, award-winning books for every grade, reading level and 
multicultural background, including its Leveled Bookroom and the Phyllis C. Hunter classroom library series. Scholastic 
serves customer needs with customized support for literacy instruction, providing comprehensive literacy programs 
which include print and digital content, as well as assessment tools. The Company publishes and sells professional 
books authored by notable experts in education, such as Disrupting Thinking by Kylene Beers and Bob Probst, and 
supplemental materials like Next Step Forward in Guided Reading, authored by Jan Richardson. These materials are 
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 (www.scholastic.com/teacherstore), which provides 
professional books and other educational materials to teachers and other educators. In fiscal 2019, the Company will 
be launching its Scholastic Literacy product, a comprehensive core curriculum product that will provide a complete 
balanced core literacy program for grades pre-K to 6.

Scholastic is the leading publisher of classroom magazines. Teachers in grades pre-K to 12 use the Company’s 30 
classroom magazines, including Scholastic News®, Scope®, Storyworks®, Let's Find Out® and Junior Scholastic®, to 
supplement formal learning programs by bringing subjects of current interest into the classroom, including current 
events, literature, math, science, social studies and foreign languages. These offerings provide schools with substantial 
non-fiction material, which is required to meet new higher educational 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 2018 was approximately 15.1 million, with approximately 78% of the circulation in grades pre-K 
to 6. 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 classroom magazine revenue in fiscal 2018.

Scholastic is also 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. These products include non-fiction books 
published in the United States under the imprints Children’s Press® and Franklin Watts®. Also included in the segment 
is the Company's consumer magazine and custom publishing business, including Teacher magazine.

The products and services described above are offered by Scholastic to educators in pre-K to 12 schools as a 
comprehensive program for student achievement and literacy development. These solutions encompass core literacy 
curriculum publishing, including the Company’s Scholastic Literacy product, guided reading programs, digital 
solutions, print programs involving customized classroom and library book collections, related supplemental materials 
made available through the Company’s classroom magazines, including additional non-fiction material available to 
students through the digital components accompanying the print classroom magazines, and the Company’s custom 
curriculum and teaching guides and other professional development materials and services to aid teachers in the 
implementation of the Company’s comprehensive solutions.

INTERNATIONAL 

(22.7% of fiscal 2018 revenues)

3

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, Ireland, Australia, New Zealand, India, Singapore and other 
parts of Asia including Malaysia, Thailand, the Philippines, Indonesia, Hong Kong, Taiwan, Korea and Japan. The 
Company has branches in the United Arab Emirates and Colombia, a business in China that supports English language 
learning and, through its export business, sells products in approximately 135 countries. The Company’s international 
operations have original trade and educational publishing programs; distribute children’s books, digital educational 
resources and other materials through school-based book clubs, school-based book fairs and trade channels; 
produce and distribute magazines; and offer on-line services. Many of the Company’s international operations also 
have their own export and foreign rights licensing programs and are book publishing licensees for major media 
properties. Original books published by many of these operations have received awards for excellence in children’s 
literature. In Asia, the Company also publishes and distributes products under the Grolier name for parents to teach 
their children at home and engages in direct sales in shopping malls and door to door, as well as operating 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 is the largest operator of school-based marketing channels 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 operator of school-based marketing channels in the United Kingdom 
and is a publisher 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. 
Scholastic also holds equity method investments in two publishers, one of which is also a distributor, in the United 
Kingdom.

Australia

Scholastic Australia, founded in 1968, is the largest operator of school-based marketing channels 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 channels, 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 publishing 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 and engages in direct sales in shopping malls and door to door. In addition, the Company 
operates school-based marketing channels 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.

Foreign Rights and Export

The Company licenses the rights to select Scholastic titles in 52 languages to other publishing companies around the 
world. The Company’s export business sells educational materials, digital educational resources and children’s books 

4

to schools, libraries, bookstores and other book distributors in approximately 135 countries that are not otherwise 
directly serviced by Scholastic subsidiaries. The Company also partners with governments and non-governmental 
agencies to create and distribute books to public schools in developing countries.

Discontinued Operations

During the twelve month period ended May 31, 2018, the Company did not dispose of any components of the 
business that would meet the criteria for discontinued operations reporting.

PRODUCTION AND DISTRIBUTION

The Company’s books, magazines and other materials are manufactured by the Company with the assistance of third 
parties under contracts entered into through arms-length negotiations and competitive bidding. As appropriate, the 
Company enters into multi-year agreements that guarantee specified volumes 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, although it does expect price 
increases for paper in fiscal 2019.

In the United States, the Company mainly processes and fulfills orders for school-based book clubs, trade, reference 
and non-fiction products, educational products and export orders from its primary warehouse and distribution facility 
in Jefferson City, Missouri. In connection with its trade business, the Company may fulfill product orders directly from 
printers to customers. Magazine orders are processed at the Jefferson City facility and are shipped directly from 
printers. 

School-based book fair orders are fulfilled through a network of warehouses across the country, as well as from the 
Company's Jefferson City warehouse and distribution facility. The Company’s international school-based book clubs, 
school-based book fairs, trade and educational operations use distribution systems similar to those employed in the 
United States.

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:

• 

• 

• 

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. 

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.

Acquired intangible assets - The Company may acquire fully or partially developed Content from 
third parties via acquisitions of entities or outright purchase of the rights to Content.

SEASONALITY

The Company’s Children’s Book Publishing and Distribution school-based book club and book fair channels and most 
of its Education businesses operate on a school-year basis; therefore, the Company’s business is highly seasonal. As a 
result, the Company’s revenues in the first and third quarters of the fiscal year generally are lower than its revenues in 
the other two fiscal quarters. Typically, school-based channels and magazine revenues are minimal in the first quarter 

5

 
 
 
 
 
 
 
of the fiscal year as schools are not in session. Trade sales can vary throughout the year due to varying release dates of 
published titles. The Company generally experiences a loss from operations in the first and third quarters of each fiscal 
year. 

COMPETITION 

The markets for children’s books, educational products and entertainment 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 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, and distributors of products and services on the internet. In the United States, competitors also 
include regional and local school-based book fair operators, as well as the recent entry of a competitor operating on a 
national level, other fundraising activities in schools, and bookstores. 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, 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 and magazines, 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.

6

 
 
 
 
Executive Officers

The following individuals have been determined by the Board of Directors to be the executive officers of the 
Company. Each such individual serves in his or her position with Scholastic until such person’s successor has been 
elected or appointed and qualified or until such person’s earlier resignation or removal.

Name
Richard Robinson

Age
81

Kenneth J. Cleary

Iole Lucchese

Satbir Bedi

Judith A. Newman

Alan Boyko
Andrew S. Hedden

Available Information

53

51

54

60

64

77

Employed by

Registrant Since Previous Position(s) Held

1962

2008

1991

2012

1993

1988

2008

Chairman of the Board (since 1982), President (since 1974) and
Chief Executive Officer (since 1975).
Chief Financial Officer (since 2017), Senior Vice President, Chief
Accounting Officer (2014-2017), Vice President, External
Reporting and Compliance (2008-2014).
Executive Vice President (since 2016), Chief Strategy Officer 
(since 2014); President, Scholastic Canada (2015-2016);
and Co-President, Scholastic Canada (2003-2015).
Executive Vice President (since 2018), Senior Vice President and
Chief Technology Officer (2012-2018).
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).
President, Scholastic Book Fairs, Inc. (since 2005).
Executive Vice President, General Counsel and Secretary (since
2008) and member of the Board of Directors (since 1991).

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.

7

 
 
 
 
 
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 technology 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 trade publishing, educational, 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 cloud technologies, tablets, mobile 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, 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 markets which could develop for children and schools, such as the nature of the 
relevant software and devices or 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. For example, the Company previously determined to 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, made available 
initially to the classroom market. There can be no assurance that the Company will be successful in implementing its 
revised digital strategy, including the continuing development of new applications and digital products for its 
consumer and school markets, which could adversely affect the Company’s revenues and growth opportunities. 
Further, there can be no assurance that the Company will ultimately be successful in its broader redirected strategy 
based on a streaming model directed to the classroom market coupled with its continuing development of a broader 
streaming model. In addition, the Company faces market risks associated with systems development and service 
delivery in its evolving school ordering and ecommerce businesses. 

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 businesses produce a substantial amount of the Company’s 
revenues. The Company is subject to the risks that it will not successfully continue to develop and execute new 
promotional strategies for its school-based book clubs or book fairs in response to future customer trends or 
technological changes or that it will not otherwise meet market needs in these businesses in a timely or cost-effective 
fashion. The Book Clubs business relies on attracting and retaining new sponsor-teachers to promote its products. If 
the Company cannot attract new millennial teachers and meet the changing preferences of these teachers, its 
revenues and cash flows could be negatively impacted. Likewise, the inability to meet the demands of individuals and 
groups within schools who run book fairs could negatively impact the Company's revenues and cash flows.

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 using customer-specific curation tools could reduce this 
differentiation, posing a risk to the Company's results. In addition, the Company has become subject to increased 
competition in its school book fair business as a result of the recent entry into this business of a competitor operating 
on a national level.

8

 
 
 
 
 
  
 
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.

We own certain significant real estate assets which are subject to various risks related to conditions affecting 
the real estate market.

The Company has direct ownership of certain significant real estate assets, in particular the Company’s headquarters 
location in New York City and its primary distribution center in Jefferson City, Missouri. The New York headquarters 
location serves a dual purpose as it also contains premium retail space that is or will be leased to retail tenants in order 
to generate rental income and cash flow. The Company is currently in the final stages of renovation of its New York 
headquarters which will include making additional space available for retail use. Accordingly, the Company is sensitive 
to various risk factors such as changes to real estate values and property taxes, pricing and demand for high end retail 
spaces in Soho, New York City, interest rates, cash flow of underlying real estate assets, supply and demand, and the 
credit worthiness of any retail tenants. There is also no guarantee that investment objectives for the retail component 
of the Company’s real estate will be achieved.

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 trade, educational and media markets for children. In particular, the Company’s 
educational publishing business may be adversely affected by budgetary restraints and other changes in educational 
funding as a result of new policies which could be implemented at the federal level or otherwise resulting from new 
legislation or regulatory action at the federal, state or local level and 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 be successful in continuing to obtain sales of its 
educational programs and materials 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 trade and educational 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 and develop new product offerings to meet customer preferences or needs, the 
Company’s revenues and profitability could be adversely affected. In its educational publishing business, the Company 
is investing in a core curriculum literacy program covering grades pre-K through 6 in direct competition with 
traditional basal textbook publishers to meet the perceived needs of the modern curriculum.  There can be no 
assurance that the Company will be successful in having school districts adopt the new core program in preference to 
basal textbooks or be successful in state adoptions, nor that basal textbook publishers will not successfully adapt their 
business models to the development of new forms of core curriculum, which could have an adverse effect on the 
return on the Company’s investments in this area, as well as on its financial performance and growth prospects.

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.

Changes in the mix of our major customers in our Trade distribution channel or in their purchasing patterns 
may affect the profitability of our trade publishing business and restrict our growth.

The Company’s traditional distribution channels have changed significantly over the last few years to now include, 
among others, online retailers and ecommerce sites, digital delivery platforms and expanding social media and other 
marketing platforms. An increased concentration of retailer power has also resulted in the increased importance of 
mass merchandisers and of publishing best sellers to meet consumer demand. Currently, the Company’s top five trade 
customers make up approximately 49% of the Company’s trade business and 11% of the Company’s total revenues, 

9

 
 
 
with one customer accounting for 19% of the trade business and 4% of total revenues. Adverse changes in the mix of 
the major customers of the trade business, including the type of customer, which may also be engaged in a 
competitive business, or in their purchasing patterns or the nature of their distribution arrangements with the trade 
business, could negatively affect the profitability of the Company’s trade business and the Company’s financial 
performance.

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 materials and programs 
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 or has access to personal data, including that of customers. 
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 materials or programs produced by the Company's Education segment. 
Further, a failure to adequately protect personal data, including that of customers or children, 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 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, including, most 
recently, the European Union General Data Protection Regulation, which became enforceable on May 25, 2018, 
imposing significant new data privacy requirements across the European Union.  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 and similar laws in particular, as well as failures to comply generally with applicable privacy 
laws and regulations, as referred to above, 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. In addition, the Company is in the process of 
implementing a strategic information technology transformation process, requiring diverse levels of relevant expertise 
and experience. Inability to continue to adequately maintain a workforce of this nature meeting the foregoing needs 
could negatively impact the Company’s operations. 

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 its new core literacy program, as well as other programs, in its 
educational publishing business, as well as through the Company's educational publishing operation in Singapore

•  The ability to expand in the global markets that it serves
•  The ability to meet demand for content meeting current standards in the United States
•  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.

10

 
 
 
Failure to meet the objectives of the Company’s “2020 Plan” could adversely affect our future operating 
results.

The Company has embarked upon an integrated program to increase profitability - the “2020 Plan." The plan 
leverages new technology, process improvements and cross-business opportunities to drive improved profitability 
over the upcoming three fiscal years. Failure to execute the programs in one or more of these areas could negatively 
impact the Company’s financial results.

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 and its internal operating 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 continues to implement its new 
enterprise-wide customer and content management systems and the migration to software as a service ("SaaS") and 
cloud-based technology solutions, in its initiatives to integrate its separate legacy platforms into a cohesive enterprise-
wide system, there can be no assurance that it will be successful in its efforts or that the staged implementation of 
these initiatives in the Company's global operations will not involve disruptions in its systems or processes having a 
short term adverse impact on its operations and ability to service its customers.

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, postretirement benefits and any trends specific to the employee skill sets that the 
Company requires. Current shortages for warehouse labor, driver labor and other required skills may cause the 
Company's costs to increase.

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 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 distribution and other 
business activities and may incur higher costs.

The inability to obtain and publish best-selling new titles 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. 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 areas 
and the licensing of photographs in the trade and educational publishing areas, 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 procure products and 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. In addition, the Company and its foreign operations could be adversely impacted by a downturn in general 
economic conditions on a more global basis caused by general political instability or unrest or changes in economic 
affiliations. For example, the results of the Referendum on the United Kingdom’s (or the UK) Membership in the 
European Union (EU) (referred to as Brexit), advising for the exit of the United Kingdom from the European Union, 
could affect our sales in the UK, as the uncertainty caused by the vote and the uncertain outcome of negotiations 
between the EU and the UK could negatively impact the economies of the UK and other nations. Changes in 
international trade relations with foreign countries, such as increased tariffs and duties (including those recently 
imposed by the United States) could cause the Company's costs to rise, or our overseas revenues to decline.

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 
United States, the Company is regulated by the Internal Revenue Service, the Securities and Exchange Commission, 
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 

12

 
 
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 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.

Our book clubs business may be adversely affected, and we may incur significant state sales tax assessments, 
as a result of a U.S. Supreme Court decision reversing prior law and holding that remote sellers, including on-
line-retailers, can be required to collect state sales taxes notwithstanding the absence of a physical presence 
within the state taxing jurisdiction.

In June 2018, the U.S. Supreme Court reversed its prior case law holding that it was unconstitutional for states to 
require remote sellers of goods, such as catalog mailers and ecommerce internet sellers, to collect and remit sales tax 
in respect to sales made to residents of a state, if the remote sellers maintained no physical presence in the state. This 
holding affects certain of Scholastic’s businesses, primarily its school book clubs business unit, which has not 
previously collected or remitted sales tax on sales of books through its book clubs in certain states, based on the 
absence of the requisite physical presence in the relevant state to enable the state to constitutionally require that it 
collect or remit such taxes. The result of this decision will be to subject the Company’s school book club business to 
remitting sales tax in additional states where it does not currently remit such tax on the sales of books through the 
school book clubs to residents of the state.  

Given that the U.S. Supreme Court ruling was only recently handed down, numerous questions remain concerning the 
likely effect upon the Company of the ruling, which will depend, among other things, upon the procedures and 
regulations the various states may institute in order to implement their tax collection efforts based on the ruling, 
including the timing of such implementation as it affects the collection and remittance of tax, the extent to which the 
various states may seek to apply the ruling retroactively to prior time periods and for what periods and, in the case of 
the Company’s school book clubs business, additional issues relating to the provisions of the applicable law currently 
in effect in a particular state and its application to the book clubs business model applied to that state. The 
unfavorable resolution of the implications of this decision could negatively impact the Company's financial results,

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 relating to future periods. 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, strategic 2020 Plan and other plans, 
ecommerce and digital initiatives, new product introductions, strategies, new education standards, goals, revenues, 
improved efficiencies, general costs, manufacturing costs, medical costs, potential cost savings, merit pay, operating 
margins, working capital, liquidity, capital needs, the cost and timing of capital projects, 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.

13

 
 
 
 
 
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 
0.5 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 Broadway in New York City, and the Company has largely completed its renovation 
of this headquarters space to create a more modern and efficient office plan and new premium retail space.

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 2.8 million square feet of office and warehouse space in approximately 60 facilities in the United 
States, principally for Scholastic book fairs. The Company owns or leases approximately 1.4 million square feet of 
office and warehouse space in approximately 130 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 5 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 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. See Note 10, "Taxes" for further discussion. See also "Non-income Taxes" in Note 10 
of Notes to the Consolidated Financial Statements in Item 8, "Consolidated Financial Statements and Supplementary 
Data."

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 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,

2018

2017

$

High

Low

High

Low

46.59 $
41.23
42.60
45.73

$

37.75
33.51
36.38
33.84

42.22 $
46.51
49.38
46.57

37.44
35.20
42.89
41.04

Holders: The number of holders of Class A Stock and Common Stock as of July 10, 2018 were 3 and approximately 
10,100, respectively.

Dividends: During fiscal 2018, the Company declared four regular quarterly dividends in the amount of $0.15 per 
Class A and Common share, amounting to total dividends declared during fiscal 2018 of $0.60 per share. During fiscal 
2017, the Company declared four regular quarterly dividends in the amount of $0.15 per Class A and Common share, 
amounting to total dividends declared during fiscal 2017 of $0.60 per share. 

On July 18, 2018, 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 2019. This dividend is payable on September 17, 2018 to shareholders of record on August 
31, 2018. All dividends have been in compliance with the Company’s debt covenants. 

Share purchases: During fiscal 2018, the Company repurchased 722,796 Common shares on the open market at an 
average price paid per share of $37.66 for a total cost of approximately $27.2 million, pursuant to a share buy-back 
program authorized by the Board of Directors. During fiscal 2017, pursuant to the same share buy-back program, the 
Company repurchased 179,394 Common shares on the open market at an average price paid per share of $38.80 for a 
total cost of approximately $6.9 million. 

The following table provides information with respect to repurchases of shares of Common Stock by the Corporation 
during the three months ended May 31, 2018:

Period
March 1, 2018 through March 31, 2018  
April 1, 2018 through April 30, 2018
May 1, 2018 through May 31, 2018

Total

Total
number of
shares
purchased

Average
price paid
per share

56,144 $
674 $
— $

56,818

36.56  
38.00  
—  

Total number of
shares purchased
as part of publicly
announced plans
or programs

Maximum number of
shares (or approximate
dollar value in millions)
that may yet be
purchased under the
plans or programs (i)

56,144  
674  
—  

56,818  

$
$
$
$

61.4
61.4
61.4

61.4

(i) Total represents the amount remaining under the Board authorization for Common share repurchases on July 22, 2015 and the current 
$50.0 million Board authorization for Common share repurchases announced on March 21, 2018, which is available for further repurchases, 
from time to time as conditions allow, on the open market or through negotiated private transactions.

15

 
 
 
 
 
 
 
 
 
 
 
 
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 index and in the peer group (with the reinvestment of all 
dividends) from June 1, 2013 to May 31, 2018. Houghton Mifflin Harcourt was added to the peer group on November 
14, 2013, which was the first day its shares traded on the NASDAQ stock exchange.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Scholastic Corporation, the NASDAQ Composite Index
and a Peer Group

*$100 invested on 5/31/13 in stock or index, including reinvestment of dividends. 

Scholastic Corporation

NASDAQ Composite Index

Peer Group

Fiscal year ending May 31,

2013

2014

2015

2016

2017

2018

$100.00 $107.37

$152.28 $135.76 $149.98 $161.08

100.00

122.76

146.71

143.18

179.36

215.34

100.00

115.54

130.57

91.75

76.25

100.01

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:

Total revenues
Cost of goods sold (1)
Selling, general and administrative 
expenses (exclusive of depreciation and 
amortization) (2)
Depreciation and amortization
Severance (3)
Asset impairments (4) 
Operating income

Interest (income) expense, net
Other components of net periodic benefit 
(cost) (5)
Gain (loss) on investments and other (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

2018

2017

2016

2015

2014

(Amounts in millions, except per share data)
For fiscal years ended May 31,

$

1,628.4 $

1,741.6

$

1,672.8 $

1,635.8 $

1,561.5

744.6

814.5

762.3

758.5

725.0

763.2

777.5

773.6

765.6

726.0

43.9

9.9

11.2

55.6

(1.1 )

(58.2)

0.0

(1.5 )

3.5

(5.0)

—

(5.0)

38.7

14.9

6.8

89.2

1.0

(0.3)

—

87.9

35.4

52.5

(0.2)

52.3

38.9

11.9

14.4

71.7

1.1

(4.1)

2.2

68.7

24.7

44.0

(3.5)

40.5

(0.14) $

(0.14) $

1.51

$

1.48 $

1.29 $

1.26 $

— $

— $

(0.14) $

(0.14) $

(0.00) $

(0.01) $

1.51

1.47

$

$

(0.11 ) $

(0.10) $

1.18 $

1.16

$

47.9

9.6

15.8

38.4

3.5

(5.5)

0.5

29.9

14.4

15.5

279.1

294.6

0.47 $

0.46 $

8.53 $

8.34 $

9.00 $

8.80 $

35.0

34.7

34.1

32.7

60.3

10.5

28.0

11.7

6.9

(1.3 )

(5.8)

(2.3)

(15.6)

13.3

31.1

44.4

0.42

0.41

0.97

0.95

1.39

1.36

32.0

35.0
0.600 $

35.4
0.600 $

34.9
0.600 $

33.4
0.600 $

32.5
0.575

512.5

$

583.4 $

571.8 $

562.4 $

391.9

1,825.4

444.1

1,760.4

399.7

1,713.1

506.8

1,822.3

—

7.9

6.2

7.5

—

6.2

6.5

7.6

—

6.3

7.5

8.6

—

6.0

0.4

0.7

233.2

20.9

1,528.5

120.0

135.8

—

—

1,320.8

1,307.9

1,257.6

1,204.9

915.4

17

$

$

$

$

$

$

$

$

 
(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

(7) 

In fiscal 2018, the Company recognized pretax costs related to branch warehouse consolidation in Canada of $0.1. In fiscal 2017, the Company 
recognized pretax exit costs related to its software distribution business in Australia of $0.5. In fiscal 2015, the Company recognized a pretax 
charge of $1.5 related to a warehouse optimization project in Canada and a $0.4 pretax charge related to unabsorbed burden associated with 
the former educational technology and services business. In fiscal 2014, the Company recognized a pretax charge of $2.4 for royalties related to 
Storia® operating system-specific apps that are no longer supported and a $0.3 pretax charge related to unabsorbed burden associated with the 
former educational technology and services business. 
In fiscal 2018, the Company recognized pretax share-based compensation charges of $0.7 due to the accelerated vesting of certain awards. In 
fiscal 2016, the Company recognized a pretax charge of $1.5 related to a branch consolidation project in the Company's book fairs operations. In 
fiscal 2015, the Company recognized a pretax charge of $15.4 related to unabsorbed burden associated with the former educational technology 
and services business and a $0.4 pretax charge related to the relocation of the Company's Klutz® division. In fiscal 2014, the Company 
recognized a pretax charge of $15.9 related to unabsorbed burden associated with the former educational technology and services business and 
a pretax charge of $1.0 related to Storia operating system-specific apps. 
In fiscal 2018, the Company recognized pretax severance expense of $7.4 primarily related to cost reduction and restructuring programs. In fiscal 
2017, the Company recognized pretax severance expense of $12.9 as part of cost reduction programs. In fiscal 2016, the Company recognized 
pretax severance expense of $9.5 as part of cost reduction and restructuring programs. In fiscal 2015, the Company recognized pretax severance 
expense of $8.9 as part of cost reduction and restructuring programs. In fiscal 2014, the Company recognized pretax severance expense of $9.9 
as part of a cost savings initiative. 
In fiscal 2018, the Company recognized pretax impairment charges of $11.0 related to legacy building improvements and a pretax impairment 
charge of $0.2 related to book fairs trucks. In fiscal 2017, the Company recognized a pretax impairment charge related to certain website 
development assets of $5.7 and certain legacy prepublication assets of $1.1. In fiscal 2016, the Company recognized a pretax impairment charge 
of $7.5 related to legacy building improvements in connection with the Company's headquarters renovation and a pretax charge of $6.9 for 
certain legacy prepublication assets. In fiscal 2015, the Company recognized a pretax impairment charge of $8.3 in connection with the 
restructuring of the Company's media and entertainment businesses, a $4.6 pretax impairment charge related to the discontinuation of certain 
outdated technology platforms and a $2.9 pretax impairment charge associated with the closure of the retail store located at the Company 
headquarters in New York City. In fiscal 2014, the Company recognized a pretax impairment charge of $14.6 for assets related to Storia operating 
system-specific apps and 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 2018, the Company recognized pretax charges related to the final settlement of the Company's domestic defined benefit pension plan 
of $57.3. In fiscal 2015, the Company recognized a pretax pension settlement charge of $4.3. In fiscal 2014, the Company recognized a pretax 
pension settlement charge of $1.7.
In fiscal 2016, the Company recognized a pretax gain of $2.2 on the sale of a China-based cost method investment. In fiscal 2015, the Company 
recognized a pretax gain of $0.6 on the sale of a UK-based cost method investment. In fiscal 2014, the Company recognized a pretax loss of 
$1.0 and $4.8 related to a U.S.-based equity method investment and a UK-based cost method investment, respectively.  
In fiscal 2018, the Company recognized a benefit for income taxes on certain pretax charges of $26.5, partly offset by $5.7 of income tax 
provision related to the remeasurement of the Company's U.S. deferred tax balance in connection with the Tax Cuts and Jobs Act of 2017. In 
fiscal 2017, the Company recognized a benefit for income taxes on certain pretax charges of $7.8. In fiscal 2016, the Company recognized a 
benefit for income taxes on certain pretax charges of $10.3. In fiscal 2015, the Company recognized a benefit for income taxes on certain pretax 
charges of $18.3. 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 the fiscal years ended May 31, 2007, 2008 and 
2009, along with a benefit for income taxes on certain pretax charges of $25.4.

Item 7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The Company categorizes its businesses into three reportable segments: Children’s Book Publishing and Distribution; 
Education; and International. 

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 from continuing operations in fiscal 2018 were $1.63 billion, a decrease of 6.5% from $1.74 billion in fiscal 2017, 
reflecting lower sales in the Company's Children's Book Publishing and Distribution segment of $90.6 million, due to the 
prior fiscal year's higher sales of new Harry Potter-related titles, decreased revenues in the Education segment of $15.4 
million, lower local currency revenues in the International segment of $19.5 million, partially offset by a favorable impact 
of foreign exchange of $12.3 million. Loss from continuing operations per diluted share was $0.14 for the fiscal year 
ended May 31, 2018, compared to Earnings from continuing operations per diluted share of $1.48 in the prior fiscal year. 

In fiscal 2018, the Company experienced lower revenues and operating income following the prior fiscal year's strong 
sales of the best-selling title, Harry Potter and the Cursed Child, Parts One and Two. This was partially offset by higher 
sales of core publishing titles within the trade channels bolstered by top-selling titles across the genres of early years, 

18

 
graphic novels, series publishing and young adult, including Dav Pilkey's Dog Man, I Survived, Five Nights at Freddy's, 
Wings of Fire and Peppa Pig. The Company expanded the sales force within the Education segment and broadened 
the publishing program, including the development of a complete Pre-K to 6 core reading program, Scholastic 
Literacy, which is expected to drive sales beginning in fiscal 2020. The Company completed the previously reported 
termination of the U.S. defined benefit pension plan resulting in a non-cash pre-tax settlement expense of $57.3 
million and also finished the major office renovation of the Company's headquarters building, adding capacity and 
technology enhancements. The Company is now completing new high-value retail space for tenanting in fiscal 2019 
and beyond. The Company also continued to invest in new publishing and productivity-focused technologies under 
the Scholastic 2020 plan. As part of the Scholastic 2020 plan, the Company has modernized the technology 
infrastructure from fixed to variable cost cloud-based models, resulting in lower technology operating costs and a 
scalable infrastructure to grow and contract based on need. These new systems have also expanded the Company's 
business intelligence and workflow capabilities, and improved the internal tools and platforms used for content 
publishing and digital asset management. 

In fiscal 2019, the scope of the Scholastic 2020 plan will continue with the launch of the new customer relationship 
management ("CRM") system supporting over 300 field sales personnel in the book fairs channel and the integration of 
the CRM system in the Education segment to improve access to customer data. The Company will also continue to 
simplify online content channels and online stores. In fiscal 2019, the Company will continue the transformation of the 
supply chain processes, targeting a reduction in operating costs across distribution, fulfillment, customer service and 
procurement.

Over the next three fiscal years, the Company expects to grow operating income through both targeted revenue 
growth and lower operating costs and is committed to delivering improvements in operating margins using new 
Scholastic 2020 work streams to leverage technology to enhance marketing efficiency, as well as upgrade business 
processes, with the goal of reducing costs and offsetting inflationary pressures. Revenue growth of the next three 
fiscal years is projected in the education and trade channels, underpinned by new publishing. More targeted revenue 
growth in the book clubs channel, the book fairs channel, and internationally is also expected as the Company utilizes 
new transformative technology investments to launch products in a more efficient manner, expand its existing 
customer relationships and target new customers more effectively. The Company will continue the multi-year 
investments in strategic technology programs in alignment with the Scholastic 2020 plan, which are expected to 
impact both cash flows and Net income in fiscal 2019, as a portion of these investments will be expensed and impact 
the Company's Operating income. Additional capital investment will result in higher future levels of depreciation from 
the building improvements and technology platforms placed in service. 

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 postretirement obligations; tax rates; 
recoverability of inventories; deferred income taxes and tax reserves; the timing and amount of future income taxes 
and related deductions; fixed assets; prepublication costs; royalty advance reserves; 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. 

19

 
 
 
 
 
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 and remitted to the 
Company. 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. The Company also 
estimates revenues for those fairs which have not reported final fair results.

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 generally 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 recognized as a reduction to revenue. Actual 
returns are charged to the reserve as received. Reserves for returns are based on historical return rates, sales 
patterns, type of product and expectations. In order to develop the estimate of returns that will be received 
subsequent to May 31, 2018, management considers patterns of sales and returns in the months preceding May 31, 
2018, as well as actual returns received subsequent to year end, available customer and market specific data and 
other return rate information that management believes is relevant. Actual returns could differ from the Company’s 
estimate. 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, 2018 of approximately $1.5 million. 

Education – Revenue from the sale of educational materials is recognized upon shipment of the products, or upon 
acceptance of product by the customer depending on individual customer terms. Revenues from professional 
development services are recognized when the services have been provided to the customer.

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 recognized 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 recognized 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, type of product and expectations. In order to develop the 
estimate of returns that will be received subsequent to May 31, 2018, management considers patterns of sales and 
returns in the months preceding May 31, 2018, as well as actual returns received subsequent to year end, available 
customer and market specific data and other return rate information that management believes is relevant. Reserves 
for estimated bad debts are established at the time of sale and are based on an evaluation of accounts receivable 
aging, and, where applicable, specific reserves on a customer-by-customer basis, creditworthiness of the Company’s 
customers 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. 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, 2018 of approximately $2.3 million. 

20

 
 
 
 
 
 
 
 
 
 
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 by channel and the 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, 2018 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.

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 reporting 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 seven reporting units with goodwill subject to 
impairment testing. 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 the identified asset is less than its carrying value. If it is more likely than not that the 
fair value of the asset 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, intellectual property and other agreements and 
are amortized over their expected useful lives. Customer lists are amortized on a straight-line basis over five to ten 
years, while other agreements are amortized on a straight-line basis over their contractual term. Intellectual property 
assets are amortized over their remaining useful lives, which is approximately five years.

21

 
 
 
 
 
 
 
 
 
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.

Employee Benefit Plan Obligations:

The rate assumptions discussed below impact the Company’s calculations of its UK pension and U.S. postretirement 
obligations. The rates applied by the Company are based on the UK pension plan asset portfolio's past average rates of 
return, discount rates and actuarial information. Any change in market performance, interest rate performance, 
assumed health care cost trend rate and compensation rates could result in significant changes in the Company’s UK 
pension plan and U.S. postretirement obligations. The U.S. Pension Plan was terminated in fiscal 2018.

Pension obligations

UK Pension Plan
The Company’s UK Pension Plan 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 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 
increases 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 component of net periodic pension costs. 

U.S. Pension Plan
The Company's U.S. Pension Plan was terminated in fiscal 2018. There are no actuarial assumptions reflected in any 
U.S. Pension Plan estimates and there is no ongoing net periodic benefit cost. 

Other Postretirement benefits 

The Company provides postretirement benefits, consisting of healthcare and life insurance benefits, to eligible 
retired United States-based employees. The postretirement 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. 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 
component of net periodic postretirement benefit cost. 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 discount rate would have resulted in an increase or decrease in operating 
income for the year ended May 31, 2018 of less than $0.1 million and approximately $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, 2018 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 postretirement 
benefit obligation as of May 31, 2018 of approximately $2.8 million and $2.4 million, respectively.

Equity Awards:

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, except for the grants to 
retirement-eligible employees, 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 

22

 
 
 
 
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. The fair value of restricted stock units are assumed to be the per share market price of the 
Company's stock as of the date of grant. Performance-based equity awards are measured at the present value of 
awards expected to vest, using the Company's incremental borrowing rate. The cost is recognized ratably over the 
service period and is assessed periodically based on the likelihood of achievement of the performance goals.

Taxes:

Income Taxes – The Company uses the asset and liability method of accounting for income taxes. Under this 
method, for purposes of determining taxable income 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 be realized.

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. Any required adjustment to the income tax provision 
would be reflected in the period that the Company changes this assessment. 

On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was signed into law resulting in a significant change in 
the framework for U.S. corporate taxes. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, 
requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously 
tax deferred and creates new taxes on certain foreign sourced earnings. The re-measurement of the Company's U.S. 
deferred tax balances, any transition tax and interpretation of the new law is provisional subject to clarifications of 
the new legislation and final calculations. Any future changes to the Company’s provisional estimates, related to the 
Act, will be reflected as a change in estimate in the period in which the change in estimate is made in accordance 
with Accounting Standards Update ("ASU") 2018-05 Income Taxes (Topic 740), Amendments to SEC Paragraphs 
Pursuant to SEC Staff Accounting Bulletin No. 118. ASU 2018-05 allows for a measurement period of up to one year 
after the enactment date of the Act to finalize the recording of the related tax impacts. 

The Act also subjects a U.S. shareholder to tax on global intangible low-taxed income ("GILTI") earned by certain 
foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, 
states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis 
differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the 
tax is incurred. The Company is still evaluating the effects of the GILTI provisions and has not yet determined an 
accounting policy or a reasonable estimate of a potential impact (if any). The Company has not reflected any 
adjustments related to GILTI in the financial statements. The accounting policy election impacts tax years beginning 
after December 31, 2017 which would be effective for the Company in fiscal 2019. 

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 

23

 
 
 
 
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.

On June 21, 2018, the U.S. Supreme Court issued its opinion in South Dakota v. Wayfair, Inc. et al., reversing prior 
precedent, in particular Quill Corp. v. North Dakota (1992), which held that states could not constitutionally require 
retailers to collect and remit sales or use taxes in respect to mail order or internet sales made to residents of a state 
in the absence of the retailer having a physical presence in the taxing state. This ruling could potentially impact the 
Company, primarily in respect to sales made through its school book club channel, as well as certain sales made 
through its ecommerce internet sites, to residents in states that the Company had not previously remitted sales or 
use taxes based on its having no physical presence in such states. See Note 5, "Commitments and Contingencies" 
for additional information. 

24

Results of Operations

(Amounts in millions, except per share data)
For fiscal years ended May 31,

2018

2017

2016

$

% (1)

$

% (1)

$

% (1)

Revenues:

Children’s Book Publishing and Distribution

$ 961.5

59.0 $1,052.1

60.4 $1,000.9

Education

International

Total revenues

Cost of goods sold (2)

Selling, general and administrative expenses (exclusive 
of depreciation and amortization) (3)
Depreciation and amortization
Severance (4)
Asset impairments (5)

Operating income

Interest income

Interest expense
Other components of net periodic benefit (cost) (6)
Gain (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:

59.8

17.9

22.3

297.3

369.6

18.3

22.7

312.7

376.8

18.0

21.6

299.7

372.2

1,628.4

100.0

1,741.6

100.0

1,672.8

100.0

744.6

45.7

814.5

46.8

762.3

45.6

763.2

46.9

777.5

44.6

773.6

46.2

43.9

9.9

11.2

55.6

3.1

(2.0)

(58.2)

0.0

(1.5 )

3.5

(5.0)

—

2.7

0.6

0.7

3.4

0.2

(0.1)

(3.6)

0.0

(0.1)

0.2

(0.3)

—

38.7

14.9

6.8

89.2

1.4

(2.4)

(0.3)

—

87.9

35.4

52.5

2.2

0.9

0.4

5.1

0.1

(0.2)

(0.0)

—

5.0

2.0

3.0

(0.2)

(0.0)

38.9

11.9

14.4

71.7

1.1

(2.2)

(4.1)

2.2

68.7

24.7

44.0

(3.5)

$

(5.0)

(0.3) $

52.3

3.0 $

40.5

2.3

0.7

0.9

4.3

0.1

(0.1)

(0.3)

0.1

4.1

1.5

2.6

(0.2)

2.4

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)

$

$

$

$

$

$

(0.14)

—

(0.14)

(0.14)

—

(0.14)

  $

  $

  $

  $

  $

  $

1.51

(0.00)

1.51

1.48

(0.01)

1.47

  $

  $

  $

  $

  $

  $

1.29

(0.11 )

1.18

1.26

(0.10)

1.16

(1)  Represents percentage of total revenues.
(2) 

(3) 

(4) 

(5) 

In fiscal 2018, the Company recognized pretax costs associated with the consolidation of a Canadian book fair warehouse of $0.1. In 
fiscal 2017, the Company recognized pretax exit costs related to its software distribution business in Australia of $0.5. 
In fiscal 2018, the Company recognized pretax share-based compensation charges of $0.7 due to the accelerated vesting of certain 
awards. In fiscal 2016, the Company recognized a pretax charge of $1.5 related to a branch consolidation project in the Company's 
book fairs operations. 
In fiscal 2018, the Company recognized pretax severance of $7.4 primarily related to cost reduction and restructuring programs. In 
fiscal 2017, the Company recognized pretax severance expense of $12.9 as part of cost reduction programs. In fiscal 2016, the 
Company recognized pretax severance expense of $9.5 as part of cost reduction and restructuring programs. 
In fiscal 2018, the Company recognized pretax impairment charges of $11.0 related to legacy building improvements and a pretax 
impairment charge of $0.2 related to book fairs trucks. In fiscal 2017, the Company recognized pretax impairment charges related to 
certain website development assets of $5.7 and certain legacy prepublication assets of $1.1. In fiscal 2016, the Company recognized 
a pretax impairment charge of $7.5 related to legacy building improvements in connection with the Company's headquarters 
renovation and a pretax charge of $6.9 for certain legacy prepublication assets. 

25

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(6) 

(7) 
(8) 

In fiscal 2018, the Company recognized pretax charges related to the settlement of the Company's domestic defined benefit 
pension plan of $57.3.
In fiscal 2016, the Company recognized a pretax gain of $2.2 on the sale of a China-based cost method investment. 
In fiscal 2018, the Company recognized a benefit for income taxes on certain pretax charges of $26.5, partly offset by $5.7 of 
income tax provision related to the remeasurement of the Company's U.S. deferred tax balance in connection with the passage of 
the Tax Cuts and Jobs Act of 2017. In fiscal 2017, the Company recognized a benefit for income taxes on certain pretax charges of 
$7.8. In fiscal 2016, the Company recognized a benefit for income taxes on certain pretax charges of $10.3.

Results of Operations – Consolidated 

Fiscal 2018 compared to fiscal 2017

Continuing Operations

Revenues from continuing operations for the fiscal year ended May 31, 2018 decreased by $113.2 million, or 6.5%, to 
$1,628.4 million, compared to $1,741.6 million in the prior fiscal year. The decrease in revenues was primarily due to 
lower sales of Harry Potter publishing, frontlist and backlist compared to the prior fiscal year, which included the 
release of Harry Potter and the Cursed Child, Parts One and Two, as well as the screen play of the Fantastic Beasts and 
Where to Find Them. Within the Children’s Book Publishing and Distribution segment, revenues from the trade 
channel decreased $84.3 million primarily due to lower Harry Potter-related sales, and lower revenues in the book 
club channel of $11.5 million, were partially offset by higher revenues in the book fairs channel of $5.2 million, 
primarily driven by higher revenue per fair. The Education segment revenues decreased $15.4 million, due in part to a 
shift in customer buying patterns for leveled book room and guided reading products. Local currency revenues in the 
International segment decreased $19.5 million, primarily driven by lower Harry Potter-related sales in Canada and 
certain export markets and lower sales in the Asia direct sales channel, partially offset by higher core trade channel 
sales of other titles in Canada, the UK, Australia and Asia. The decrease in international revenues was partly offset by 
favorable foreign currency exchange of $12.3 million, driven by the weakening of the U.S. dollar.

Components of Cost of goods sold for fiscal years 2018, 2017 and 2016 are as follows:

Product, service and production costs
Royalty costs
Prepublication and production amortization

Postage, freight, shipping, fulfillment and all
other costs

Total cost of goods sold

$

$

409.1
103.6
21.9

210.0

744.6

2018

% of
revenue

($ amounts in millions)

% of
revenue

2016

% of
revenue

2017

432.6
146.4
23.5

25.1 % $

6.4
1.3

24.8% $
8.4
1.3

432.4
92.0
27.1

12.9

45.7% $

212.0

814.5

12.3

46.8% $

210.8

762.3

25.8%
5.5
1.6

12.7

45.6%

Cost of goods sold as a percentage of revenue for the fiscal year ended May 31, 2018 was 45.7%, compared to 46.8% 
in the prior fiscal year. The decrease in Cost of goods sold as a percentage of revenue was primarily due to the lower 
royalty costs associated with the decrease in sales of Harry Potter-related titles and favorable product mix in the book 
fair channel, partially offset by the unfavorable impact lower revenues had on fixed costs and a favorable inventory 
adjustment in the book club channel that yielded lower costs in the prior fiscal year.

Selling, general and administrative expenses for the fiscal year ended May 31, 2018 were $763.2 million, compared to 
$777.5 million in the prior fiscal year. The decrease was primarily related to lower employee-related expenses due in 
part to favorable medical claims experience and lower incentive compensation, and a decrease in costs in the book 
club channel as a result of lower marketing expenses. This was partially offset by increased salaries and related costs 
for the expansion of the sales and marketing organizations supporting curriculum publishing in the Education 
segment.

Depreciation and amortization expenses for the fiscal year ended May 31, 2018 were $43.9 million, compared to $38.7 
million in the prior fiscal year. The increase was primarily attributable to capitalized strategic technology investments 
and assets related to the redesign and upgrade of the Company's headquarters in New York City which were placed 
into service during fiscal 2018 which resulted in an increase in depreciation expense. A majority of the capital 
improvements to the Company's headquarters in New York City were completed in fiscal 2018, however,additional 
assets will be placed into service resulting in additional depreciation expense in future periods.

26

 
 
 
Severance expense of $9.9 million in fiscal 2018 included charges of $7.4 million primarily related to cost reduction 
and restructuring programs. Severance expense of $14.9 million in fiscal 2017 included $12.9 million related to cost 
reduction and restructuring programs.

Asset impairments for the fiscal year ended May 31, 2018 were $11.2 million, compared to $6.8 million in the prior 
fiscal year. In fiscal 2018, the Company recognized impairment charges of $11.0 million on the abandonment of 
legacy building improvements in connection with the Company's renovation of its headquarters location in New York 
City and an impairment charge of $0.2 million related to book fair trucks. In fiscal 2017, the Company recognized 
impairment charges related to certain website development assets of $5.7 million and certain legacy prepublication 
assets of $1.1 million. 

For the fiscal year ended May 31, 2018, net interest income was $1.1 million, compared to net interest expense of $1.0 
million in the prior fiscal year. The increase in net interest income was primarily driven by higher interest rates 
associated with the Company's cash and cash equivalents balances, while net interest expense remained relatively flat 
due to the absence of long-term debt. 

For the fiscal year ended May 31, 2018, the Company recognized final settlement charges of $57.3 million in Other 
components of net periodic benefit (cost), related to the settlement of the U.S Pension Plan and the related purchase 
of insurance company group annuity contracts. The U.S. Pension Plan's asset balance was sufficient to fund the 
purchase of these insurance contracts as well as any remaining benefit obligations and plan-related operating 
expenses, with no additional cost to the Company as the plan sponsor. Any remaining plan-related operating 
expenses will be paid in fiscal 2019 with no additional cost to the Company.

The Company’s effective tax rate for the fiscal year ended May 31, 2018 was 233.3%, compared to 40.3% in the prior 
fiscal year. The change in the effective tax rate was primarily driven by an increase in income tax provision related to 
the remeasurement of the Company's U.S. deferred tax balance in connection with the passage of the Tax Cuts and 
Jobs Act, resulting in a tax provision expense of $5.7 million. See Note 10 of Notes to Consolidated Financial 
Statements in Item 8, “Consolidated Financial Statements and Supplementary Data” for further information.

Loss from continuing operations for fiscal 2018 increased by $57.5 million to $5.0 million, compared to Earnings from 
continuing operations of $52.5 million in fiscal 2017. The basic and diluted loss from continuing operations per share 
of Class A Stock and Common Stock were $0.14 and $0.14, respectively, in fiscal 2018, compared to basic and diluted 
earnings from continuing operations per share of Class A Stock and Common Stock of $1.51 and $1.48, respectively, in 
fiscal 2017.

Fiscal 2017 compared to fiscal 2016

Continuing Operations

Revenues from continuing operations for the fiscal year ended May 31, 2017 increased by $68.8 million, or 4.1%, to 
$1,741.6 million, compared to $1,672.8 million in the prior fiscal year. Within the Children’s Book Publishing and 
Distribution segment, revenues from the trade channel increased $96.2 million, primarily driven on the strength of 
Harry Potter publishing, frontlist and backlist, including, in particular, Harry Potter and the Cursed Child, Parts One and 
Two, as well as the screen play of the Fantastic Beasts and Where to Find Them film released in November 2016. This 
was partially offset by lower revenues in the book club and book fairs channels of $33.0 million and $12.0 million, 
respectively, primarily driven by fewer book club sponsors and a lower number of fairs. The Education segment 
revenues increased $13.0 million driven by strong 2017 fiscal year fourth quarter sales of literacy initiatives, particularly 
family and community engagement and summer reading programs, as well as higher professional development and 
services revenue. Local currency revenues in the International segment increased $14.1 million, primarily driven by the 
strength of the new Harry Potter publishing in Canada and certain export markets, as well as sales gains in the trade 
and fairs channels in the Company's major international markets. The Company's increased international revenues 
were partially offset by unfavorable foreign currency exchange of $9.5 million, primarily driven by the strengthening of 
the U.S. dollar against the British pound.

Cost of goods sold as a percentage of revenue for the fiscal year ended May 31, 2017 was 46.8%, compared to 45.6% 
in the prior fiscal year. The higher cost of goods sold as a percentage of revenue was driven by royalty costs 
associated with higher sales of Harry Potter titles, partially offset by the favorable impact higher revenues had on fixed 
costs coupled with favorable product mix and the Company's decision to exit the low margin software distribution 
business in Australia.

27

 
 
Selling, general and administrative expenses for the fiscal year ended May 31, 2017 remained relatively flat at $777.5 
million, compared to $773.6 million in the prior fiscal year. Fiscal 2017 included higher employee-related expenses, 
primarily due to the impact of a wage improvement program for employees in the U.S. distribution centers of $9.2 
million, higher spending on strategic technology platforms for new enterprise-wide customer and content 
management systems and the migration to software as a service ("SaaS") and cloud-based technology solutions, 
combined with increased spending on Company websites, as well as additions to the sales management team in the 
Education segment, offset by lower book club channel promotion and catalog costs of $8.5 million and a reduction of 
$1.5 million in expenses due to a warehouse optimization project in the Company's book fairs operations in fiscal 
2016. 

Depreciation and amortization expenses for the fiscal year ended May 31, 2017 remained relatively flat at $38.7 million 
compared to $38.9 million in the prior fiscal year. The fiscal 2016 impairment of certain legacy prepublication assets 
drove lower depreciation expense in fiscal 2017, and was partially offset by higher depreciation expense from certain 
strategic technology platforms that went live in fiscal 2017.

Severance expense of $14.9 million in fiscal 2017 included $12.9 million related to cost reduction programs. Severance 
expense of $11.9 million in fiscal 2016 included $9.5 million related to cost reduction and restructuring programs. 

Asset impairments for the fiscal year ended May 31, 2017 were $6.8 million, compared to $14.4 million in the prior 
fiscal year. In fiscal 2017, the Company recognized pretax impairment charges related to certain website development 
assets of $5.7 million and certain legacy prepublication assets of $1.1 million. In fiscal 2016, the Company recognized a 
pretax impairment charge of $7.5 million on the abandonment of legacy building improvements in connection with 
the Company's renovation of its headquarters location in New York City. In fiscal 2016, the Company also recognized 
a pretax impairment charge of $6.9 million for certain legacy prepublication assets. 

For the fiscal year ended May 31, 2017, net interest expense remained relatively flat at $1.0 million, compared to $1.1 
million in the prior fiscal year. The relatively flat net interest expense was driven by the absence of long-term debt and 
a lack of significant change in short-term borrowings on available lines of credit.

In fiscal 2016, the Company recognized a pretax gain of $2.2 million on the sale of a China-based cost method 
investment. 

The Company’s effective tax rate for the fiscal year ended May 31, 2017 was 40.3%, compared to 36.0% in the prior 
fiscal year. The increase in the effective tax rate in fiscal 2017 was primarily driven by the settlement of a tax position 
with the IRS in the prior fiscal period which drove a lower effective rate in fiscal 2016.

Earnings from continuing operations for fiscal 2017 increased by $8.5 million to $52.5 million, compared to $44.0 
million in fiscal 2016. The basic and diluted earnings from continuing operations per share of Class A Stock and 
Common Stock were $1.51 and $1.48, respectively, in fiscal 2017, compared to $1.29 and $1.26, respectively, in fiscal 
2016.

Discontinued Operations

Loss from discontinued operations, net of tax, for the fiscal year ended May 31, 2017 was $0.2 million, compared to a 
Loss from discontinued operations, net of tax, of $3.5 million in the prior fiscal year. The basic and diluted loss from 
discontinued operations per share of Class A Stock and Common Stock were less than $0.01 and $0.01 per basic and 
diluted share, respectively, in fiscal 2017 compared to basic and diluted loss from discontinued operations per share of 
Class A Stock and Common Stock of $0.11 and $0.10, respectively, in fiscal 2016. The Company did not discontinue 
any operations in fiscal 2017.

The resulting net income for fiscal 2017 was $52.3 million, or $1.51 and $1.47 per basic and diluted share, respectively, 
compared to net income of $40.5 million, or $1.18 and $1.16 per basic and diluted share, respectively, in fiscal 2016. 

28

 
 
 
Results of Operations – Segments

CHILDREN’S BOOK PUBLISHING AND DISTRIBUTION 

($ amounts in millions)

2018

2017

2016

  2018 compared to 2017
% change

$ change

Revenues
Cost of goods sold
Other operating expenses *
Asset impairments
Operating income (loss)

$

$

961.5 $ 1,052.1
462.1
407.9
446.9
447.8
—
0.2
143.1
105.6 $

$ 1,000.9 $
415.9
464.4
—
120.6 $

$

(90.6)
(54.2)
0.9
0.2
(37.5)

Operating margin

11.0 %

13.6%

12.0%

5.1 %

2017 compared to 2016
$ change
% change
51.2
46.2
(17.5 )
—
22.5

11.1
(3.8)
N/A
18.7 %

-8.6 % $

-11.7
0.2
100.0
(26.2)% $

* Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization.

Fiscal 2018 compared to fiscal 2017

Revenues for the fiscal year ended May 31, 2018 decreased by $90.6 million to $961.5 million, compared to $1,052.1 
million in the prior fiscal year. Trade channel revenues decreased $84.3 million, primarily due to the prior fiscal year's 
success of new Harry Potter-related publishing, particularly Harry Potter and the Cursed Child, Parts One and Two, 
partially offset by the strong performance of other titles from the Company's core publishing list driven by popular 
titles from Dav Pilkey's Dog Man and Captain Underpants series, the Wings of Fire series, and The Baby-Sitters Club® 
Graphix series, as well as higher sales of the Company's Klutz activity books such as Lego® Chain Reactions and Lego® 
Make Your Own Movie. Book club channel revenues decreased $11.5 million primarily due to lower revenue per 
sponsor. Book fairs channel revenues increased $5.2 million in fiscal 2018 resulting from higher revenue per fair of 
approximately 2%.

Cost of goods sold for the fiscal year ended May 31, 2018 was $407.9 million, or 42.4% of revenues, compared to 
$462.1 million, or 43.9% of revenues, in the prior fiscal year. The decrease in cost of goods sold as a percentage of 
revenue was primarily driven by lower royalty costs in the trade channel, mainly associated with lower sales of Harry 
Potter-related titles, and favorable product mix in the book fairs channel. This was partially offset by a favorable 
inventory adjustment in the book club channel that yielded lower costs in the prior fiscal year.

Other operating expenses were $447.8 million for the fiscal year ended May 31, 2018, compared to $446.9 million in 
the prior fiscal year. The increase was primarily related to costs associated with the rollout of a new point-of-sale 
system in the book fair channel, partially offset by lower costs in the book club channel as a result of lower marketing 
expenses, enabled by technology improvements and improved efficiencies in customer service and fulfillment.

Asset impairments of $0.2 million for the fiscal year ended May 31, 2018 related to the impairment of trucks in the 
book fairs channel.

Segment operating income for the fiscal year ended May 31, 2018 was $105.6 million, compared to $143.1 million in 
the prior fiscal year. The decrease in operating income was primarily driven by the lower Harry Potter-related sales in 
the trade channel.

Fiscal 2017 compared to fiscal 2016

Revenues for the fiscal year ended May 31, 2017 increased by $51.2 million to $1,052.1 million, compared to $1,000.9 
million in the prior fiscal year. Trade channel revenues increased $96.2 million, primarily due to higher trade publishing 
sales of $94.9 million. The increase in trade publishing revenues in fiscal 2017 was primarily driven by the strength of 
Harry Potter publishing, frontlist and backlist including, in particular, Harry Potter and the Cursed Child, Parts One and 
Two, as well as the screen play of the Fantastic Beasts and Where to Find Them film released in November 2016. 
Continued sales of other bestselling series, including Wings of Fire, The Baby-Sitters Club® Graphix and Star Wars: 
Jedi Academy, and the success of popular new releases including Dog Man and Dog Man Unleashed by Dav Pilkey, 
Ghosts by Raina Telgemeier, and Five Nights at Freddy's: The Silver Eyes by Scott Cawthorn and Kira Breed-Wrisley, 
also drove the higher revenues, which were partially offset by lower fiscal 2017 sales of Minecraft titles. Book club 
channel revenues decreased $33.0 million due to lower teacher sponsor levels, as well as lower revenue per event and 
per sponsor, in fiscal 2017. Book fairs channel revenues decreased $12.0 million resulting from a 9% reduction in fairs 

29

 
 
 
 
 
 
 
 
 
 
 
held during the fiscal period, reflecting in part the fiscal 2017 strategy to reduce the number of lower margin fairs, 
partially offset by the higher revenue per fair of approximately 7%.

Cost of goods sold for the fiscal year ended May 31, 2017 was $462.1 million, or 43.9% of revenues, compared to 
$415.9 million, or 41.6% of revenues, in the prior fiscal year. The increase in cost of goods sold as a percentage of 
revenue was primarily driven by royalty costs in the trade channel mainly associated with higher sales of Harry Potter 
titles, partially offset by the favorable impact the higher revenues in the trade channel had on fixed costs, favorable 
trade channel product mix and purchasing efficiencies in the book club channel that yielded lower product costs.

Other operating expenses were $446.9 million for the fiscal year ended May 31, 2017, compared to $464.4 million in 
the prior fiscal year. The decrease in fiscal 2017 was primarily due to a reduction in book club channel promotion and 
catalog costs of $8.5 million, approximately $4.4 million in lower depreciation expense driven by the impairment in 
fiscal year 2016 of certain legacy prepublication assets. Also a reduction of $1.5 million in expenses related to a 
warehouse optimization project in the Company's book fairs operations in the prior fiscal year period was partially 
offset by higher promotional spending in the trade channel due to the new Harry Potter titles and the impact of the 
wage improvement program for employees in the U.S. distribution centers in fiscal 2017. 

Segment operating income for the fiscal year ended May 31, 2017 was $143.1 million, compared to $120.6 million in 
the prior fiscal year. The increase in operating income was primarily driven by the higher sales of Harry Potter titles, 
partially offset by lower book club and book fair channel revenues and higher cost of goods sold.

EDUCATION

($ amounts in millions)

2018

2017

2016

2018 compared to 2017
% change
$ change

2017 compared to 2016
% change
$ change

Revenues
Cost of goods sold

Other operating expenses *
Asset impairments
Operating income (loss)

$

$

297.3 $
97.9

165.3
—
34.1 $

$

312.7
103.2

157.7
1.1

50.7 $

299.7 $
101.5

148.5
6.9
42.8 $

(15.4)
(5.3)

7.6
(1.1 )
(16.6)

-4.9% $
(5.1 )

4.8
(100.0)
-32.7% $

13.0
1.7

9.2
(5.8)
7.9

4.3%
1.7

6.2
(84.1)
18.5%

Operating margin

11.5 %

16.2%

14.3%

* Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization.

Fiscal 2018 compared to fiscal 2017

Revenues for the fiscal year ended May 31, 2018 decreased by $15.4 million to $297.3 million, compared to $312.7 
million in the prior fiscal year, primarily driven by $15.5 million in lower sales due in part to a shift in customer buying 
patterns for leveled book room and guided reading products, partially offset by higher revenues from professional 
learning offerings as well as revenues from the Company's new strategic support program for struggling readers, 
Scholastic EDGE™. Revenues also decreased by $0.5 million due to fewer custom publishing programs when 
compared to the prior fiscal year. This was partially offset by $0.6 million in higher revenues related to classroom 
magazines. The fiscal 2018 increase in classroom magazines was partially offset by the lower election material sales 
due to the fiscal 2017 U.S. presidential election. 

Cost of goods sold for the fiscal year ended May 31, 2018 was $97.9 million, or 32.9% of revenue, compared to $103.2 
million, or 33.0% of revenue, in the prior fiscal year. Cost of goods sold as percentage of revenue remained relatively 
consistent due to favorable product mix driven by teaching resources and digital products as well as fewer customer 
publishing programs. This was partially offset by the unfavorable impact lower revenues had on fixed costs. 

Other operating expenses were $165.3 million for the fiscal year ended May 31, 2018, compared to $157.7 million in 
the prior fiscal year. The increase was mainly attributable to higher employee-related expenses for the expansion of 
the sales and marketing organizations supporting curriculum publishing. Costs associated with the expanded sales and 
marketing organizations will impact operating expenses on an on-going basis.

In fiscal 2017, the Company recognized a pretax impairment charge related to certain legacy prepublication assets of 
$1.1 million. 

Segment operating income for the fiscal year ended May 31, 2018 was $34.1 million, compared to $50.7 million in the 
prior fiscal year. The decrease in operating income was primarily driven by the decline in revenues and the higher 
employee-related expenses.

30

Fiscal 2017 compared to fiscal 2016

Revenues for the fiscal year ended May 31, 2017 increased by $13.0 million to $312.7 million, compared to $299.7 
million in the prior fiscal year, primarily driven by a $14.8 million increase in revenues from classroom books and 
literacy initiatives due to strong 2017 fiscal year fourth quarter sales of family and community engagement programs, 
including the summer literacy program LitCamp, and increased demand for other summer reading programs, higher 
professional development and services revenue and higher sales of professional books such as The Next Step Forward 
in Guided Reading and Disruptive Thinking: Why How We Read Matters and the Company's Next Step Guided Reading 
Assessment product. Classroom magazines revenues increased $3.9 million, primarily due to demand for materials for 
the U.S. presidential election coupled with higher circulation. This was partially offset by $5.7 million in lower revenues 
primarily resulting from fewer custom publishing programs when compared to fiscal 2016.

Cost of goods sold for the fiscal year ended May 31, 2017 was $103.2 million, or 33.0% of revenue, compared to $101.5 
million, or 33.9% of revenue, in the prior fiscal year. The decrease in cost of goods sold as a percentage of revenue in 
fiscal 2017 was primarily driven by lower prepublication amortization associated with certain digital education 
products and favorable product mix due to higher classroom magazine sales which carry higher margins.

Other operating expenses were $157.7 million for the fiscal year ended May 31, 2017, compared to $148.5 million in 
the prior fiscal year. The increase in fiscal 2017 was primarily due to additions to the sales management team, higher 
promotional related expenses, the incurrence of higher operating expenses related to the sales of U.S. presidential 
election year materials in the classroom magazines channel and the impact of the wage improvement program for 
employees in the U.S. distribution centers.

In fiscal 2017, the Company recognized a pretax impairment charge related to certain legacy prepublication assets of 
$1.1 million. In fiscal 2016, the Company recognized a pretax impairment charge for certain legacy prepublication 
assets of $6.9 million.

Segment operating income for the fiscal year ended May 31, 2017 was $50.7 million, compared to $42.8 million in the 
prior fiscal year. The increase in operating income was primarily driven by lower impairment charges of $5.8 million 
coupled with the increase in revenues, partially offset by the increase in other operating expenses primarily resulting 
from the fiscal 2017 higher employee-related expenses.

INTERNATIONAL

($ amounts in millions)

2018 compared to 2017

2017 compared to 2016

2018

2017

2016

$ change

% change

Revenues
Cost of goods sold
Other operating expenses *
Operating income (loss)
Operating margin

$

$

369.6 $
186.0
165.9
17.7

$

376.8 $
197.2
159.9
19.7

$

372.2 $
194.4
165.3
12.5

$

(7.2)
(11.2 )
6.0
(2.0)

4.8%

5.2%

3.4%

(1.9)% $
(5.7)
3.8

(10.2)% $

$ change
4.6
2.8
(5.4)
7.2

% change

1.2 %
1.4
(3.3)
57.6%

* Other operating expenses include selling, general and administrative expenses, bad debt expenses, severance and depreciation and
amortization.

Fiscal 2018 compared to fiscal 2017

Revenues for the fiscal year ended May 31, 2018 decreased by $7.2 million to $369.6 million, compared to $376.8 
million in the prior fiscal year. Total local currency revenues across the Company's foreign operations decreased $19.5 
million when compared to the prior fiscal year. Local currency revenues from the Company's Asia operations coupled 
with the revenues of the export and foreign rights channels decreased $9.5 million, primarily due to the success of 
Harry Potter publishing in certain export channels in the prior fiscal year and lower local currency revenues in the Asia 
direct sales channel, partially offset by higher local currency revenues in core publishing in the Asia trade channel. 
Local currency revenues from Canada decreased $8.2 million, primarily due to the success of new Harry Potter 
publishing in the prior fiscal year, partially offset by higher local currency revenues from other titles in the core 
publishing list driven by Dav Pilkey's Dog Man series and higher local currency revenues from the book fair channel on 
higher revenue per fair. Local currency revenues from Australia and New Zealand decreased $3.8 million, primarily due 
to lower software distribution revenues of $4.2 million as the Company exited this low margin business in Australia in 
the prior fiscal year, partially offset by continued demand for local titles within the Australia trade channel and the 

31

strong performance from the Australia and New Zealand book club channels. Local UK currency revenues increased 
$2.0 million, primarily due to an increase in trade channel sales from its core publishing list, including The Ugly Five by 
Julia Donaldson and Axel Scheffler and new titles in the Liz Pinchon's Tom Gates series, coupled with higher local 
currency revenues from the acquisition of a UK-based book distribution business in the third quarter of fiscal 2018. 
Total revenues for the segment were also impacted by favorable foreign currency exchange of $12.3 million in fiscal 
2018 due to the weakening of the U.S. dollar. 

Cost of goods sold for the fiscal year ended May 31, 2018 was $186.0 million, or 50.3% of sales, compared to $197.2 
million, or 52.3% of sales, in the prior fiscal year. The lower cost of goods sold as a percentage of revenue was driven 
by a decrease in royalty costs associated with lower sales of Harry Potter related titles and Australia's prior fiscal year 
exit of the low margin technology distribution business, net of exit costs of $0.5 million, partially offset by $0.1 million 
of costs associated with the consolidation of a Canadian book fair warehouse in fiscal 2018. 

Other operating expenses were $165.9 million for the fiscal year ended May 31, 2018, compared to $159.9 million in 
the prior fiscal year. In local currencies, Other operating expenses decreased by $0.3 million. Severance expense for 
the fiscal year ended May 31, 2018 was $0.9 million, of which $0.7 million related to cost reduction efforts associated 
with the consolidation of a Canadian book fair warehouse, compared to $1.2 million in the prior fiscal year, of which 
$0.9 million related cost saving initiatives. Other operating expenses were also impacted by unfavorable foreign 
currency exchange of $6.3 million due to the weakening of the U.S. Dollar. 

Segment operating income for the fiscal year ended May 31, 2018 was $17.7 million, compared to $19.7 million in the 
prior fiscal year. Total local currency operating income across the Company's foreign operations decreased $1.4 
million, primarily driven by lower sales of Harry Potter related titles when compared with the prior year's success of 
Harry Potter publishing.

Fiscal 2017 compared to fiscal 2016

Revenues for the fiscal year ended May 31, 2017 increased by $4.6 million to $376.8 million, compared to $372.2 
million in the prior fiscal year. Total local currency revenues across the Company's foreign operations increased $14.1 
million when compared to the prior fiscal year, but were offset by foreign currency exchange declines of $9.5 million, 
primarily due to the strengthening of the U.S. dollar against the British pound. Local currency revenues from Canada 
increased $13.5 million in fiscal year 2017, primarily due to the strength of new Harry Potter publishing and, to a lesser 
extent, improvements in revenues due to the negative impact the labor action in Ontario schools had on the fiscal 
year 2016 period sales. Local currency revenues from the Company's Asia operations coupled with the export and 
foreign rights channels increased $7.0 million in fiscal year 2017, primarily due to certain export sales related to the 
new Harry Potter publishing, as well as strong performance in the Company's Malaysia operations. Local UK currency 
revenues increased $2.8 million in fiscal year 2017, primarily due to an increase in revenues driven by licensed product 
and higher book fairs channel revenues driven by the prior fiscal year acquisition of a leading book fair provider. Local 
currency revenues from Australia and New Zealand decreased $9.2 million, primarily due to lower software distribution 
revenues of $16.0 million as the Company was exiting this low margin business in Australia. This was partially offset by 
continued demand for local titles within the Australia trade channel and the continued strong performance from the 
Australia and New Zealand book club channels.

Cost of goods sold for the fiscal year ended May 31, 2017 was $197.2 million, or 52.3% of sales, compared to $194.4 
million, or 52.2% of sales, in the prior fiscal year. The relatively flat cost of goods sold as a percentage of revenue was 
driven by favorable product mix in Australia driven by the exit of the aforementioned low margin software distribution 
business, net of exit costs of $0.5 million, partially offset by royalty costs associated with the higher sales of Harry 
Potter titles.

Other operating expenses decreased by $5.4 million when compared to the prior fiscal year. The decrease was 
primarily driven by $4.9 million in foreign exchange translation, as well as lower operating expenses in Indonesia.

Segment operating income for the fiscal year ended May 31, 2017 was $19.7 million, compared to $12.5 million in the 
prior fiscal year. Total local currency operating income across the Company's foreign operations increased $6.4 
million in fiscal 2017, primarily driven by the success of the new Harry Potter publishing. Foreign exchange translation 
was favorable to operating income by $0.8 million.

Overhead 

Fiscal 2018 compared to fiscal 2017

32

 
Corporate overhead expense for fiscal 2018 decreased by $22.5 million to $101.8 million, compared to $124.3 million 
in the prior fiscal year. The decrease was primarily related to lower employee-related expenses due in part to favorable 
medical claims experience and lower incentive compensation, as well as lower severance expense of $4.7 million and 
a decrease in unallocated costs associated with strategic technology initiatives. Severance related expenses decreased 
to $9.0 million, compared to $13.7 million in the prior fiscal year period. In fiscal 2018, certain severance related 
expenses of $6.7 million were recognized primarily related to cost reduction and restructuring programs. In fiscal 
2017, severance related expenses included $12.0 million in cost reduction programs. The decrease in overhead 
expenses was partially offset by higher asset impairments of $5.3 million due to the fiscal 2018 impairment charge of 
$11.0 million related to legacy building improvements compared to the fiscal 2017 impairment charges related to 
certain website development assets of $5.7 million. A majority of the capital improvements to the Company's 
headquarters location in New York City are completed, although additional capital improvements will be required in 
fiscal 2019 to complete the remaining work and prepare the newly created retail space for tenancy, including the 
restoration of the Mercer Street facade and development of Mercer Street facing high-end retail store fronts. 

Fiscal 2017 compared to fiscal 2016

Corporate overhead expense for fiscal 2017 increased by $20.1 million to $124.3 million, compared to $104.2 million in 
the prior fiscal year. The increase was primarily related to higher spending on strategic technology platforms for new 
enterprise-wide customer and content management systems and the migration to SaaS and cloud-based technology 
solutions, combined with increased spending on company websites, as well as higher severance expense of $3.4 
million related to cost reduction programs and higher facilities-related expenses due to the renovation of the 
Company's headquarters location in New York City, partially offset by $1.8 million in lower impairment charges. In 
fiscal 2017, the Company recognized $5.7 million in impairment charges related to certain website development assets 
compared to $7.5 million in impairment charges in fiscal 2016 related to the abandonment of legacy building 
improvements in connection with the Company's renovation of its headquarters location in New York City. The 
Company expected the costs associated with its strategic technology initiatives to continue into future fiscal periods, 
as well as additional impairment charges related to the renovation of the Company's headquarters location in New 
York City as phases of the renovation project resulted in the abandonment of additional legacy building 
improvements.

Liquidity and Capital Resources

Fiscal 2018 compared to fiscal 2017 

Cash provided by operating activities was $141.5 million for the fiscal year ended May 31, 2018, compared to cash 
provided by operating activities of $141.4 million for the prior fiscal year. The lower revenues in fiscal 2018 resulted in a 
reduction of cash generated from earnings, which was offset by lower royalty payments, as a result of lower revenues 
primarily attributable to the decreased sales of Harry Potter-related titles, lower tax payments driven by the lower 
income and  the timing of vendor payments.  

Cash used in investing activities was $162.0 million for the fiscal year ended May 31, 2018, compared to cash used in 
investing activities of $92.8 million for the prior fiscal year, representing an increase in cash used in investing activities 
of $69.2 million. The increase in cash used was primarily driven by $55.8 million in higher capital spending related to 
the investment plan to create premium retail space and modernize the Company's headquarters office space and 
increased spending for strategic technology initiatives. In addition, the Company had higher prepublication and 
production capital spending of $9.2 million, primarily related to additional product publishing in the Education 
segment, and the absence of cash released from escrow in connection with the sale of the educational technology 
and services business in the prior fiscal year. The higher use of cash for investing was partially offset by lower 
acquisition related payments in the current fiscal year of $5.7 million. Although a majority of the capital improvements 
to the Company's headquarters location in New York City are completed, additional capital improvements will be 
required in fiscal 2019 to complete the remaining work and prepare the newly created retail space for tenancy, 
including the restoration of the Mercer Street facade and development of Mercer Street facing high-end retail store 
fronts. The Company will also continue to incur capital spending related to strategic technology initiatives in future 
fiscal periods as part of the Scholastic 2020 plan. The Company has sufficient liquidity to fund these ongoing 
initiatives.

Cash used in financing activities was $32.0 million for the fiscal year ended May 31, 2018, compared to cash used in 
financing activities of $4.1 million for the prior fiscal year, representing an increase in cash used in financing activities 
of $27.9 million. The Company repurchased $20.4 million more common stock and received lower proceeds pursuant 

33

 
to employee stock plans of $9.6 million, partially offset by higher short-term credit facility net borrowings of $3.1 
million.

Fiscal 2017 compared to fiscal 2016

Cash provided by operating activities was $141.4 million for the fiscal year ended May 31, 2017, compared to cash used 
in operating activities of $78.9 million for the prior fiscal year, representing an increase in cash provided by operating 
activities of $220.3 million. The increase in cash provided was primarily due to the prior fiscal year payment of 
approximately $186 million in income tax related to the sale of the educational technology and services business, a 
decrease in cash used in discontinued operations of $10.1 million, and favorable changes in operating assets and 
liabilities of $28.5 million, primarily driven by a reduction in income tax receivables in fiscal 2017.

Cash used in investing activities was $92.8 million for the fiscal year ended May 31, 2017, compared to cash used in 
investing activities of $39.5 million for the prior fiscal year, representing an increase in cash used in investing activities 
of $53.3 million. The increase in cash used was primarily driven by $30.1 million in higher capital spending related to 
the investment plan to create premium retail space and modernize the Company's headquarters office space and 
increased spending for strategic technology initiatives. These trends continued in fiscal 2018. In addition, $14.7 million 
is attributable to the difference between the amount of the final release of the funds remaining in the escrow 
established in connection with the sale of the educational technology and services business and the amounts released 
in fiscal 2016. The Company also incurred $6.4 million in higher acquisition related payments in fiscal 2017.

Cash used in financing activities was $4.1 million for the fiscal year ended May 31, 2017, compared to cash provided by 
financing activities of $12.0 million for the prior fiscal year, representing an increase in cash used in financing activities 
of $16.1 million. The Company received lower proceeds pursuant to employee stock plans of $19.9 million compared 
to fiscal 2016 and experienced higher short-term credit facility net repayments of $2.7 million, partially offset by a 
decrease in the Company's repurchase of common stock of $7.5 million.

Cash Position 

The Company’s cash and cash equivalents totaled $391.9 million at May 31, 2018 and $444.1 million at May 31, 2017. 
Cash and cash equivalents held by the Company’s U.S. operations totaled $371.1 million at May 31, 2018 and $430.5 
million at May 31, 2017.

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

The Company’s operating philosophy is to use cash provided 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, 2018, the Company purchased 
approximately $27.2 million of its Common shares on the open market, compared to approximately $6.9 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, postretirement benefits, dividends, 
currently authorized Common share repurchases, debt service, planned capital expenditures and other investments. 
As of May 31, 2018, the Company’s primary sources of liquidity consisted of cash and cash equivalents of $391.9 
million, cash from operations, and funding available under the Loan Agreement totaling approximately $375.0 million. 
The Company may at any time, but in any event not more than once in any calendar year, request that the aggregate 
availability of credit under the Revolving Loan be increased by an amount of $10.0 million or an integral multiple of 
$10.0 million (but not to exceed $150.0 million). Additionally, the Company has short-term credit facilities of $49.1 
million, less current borrowings of $7.9 million and commitments of $4.9 million, resulting in $36.3 million of current 
availability at May 31, 2018. Accordingly, the Company believes these sources of liquidity are sufficient to finance its 
ongoing operating needs, as well as its financing and investing activities, and the Company does not expect to incur 
significant domestic borrowings to meet operating needs in fiscal 2019.

34

 
 
The following table summarizes, as of May 31, 2018, the Company’s contractual cash obligations by future period (see 
Notes 4, 5 and 13 of Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and 
Supplementary Data”): 

Contractual Obligations
Minimum print quantities
Royalty advances
Lines of credit and short-term debt
Capital leases (1)
Pension and postretirement plans (2)
Operating leases

1 Year or Less
$

46.3 $
10.9
7.9
1.5

3.2
26.9

Payments Due By Period

Years 2-3

Years 4-5

After Year 5

Total

$ amounts in millions

$

47.1
7.1
—
2.8

6.2
38.2

— $
0.6
—
2.4

7.1
19.7

— $
—
—
1.6

18.1
8.1

93.4
18.6
7.9
8.3

34.6
92.9

Total

$

96.7 $

101.4 $

29.8 $

27.8 $

255.7

(1)   Includes principal and interest.
(2)   Excludes expected Medicare Part D subsidy receipts.

Financing

Loan Agreement

The Company is party to the Loan Agreement and certain credit lines with various banks as described in Note 4 of 
Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and Supplementary Data.” 
There were no outstanding borrowings under the Loan Agreement as of May 31, 2018. For a more complete 
description of the Loan Agreement, as well as the Company's other debt obligations, reference is made to Note 4 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. The Company will continue to evaluate such expansion 
opportunities and prospects. See Note 9 of Notes to Consolidated Financial Statements in Item 8, “Consolidated 
Financial Statements and Supplementary Data.”

35

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, 2018. The Company does not enter into 
derivative transactions or use other financial instruments for trading or speculative purposes.

The Company is subject to the risk that market interest rates and its cost of borrowing will increase and thereby 
increase the interest charged under its variable-rate debt.

Additional information relating to the Company’s outstanding financial instruments is included in Note 4 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, 2018:

Fiscal Year Maturity

$ amounts in millions

Fair Value

2019

2020

2021

2022

2023

Thereafter

Total

2018

Debt Obligations

Lines of credit and current
portion of long-term debt

$

7.9

$

— $

— $

— $

— $

— $

7.9 $

7.9

Average interest rate

2.9 %

—

—

—

—

—

36

“This Page Intentionally Left Blank”

37

“This Page Intentionally Left Blank”

Item 8 | Consolidated Financial Statements and Supplementary Data

Consolidated Statements of Operations for the years ended May 31, 2018, 2017 and 2016

Consolidated Statements of Comprehensive Income (Loss) for the years ended May 31, 2018, 
2017 and 2016

Consolidated Balance Sheets at May 31, 2018 and 2017

Consolidated Statement of Changes in Stockholders’ Equity for the years ended May 31, 2018, 
2017 and 2016

Consolidated Statements of Cash Flows for the years ended May 31, 2018, 2017 and 2016

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, 2018, 2017
and 2016 is filed with this annual report on Form 10-K:

Schedule II — Valuation and Qualifying Accounts and Reserves

Page

39

40

41

42

43

45

82

84

S-2

All other schedules have been omitted since the required information is not present or is not present in amounts 
sufficient to require submission of the schedule, or because the information required is included in the Consolidated 
Financial Statements or the Notes thereto.

38

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Operations

(Amounts in millions, except per share data)
For fiscal years ended May 31,
2017

2016

2018

Revenues

$

1,628.4 $

1,741.6

$

1,672.8

Operating costs and expenses:
Cost of goods sold
Selling, general and administrative expenses
Depreciation and amortization
Severance
Asset impairments

Total operating costs and expenses
Operating income
Interest income
Interest expense
Other components of net periodic benefit (cost)
Gain (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

744.6
763.2
43.9
9.9
11.2
1,572.8
55.6
3.1
(2.0)
(58.2)
0.0
(1.5)
3.5
(5.0)
—
(5.0) $

(0.14) $
— $
(0.14) $

(0.14) $
— $
(0.14) $
0.600 $

814.5
777.5
38.7
14.9
6.8
1,652.4
89.2
1.4
(2.4)
(0.3)
—
87.9
35.4
52.5
(0.2)
52.3

$

1.51
$
(0.00) $
$
1.51

1.48 $
(0.01) $
$
1.47
0.600 $

762.3
773.6
38.9
11.9
14.4
1,601.1
71.7
1.1
(2.2)
(4.1)
2.2
68.7
24.7
44.0
(3.5)
40.5

1.29
(0.11 )
1.18

1.26
(0.10)
1.16
0.600

$

$
$
$

$
$
$
$

39

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Comprehensive Income (Loss)

Net income (loss)
Other comprehensive income (loss), net:

Foreign currency translation adjustments (net of tax)
   Pension and postretirement adjustments (net of tax)

Total other comprehensive income (loss)

Comprehensive income (loss)

 See accompanying notes

2018

(Amounts in millions)
For fiscal years ended May 31,
2017

2016

(5.0) $

52.3 $

40.5

3.4
35.1
38.5 $
33.5 $

(5.3)
(2.2)
(7.5) $
44.8 $

(8.1)
(1.6)
(9.7)
30.8

$

$
$

40

 
 
 
 
 
 
Consolidated Balance Sheets

ASSETS

Current Assets:

Cash and cash equivalents

Accounts receivable, net
Inventories, net

Prepaid expenses and other current assets
Current assets of discontinued operations

Total current assets

Noncurrent Assets:

Property, plant and equipment, net

Prepublication costs, net

Royalty advances, net

Goodwill
Noncurrent deferred income taxes

Other assets and deferred charges

Total noncurrent assets

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

(Amounts in millions)
Balances at May 31,

2018

2017

$

391.9 $

204.9
294.9

66.6
—
958.3

555.6

55.3

44.8

119.2
25.2

67.0

867.1

444.1

199.2
282.5

44.3
0.4
970.5

475.3

43.3

41.8

118.9
53.7

56.9

789.9

$

1,825.4 $

1,760.4

Lines of credit and current portion of long-term debt

$

7.9 $

Accounts payable

Accrued royalties

Deferred revenue
Other accrued expenses
Accrued income taxes
Current liabilities of discontinued operations

Total current liabilities
Noncurrent Liabilities:

Long-term debt
Other noncurrent liabilities

Total noncurrent liabilities
Commitments and Contingencies:
Stockholders’ Equity:

Preferred Stock, $1.00 par value: Authorized, 2.0 shares; Issued and Outstanding, none
Class A Stock, $0.01 par value: Authorized, 4.0 shares; Issued and Outstanding, 1.7 shares

Common Stock, $0.01 par value: Authorized, 70.0 shares; Issued, 42.9 shares;
Outstanding, 33.3 and 33.4 shares, respectively
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

198.9

34.6

24.7
177.9
1.8
—

445.8

—
58.8
58.8
—

—
0.0

6.2

141.2

34.2

24.2
178.0
2.8
0.5

387.1

—
65.4
65.4
—

—
0.0

0.4
614.4
(55.7)
1,065.2
(303.5)
1,320.8
1,825.4 $

0.4
606.8
(94.2)
1,091.2
(296.3)
1,307.9
1,760.4

$

 
 
 
 
 
 
 
 
Consolidated Statement of Changes in Stockholders’ Equity

Class A Stock

Common Stock

Shares

Amount Shares

Amount

Additional
Paid-in
Capital

Balance at May 31, 2015

1.7

$

Net Income (loss)

Foreign currency translation
adjustment

Pension and postretirement
adjustments (net of tax of $(1.8))

Stock-based compensation

Proceeds pursuant to stock-
based compensation plans

Purchases of treasury stock at
cost

Treasury stock issued pursuant to
equity-based plans

Dividends

—

—

—

—

—

—

—

—

Balance at May 31, 2016

1.7

$

Net Income (loss)

Foreign currency translation
adjustment

Pension and postretirement
adjustments (net of tax of $0.4)

Stock-based compensation

Proceeds pursuant to stock-
based compensation plans

Purchases of treasury stock at
cost

Treasury stock issued pursuant to
equity-based plans

Dividends

—

—

—

—

—

—

—

—

Balance at May 31, 2017

1.7

$

Net Income (loss)

Foreign currency translation
adjustment

Pension and postretirement
adjustments (net of tax of $20.9)

Stock-based compensation

Proceeds pursuant to stock-
based compensation plans

Purchases of treasury stock at
cost

Treasury stock issued pursuant to
equity-based plans

Dividends

—

—

—

—

—

—

—

—

0.0

—

—

—

—

—

—

—

—

0.0

—

—

—

—

—

—

—

—

0.0

—

—

—

—

—

—

—

—

(Amounts in millions)

Retained
Earnings

Treasury 
Stock
At Cost

Total
Stockholders'
Equity

(77.0) $ 1,039.9 $ (349.9) $

Accumulated
Other 
Comprehensive
Income (Loss)
$

—

40.5

(8.1)

(1.6)

—

—

—

—

—

—

—

—

—

—

—

(20.6)

1,204.9

40.5

(8.1)

(1.6)

9.7

47.2

—

—

—

—

—

(14.4)

(14.4)

47.7

—

—

(20.6)

31.5

$

0.4 $ 591.5

—

—

—

—

—

(0.4)

1.6

—

—

—

—

—

—

—

—

—

—

—

—

9.7

47.2

—

(47.7)

—

32.7

$

0.4 $ 600.7

$

(86.7) $ 1,059.8 $ (316.6) $

1,257.6

—

—

—

—

—

(0.2)

0.9

—

—

—

—

—

—

—

—

—

—

—

—

10.1

22.5

—

(26.5)

—

—

52.3

(5.3)

(2.2)

—

—

—

—

—

—

—

—

—

—

—

(20.9)

—

—

—

—

—

(6.9)

27.2

—

52.3

(5.3)

(2.2)

10.1

22.5

(6.9)

0.7

(20.9)

33.4 $

0.4 $ 606.8

$

(94.2) $ 1,091.2

$ (296.3) $

1,307.9

—

—

—

—

—

(0.7)

0.6

—

—

—

—

—

—

—

—

—

—

—

—

10.7

15.8

—

(18.9)

—

—

3.4

35.1

—

—

—

—

—

(5.0)

—

—

—

—

—

—

(21.0)

—

—

—

—

—

(5.0)

3.4

35.1

10.7

15.8

(27.2)

(27.2)

20.0

—

1.1

(21.0)

Balance at May 31, 2018

1.7

$

0.0

33.3

$

0.4 $ 614.4

$

(55.7) $ 1,065.2

$ (303.5) $

1,320.8

 See accompanying notes

42

 
 
 
 
 
 
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
Pension settlement
Amortization of prepublication and production costs
Depreciation and amortization
Amortization of pension and postretirement actuarial gains and losses
Deferred income taxes
Stock-based compensation
Income from equity investments
Non cash write off related to asset impairments
Unrealized (gain) loss on investments
Changes in assets and liabilities, net of amounts acquired:

Accounts receivable
Inventories
Prepaid expenses and other current assets
Royalty advances
Accounts payable
Other accrued expenses
Accrued income taxes
Accrued royalties
Deferred revenue
Pension and postretirement obligations
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
Proceeds from sale of assets
Other investment and acquisition related payments
Net cash provided by (used in) investing activities of continuing operations
Working capital adjustment/Proceeds from sale of discontinued assets
Changes in restricted cash held in escrow for discontinued assets
Net cash provided by (used in) investing activities

See accompanying notes

(Amounts in millions)
Years ended May 31,

2018

2017

2016

$

(5.0) $
—
(5.0)

52.3 $
(0.2)
52.5

9.5
18.4
4.1
57.3
21.8
44.2
2.2
7.7
10.7
(4.8)
11.2
—

(12.9)
(27.4)
(22.1 )
(7.0)
45.9
(3.1 )
(1.1 )
(0.3)
0.2
(4.3)
(1.1 )
(2.6)
146.5
141.5
—
141.5

(36.1)
(121.5 )
—
(4.4)
(162.0)
—
—
(162.0)

11.0
16.0
4.3
—
23.3
39.1
2.1
15.5
10.1
(5.3)
6.8
—

(15.2 )
(29.4)
24.9
(2.3)
(6.0)
3.1
1.2
2.9
0.8
(5.3)
(3.7)
(4.2)
89.7
142.2
(0.8)
141.4

(26.9)
(65.7)
—
(10.1 )
(102.7)
—
9.9
(92.8)

40.5
(3.5)
44.0

12.3
12.0
4.1
—
26.4
39.3
4.4
18.8
9.7
(3.5)
14.4
(2.2)

(18.7 )
(27.8)
(34.4)
(9.1)
(12.7 )
2.8
(155.2 )
5.2
2.2
(2.1 )
0.4
1.7
(112.0 )
(68.0)
(10.9)
(78.9)

(25.2)
(35.6)
3.3
(3.7)
(61.2)
(2.9)
24.6
(39.5)

43

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows

Cash flows - financing activities:
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 tax payments (refunds)

Interest paid

Non cash: Property, plant and equipment additions accrued in accounts payable

 See accompanying notes

(Amounts in millions)
Years ended May 31,

2018

2017

2016

44.9
(42.0)
(1.3 )
(27.3)
15.8
(21.1 )
(1.0)
(32.0)
0.3
(52.2)
444.1
391.9 $

28.3
(28.5)
(1.1 )
(6.9)
25.4
(20.8)
(0.5)
(4.1)
(0.1)
44.4
399.7
444.1 $

39.0
(36.5)
(0.8)
(14.4)
45.3
(20.5)
(0.1)
12.0
(0.7)
(107.1 )
506.8
399.7

$

2018

2017

2016

$

14.5

$

3.0 $

183.3

1.4

23.7

1.4

14.4

1.6

—

44

(Amounts in millions, except share and per share data)

Notes to Consolidated Financial Statements

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 the 
world’s largest publisher and distributor of children’s books, a leading provider of print and digital instructional 
materials for grades pre-kindergarten ("pre-K") to grade 12 and a producer of educational and entertaining children’s 
media. The Company creates quality books and ebooks, print and technology-based learning materials
and programs, classroom magazines and other products that, in combination, offer schools customized and 
comprehensive solutions to support children’s learning both at school and at home. Since its founding in 1920, 
Scholastic has emphasized quality products and a dedication to reading, learning and literacy. The Company is the 
leading operator of school-based book club and book fair proprietary channels. It distributes its products and services 
through these 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 and throughout the world including Canada, 
the United Kingdom, Australia, New Zealand and Asia and, through its export business, sells products in approximately 
135 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. Certain reclassifications 
have been made to conform to the current year presentation.

Discontinued operations

During the twelve month period ended May 31, 2018, the Company did not dispose of any components of the 
business that would meet the criteria for discontinued operations reporting.

Use of estimates

The Company’s Consolidated Financial Statements have been prepared in accordance with accounting principles 
generally accepted in the United States ("U.S. GAAP"). 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. On an on-going basis, the Company evaluates the adequacy of its reserves and the 
estimates used in calculations, including, but not limited to:

• 
• 
• 
• 
• 
• 
• 

• 
• 
• 
• 
• 

Accounts receivable reserves for returns
Accounts receivable allowance for doubtful accounts 
Pension and other postretirement obligations
Uncertain tax positions
The timing and amount of future income taxes and related deductions
Inventory reserves
Cost of goods sold from book fair operations during interim periods determined based on 
estimated gross profit rates
Sales tax contingencies
Royalty advance reserves
Unredeemed incentive programs
Impairment testing for goodwill, intangibles and other long-lived assets and investments
Assets and liabilities acquired in business combinations

45

 
 
 
 
 
 
 
 
 
 
 
• 

Revenues for fairs which have not reported final fair results

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. 

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. The Company also estimates revenues for those 
fairs which have not reported final fair results.

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 generally 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 recognized as a reduction to revenue. Actual 
returns are charged to the reserve as received. Reserves for returns are based on historical return rates, sales 
patterns, type of product and expectations. 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 
current fiscal year, as well as actual returns received subsequent to year end, available customer and market 
specific data and other return rate information that management believes is relevant. Actual returns could differ 
from the Company’s estimate. 

Education – Revenue from the sale of educational materials is recognized upon shipment of the products, or upon 
acceptance of product by the customer depending on individual customer terms. Revenues from professional 
development services are recognized when the services have been provided to the customer.

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 recognized 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 subscribers.

Scholastic In-School Marketing – Revenue is recognized when the Company has satisfied its obligations under the 
program and the customer has acknowledged acceptance of the product or service. Certain revenues may be 
deferred pending future deliverables.

Cash equivalents

Cash equivalents consist of short-term investments with original maturities of three months or less. 

46

 
 
 
 
 
 
 
 
 
 
 
Accounts receivable

Accounts receivable are recognized 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, sales 
patterns, type of product and expectations. 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 
current fiscal year, as well as actual returns received subsequent to year end, available customer and market specific 
data and other return rate information that management believes is relevant. Reserves for estimated bad debts are 
established at the time of sale and are based on an evaluation of accounts receivable aging, and, where applicable, 
specific reserves on a customer-by-customer basis, creditworthiness of the Company’s customers 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 net 
realizable value. The Company records a reserve for excess and obsolete inventory based upon a calculation using the 
historical usage rates by channel, the 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 recognized on a straight-line 
basis, over the estimated useful lives of the assets. Buildings have estimated useful life, for purposes of depreciation, of 
forty years. Building improvements are depreciated over the life of the improvement which typically does not exceed 
twenty-five years. Capitalized software, net of accumulated amortization, was $69.1 and $45.0 at May 31, 2018 and 
2017, respectively. Capitalized software is amortized over a period of three to seven years. Amortization expense for 
capitalized software was $16.3, $12.9 and $11.4 for the fiscal years ended May 31, 2018, 2017 and 2016, 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. 

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 in Depreciation and amortization expense, 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 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 loss on the difference between the present value of 
the minimum lease payments under each lease. The Company also receives lease payments from retail stores that 
utilize the Broadway facing space of the Company's headquarters location in New York City. Lease payments received 
are presented as a reduction to rent expense in Selling, general and administrative expenses.

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. Prepublication costs are amortized on a straight-line basis over 

47

 
 
 
 
 
 
 
 
a two-to-five-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 
as of May 31 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 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 reporting 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. 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 seven reporting units with goodwill subject to impairment testing.

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 the identified asset is less than its carrying value. If it is more likely than not that the 
fair value of the asset 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, intellectual property and other agreements and 
are amortized over their expected useful lives. Customer lists are amortized on a straight-line basis over five to ten 
years, while other agreements are amortized on a straight-line basis over their contractual term. Intellectual property 
assets are amortized over their remaining useful lives, which is approximately five years.

48

  
 
 
 
 
 
 
Income taxes

The Company uses the asset and liability method of accounting for income taxes. Under this method, for purposes of 
determining taxable income, 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 be realized.

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.

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. Any required adjustment to the income tax provision 
would be reflected in the period that the Company changes this assessment.

On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was signed into law resulting in a significant change in 
the framework for U.S. corporate taxes. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires 
companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax 
deferred and creates new taxes on certain foreign sourced earnings. The re-measurement of the Company's U.S. 
deferred tax balances, any transition tax and interpretation of the new law is provisional subject to clarifications of the 
new legislation and final calculations. Any future changes to the Company’s provisional estimates, related to Act, will 
be reflected as a change in estimate in the period in which the change in estimate is made in accordance with 
Accounting Standards Update ("ASU") 2018-05 Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to 
SEC Staff Accounting Bulletin No. 118. ASU 2018-05 allows for a measurement period of up to one year after the 
enactment date of the Act to finalize the recording of the related tax impacts. 

The Act also subjects a U.S. shareholder to tax on global intangible low-taxed income ("GILTI") earned by certain 
foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states 
that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis 
differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the 
tax is incurred. The Company is still evaluating the effects of the GILTI provisions and has not yet determined an 
accounting policy or a reasonable estimate of a potential impact (if any). The Company has not reflected any 
adjustments related to GILTI in the financial statements. The accounting policy election impacts tax years beginning 
after December 31, 2017 which would be effective for the Company in fiscal 2019. 

Non-income Taxes 

The Company is subject to tax examinations for sales-based taxes. A number of these examinations are ongoing and, 
in certain cases, have resulted in assessments from taxing authorities. Where a sales tax liability with respect to a 
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. 

49

 
 
 
 
 
 
 
On June 21, 2018, the U.S. Supreme Court issued its opinion in South Dakota v. Wayfair, Inc. et al., reversing prior 
precedent, in particular Quill Corp. v. North Dakota (1992), which held that states could not constitutionally require 
retailers to collect and remit sales or use taxes in respect to mail order or internet sales made to residents of a state in 
the absence of the retailer having a physical presence in the taxing state. This ruling could potentially impact the 
Company, primarily in respect to sales made through its school book club channel, as well as certain sales made 
through its ecommerce internet sites, to residents in states that the Company had not previously remitted sales or use 
taxes based on its having no physical presence in such states. See Note 5, "Commitments and Contingencies" for 
additional information. 

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

The rate assumptions discussed below impact the Company’s calculations of its UK pension and U.S. postretirement 
obligations. The rates applied by the Company are based on the UK pension plan asset portfolio's past average rates of 
return, discount rates and actuarial information. Any change in market performance, interest rate performance, 
assumed health care cost trend rate and compensation rates could result in significant changes in the Company’s UK 
pension plan and U.S. postretirement obligations. The U.S. Pension Plan was terminated in fiscal 2018.

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 postretirement benefits are accounted for using actuarial valuations.

UK Pension Plan
The Company’s UK Pension Plan 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 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 component of net periodic pension costs. 

U.S. Pension Plan
The Company's U.S. Pension Plan was terminated in fiscal 2018. There are no actuarial assumptions reflected in any 
U.S. Pension Plan estimates and there is no ongoing net periodic benefit cost. 

Other postretirement benefits – The Company provides postretirement benefits, consisting of healthcare and life 
insurance benefits, to eligible retired U.S.-based employees. The postretirement 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 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 component of net periodic postretirement 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 

50

 
 
 
 
 
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.

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 related to classroom magazines. 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 $7.1 and $6.0 of capitalized advertising 
costs as of May 31, 2018 and 2017, 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, except for the grants to retirement-eligible employees, 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 recognized 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 
2018, 2017 and 2016 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
Average expected life of options

2018

2017

2016

$

10.45

$

12.70

$

14.78

1.5 %
29.8%
2.1 %
6 years

1.5 %
36.6%
1.5 %
6 years

1.4%
38.2%
1.9%
6 years

51

 
 
 
 
 
 
 
 
 
 
 
 
 
New Accounting Pronouncements

Current Fiscal Year Adoptions:

ASU 2018-05
In March 2018, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update (the "ASU")  
No. 2018-05 Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin 
No. 118 ("SAB 118"). The SEC staff issued SAB 118 to address the application of U.S. GAAP in situations when a registrant 
does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail 
to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act (the "Act"). The Act changes 
existing U.S. tax law and includes numerous provisions that will affect businesses and introduces changes that impact 
U.S. corporate tax rates, business-related exclusions, and deductions and credits. The Act will also have international 
tax consequences for many companies that operate internationally. SAB 118 provides guidance for registrants under 
three scenarios: 

1.  Measurement of certain income tax effects is complete 
2.  Measurement of certain income tax effect can be reasonably estimated 
3.  Measurement of certain income tax effects cannot be reasonably estimated

The re-measurement of the Company's U.S. deferred tax balances, any transition tax and interpretation of the new law 
is provisional subject to clarifications of the new legislation and final calculations. Any future changes to the 
Company’s provisional estimates, related to the Act, will be reflected as a change in estimate in the period in which the 
change in estimate is made. A measurement period of up to one year after the enactment date of the Act is allowed to 
finalize the recording of the related tax impacts. 

ASU 2017-07
In March 2017, the FASB issued ASU No. 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the 
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The ASU requires entities to 
disaggregate the service cost component from the other components of net periodic benefit costs and present it with 
other current compensation costs for related employees in the income statement, and present the other components 
elsewhere in the income statement and outside of income from operations if that subtotal is presented. The 
amendments in this update also allow only the service cost component to be eligible for capitalization when 
applicable. The ASU will be effective for the Company in the first quarter of fiscal 2019. Early adoption is permitted.

The Company elected an early application of this ASU in the first quarter of fiscal 2018. As such the service cost 
component of net periodic benefit costs is still recognized in Selling, general and administrative expenses and the 
other components of net periodic benefit costs have been reclassified to Other components of net periodic benefit 
(cost) in the Consolidated Statements of Operations below Operating income (loss), on a retrospective basis. 

ASU 2016-09
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to 
Employee Share-Based Payment Accounting. The amendments in this ASU require, among other things, that all 
income tax effects of awards be recognized in the income statement when the awards vest or are settled. The ASU 
permits an employer to repurchase a higher number of employee's shares for tax withholding purposes without 
triggering liability accounting. The ASU also allows for a policy election to account for forfeitures as they occur. 

The Company adopted this ASU in the first quarter of fiscal 2018. The Company will continue to estimate forfeitures at 
the time of grant and will now recognize the income tax effects of awards as a component of the Provision (benefit) 
for income taxes in the Consolidated Statements of Operations on a prospective basis. As result of the early adoption 
the Company recognized a tax deficiency of approximately $0.2 for the fiscal year ended May 31, 2018. 

ASU 2015-11
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, as 
part of its Simplification Initiative. Currently, inventory is measured at the lower of cost using the first-in, first-out 
method or market. The amendments in this ASU require entities that measure inventory using any method other than 
last-in, first-out or the retail inventory method to measure inventory at the lower of cost and net realizable value. Net 
realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of 
completion, disposal and transportation. The amendments should be applied prospectively and earlier application is 
permitted as of the beginning of an interim or fiscal year period. 

52

The Company has adopted this ASU in the first quarter of fiscal 2018. The amendments in this ASU did not have an 
impact on the consolidated financial position, results of operations and cash flows of the Company.

Forthcoming Adoptions:

Topic 606, Revenue from Contracts with Customers
In May 2014, the FASB announced that it is amending the FASB Accounting Standards Codification by issuing ASU No. 
2014-09, Topic 606, Revenue from Contracts with Customers (the "New Revenue Standard"). The amendments in this 
ASU provide a single model for use in accounting for revenue arising from contracts with customers and supersede 
current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the ASU is 
that revenue should be recognized 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 and services. 
New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts 
with customers are also required. In August 2015, the FASB issued ASU No. 2015-14 which deferred the effective date 
of the New Revenue Standard. In 2016, the FASB issued ASU Nos. 2016-08, ASU 2016-10, ASU 2016-11 and ASU 
2016-12 to clarify, among other things, the implementation guidance related to principal versus agent considerations, 
identifying performance obligations and accounting for licenses of intellectual property. The amendments in these 
updates are to be applied on a retrospective basis, either to each prior reporting period presented or by presenting the 
cumulative effect of applying the update recognized at the date of initial application ("modified retrospective 
method"). The Company will adopt this guidance in the first quarter of fiscal 2019 using the modified retrospective 
method.

The Company is substantially complete with its assessment of the new standard which included a review of current 
accounting policies and practices to identify potential differences that would result from applying this guidance. Upon 
adoption of the New Revenue Standard, the Company expects to defer certain revenue associated with an incentive 
program within the Company’s book fair channel. As a result, in first quarter of fiscal 2019, the Company expects an 
adjustment to retained earnings reflecting the cumulative impact of this revenue deferral. Otherwise, based on an 
assessment of the standard, the Company believes the impact on the amount and timing of revenue recognition will 
not be material to the Company’s financial position or results of operations. The Company anticipates completing its 
implementation in connection with adoption in its first quarter fiscal 2019 interim financial statements.

ASU 2016-02
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this ASU require, among 
other things, lessees to recognize a right-of-use asset and a lease liability in the balance sheet for all leases. The lease 
liability will be measured at the present value of the lease payments over the lease term. The right-of-use asset will be 
measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and lessee's initial 
direct costs (e.g., commissions).

The ASU will be effective for the Company in the first quarter of fiscal 2020. The Company is evaluating the impact of 
this ASU on its consolidated financial position, results of operations and cash flows, and expects that there will be a 
significant increase to other assets and other liabilities as a result of its application.

ASU 2016-18 and ASU 2016-15
In November 2016 and August 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): 
Restricted Cash, and ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts 
and Cash Payments (A Consensus of the FASB Emerging Issues Task Force), respectively, which address specific 
statement of cash flows classification issues.

The ASUs will be effective for the Company in the first quarter of fiscal 2019. The Company does not expect the 
amendments in these ASUs to have a material impact on its statement of cash flows.

ASU 2017-04
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test 
for Goodwill Impairment, which removes step two from the goodwill impairment test (comparison of implied fair 
value of goodwill with the carrying amount of that goodwill for a reporting unit). Instead, an entity should measure its 
goodwill impairment by the amount the carry value exceeds the fair value of a reporting unit.

The ASU will be effective for the Company in the first quarter of fiscal 2021. Early adoption is permitted for interim or 
annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the 
amendments in this ASU to have a material impact on its consolidated financial position, results of operations and 
cash flows.

53

ASU 2018-02
In February 2018, the FASB issued ASU No. 2018-02, Income Statement—Reporting Comprehensive Income 
(Topic 220)—Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The 
amendments in this Update allow a reclassification from accumulated other comprehensive income to retained 
earnings for stranded tax effects resulting from the Act. The amendments in this Update affect any entity that is 
required to apply the provisions of Topic 220, Income Statement-Reporting Comprehensive Income, and has items of 
other comprehensive income for which the related tax effects are presented in other comprehensive income as 
required by U.S. GAAP. 

The ASU will be effective for the Company in the first quarter of fiscal 2020. Early adoption is permitted, including 
adoption in any interim period, for public business entities for reporting periods for which financial statements have 
not yet been issued. The Company is evaluating the impact of this ASU on its consolidated financial position, results of 
operations and cash flows,

ASU 2018-07
In June 2017, the FASB issued ASU No. 2018-07 Compensation—Stock Compensation (Topic 718) —Improvements to 
Nonemployee Share-Based Payment Accounting, to simplify the accounting for share-based payment transactions 
for acquiring goods and services from nonemployees. The amendments in this Update will be effective for the 
Company in the first quarter of fiscal year 2020. Early adoption is permitted, but no earlier than an entity’s adoption 
date of Topic 606. The Company is evaluating the impact of this ASU on its consolidated financial position, results of 
operations and cash flows,

2. DISCONTINUED OPERATIONS

The Company continuously evaluates its portfolio of businesses for both impairment and economic viability, as well as 
for possible strategic dispositions. During the twelve months ended May 31, 2018, 2017 and 2016 the Company did not 
dispose of any components of the business that would meet the criteria for discontinued operations reporting. As of 
May 31, 2017 and 2016, Earnings and loss from discontinued operations primarily related to insignificant continuing 
cash flows from passive activities. There were no operating results related to discontinued operations for fiscal 2018. 

3. SEGMENT INFORMATION

The Company categorizes its businesses into three reportable segments: Children’s Book Publishing and Distribution 
and Education, which comprise the Company's domestic operations, and International.

• 

• 

• 

Children’s Book Publishing and Distribution operates as an integrated business which includes the 
publication and distribution of children’s books, ebooks, media and interactive products in the United 
States through its book clubs and book fairs in its school channels and through the trade channel. This 
segment is comprised of three operating segments.

Education includes the publication and distribution to schools and libraries of children’s books, classroom 
magazines, supplemental and core classroom materials and related support services, 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.

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.

54

 
 
 
The following table sets forth information for the Company’s segments for the three fiscal years ended May 31:

Children's
Book
Publishing &
Distribution 

Education

Overhead (1)

Total
Domestic

International

Total

$

961.5

$

297.3 $

— $

1,258.8 $

369.6 $

1,628.4

4.4

21.7

0.2

105.6

426.6

40.9

1.4

9.0

—

34.1

210.6

68.3

57.4

20.4

148.2

104.8

—

28.8

11.0

(101.8 )

927.9

—

104.5

492.7

5.8

59.5

11.2

37.9

1,565.1

109.2

182.3

745.7

3.7

6.2

—

17.7

260.3

10.0

15.3

74.3

9.5

65.7

11.2

55.6

1,825.4

119.2

197.6

820.0

2018

Revenues

Bad debts
Depreciation and amortization(2)
Asset impairments

Segment operating income (loss)

Segment assets at May 31, 2018

Goodwill at May 31, 2018

Expenditures for other non-
current assets(3)
Other non-current assets at     
May 31, 2018(3)
2017

Revenues

$

1,052.1

$

312.7

$

— $

1,364.8 $

376.8 $

1,741.6

Bad debts
Depreciation and amortization(2)
Asset impairments

Segment operating income (loss)

Segment assets at May 31, 2017

Goodwill at May 31, 2017

Expenditures for other non-
current assets(3)
Other non-current assets at    
May 31, 2017(3)
2016

4.2

22.5

—

143.1

395.7

40.9

63.6

140.2

1.1

8.5

1.1

50.7

200.6

68.0

21.8

93.9

—

23.6

5.7

(124.3)

922.2

—

54.5

418.2

5.3

54.6

6.8

69.5

1,518.5

108.9

139.9

652.3

5.7

7.4

—

19.7

241.5

10.0

11.5

67.1

11.0

62.0

6.8

89.2

1,760.0

118.9

151.4

719.4

Revenues

$

1,000.9 $

299.7 $

— $

1,300.6 $

372.2 $

1,672.8

Bad debts
Depreciation and amortization(2)
Asset impairments

Segment operating income (loss)

Segment assets at May 31, 2016

Goodwill at May 31, 2016

Expenditures for other non-
current assets(3)
Other non-current assets at    
May 31, 2016(3)

5.6

26.5

—

120.6

394.4

40.9

46.3

144.4

1.8

11.8

6.9

42.8

172.8

65.4

9.1

82.6

—

19.0

7.5

(104.2)

898.0

—

7.4

57.3

14.4

59.2

1,465.2

106.3

26.6

82.0

379.2

606.2

4.9

8.0

—

12.5

247.4

9.9

13.8

66.6

12.3

65.3

14.4

71.7

1,712.6

116.2

95.8

672.8

(1) 

(2) 

(3) 

Overhead includes all domestic corporate amounts not allocated to segments, including expenses and costs related to the 
management of corporate assets. Unallocated assets are principally comprised of deferred income taxes and property, plant 
and equipment related to the Company’s headquarters in the metropolitan New York area, its fulfillment and distribution 
facilities located in Missouri and its facility located in Connecticut.
Includes depreciation of property, plant and equipment and amortization of intangible assets and prepublication and 
production costs.
Other non-current assets include property, plant and equipment, prepublication assets, production assets, royalty advances, 
goodwill, intangible assets and investments. Expenditures for other non-current assets for the International reportable 
segment include expenditures for long-lived assets of $10.0, $6.7 and $10.3 for the fiscal years ended May 31, 2018, 2017 
and 2016, respectively. Other non-current assets for the International reportable segment include long-lived assets of $36.8, 
$33.4 and $35.3 at May 31, 2018, 2017 and 2016, respectively.

55

 
   
 
 
 
 
 
   
 
 
 
 
 
   
 
 
 
 
 
4. DEBT

The following table summarizes the Company's debt as of May 31: 

Carrying
Value

Fair
Value

Carrying
Value

Fair
Value

2018

2017

Loan Agreement:
Revolving Loan

Unsecured Lines of Credit (weighted average
interest rates of 2.9% and 4.1%, respectively)

Total debt

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

Total long-term debt

$

$

$

— $

— $

— $

7.9

7.9 $

(7.9)

— $

7.9

7.9 $

(7.9)

— $

6.2

6.2 $

(6.2)

— $

—

6.2

6.2

(6.2)

—

The Company's debt obligations as of May 31, 2018 have maturities of one year or less.

Loan Agreement 

On January 5, 2017, Scholastic Corporation and Scholastic Inc. (each, a “Borrower” and together , the “Borrowers”) entered 
into a new 5-year credit facility with certain banks (the “Loan Agreement”). The Loan Agreement replaced the Company's 
then existing loan agreement and has substantially similar terms, except that:

• 
• 

• 

the borrowing limit was reduced to $375.0 from $425.0; 
the “starter” basket for permitted payments of dividends and other payments in respect of capital stock was     
increased to $275.0 from $75.0; and
the maturity date was extended to January 5, 2022. 

The prior loan agreement, which was originally entered into in 2007 and had a maturity date of December 5, 2017, was 
terminated on January 5, 2017 in connection with the entry into the new Loan Agreement and was treated as a debt 
modification.

The Loan Agreement allows the Company to borrow, repay or prepay and reborrow at any time prior to the January 5, 
2022 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:

• 

• 

A Base Rate equal to the higher of (i) the prime rate, (ii) the prevailing Federal Funds rate plus 0.50% or (iii) the 
Eurodollar Rate for a one month interest period plus 1% plus, in each case, an applicable spread ranging from 
0.175% to 0.60%, as determined by the Company’s prevailing consolidated debt to total capital ratio.

A Eurodollar Rate equal to the London interbank offered rate (LIBOR) plus an applicable spread ranging from 
1.175% to 1.60%, as determined by the Company’s prevailing consolidated debt to total capital ratio.

        - or - 

As of May 31, 2018, the indicated spread on Base Rate Advances was 0.175% and the indicated spread on Eurodollar 
Advances was 1.175%, both based on the Company’s prevailing consolidated debt to total capital ratio.

The Loan Agreement also provides for the payment of a facility fee in respect of the aggregate amount of revolving 
credit commitments ranging from 0.20% to 0.40% per annum based upon the Company’s prevailing consolidated debt 
to total capital ratio. At May 31, 2018, the facility fee rate was 0.20%.

A portion of the revolving credit facility up to a maximum of $50.0 is available for the issuance of letters of credit. In 
addition, a portion of the revolving credit facility up to a maximum of $15.0 is available for swingline loans. The Loan 
Agreement has an accordion feature which permits the Company, provided certain conditions are satisfied, to 
increase the facility by up to an additional $150.0.

56

 
 
 
 
 
 
 
 
 
 
As of May 31, 2018 and May 31, 2017, the Company had no outstanding borrowings under the Loan Agreement. At 
May 31, 2018, the Company had open standby letters of credit totaling $5.3 issued under certain credit lines, including 
$0.4 under the Loan Agreement and $4.9 under the domestic credit lines discussed below. 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, 2018, the Company was in compliance with these covenants.

Lines of Credit

As of May 31, 2018, the Company’s domestic credit lines available under unsecured money market bid rate credit lines 
totaled $25.0. There were no outstanding borrowings under these credit lines as of May 31, 2018 and May 31, 2017. As 
of May 31, 2018, availability under these unsecured money market bid rate credit lines totaled $20.1. 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, 2018, the Company had equivalent various local currency credit lines, totaling $24.1, underwritten by 
banks primarily in the United States, Canada and the United Kingdom. Outstanding borrowings under these facilities 
were equivalent to $7.9 at May 31, 2018 at a weighted average interest rate of 2.9%, compared to outstanding 
borrowings equivalent to $6.2 at May 31, 2017 at a weighted average interest rate of 4.1%. As of May 31, 2018, the 
equivalent amounts available under these facilities totaled $16.2. 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. 

5. 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 ten 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, 2018, 2017 and 2016 was 
$26.0, $24.9 and $25.7, respectively. Net rent expense represents rent expense reduced for sublease income.

Amortization of assets under capital leases covering land, buildings and equipment was $1.3, $1.1 and $0.8 for the 
fiscal years ended May 31, 2018, 2017 and 2016, respectively, and is included in Depreciation and amortization 
expense.

The following table sets forth the aggregate minimum future annual rental commitments at May 31, 2018 under non-
cancelable operating and capital leases for the fiscal years ending May 31: 

2019
2020
2021
2022
2023
Thereafter
Total minimum lease payments
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 Capital Leases
26.9 $
$
22.4
15.8
11.7
8.0
8.1
92.9 $

$

1.5
1.4
1.4
1.3
1.1
1.6
8.3
(0.8)
7.5
1.3
6.2

$

$

The following table sets forth the aggregate minimum future contractual commitments at May 31, 2018 relating to 
royalty advances and minimum print quantities for the fiscal years ending May 31: 

57

 
 
 
 
 
 
 
 
 
2019
2020
2021
2022
2023
Thereafter
Total commitments

Royalty
Advances

Minimum Print
Quantities

$

$

10.9 $
3.6
3.5
0.6
—
—

18.6 $

46.3
47.1
—
—
—
—

93.4

The Company had open standby letters of credit of $5.3 issued under certain credit lines as of May 31, 2018 and 2017, 
in support of its insurance programs. 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 their 
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 are expensed in the period in which they are incurred. The 
Company does not expect, in the case of those various claims and lawsuits arising in the normal course of business 
where a loss is considered probable or reasonably possible, that the reasonably possible losses from such claims and 
lawsuits (either individually or in the aggregate) would have a material adverse effect on the Company’s consolidated 
financial position or results of operations.

On June 21, 2018, the U.S. Supreme Court issued its opinion in South Dakota v. Wayfair, Inc. et. al., reversing prior 
precedent, in particular Quill Corp. v. North Dakota (1992), which held that states could not constitutionally require 
retailers to collect and remit sales or use taxes in respect to mail order or internet sales made to residents of a state in 
the absence of the retailer having a physical presence in the taxing state. As a result, the Company will now have an 
obligation, at least on a going forward basis, to collect and remit sales and use taxes, primarily in respect to sales made 
through its school book clubs channel, as well as certain sales made through its ecommerce internet sites, to 
residents in states that the Company has not previously remitted sales or use taxes based on its having no physical 
presence in such states. In the majority opinion, several factors were discussed in support of the Court’s reasoning that 
the collection of sales and use taxes from out-of-state retailers did not constitute an undue burden on interstate 
commerce, including the fact that South Dakota did not require retroactive application of its statute. However, the 
question of retroactive application, as well as certain other factors noted in the opinion will be subject to how the 
states, on a state-by-state basis, interpret and apply the Court’s decision in their implementation of their respective 
state laws or regulations addressing the collection of sales and use taxes from out-of-state retailers. As a result, how 
the decision will affect the Company will depend on the positions taken by the states, on a state-by-state basis, 
relating to the retroactive application of the obligation to collect such taxes, as well as other factors noted in the 
opinion. The Company is not in a position at this time to determine or estimate the probable effect of the Court’s 
decision. However, depending on the positions taken by the respective states, the number of states taking such 
positions and the time periods for retroactive application, as well as the treatment by the states of other factors noted 
in the Court’s opinion, the Company could be significantly impacted by the states’ interpretations and applications of 
the Court’s decision. As of May 31, 2018, the Company’s school book clubs channel was remitting sales taxes in ten 
states. Any on-going or future litigation with states relating to sales and use taxes could be impacted favorably or 
unfavorably by the Court’s decision in future fiscal periods. 

The State of Wisconsin has assessed Scholastic Book Fairs, Inc. (“SBF”), a wholly owned subsidiary of the Company, 
$5.4, exclusive of penalties and interest, for sales tax in fiscal years 2003 through 2014. Based upon the facts and 
circumstances and the relevant laws in the State of Wisconsin, the Company does not believe these assessments are 
merited and has elected to litigate these assessments. While the Company believes it will prevail in this litigation and 
accordingly has not recognized a liability for these assessments, the results of litigation cannot be assured and it is 
reasonably possible that SBF could be found liable for all or a portion of the amounts assessed.

58

 
 
 
 
6. INVESTMENTS

Included in the Other assets and deferred charges section of the Company’s Consolidated Balance Sheets were 
investments of $31.1 and $28.6 at May 31, 2018 and May 31, 2017, respectively.

The Company's 48.5% equity interest in Make Believe Ideas Limited ("MBI"), a UK-based children's book publishing 
company, is accounted for using the equity method of accounting. Under the purchase agreement, and subject to its 
provisions, the Company will purchase the remaining outstanding shares in MBI following the completion of MBI's 
accounts for the calendar year 2018. Equity method income from this investment is reported in the International 
segment. The net carrying value of this investment was $10.6 and $8.6 at May 31, 2018 and May 31, 2017, respectively.

The Company’s 26.2% equity interest in a separate children’s book publishing business located in the UK is accounted 
for using the equity method of accounting. Equity method income from this investment is reported in the International 
segment. The net carrying value of this investment was $20.5 and $20.0 at May 31, 2018 and May 31, 2017, 
respectively. 

The Company has other equity and cost method investments with a net carrying value of less than $0.1 and less than 
$0.1 at May 31, 2018 and May 31, 2017, respectively.

Income from equity investments reported in Selling, general and administrative expenses in the Consolidated 
Statements of Operations totaled $4.8 for the year ended May 31, 2018, $5.3 for the year ended May 31, 2017 and $3.5 
for the year ended May 31, 2016.

For the year ended May 31, 2016, the Company recognized a pretax gain of $2.2 on the sale of a cost method 
investment in China. 

7. PROPERTY, PLANT AND EQUIPMENT

The following table summarizes the major classes of assets at cost and accumulated depreciation for the fiscal years 
ended May 31:

Land

Buildings

Capitalized software

Furniture, fixtures and equipment

Building and leasehold improvements

Total at cost

Less: Accumulated depreciation and amortization

Property, plant and equipment, net

2018

2017

$

$

$

78.9    $

240.0    

158.7    

215.5    

202.7    

895.8    $

(340.2)

555.6    $

77.5

239.7

202.0

224.7

176.9

920.8

(445.5)

475.3

Depreciation and amortization expense related to property, plant, and equipment was $41.8, $36.2 and $36.7 for the 
fiscal years ended May 31, 2018, 2017 and 2016, respectively. During the twelve months ended May 31, 2018, the 
Company capitalized $99.6 of building and leasehold improvements and capitalized software, including $59.3 not yet 
being depreciated. During the twelve months ended May 31, 2017, the Company capitalized $34.2 of building 
improvements which were not yet being depreciated at May 31, 2017. 

In fiscal 2018, the Company recognized pretax impairment charges of $11.0 related to the abandonment of legacy 
building improvements and an impairment of $0.2 related to book fairs trucks. In fiscal 2017 the Company recognized 
a pretax impairment charge related to certain website development assets of $5.7. In fiscal 2016, the Company 
recognized a pretax impairment charge of $7.5 related to the abandonment of legacy building improvements.

59

 
 
8. GOODWILL AND OTHER INTANGIBLES

The following table summarizes the activity in Goodwill for the fiscal years ended May 31: 

Gross beginning balance
Accumulated impairment

Beginning balance
Additions
Foreign currency translation
Other

Ending balance

2018

2017

$

$

$

158.5 $
(39.6)

118.9 $
—
0.2
0.1

119.2

$

155.8
(39.6)

116.2
2.8
(0.1)
—

118.9

In fiscal 2017, the Company purchased a digital phonics business resulting in the recognition of $2.8 of Goodwill. See 
Note 9, "Acquisitions," for more information. There were no impairment charges related to Goodwill in any of the 
periods presented.

The following table summarizes Other intangibles for the fiscal years ended May 31: 

Other intangibles subject to amortization - beginning balance
Additions
Amortization expense
Foreign currency translation

Total other intangibles subject to amortization, net of accumulated amortization of
$24.1 and $22.0, respectively

Total other intangibles not subject to amortization

Total other intangibles

2018

2017

$

$

$

9.0 $
3.3
(2.1 )
(0.1)

10.1

$

2.1

12.2

$

4.7
7.0
(2.5)
(0.2)

9.0

2.1

11.1

In fiscal 2018, the Company purchased two U.S.-based book fair businesses resulting in $1.8 of amortizable intangible 
assets. In fiscal 2018, the Company also purchased a UK-based book distribution business resulting in $1.5 of 
amortizable intangible assets. In fiscal 2017, the Company purchased a digital phonics business and the assets of a 
U.S.-based book fair business resulting in the recognition of $6.8 and $0.2 of amortizable intangible assets, 
respectively. 

Amortization expense for Other intangibles totaled $2.1, $2.5 and $2.2 for the fiscal years ended May 31, 2018, 2017 
and 2016, respectively.

The following table reflects the estimated amortization expense for intangibles for the next five fiscal years ending May 
31: 

2019
2020
2021
2022
2023

$

2.6
2.6
2.3
1.9
0.6

Intangible assets with indefinite lives consist principally of trademark and tradename rights. Intangible assets with 
definite lives consist principally of customer lists, intellectual property and other agreements. 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 4 years. 

60

 
 
 
 
 
9. ACQUISITIONS 

In fiscal 2018, the Company purchased two U.S.-based book fair businesses resulting in $1.8 of amortizable intangible 
assets. The results of operations of these businesses subsequent to the acquisition were included in the Children's 
Book Publishing and Distribution segment. In fiscal 2018, the Company also purchased a UK-based book distribution 
business resulting in $1.5 of amortizable intangible assets. The results of operations of this business subsequent to the 
acquisition was included in the International segment. 

In fiscal 2017, the Company acquired 100% of the share capital of Ooka Island Inc., a Canadian-based digital phonics 
business, for $9.7, net of cash acquired. Fair values were assigned to the assets and liabilities acquired, including 
inventory, receivables, payables and intellectual property. The Company utilized internally-developed discounted cash 
flow forecasts to determine the fair value of the intellectual property. The fair values of the net assets were $6.9, which 
included $6.8 of amortizable intangible assets attributable to the intellectual property, resulting in $2.8 of goodwill that 
is expected to be deductible for tax purposes. The results of operations of this business subsequent to the acquisition 
are included in the Education segment. 

The Company also purchased the assets of a U.S.-based book fair business in fiscal 2017 for approximately $0.4. The 
acquisition resulted in $0.2 of amortizable intangible assets. The results of operations of this business are included in 
the Children's Book Publishing and Distribution segment. 

The transactions in fiscal 2018 and 2017 were not determined to be material individually or in the aggregate to the 
Company's results and therefore pro forma financial information is not presented.

10. TAXES

The components of Earnings (loss) from continuing operations before income taxes for the fiscal years ended May 31 
were:

United States
Non-United States
Total

2018

2017

2016

$

$

(18.4) $
16.9
(1.5) $

78.7 $
9.2

87.9 $

62.1
6.6
68.7

The provision for income taxes from continuing operations for the fiscal years ended May 31 consisted of the following 
components: 

Current

Federal
State and local
Non-United States

Total Current

Deferred
Federal
State and local
Non-United States

Total Deferred

 Total Current and Deferred

Tax Reform

2018

2017

2016

$

$

$

$

$

(3.6) $
0.7
4.9

2.0 $

5.0 $
(3.5)
—
1.5

$

8.3 $
1.8
5.4

15.5

$

$

17.7
2.2
—
19.9 $

(4.0)
4.1
4.1

4.2

19.2
1.8
(0.5)
20.5

3.5

$

35.4 $

24.7

On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was signed into law resulting in a significant change in 
the framework for U.S. corporate taxes. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires 
companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax 
deferred and creates new taxes on certain foreign sourced earnings. As a result, the Company's income tax benefit for 
the period ended May 31, 2018 includes expense related to the re-measurement of the Company's U.S. deferred tax 

61

 
 
 
 
 
 
 
 
 
 
 
balances of $5.7, based upon the Company's estimate of the amount and timing of future income taxes and related 
deductions. 

The Act requires the Company to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously 
subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets, as 
defined by the Act, and 8.0% on the remaining earnings. The Company does not expect to incur a one-time transition 
tax on earnings of foreign subsidiaries.

The re-measurement of the Company's U.S. deferred tax balances, any transition tax and interpretation of the new law 
is provisional subject to clarifications of the new legislation and final calculations. Any future changes to the Company’s 
provisional estimates, related to Act, will be reflected as a change in estimate in the period in which the change in estimate 
is made in accordance with ASU 2018-05 Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC 
Staff Accounting Bulletin No. 118. ASU 2018-05 allows for a measurement period of up to one year after the enactment 
date of the Act to finalize the recording of the related tax impacts.

Effective Tax Rate Reconciliation

A reconciliation of the significant differences between the effective income tax rate and the federal statutory rate on 
Earnings (loss) from continuing operations before income taxes for the fiscal years ended May 31 was as follows:

2018

2017

2016

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
Remeasurement of deferred tax balances
Permanent Differences
Other - net
Effective tax rates
Total provision for income taxes

$

29.2 %
37.1
(1.3 )
28.6
42.8
68.1
110.3
(371.3 )
(177.6 )
0.8
(233.3)%
3.5

$

35.0%
3.3
0.0
(0.3)
(0.5)
0.1
2.9
—
(0.3)
0.1
40.3%
35.4

$

35.0%
3.7
1.2
(0.4)
(0.3)
(0.7)
3.9
—
(6.0)
(0.4)
36.0%
24.7

The effective tax rate for the fiscal year ended May 31, 2018 was impacted by the loss from continuing operations 
before income taxes of $1.5 which included a pre-tax change of $57.3 related to the settlement of the Company's 
domestic defined benefit pension plan. The effective tax rate change was driven by the Act and the re-measurement 
of the Company's U.S. deferred tax balances resulting in additional tax provision of $5.7.

Unremitted Earnings

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. Any required adjustment to the income tax provision would be reflected 
in  the  period  that  the  Company  changes  this  assessment.  As  of  May  31,  2018,  there  have  been  no  changes  to  this 
assessment.

62

 
 
 
Deferred Taxes

The significant components for deferred income taxes for the fiscal years ended May 31 were as follows: 

Deferred tax assets:

Tax uniform capitalization
Prepublication expenses
Inventory reserves
Allowance for doubtful accounts
Other reserves
Postretirement, post employment and pension obligations
Tax carryforwards
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

2018

2017

9.6 $
0.7
15.0
2.2
16.9
7.1
26.9
13.7

$

92.1
(25.1 )

67.0 $

(0.4)
(41.4)

(41.8) $

25.2 $

9.5
7.8
24.6
3.3
26.0
12.5
24.1
14.8

122.6
(24.8)

97.8

(0.4)
(43.7)

(44.1)

53.7

$

$

$

$

$

Total net deferred tax assets of $25.2 at May 31, 2018 and $53.7 at May 31, 2017, respectively, are reported in noncurrent 
assets.

For the year ended May 31, 2018, the valuation allowance increased by $0.3 and for the year ended May 31, 2017, the 
valuation allowance decreased by $1.6. 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, 2018 relates to the Company's total foreign operating loss carryforwards of $110.2, principally in the UK, which 
do not expire and other operating loss carryforwards in Puerto Rico and Canada. 

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 Other noncurrent liabilities on the Company’s Consolidated Balance Sheets.

The total amount of unrecognized tax benefits at May 31, 2018, 2017 and 2016 were $10.1, excluding $1.8 accrued for 
interest and penalties, $14.1, excluding $1.7 accrued for interest and penalties, and $17.9, excluding $2.3 accrued for 
interest and penalties, respectively. Of the total amount of unrecognized tax benefits at May 31, 2018, 2017 and 2016, 
$10.1, $14.1 and $17.0, respectively, would impact the Company’s effective tax rate.

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 an expense of $0.1, a benefit of 
$0.6, and an expense of $0.5 for the years ended May 31, 2018, 2017 and 2016, respectively.

63

The table below presents a reconciliation of the unrecognized tax benefits for the fiscal years indicated: 

Gross unrecognized benefits at May 31, 2015
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, 2016
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, 2017
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, 2018

$

$

$

$

17.3
(6.2)
4.3
5.4
(2.9)
—

17.9
(6.3)
0.1
3.0
(0.6)
—

14.1
(2.6)
0.4
0.5
(1.9)
(0.4)

10.1

Unrecognized tax benefits for the Company decreased by $4.0 for the year ended May 31, 2018 and decreased by $3.8
for the year ended May 31, 2017. Although the timing of the resolution and/or closure on audits is 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 its domestic subsidiaries, files a consolidated U.S. income tax return, and also files tax returns 
in various states and other local jurisdictions. Also, certain subsidiaries of the Company file income tax returns in 
foreign jurisdictions. In the fourth quarter of fiscal 2018, the Company reached a settlement with the Internal Revenue 
Service related to the audit of fiscal 2014. The Company is routinely audited by various tax authorities and the fiscal 
2015 through fiscal 2018 tax years remain open.

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. The Company assesses sales tax contingencies for 
each jurisdiction in which it operates, considering all relevant facts including statutes, regulations, case law and experience. 
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.

On June 21, 2018, the U.S. Supreme Court issued its opinion in South Dakota v. Wayfair, Inc. et. al., reversing prior 
precedent, in particular Quill Corp. v. North Dakota (1992), which held that states could not constitutionally require 
retailers to collect and remit sales or use taxes in respect to mail order or internet sales made to residents of a state in 
the absence of the retailer having a physical presence in the taxing state. As a result, the Company will now have an 
obligation, at least on a going forward basis, to collect and remit sales and use taxes, primarily in respect to sales made 
through its school book clubs channel, as well as certain sales made through its ecommerce internet sites, to 
residents in states that the Company has not previously remitted sales or use taxes based on its having no physical 
presence in such states. In the majority opinion, several factors were discussed in support of the Court’s reasoning that 
the collection of sales and use taxes from out-of-state retailers did not constitute an undue burden on interstate 
commerce, including the fact that South Dakota did not require retroactive application of its statute. However, the 

64

 
 
 
question of retroactive application, as well as certain other factors noted in the opinion will be subject to how the 
states, on a state-by-state basis, interpret and apply the Court’s decision in their implementation of their respective 
state laws or regulations addressing the collection of sales and use taxes from out-of-state retailers. As a result, how 
the decision will affect the Company will depend on the positions taken by the states, on a state-by-state basis, 
relating to the retroactive application of the obligation to collect such taxes, as well as other factors noted in the 
opinion. The Company is not in a position at this time to determine or estimate the probable effect of the Court’s 
decision. However, depending on the positions taken by the respective states, the number of states taking such 
positions and the time periods for retroactive application, as well as the treatment by the states of other factors noted 
in the Court’s opinion, the Company could be significantly impacted by the states’ interpretations and applications of 
the Court’s decision. As of May 31, 2018, the Company’s school book clubs channel was remitting sales taxes in ten 
states. Any on-going or future litigation with states relating to sales and use taxes could be impacted favorably or 
unfavorably by the Court’s decision in future fiscal periods. 

The State of Wisconsin has assessed Scholastic Book Fairs, Inc. (“SBF”), a wholly owned subsidiary of the Company, 
$5.4, exclusive of penalties and interest, for sales tax in fiscal years 2003 through 2014. Based upon the facts and 
circumstances and the relevant laws in the State of Wisconsin, the Company does not believe these assessments are 
merited and has elected to litigate these assessments. While the Company believes it will prevail in this litigation and 
accordingly has not recognized a liability for these assessments, the results of litigation cannot be assured and it is 
reasonably possible that SBF could be found liable for all or a portion of the amounts assessed.

11. CAPITAL STOCK AND STOCK-BASED AWARDS  

Class A Stock and Common Stock

Capital stock consisted of the following as of May 31, 2018:

Authorized

Reserved for Issuance

Outstanding

Class A Stock

Common Stock

Preferred Stock

4,000,000

70,000,000

2,000,000

—

1,656,200

6,278,191

33,320,335

—

—

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, 2018, the Company maintained two stockholder-approved stock-based compensation plans with regard to 
the Common Stock: 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, non-qualified stock options, restricted 
stock and other stock-based awards. On September 24, 2014, the stockholders approved an amendment to the 2011 
Plan increasing the shares available for issuance pursuant to awards granted under the 2011 plan by 2,475,000 shares.

The Company’s stock-based awards vest 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 
for certain other events.

65

 
 
 
Stock Options – At May 31, 2018, non-qualified stock options to purchase 114,312 shares and 2,540,842 shares of 
Common Stock were outstanding under the 2001 Plan and the 2011 Plan, respectively. During fiscal 2018, 695,983 
options were granted under the 2011 Plan at a weighted average exercise price of $38.79.

At May 31, 2018, 701,551 shares of Common Stock were available for additional awards under the 2011 Plan.

In September 2007, the stockholders approved the 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 and provided for the automatic grant to each non-
employee director, on the date of each annual meeting of stockholders, of stock options and restricted stock units 
with a value equal to a fixed dollar amount. Such dollar amount, as well as the split of such amount between stock 
options and restricted stock units, were 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 December 2015, the Board approved an amendment to the Amended 2007 Directors Plan to provide that a non-
employee director elected between annual meetings of stockholders would receive a grant at the time of such 
election equal to a pro rata portion of the most recent annual grant of stock options and restricted stock units, based 
on the number of regular Board meetings remaining to be held for the annual period during which such election 
occurred. 

In September 2017, the stockholders approved the Scholastic Corporation 2017 Outside Directors Stock Incentive Plan 
(the “2017 Directors Plan”). The 2017 Directors Plan reserved for issuance 400,000 shares of Common Stock. 
The 2017 Directors Plan also provides for the automatic grant to each non-employee director, on the date of each 
annual meeting of stockholders of stock options and restricted stock units with a value equal to a fixed dollar amount. 
Such dollar amount, as well as the split of such dollar 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. In July 2017, 
the Board approved  the fiscal 2018 grant to each non-employee director, on the date of the 2017 annual meeting of 
stockholders, of stock options and restricted stock units having a combined value, as determined by the Board, of 
ninety thousand dollars (based on the fair market value on the date of grant), with 60% of such award to be awarded 
as restricted stock units and 40% of such award to be awarded as stock options. 

On September 20, 2017, an aggregate of 21,868 options at an exercise price of $38.61 per share and 9,786 restricted 
stock units were granted to the non-employee directors under the 2017 Directors Plan. As of May 31, 2018, 21,868 
options were outstanding under the 2017 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, 2018, there were 244,506 shares issued upon exercise 
under the Class A Plan. There are no Class A Options 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 for certain retirement-eligible employees, as well as in certain other 
events. 

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:

66

Total intrinsic value of stock options exercised

Stock-based compensation cost (pretax)

Tax benefits related to stock-based compensation cost

2018

$

5.0

10.7

(0.2)

2017

$

11.0

10.1

0.8

2016

$

14.6

9.7

1.8

Weighted average grant date fair value per option

$ 10.45

$ 12.70

$ 14.78

Pretax stock-based compensation cost is recognized in Selling, general and administrative expenses. As of May 31, 
2018, the total pretax compensation cost not yet recognized by the Company with regard to outstanding unvested 
stock options was $3.2. The weighted average period over which this compensation cost is expected to be recognized 
is 2.0 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, 2018:

Outstanding at May 31, 2017
Granted
Exercised
Expired, cancellations and forfeitures

Outstanding at May 31, 2018

Exercisable at May 31, 2018

Weighted
Average
Exercise 
Price
$ 33.81
38.79
30.60
40.89

$ 35.52

$ 32.33

Options
2,693,824
717,851
(526,508)
(63,041)

2,822,126

1,514,248

Average 
Remaining
Contractual 
Term (in years)

Aggregate
Intrinsic 
Value (in 
millions)

6.8

5.3

$

$

26.8

19.2

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. The restricted stock units automatically convert to shares of Common 
Stock on a one-for-one basis as the award vests, which is typically over a four-year period beginning thirteen months 
from the grant date and thereafter annually on the anniversary of the grant date. There were 51,083 shares of 
Common Stock issued upon vesting of restricted stock units during fiscal 2018. The Company measures the value of 
restricted stock units at fair value based on the number of units granted and the price of the underlying Common 
Stock on the grant date. The Company amortizes the fair value of outstanding restricted stock units 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 restricted stock unit award activity for the fiscal years ended May 31:

Granted

Weighted average grant date price per unit

2018

2017

2016

68,089

$ 38.97

52,331

$ 39.22

74,536

$ 43.10

As of May 31, 2018, the total pretax compensation cost not yet recognized by the Company with regard to unvested 
restricted stock units was $1.6. The weighted average period over which this compensation cost is expected to be 
recognized is 1.7 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, which must be a minimum of three years. 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:

67

 
 
 
 
 
 
 
 
 
 
 
 
MSPP Stock Units allocated

Purchase price per unit

2018

2017

2016

73,965

$ 28.76

42,565

$ 28.49

58,633

$ 30.38

At May 31, 2018, there were 260,779 shares of Common Stock remaining authorized for issuance under the MSPP.

As of May 31, 2018, the total pretax compensation cost not yet recognized by the Company with regard to unvested 
MSPP Stock Units under the MSPP was less than $0.1. The weighted average period over which this compensation 
cost is expected to be recognized is 1.0 year.

The following table sets forth the restricted stock unit and MSPP Stock Unit activity for the year ended May 31, 2018:

Nonvested as of May 31, 2017

Granted

Vested

Forfeited

Nonvested as of May 31, 2018

Restricted
stock units and
MSPP stock
units

Weighted
Average grant
date fair value

310,075

$

142,054

(151,444 )

(2,591)

298,094

$

22.28

23.34

23.99

37.63

21.78

The total fair value of shares vested during the fiscal years ended May 31, 2018, 2017 and 2016 was $3.6, $2.1 and $3.4, 
respectively.

Employee Stock Purchase Plan

The Company maintains an Employee Stock Purchase Plan (“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. The purchase of 
Common Stock occurs on the last business day of the calendar quarter. The Company recognizes the discount on the 
Common Stock issued under the ESPP as stock-based compensation expense in the quarter in which the employees 
participated in the plan.

The following table sets forth the ESPP share activity for the fiscal years ended May 31:

Shares issued

Weighted average purchase price per share

2018

2017

2016

50,516

42,799

43,141

$

33.74

$

35.58

$

33.65

At May 31, 2018, there were 469,953 shares of Common Stock remaining authorized for issuance under the ESPP.

12. 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:

Authorizations

July 2015

March 2018

Total current Board authorizations

Less repurchases made under the authorizations as of May 31, 2018

Remaining Board authorization at May 31, 2018

Amount

$

$

$

$

50.0

50.0

100.0

(38.6)

61.4  

Total current Board authorizations represents the amount remaining under the Board authorization for Common 
share repurchases on July 22, 2015 and the current $50.0 Board authorization for Common share repurchases 

68

 
 
 
 
 
 
announced on March 21, 2018, which is available for further repurchases, from time to time as conditions allow, on 
the open market or through negotiated private transactions. During the twelve months ended May 31, 2018, the 
Company repurchased approximately 0.7 million shares on the open market for approximately $27.2 at an average 
cost of $37.66 per share. The Company’s repurchase program may be suspended at any time without prior notice.

13. EMPLOYEE BENEFIT PLANS  

Pension Plans

The Company has a defined benefit pension plan (the “UK Pension Plan”) that covers certain employees located in the 
United Kingdom 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 the Company. The Company’s 
UK Pension Plan has a measurement date of May 31.

The Company had a cash balance retirement plan (the “U.S. Pension Plan”), which covered the majority of United 
States employees who met certain eligibility requirements. On July 20, 2016, the Board approved the termination of 
the U.S. Pension Plan, as it was determined that the on-going costs of maintaining the U.S. Pension Plan were growing 
at a greater rate than the benefit delivered to the Company’s participating and former employees. 

During fiscal 2018, the U.S. Pension Plan made $37.8 of lump sum benefit payments to vested plan participants. Then, 
on February 14, 2018, the Company completed the final step in the distribution of the U.S. Pension Plan assets to 
participants by purchasing group annuity contracts for the remaining U.S. Pension Plan participants (the "U.S. Pension 
Plan Termination"). The total cost of these contracts was $86.3, paid to the respective insurers on February 21, 2018, 
resulting in a final settlement charge. The net funded asset position of the U.S. Pension Plan had previously included 
the value of the insurance contracts and lump sums settled prior to the purchase of such contracts. The U.S. Pension 
Plan's asset balance was sufficient to fund the purchase of these insurance contracts as well as any remaining benefit 
obligations and plan related operating expenses, with no additional cost to the Company as the plan sponsor. As a 
result, a remeasurement was completed on the final settlement date and a non-cash, pre-tax settlement expense of 
$57.3 was recognized in the Company's consolidated statement of operations in Other components of net periodic 
benefit (cost) as part of Earnings (loss) from continuing operations before income taxes. 

As of May 31, 2018, the Company has committed to a plan to utilize all remaining assets after plan-related expense 
payments are made, to the benefit of the Company's employees participating in the Company's 401(k) plan. 

Postretirement Benefits

The Company provides postretirement benefits to eligible retired United States-based employees (the “Postretirement 
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 Postretirement Benefits, effectively excluding a large percentage of employees from the 
plan. At May 31, 2018, the Company had no unrecognized prior service credit. 

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 Postretirement Benefits provided to its retiree population are in aggregate the actuarial equivalent 
of the benefits under Medicare Part D. As a result, in fiscal 2018, 2017 and 2016, the Company recognized a 
cumulative reduction of its accumulated postretirement benefit obligation of $2.3, $2.5 and $3.1, respectively, due to 
the Federal subsidy under the Medicare Act.

The Company’s postretirement benefit plan has a measurement date of May 31.

The following table sets forth the weighted average actuarial assumptions utilized to determine the benefit obligations 
for the U.S. Pension Plan and the UK Pension Plan (collectively the “Pension Plans”), including the Postretirement 
Benefits, at May 31:

69

U.S. Pension Plan

UK Pension Plan

Postretirement Benefits

2018

2017

2016

2018

2017

2016

2018

2017

2016

—%

—

2.4%

3.5%

—

—

2.6%

3.9%

2.5%

4.1%

3.5%

3.8%

4.0%

3.7%

3.7%

—

—

—

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 (1)

2.3%

3.5%

3.8%

2.5%

3.5%

3.5%

3.7%

3.7%

3.8%

Expected short-term return on 
plan assets (2)
Expected long-term return on plan
assets

Rate of compensation increase

4.8%

4.8%

—

—

—

—

—

—

—

—

4.8%

3.4%

3.9%

4.2%

—

4.1%

3.8%

4.1%

—

—

—

—

—

—

—

—

—

(1) The fiscal 2018 U.S. Pension Plan discount rate is for the period of June 1, 2017 through the plan settlement date.
(2) The fiscal 2018 U.S. Pension Plan expected short-term return on plan assets is for the period of June 1, 2017 through 
the plan settlement date.

To develop the expected long-term rate of return on plan assets assumption for the UK Pension Plan, 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 on plan assets of 3.4% for the UK Pension Plan. In fiscal 2018, the U.S. Pension Plan utilized a short-
term rate of return assumption of 4.8% due to the U.S. Pension Plan termination for the period June 1, 2017 through 
the plan settlement date.

The following table sets forth the change in benefit obligation for the Pension Plans and Postretirement Benefits at 
May 31: 

U.S. Pension Plan

UK Pension Plan

Postretirement Benefits

2018

2017

2018

2017

2018

2017

Change in benefit obligation:

Benefit obligation at beginning of year

$

127.8 $

125.0 $

41.7

$

39.8 $

28.8 $

38.3

Service cost

Interest cost

Plan participants’ contributions

Actuarial losses (gains)

Foreign currency translation

Settlement

Benefits paid, including expenses

—

1.9

—

1.7

—

(125.2 )

(6.2)

—

3.2

—

9.2

—

—

(9.6)

—

1.1

—

(2.0)

1.3

—

(2.1 )

—

1.2

—

6.3

(4.3)

—

(1.3 )

0.0

0.8

0.4

(2.4)

—

—

(0.8)

Benefit obligation at end of year

$

— $

127.8 $

40.0 $

41.7

$

26.8 $

0.0

0.9

0.2

(8.2)

—

—

(2.4)

28.8

The U.S. Pension Plan Termination resulted in an increase in actuarial losses for the U.S. Pension Plan in fiscal 2018. 
The increase primarily related to premiums associated with insurance company pricing for the obligations that were 
not distributed through lump sum payments.

The following table sets forth the change in plan assets for the Pension Plans and Postretirement Benefits at May 31:

70

 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Pension Plan

UK Pension Plan

Postretirement
Benefits

2018

2017

2018

2017

2018

2017

Change in plan assets:

Fair value of plan assets at beginning of year $

132.5

$

135.1

$

29.2 $

29.1 $

— $

Actual return on plan assets

Employer contributions

Settlement

Benefits paid, including expenses

Plan participants’ contributions

Foreign currency translation

0.5

—

(125.2 )

(6.2)

—

—

7.0

—

—

(9.6)

—

—

1.7

1.1

—

(2.1 )

—

0.9

3.5

1.1

—

(1.3 )

—

(3.2)

—

2.0

—

(2.4)

0.4

—

Fair value of plan assets at end of year

$

1.6 $

132.5

$

30.8 $

29.2 $

— $

—

—

2.2

—

(2.4)

0.2

—

—

The U.S. Pension Plan reflects a current asset of $1.6 as of May 31, 2018, that will be used to pay plan-related 
expenses, with the remaining balance contributed for the benefit of the Company's employees participating in the 
Company's 401(k) plan. 

The following table sets forth the net funded status of the Pension Plans and Postretirement Benefits and the related 
amounts recognized on the Company’s Consolidated Balance Sheets at May 31:

Current assets

Non-current assets

Current liabilities

Non-current liabilities

Net funded balance

U.S. Pension Plan

UK Pension Plan

Postretirement Benefits

2018

2017

2018

2017

2018

2017

$

$

1.6 $

4.7 $

— $

— $

—

—

—

—

—

—

—

—

—

—

(9.2)

(12.5 )

— $

—

(2.2)

(24.6)

1.6 $

4.7 $

(9.2) $

(12.5) $

(26.8) $

—

—

(2.1 )

(26.7)

(28.8)

The following amounts were recognized in Accumulated other comprehensive income (loss) for the Pension Plans 
and Postretirement Benefits in the Company’s Consolidated Balance Sheets at May 31:

2018

2017

U.S.
Pension
Plan

UK
Pension
Plan
— $ (12.5 ) $

Post -
Retirement
Benefits

U.S.
Pension
Plan

UK
Pension
Plan

Post -
Retirement
Benefits

Total

Total

(1.3 ) $ (13.8) $ (51.3 ) $ (16.3) $

(3.3) $ (70.9)

Net actuarial gain (loss)

$

Amount recognized in
 Accumulated 
comprehensive   
 income (loss) before tax

—

(12.5 )

(1.3 )

(13.8)

(51.3 )

(16.3)

(3.3)

(70.9)

Accumulated other comprehensive loss of $55.0 for the U.S Pension Plan was reversed during fiscal 2018 as a result of 
the U.S. Pension Plan Termination in fiscal 2018. For the fiscal year ended May 31, 2018, the Company recognized final 
pretax settlement charges of $57.3 in Other components of net periodic benefit (cost), related to the settlement of the 
U.S Pension Plan and the related purchase of insurance company group annuity contracts. 

The estimated net loss for the UK Pension Plan that will be amortized from Accumulated other comprehensive loss 
into net periodic benefit cost over the fiscal year ending May 31, 2019 is $0.9.

The estimated net loss for the Postretirement Benefits plan that will be amortized from Accumulated other 
comprehensive loss into net periodic benefit cost over the fiscal year ending May 31, 2019 is less than $0.1. 

Income tax expense of $20.9, income tax expense of $0.4 and income tax benefit of $1.8 were recognized in 
Accumulated other comprehensive loss at May 31, 2018, 2017 and 2016, respectively.

71

 
 
 
 
 
 
 
 
 
 
The following table sets forth the projected benefit obligations, accumulated benefit obligations and the fair value of 
plan assets with respect to the Pension Plans as of May 31:

Projected benefit obligations

Accumulated benefit obligations

Fair value of plan assets

U.S. Pension Plan

UK Pension Plan

2018

2017

2018

2017

$

— $

127.8 $

40.0 $

—

1.6

127.8

132.5

39.4

30.8

41.7

40.9

29.2

The following table sets forth the net periodic (benefit) cost for the Pension Plans and Postretirement Benefits for the 
fiscal years ended May 31:

U.S. Pension Plan
2017

2016

2018

UK Pension Plan
2017

2016

2018

Postretirement Benefits
2016
2017
2018

Components of net (benefit)   
 cost:

Service cost

Interest cost

Expected return on assets

Net amortization and 
 deferrals

Settlement charge

Amortization of net actuarial 
 loss

$

— $

— $

— $

— $

— $

— $

0.0 $

0.0 $

1.9

(4.1)

—

57.3

3.2

(6.1)

4.6

(6.5)

1.1

(1.0)

1.2

(1.0)

1.5

(1.3 )

—

—

—

—

—

—

—

—

0.8

0.9

—

—

—

—

—

—

—

—

1.2

1.3

0.0

1.4

—

(0.1)

—

2.8

4.1

Net periodic (benefit) cost

$ 56.0 $ (2.0) $ (1.1 ) $

0.9

0.9

0.8

0.8

0.9

0.1

0.4

$

1.0 $

1.1

$

0.9 $

1.3

$

On May 31, 2016, the Company changed the approach used to measure service and interest costs for pension and 
other postretirement benefits. The Company previously measured service and interest costs utilizing a single 
weighted-average discount rate derived from the yield curve used to measure the plan obligations. The Company 
elected to measure service and interest costs by applying the specific spot rates along that yield curve to the plans’ 
liability cash flows. This change did not affect the measurement of the Company's plan obligations. 

On May 31, 2017, the U.S. Pension Plan Termination was considered imminent and likely to occur during fiscal 2018. As 
such, the Company included estimates for the anticipated amount of lump sum payments to be distributed in fiscal 
2018 as well as estimated insurance company pricing on the portion of the obligation not distributed through lump 
sum payments. This change did affect the measurement of the Company's U.S. Pension Plan obligations as of May 31, 
2017. The Net periodic benefit (cost) for the U.S. Pension Plan for the period ended May 31, 2017 was not affected.

Plan Assets

The Company’s investment policy with regard to the assets in the UK Pension Plan is to actively manage, within 
acceptable risk parameters, certain asset classes where the potential exists to outperform the broader market. The U.S. 
Pension Plan Termination was considered imminent and likely to occur during fiscal 2018 and the plan assets were 
invested in short term cash and cash equivalent investments.

The following table sets forth the total weighted average asset allocations for the Pension Plans by asset category at 
May 31:

72

 
 
 
 
 
 
 
 
 
Equity securities

Debt securities

Cash and cash equivalents

Liability-driven instruments

Real estate

Other

U.S. Pension Plan

UK Pension Plan

2018

2017

2018

2017

—%

—%

100.0%

—%

—%

—%

100.0%

13.4%

76.5%

—%

—%

—%

10.1 %

100.0%

38.6%

—%

2.6%

32.8%

7.5%

18.5%

100.0%

38.8%

32.8%

0.0%

—%

6.9%

21.5 %

100.0%

The following table sets forth the targeted weighted average asset allocations for the UK Pension Plan included in the 
Company’s investment policy: 

Equity securities

Liability-driven instruments and other

Real estate

Total

UK
Pension
Plan

38%

55%

7%

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 19, “Fair Value Measurements.”

The following table sets forth the measurement of the Company’s Pension Plans’ assets at fair value by asset category 
at the respective dates:

Assets at Fair Value as of May 31, 2018

U.S.
Pension
Plan

UK
Pension
Plan

U.S.
Pension
Plan

UK
Pension
Plan

U.S.
Pension
Plan

UK
Pension
Plan

Total

Cash and cash equivalents

$

Level 1

1.6 $

0.8 $

Level 2

— $

— $

Level 3

— $

— $

2.4

Equity securities:
  U.S. (1)
  International (2)
Pooled, Common and 
 Collective Funds (3)
Annuities
Real estate (6)

—

—

—

—

—

1.5

10.4

—

—

—

—

—

—

—

—

—

—

10.1

—

2.3

—

—

—

—

—

—

—

—

5.7

—

1.5

10.4

10.1

5.7

2.3

Total

$

1.6 $

12.7

$

— $

12.4 $

— $

5.7

$

32.4

73

 
 
 
 
 
 
Assets at Fair Value as of May 31, 2017

U.S.
Pension
Plan

UK
Pension
Plan

U.S.
Pension
Plan

UK
Pension
Plan

U.S.
Pension
Plan

UK
Pension
Plan

Total

Cash and cash equivalents

$

18.4 $

0.5 $

Level 1

Level 2
— $

— $

Level 3
— $

— $

18.9

Equity securities:
  U.S. (1)
  International (2)
Pooled, Common and 
 Collective Funds (3) (4)
Fixed Income (5)
Annuities
Real estate (6)

12.7

—

—

—

—

—

1.0

10.3

—

—

—

—

—

—

101.4

—

—

—

—

—

—

9.6

—

2.0

—

—

—

—

—

—

—

—

—

—

5.8

—

13.7

10.3

101.4

9.6

5.8

2.0

Total

$

31.1

$

11.8

$

101.4 $

11.6

$

— $

5.8 $

161.7

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

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 stocks of non-U.S. companies, primarily in Europe and 
Asia. There are no restrictions on these investments.
Funds which invest in UK government bonds and bond index-linked investments and interest rate and inflation swaps. There are 
no restrictions on these investments.
Funds which invest in bond index funds available to certain qualified retirement plans but not traded openly in any public 
exchanges. 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 $5.7 and $5.8 at May 31, 
2018 and May 31, 2017, respectively. 

The following table summarizes the changes in fair value of these Level 3 assets for the fiscal years ended May 31, 
2018 and 2017:

Balance at May 31, 2016

Actual Return on Plan Assets:

Relating to assets still held at May 31, 2016

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, 2017

Actual Return on Plan Assets:

Relating to assets still held at May 31, 2017

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, 2018

74

$

$

$

5.5

1.2

—

—

(0.3)

(0.6)

5.8

(0.3)

—

—

—

0.2

5.7

Contributions

In fiscal 2019, the Company expects to make contributions of $1.2 to the UK Pension Plan.

Estimated future benefit payments

The following table sets forth the expected future benefit payments under the UK Pension Plan and the Postretirement 
Benefits by fiscal year:

2019
2020
2021
2022
2023
2024-2028

UK Pension
Plan

Postretirement

Pension
benefits

Benefit
payments

Medicare
subsidy
receipts

$

$

1.1
1.0
0.9
1.4
1.3
7.7

$

2.1
2.1
2.2
2.2
2.2
10.4

0.2
0.2
0.2
0.2
0.2
1.3

Beneficiary payments for the U.S. Pension Plan were paid in full in fiscal 2018.

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

2018

2017

6.8%

5.0%

2026

7.0%

5.0%

2024

Assumed health care cost trend rates could have a significant effect on the amounts reported for the postretirement 
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

Postretirement benefit obligation - 1% increase

Postretirement benefit obligation - 1% decrease

Defined contribution plans

2018

2017

$

0.1 $

(0.1)

2.8

(2.4)

0.1

(0.1)

3.0

(2.6)

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 $7.2, $7.1 and $6.8 for fiscal years 2018, 2017 and 
2016, respectively.

75

14. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the impact on earnings of reclassifications out of Accumulated other comprehensive 
income (loss) for the fiscal years ended May 31: 

Net amortization and deferrals
Lump sum settlement charge
Amortization of net actuarial loss
Tax benefit
Amounts reclassified from Accumulated other
  comprehensive income (loss)

2018

2017

2016

Pension
Plans

Post -
Retirement
Benefits

Pension
Plans

Post -
Retirement
Benefits

Pension
Plans

Post -
Retirement
Benefits

—
55.0
2.1
(22.3)

—
—
0.1
(0.0)

—
—
1.7
(0.4)

—
—
0.4
(0.1)

—
—
1.7
(0.3)

(0.1)
—
2.8
(1.1 )

$

34.8 $

0.1 $

1.3

$

0.3 $

1.4 $

1.6

The amounts reclassified out of Accumulated other comprehensive income (loss) were recognized in Other 
components of net periodic benefit (cost) for all periods presented. 

For the fiscal year ended May 31, 2018, the Company recognized pretax settlement charges of $57.3 in Other 
components of net periodic benefit (cost), related to the settlement of the U.S Pension Plan and the related purchase 
of insurance company group annuity contracts. 

76

The following tables summarize the activity in Accumulated other comprehensive income (loss), net of tax, by 
component for the periods indicated:

Foreign
currency
translation
adjustments

Pension
Plans

Post -
Retirement
Benefits

Total

Balance at May 31, 2016(1)
 Other comprehensive income (loss) before reclassifications
 Less: amount reclassified from Accumulated other
    comprehensive income (loss) (net of taxes)
     Lump Sum Settlement charge
     Amortization of net actuarial loss
     Net prior service credit
  Other comprehensive income (loss)
Balance at May 31, 2017 (1)
 Other comprehensive income (loss) before reclassifications
 Less: amount reclassified from Accumulated other
    comprehensive income (loss) (net of taxes)

$
$

$

     Settlement charge
     Amortization of net actuarial loss
     Net prior service credit
  Other comprehensive income (loss)
Balance at May 31, 2018 (1)

(40.0) $
(5.3) $

(39.4) $
(8.8) $

(7.3) $
5.0 $

(86.7)
(9.1)

—
—
—

(5.3)

(45.3) $
3.4

—
1.3
—

(7.5)

—
0.3
—

5.3

(46.9) $
(0.4)

(2.0) $
0.6

—
—
—

3.4

33.0
1.8
—

34.4

—
0.1
—

0.7

—
1.6
—

(7.5)

(94.2)
3.6

33.0
1.9
—

38.5

$

(41.9) $

(12.5) $

(1.3) $

(55.7)

(1) Accumulated other comprehensive income (loss) related to Pension Plans and Postretirement Benefits are reported net of taxes of $1.1, 
$22.0 and $22.4 at May 31, 2018, 2017 and 2016, respectively.

15. 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:

2018

2017

2016

$

(5.0) $

52.4 $

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)

$
$
$

$
$
$

77

—
(5.0)

35.0

—

35.0

(0.14) $
— $
(0.14) $

(0.14) $
— $
(0.14) $

(0.2)
52.2

34.7

0.7

35.4

$
1.51
(0.00) $
$
1.51

1.48 $
(0.01) $
$
1.47

43.9

(3.5)
40.4

34.1

0.8

34.9

1.29
(0.11 )
1.18

1.26
(0.10)
1.16

 
 
 
 
 
 
Earnings from continuing operations exclude earnings of $0.1 and $0.1 for the fiscal years ended May 31, 2017 and 
2016, respectively, for earnings attributable to participating restricted stock units.

In a period in which the Company reports a discontinued operation, Earnings (loss) from continuing operations is used 
as the “control number” in determining whether potentially dilutive common shares are dilutive or anti-dilutive. There 
were less than 0.1 million of potentially anti-dilutive shares outstanding pursuant to compensation plans as of May 31, 
2018.

A portion of the Company’s restricted stock units which are granted to employees participate in earnings through 
cumulative dividends which are payable and non-forfeitable to the employees upon vesting of the restricted stock 
units. Accordingly, the Company measures earnings per share based upon the lower of the Two-class method or the 
Treasury Stock method. 

The following table sets forth Options outstanding pursuant to stock-based compensation plans for the fiscal years 
ended May 31:

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

2018

2.8

2017

2.7

As of May 31, 2018, $61.4 remains available for future purchases of common shares under the current repurchase 
authorization of the Board of Directors.

See Note 12, “Treasury Stock,” for a more complete description of the Company’s share buy-back program.

16. 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 insurance

Other accrued expenses

Total accrued expenses

2018

2017

$

47.1

$

22.4

25.7

35.8

7.8

39.1

48.5

33.8

26.1

34.9

7.6

27.1

$

177.9

$

178.0

The table below provides information regarding Accrued severance which is included in Accrued payroll, payroll taxes 
and benefits on the Company’s Consolidated Balance Sheets at May 31:

Beginning balance

Accruals

Payments

Ending balance

2018

2017

$

$

6.6 $

9.9

(12.3 )

4.2 $

4.4

14.9

(12.7 )

6.6

The Company implemented cost reduction programs in fiscal 2018 and 2017, recognizing severance expense of $7.4. 
and $12.9, respectively.

78

 
 
 
17. OTHER FINANCIAL DATA 

Other financial data consisted of the following for the fiscal years ended May 31: 

Advertising expense
Amortization of prepublication and production costs
Foreign currency transaction gain (loss)
Purchases related to contractual commitments for minimum print quantities

$

110.0 $

121.0 $

21.8
(0.0)
54.2

23.3
1.0
53.1

127.3
26.4
(0.5)
48.7

2018

2017

2016

Other financial data consisted of the following at May 31: 

Royalty advances allowance for reserves
Accounts receivable reserve for returns
Accounts receivable allowance for doubtful accounts

18. DERIVATIVES AND HEDGING

$

2018

2017

97.0 $
30.0
12.4

93.8
36.3
13.7

The Company enters into foreign currency derivative contracts to economically hedge the exposure to foreign 
currency fluctuations associated with the forecasted purchase of inventory, the foreign exchange risk associated with 
certain receivables denominated in foreign currencies and certain future commitments for foreign expenditures. 
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 Selling, general and 
administrative expenses, and it recognizes the unrealized gain or loss in other current assets or other current liabilities. 
The notional values of the contracts as of May 31, 2018 and 2017 were $30.0 and $36.5, respectively. Net unrealized 
gains of $0.4 and unrealized gains of $0.8 were recognized at May 31, 2018 and May 31, 2017, respectively. 

19. FAIR VALUE MEASUREMENTS 

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

• 

• 

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

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

  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

• 

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 various lines 
of credit. The fair value of the Company's debt approximates the carrying value for all periods presented. For a more 
complete description of fair value measurements employed, see Note 4, “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 

79

 
 
 
statements, are based on quotations from financial institutions, a Level 2 fair value measure. See Note 18, “Derivatives 
and Hedging,” for a more complete description of fair value measurements employed.

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

Long-lived assets
Investments

• 
• 
•  Assets acquired in a business combination
•  Goodwill, definite and indefinite-lived intangible assets
• 

Long-lived assets held for sale

Level 2 and Level 3 inputs are employed by the Company in the fair value measurement of these assets and liabilities. 
For the fair value measurements employed by the Company for goodwill, see Note 8, “Goodwill and Other 
Intangibles." For the fair value measurements employed by the Company for certain property, plant and equipment, 
production assets, investments and prepublication assets, the Company assessed future expected cash flows 
attributable to these assets.  

The following tables present non-financial assets that were measured and recognized at fair value on a non-recurring 
basis and the total impairment losses and additions recognized on those assets:

Net carrying 
value as of

Fair value measured and
recognized using

Impairment 
losses
for fiscal year 
ended

May 31, 2018

Level 1

Level 2

Level 3 May 31, 2018

Additions due
to other
investments
and
acquisitions

Property, plant and equipment, net

$

— $

— $

— $

— $

11.2

$

Intangible assets

—

—

—

—

—

—

3.3

Net carrying
value as of

Fair value measured and
recognized using

Impairment 
losses
for fiscal year 
ended

May 31, 2017

Level 1

Level 2

Level 3 May 31, 2017

Additions due
to other
investments
and
acquisitions

Property, plant and equipment, net

$

— $

— $

— $

— $

5.7 $

Goodwill

Prepublication assets

Intangible assets

2.8

—

6.8

—

—

—

—

—

—

2.8

—

7.0

—

1.1

—

—

2.8

—

7.0

Net carrying
value as of

Fair value measured and
recognized using

Impairment 
losses
for fiscal year 
ended

May 31, 2016

Level 1

Level 2

Level 3

May 31, 2016

Additions due
to other
investments
and
acquisitions

Property, plant and equipment, net

$

— $

— $

— $

— $

7.5 $

Prepublication assets

Intangible assets

20. SUBSEQUENT EVENTS

—

1.9

—

—

—

—

—

2.4

6.9

—

—

—

2.4

On June 21, 2018, the U.S. Supreme Court issued its opinion in South Dakota v. Wayfair, Inc. et al., reversing prior 
precedent, in particular Quill Corp. v. North Dakota (1992), which held that states could not constitutionally require 
retailers to collect and remit sales or use taxes in respect to mail order or internet sales made to residents of a state in 
the absence of the retailer having a physical presence in the taxing state. This ruling could potentially impact the 
Company, primarily in respect to sales made through its school book club channel, as well as certain sales made 
through its ecommerce internet sites, to residents in states that the Company had not previously remitted sales or use 
taxes based on its having no physical presence in such states. The Company has determined that this ruling impacts 
conditions that did not exist as of May 31, 2018 and therefore no effects of this change in law were recognized in the 

80

 
 
 
 
 
 
Consolidated Financial Statements. However, the Company has provided further information to Note 5, 
"Commitments and Contingencies."

On July 18, 2018, the Board of Directors declared a regular cash dividend of $0.15 per Class A and Common share in 
respect of the first quarter of fiscal 2019. The dividend is payable on September 17, 2018 to shareholders of record on 
August 31, 2018.

81

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Scholastic Corporation

Opinion on the Financial Statements 
We have audited the accompanying consolidated balance sheets of Scholastic Corporation (the Company) as of May 31, 
2018 and 2017, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity 
and cash flows for each of the three fiscal years in the period ended May 31, 2018, and the related notes and financial 
statement schedule listed in the Index at Item 15(c) (collectively referred to as the “consolidated financial statements”). 
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the 
Company at May 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three fiscal years 
in the period ended May 31, 2018, in conformity with U.S. generally accepted accounting principles. 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United 
States) (PCAOB), the Company's internal control over financial reporting as of May 31, 2018, based on criteria established 
in  Internal  Control-Integrated  Framework  issued  by  the  Committee  of  Sponsoring  Organizations  of  the  Treadway 
Commission (2013 framework) and our report dated July 25, 2018 expressed an unqualified opinion thereon.

Basis for Opinion 
These  financial  statements  are  the  responsibility  of  the  Company's  management.  Our  responsibility  is  to  express  an 
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the 
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities 
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and 
perform  the  audit  to  obtain  reasonable  assurance  about  whether  the  financial  statements  are  free  of  material 
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material 
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to 
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the 
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made 
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits 
provide a reasonable basis for our opinion. 

/s/ Ernst & Young LLP 

We have served as the Company’s auditor since at least 1938, but we are unable to determine the specific year.

New York, New York

July 25, 2018

82

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Scholastic Corporation

Opinion on Internal Control over Financial Reporting 
We have audited Scholastic Corporation’s internal control over financial reporting as of May 31, 2018, based on criteria 
established  in  Internal  Control-Integrated  Framework  issued  by  the  Committee  of  Sponsoring  Organizations  of  the 
Treadway (2013 framework) (the COSO criteria). In our opinion, Scholastic Corporation (the Company) maintained, in all 
material respects, effective internal control over financial reporting as of May 31, 2018, based on the COSO criteria. 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United 
States) (PCAOB), the consolidated balance sheets of the Company as of May 31, 2018 and 2017, the related consolidated 
statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three fiscal 
years in the period ended May 31, 2018, and the related notes, and financial statement schedule listed in the Index at 
Item 15(c) and our report dated July 25, 2018 expressed an unqualified opinion thereon.

Basis for Opinion 
The Company’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 are a public accounting firm registered with the PCAOB and are 
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the 
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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. 

Definition and Limitations of Internal Control Over Financial Reporting 
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.

/s/ Ernst & Young LLP 

New York, New York

July 25, 2018

83

 
 
 
Supplementary Financial Information

2018
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)

2017
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,

$

189.2 $
115.6

598.3 $
253.6

344.7 $
166.4

496.2 $
209.0

1,628.4
744.6

(63.7)

—
(63.7)

(1.81 )

—

(1.81 )

(1.81 )

—

(1.81 )

57.1

—
57.1

1.63

—

1.63

1.60

—

1.60

(49.2)

—
(49.2)

(1.41 )

—

(1.41 )

(1.41 )

—

(1.41 )

50.8

—
50.8

1.45

—

1.45

1.43

—

1.43

(5.0)

—
(5.0)

(0.14)

—

(0.14)

(0.14)

—

(0.14)

$

282.7 $
169.7

623.1 $
271.3

336.2 $
160.3

499.6 $
213.2

1,741.6
814.5

(39.5)

(0.1)
(39.6)

(1.15 )

(0.00)

(1.15 )

(1.15 )

(0.00)

(1.15 )

67.9

0.0
67.9

1.96

0.00

1.96

1.92

0.00

1.92

(15.5 )

0.1
(15.4)

(0.45)

0.01

(0.44)

(0.45)

0.01

(0.44)

39.6

(0.2)
39.4

1.13

(0.01)

1.12

1.11

(0.01)

1.10

52.5

(0.2)
52.3

1.51

(0.00)

1.51

1.48

(0.01)

1.47

(1) The sum of the quarters may not equal the full year basic and diluted earnings per share since each quarter is calculated separately.

84

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, 2018, 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 (2013), concluded that the Corporation’s internal control over financial 
reporting was effective as of May 31, 2018.

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, 2018, 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, 
2018 that materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over 
financial reporting.

Item 9B | Other Information

None.

85

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 26, 2018 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 26, 2018 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 26, 2018 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 26, 2018 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 26, 2018 to be filed pursuant to Regulation 14A under the Exchange Act.

86

 
 
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, 2018, 2017 and 2016

Consolidated Statements of Comprehensive Income (Loss) for the years ended May 31, 2018, 2017
and 2016

Consolidated Balance Sheets at May 31, 2018 and 2017

Consolidated Statement of Changes in Stockholders’ Equity for the years ended May 31, 2018, 2017
and 2016

Consolidated Statements of Cash Flows for the years ended May 31, 2018, 2017 and 2016

Notes to Consolidated Financial Statements

Supplementary Financial Information - Summary of Quarterly Results of Operations Financial Statement
Schedule.

(a)(2)

and (c)

The following consolidated financial statement schedule is included with this report: Schedule II-
Valuation and Qualifying Accounts and Reserves.

All other schedules have been omitted since the required information is not present or is not present in
amounts sufficient to require submission of the schedule, or because the information required is included
in the Consolidated Financial Statements or the Notes thereto.

(a)(3) and (b)

Exhibits:

3.1

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 6, 
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).

87

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.1*

10.2*

10.3*

10.4*

10.5*

10.6*

10.7*

10.8*

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 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. 1, effective as of May 21, 2013 
(incorporated by reference to the 2013 10-K), and Amendment No. 2, effective as of December 16, 2015 
(incorporated by reference to the Corporation's Quarterly Report on Form 10-Q as filed with the SEC on 
December 18, 2015, SEC FIle No. 000-19860).

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 (incorporated by reference to 
the 2009 10-K) and the Form of Restricted Stock Unit Agreement (incorporated by reference to the 
November 30, 2012 10-Q).

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 2, 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 Corporation's Annual Report on Form 10-K as filed with the SEC on July 25, 2013, SEC File No. 
000-19860 (the "2013 10-K")).

Form of Non-Qualified Stock Option Agreement under the 2001 Plan (incorporated by reference to the 
August 31, 2009 10-Q).

Scholastic Corporation 2011 Stock Incentive Plan (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 31, 2011 10-Q")). Amendment No. 1 to the Scholastic Corporation 2011 Stock Incentive Plan 
(incorporated by reference to the 2013 10-K) and Amendment No. 2 to the Scholastic Corporation 2011 
Stock Incentive Plan (incorporated by reference to the Corporation's Quarterly Report on Form 10-Q as 
filed with the SEC on December 22, 2014, SEC File No. 000-19860). 

10.9*

Form of Restricted Stock Unit Agreement under the Scholastic Corporation 2011 Stock Incentive Plan 
(incorporated by reference to the November 30, 2011 10-Q). 

10.10*

Form of Stock Option Agreement under the Scholastic Corporation 2011 Stock Incentive Plan 
(incorporated by reference to the November 30, 2011 10-Q).

10.11*

10.12*

Agreement and Release entered into December 6, 2017, by and between Maureen O'Connell and 
Scholastic Inc. (incorporated by reference to the Corporation's Current Report on Form 8-K as filed with 
the SEC on December 8, 2017, SEC File No 000-19860).

Scholastic Corporation 2013 Executive Performance Incentive Plan (incorporated by reference to the 
Corporation's Quarterly Report on Form 10-Q as filed with the SEC on January 7, 2014, SEC File No. 
000-19860).

88

 
 
 
 
 
 
10.13

Credit Agreement, dated as of January 5, 2017, among the Corporation and Scholastic Inc., as borrowers, 
the Initial Lenders named therein, Bank of America, N.A., as administrative agent, Merrill Lynch, Pierce, 
Fenner and Smith Incorporated and Well Fargo Securities, LLC as joint lead arrangers and joint 
bookrunners, Wells Fargo N.A., Capital One N.A., Fifth Third Bank and HSBC Bank USA, N.A., as syndicate 
agents, and Branch Banking and Trust Company, as documentation agent (incorporated by reference to 
the Corporation's Annual Report on Form 10-K as filed with the SEC on July 24, 2017, SEC File No. 
000-19860).

10.14*

Scholastic Corporation 2017 Outside Directors Stock Incentive Plan (incorporated by reference to the 
Corporation's Quarterly Report on Form 10-Q as filed with the SEC on September 21, 2017, SEC file No. 
000-19860)(the "August 31, 2017 10-Q").

10.15*

Form of Non-Qualified Stock Option Agreement under the Scholastic Corporation 2017 Outside Directors 
Stock Incentive Plan (incorporated by reference to the August 31, 2017 10-Q).

10.16*

Form of Restricted Stock Unit Agreement under the Scholastic Corporation 2017 Outside Directors Stock 
Incentive Plan (incorporated by reference to the August 31, 2017 10-Q).

21

23

31.1

31.2

32

Subsidiaries of the Corporation, as of May 31, 2018.

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.”

89

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 16 | Summary

None.

90

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 25, 2018

SCHOLASTIC CORPORATION

By: /s/ Richard Robinson

Richard Robinson, Chairman of the Board,
President and Chief Executive Officer

91

 
 
 
 
 
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

/s/ Kenneth J. Cleary

Kenneth J. Cleary

/s/ Paul Hukkanen

Paul Hukkanen

/s/ Andrés Alonso

Andrés Alonso

/s/ James W. Barge

James W. Barge

Chairman of the Board, President and
Chief Executive Officer and Director
(principal executive officer)

Senior Vice President and Chief Financial Officer
(principal financial officer)

Vice President and Chief Accounting Officer 
(principal accounting officer)

Director

Director

/s/ Marianne Caponnetto

Director

Marianne Caponnetto

/s/ John L. Davies

John L. Davies

/s/ Andrew S. Hedden

Andrew S. Hedden

Director

Director

Date

July 25, 2018

July 25, 2018

July 25, 2018

July 25, 2018

July 25, 2018

July 25, 2018

July 25, 2018

July 25, 2018

92

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Signature

/s/ Peter Warwick

Peter Warwick

Title

Director

/s/ Margaret A. Williams

Director

Margaret A. Williams

/s/ David J. Young

David J. Young

Director

Date

July 25, 2018

July 25, 2018

July 25, 2018

93

 
 
 
 
 
 
 
 
 
 
Scholastic Corporation

Financial Statement Schedule

ANNUAL REPORT ON FORM 10-K

YEAR ENDED May 31, 2018

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,

2018
Allowance for doubtful accounts $
Reserve for returns
Reserves for obsolescence
Reserve for royalty advances

2017
Allowance for doubtful accounts $
Reserve for returns
Reserves for obsolescence
Reserve for royalty advances

2016
Allowance for doubtful accounts $
Reserve for returns
Reserves for obsolescence
Reserve for royalty advances

(1)  Represents actual returns charged to the reserve

$

$

13.7
36.3
71.9
93.8

16.1
32.1
73.9
90.1

14.9 $
27.9
81.1
86.8

9.5 $

54.5
18.4
4.1

11.0 $
80.4
16.0
4.3

$

12.3
56.6
12.0
4.1

$

$

$

10.8  
(1)
60.8
22.8  
0.9  

13.4  
(1)
76.2
18.0  
0.6  

11.1  
(1)
52.4
19.2  
0.8  

12.4
30.0
67.5
97.0

13.7
36.3
71.9
93.8

16.1
32.1
73.9
90.1

S-2

 
 
 
 
 
   
 
 
 
 
 
 
“This Page Intentionally Left Blank”

“This Page Intentionally Left Blank”

“This Page Intentionally Left Blank”

Offices & Corporate Information

U.S. Offices

Scholastic Corporation, Scholastic Inc., 
Corporate and Editorial Offices 
557 Broadway 
New York, NY 10012 
212 343 6100 
scholastic.com 
@Scholastic

Scholastic Library Publishing, Inc. 
90 Sherman Turnpike 
Danbury, CT 06816 
203 797 3500

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

Scholastic Book Fairs, Inc. 
1080 Greenwood Boulevard 
Lake Mary, FL 32746 
407 829 7300

Customer Service 
1 800 SCHOLASTIC 
(1 800 724 6527) 
scholastic.com/custsupport 

@ScholasticHelp

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

International Offices

Malaysia 
Scholastic (Asia) Sdn. Bhd. 
60 3 9078 2828

New Zealand 
Scholastic New Zealand Ltd. 
64 9 274 8112

Philippines 
Grolier International, Inc. 
63 2 944 7323

Puerto Rico 
Caribe Grolier Inc. 
787 999 5551

China 
Scholastic Education Information 
Consulting Co., Ltd. 
86 216 426 4555

Stockholder Information

2018 Annual Stockholders’ Meeting 
2018 Annual Meeting of Stockholders  
will be held at 9 a.m. on Wednesday, 
September 26, 2018, at Scholastic’s Corporate 
Headquarters, 557 Broadway,  
(entrance at 130 Mercer Street) 
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.

Media Relations and Inquiries 
The news media and others seeking information 
about the Company should contact:

Scholastic Corporation 
Media Relations 
212 343 4563 
news@scholastic.com

Stock Listing 
Scholastic Corporation common stock is 
traded on The NASDAQ Stock Market under 
the symbol SCHL.

Stock Transfer Agent, Registrar,  
and Dividend Disbursement Agent

Computershare: 
1 877 272 1580 (toll-free) 
1 201 680 6578 (International)

TDD hearing impaired telephone numbers: 
1 800 231 5469 
1 201 680 6610 (International) 
www.computershare.com/investor

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

Registered stockholders who need to  
change their address or transfer shares  
should send instructions to:

By Mail: 
Computershare 
P.O. Box 505000 
Louisville, KY 40233-5000

By Overnight Delivery: 
Computershare 
462 South 4th Street 
Suite 1600 
Louisville, KY 40202 

Independent Accountants 
EY LLP 
5 Times Square 
New York, NY 10036-6530

General Counsel 
Baker & McKenzie LLP 
452 Fifth Avenue 
New York, NY 10018

 
Directors & Officers

(As of July 31, 2018)

Directors of the Corporation

Richard Robinson (E) 
Chairman of the Board, President 
and Chief Executive Officer, 
Scholastic Corporation

Andrew S. Hedden (R) 
Executive Vice President, 
General Counsel and Secretary, 
Scholastic Corporation

A: Audit Committee

E:  Executive Committee

Andrés Alonso (N, T) 
CEO, Andrés A. Alonso, LLC 
and Co-Chair, Public Education 
Leadership Project,  
Harvard University

Peter Warwick (A, E, H, R) 
Consultant and  
Former Chief People Officer, 
Thomson Reuters

James W. Barge (A, N, T) 
Chief Financial Officer, 
Lionsgate Entertainment Corp.

Margaret A. Williams (H, N) 
Partner, 
Griffin Williams  
Critical Point Management

Marianne Caponnetto (E, N, R, T) 
President and Founder, 
MCW Group, Inc.

David J. Young (A, H, T) 
Former Chairman and  
Chief Executive Officer,  
Hachette Book Group USA

John L. Davies (A, E, H) 
Private Investor

H: Human Resources and 
  Compensation Committee

N: Nominating and 
  Governance Committee

R: Retirement Plan Committee

T:  Technology and Data  
  Management Committee

Corporate Executive Officers

Richard Robinson 
Chairman of the Board, President 
and Chief Executive Officer

Satbir Bedi 
Executive Vice President, 
Chief Technology Officer

Alan Boyko 
President,  
Scholastic Book Fairs, Inc.

Kenneth J. Cleary 
Chief Financial Officer

Iole Lucchese 
Excecutive Vice President, 
Chief Strategy Officer

Judith A. Newman 
Executive Vice President  
and President,  
Book Clubs

Andrew S. Hedden 
Executive Vice President, 
General Counsel and Secretary

557 Broadway, New York, NY 10012  •  212 343 6100  •  scholastic.com

20 YEARS OF MAGIC
In 1998, Scholastic introduced American readers to J.K. Rowling’s Harry Potter series. 
With new paperback editions featuring cover art by Caldecott Medalist Brian Selznick, 
the 20th anniversary editions of the series will enable new generations of readers to 
embark on their own magical journeys. To date, the Harry Potter series has sold more 
than 180 million copies in the U.S. and over 500 million copies worldwide.

SCHOLASTIC INC.
Founded 1920

557 Broadway, New York, NY 10012
212 343 6100 | scholastic.com

Wizarding World Publishing Rights © J.K. Rowling. Wizarding World characters, names, and related indicia are TM and © Warner Bros. Entertainment Inc. Art by Brian Selznick © 2018 by Scholastic Inc. All rights reserved.