2019 / 2020ANNUAL REPORT The people of Scholastic were focused
on the same thing in 1920 that we are
today–understanding what matters
most in a child’s life. By engaging
children through reading and learning
with powerful stories and information,
we can help them understand
themselves, relate to others and help
create a better world. This is what
keeps us relevant, and has driven us
every day for the past 100 years.
—Richard Robinson
Chairman, President and Chief Executive Officer
557 Broadway, New York, NY 10012 • 212 343 6100 • scholastic.com
Fellow Shareholders,
Scholastic has faced many challenges in our 100-year history. But as our centennial year kicked off in January
2020, we could not have predicted the societal upheaval caused by a global pandemic, massive economic
slowdown and the most significant social uprising in the U.S. in fifty years. Just weeks into our all-important
fourth quarter in March, nearly every state in the U.S. had shut down schools because of the coronavirus.
As Scholastic staff met the challenges of the pandemic head-on, two important themes emerged: first, the
reliance of our school and family customers on Scholastic for reading and learning, even with schools closed;
and second, the opportunity to accelerate our move to digital learning resources for both school and home.
We quickly shifted focus to find inventive ways to provide reading and learning for millions of families and
educators reeling from school shutdowns.
Here are some highlights of how our teams made the pivot from schools to homes, even while coping with
disruption in their own lives and communities:
Î The classroom magazines team mobilized to create virtual learning journeys through Scholastic
Learn at Home, a free resource hub advancing our transition to digital learning and reaching 80
million page views by June.
Î The education group partnered with states and major districts to provide book packs shipped
directly to children’s homes for families in need, as well as selling digital subscription programs
such as Literacy Pro™, F.I.R.S.T.™ and W.O.R.D.™ for home use.
Î Book Fairs made virtual fairs available to enable safe, affordable book access, while book clubs
pivoted to ship books directly to homes.
Î Our national distribution center did an extraordinary job handling more complex shipments,
including direct-to-home, all while following strict health and safety protocols.
Despite these pivots and strong company performance in the first three quarters of the year, the impact
of school closings on our business in the fourth quarter was significant. As a result, we had to act swiftly to
preserve our ability to serve the schools and families who needed Scholastic more than ever. This included
taking difficult but necessary staffing actions, including reduced work weeks and furloughs.
Anticipating continued disruption in the coming school year, we worked to build flexibility throughout the
Scholastic organization. This included redesigning our clubs and fairs team structures and increasing focus
on digital solutions in education. We also commenced a rigorous $100 million cost reduction program
designed to preserve profitability.
Here is an overview of fiscal 2020 financial results:
Largely because of the Q4 revenue shortfalls, as well as sizeable non-cash write-downs of inventory
and other assets during the year, the company experienced a significant operating loss.
Î Overall fiscal 2020 revenues declined 10% versus last year to $1.49 billion, driven by decreased
revenues in our school-based distribution channels. Because of school closings, we saw a
combined $151.7 million revenue reduction in Q4 in clubs and fairs, representing declines of
59% and 79% respectively versus Q4 of the prior fiscal year.
Î Fourth quarter operating loss was $46.2 million (including one-time items of $6.8 million),
compared to operating income of $32.0 million (including one-time items of $8.1 million) in Q4
of last year. Full year operating loss was $88.5 million (including one-time items of $56.2 million),
versus operating income of $25.0 million (including one-time items of $16.0 million) in fiscal 2019.
Here are focus areas that will help us achieve our goals in fiscal 2021:
Although we anticipate a slower start to the year for our school distribution channels, we are closely
monitoring school reopening plans, and are offering flexible “COVID-ready” programs:
Î Safe and Easy Book Events: Our fairs group is ready with Safe & Easy fairs designed to meet the
needs of individual schools and comply with local health and safety requirements. Our resilient
classroom book club platform also provides teachers and parents a safe and convenient way to
get books to kids.
Î Resources to Combat Learning Loss: The need for affordable books is greater than ever as
students work to regain reading progress lost during school closures. And there is strong interest
from schools for more digital programs, including Scholastic Learn at Home, which we have
expanded into a paid subscription program for family purchase.
Î Global Leadership in Children’s Book Publishing: In addition to continued momentum from The
Ballad of Songbirds and Snakes, the newest installment in The Hunger Games® series, we look
forward to new Dav Pilkey titles: Grime and Punishment (Dog Man #9) and Cat Kid Comic Club™,
an all-new graphic novel series. This fall also brings the release of The Ickabog®, a new children’s
story from J.K. Rowling. With 20% growth in trade sales in fiscal 2020, Scholastic has further
strengthened our position as a leading provider of content in children’s books globally, backed by
our expanding entertainment programming for iconic brands such as Clifford the Big Red Dog®,
coming to life soon in a major Paramount live action release.
Finally, the current moment of social uprising requires that we recommit to the Scholastic values
established a half century ago in our corporate credo, including respect for the diverse groups in
our multicultural society and a commitment to build a society free of prejudice and hate. The more
diverse we are as a company, the better able we are to serve American classrooms which are now 50%
ethnically and racially diverse. Society expects this of us, and we must and do expect it of ourselves.
This is not the first time in our 100-year history that Scholastic has faced significant challenges, and
each time we have emerged stronger and more resilient. I am grateful to our staff who together make
Scholastic a force for good around the world, developing the ability of children to learn and thrive even
amidst the most challenging circumstances. Thank you for your support of our company and mission in
our centennial year, as we expand our digital support for children’s reading and learning as a critical part
of building a better 21st century society for all.
Richard Robinson
Chairman, President and Chief Executive Officer
August 11, 2020
Forward-Looking Statements: This Chairman’s Letter contains certain forward-looking statements relating to future periods. Such forward-looking statements are subject to various risks
and uncertainties, including the conditions of the children’s book and educational materials markets and acceptance of the Company’s products within those markets, and other risk
and factors identified from time to time in the Company’s filings with the Securities and Exchange Commission. Actual results could differ materially from those currently anticipated.
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, 2020
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
Trading Symbol
SCHL
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 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). 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
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm
that prepared or issued its audit report.
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, 2019, was approximately
$1,092,596,663, based upon the closing price of the Common Stock on November 29, 2019, of $37.13. 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, 2020 was as follows:
Title of each class
Common Stock, $0.01 par value
Class A Stock, $.01 par value
Number of shares outstanding as of June 30, 2020
32,530,986
1,656,200
Part III incorporates certain information by reference from the Registrant’s definitive proxy statement for the Annual Meeting of
Stockholders to be held September 23, 2020.
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.
Item 1A.
Item 1B.
Item 2.
Item 3.
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Item 7A.
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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, as well as parents and children,
customized and comprehensive solutions to support children’s learning and reading 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 165 countries around the world.
The Company currently employs approximately 6,000 people in the United States and approximately 2,300 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
2020
875.4
287.3
324.4
1,487.1
$
$
(Amounts in millions)
2019
990.3
297.4
366.2
1,653.9
$
$
2018
970.2
288.6
369.6
1,628.4
$
$
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.
In connection with the following description of the Company's reportable segments, reference is also made to Item
1A, Risk Factors, for additional information concerning the impact of the COVID-19 pandemic on such reportable
segments.
CHILDREN’S BOOK PUBLISHING AND DISTRIBUTION
(58.9% of fiscal 2020 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 book fairs 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.
1
The Company obtains titles for sale through its distribution channels from three principal sources. The first source for
titles is the Company’s publication of books created under exclusive agreements with authors, illustrators, book
packagers or other media companies. Scholastic generally controls the exclusive rights to sell these titles through all
channels of distribution in the United States and, to a lesser extent, internationally. Scholastic’s second source of titles
is 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 distributes 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 61% of kindergarten ("K") to grade 5 elementary school teachers in the United States who received
promotional materials in fiscal 2020 participated in the Company’s school-based book clubs. In fiscal 2020,
approximately 96% 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, with approximately 48% of such revenues being
placed by parents via the Company's online ordering platform. Products are typically shipped to the classroom for
distribution to the students, however during the COVID-19 pandemic, the Company provided shipping directly to
teachers' homes due to school closures. Teachers who participate in 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 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 have traditionally been weeklong events where children and families peruse and purchase their
favorite books together. The Company typically delivers book fairs product from its warehouses to schools principally
by a fleet of Company-owned and leased vehicles. However, as a result of COVID-19 school closings and the
cancellation of physical book fairs held at schools, the Company is in the process of developing alternative methods
for delivering fair products. Sales and customer service representatives, working from the Company’s regional offices,
distribution facilities and national distribution facility in Missouri, along with local area field representatives, provide
support to book fair organizers. Physical 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. In a typical year, prior to COVID-19, approximately 92% of the schools that conducted a book fair
hosted a fair in the following year.
Trade
Scholastic is a leading publisher of children’s books sold through bookstores, on-line retailers and mass merchandisers
primarily in the United States. Scholastic’s original publications include Harry Potter™, The Hunger Games®, The Bad
Guys™, The Baby-Sitters Club® graphic novels, The Magic School Bus®, I Spy™, Captain Underpants®, Dog Man®,
Wings of Fire™, Goosebumps® and Clifford The Big Red Dog®, and licensed properties such as Peppa Pig®, Five Nights
at Freddy’s®, Pokemon® and Geronimo Stilton®. In addition, Klutz® and Make Believe Ideas™ publish and create “books
plus” and novelty products for children, including titles such as Mini Grocery Store, Rocks, Gems & Geodes Maker Lab,
LEGO® Chain Reactions, Hope the Rainbow Fairy, and the titles related to the Never Touch series.
The Company’s trade organization focuses on publishing, marketing and selling books to bookstores, on-line 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
2
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 2020 included Dav Pilkey's Dog Man series, Harry Potter and the Goblet of Fire: The
Illustrated Edition, Raina Telgemeir’s Guts, the Wings of Fire series, the Hunger Games series, including the newest
book, The Ballad of Songbirds and Snakes, by Suzanne Collins, and The Wonky Donkey and The Dinky Donkey titles.
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
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.
Scholastic is also a leading publisher of quality children’s reference and non-fiction products 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®.
EDUCATION
(19.3% of fiscal 2020 revenues)
The Education segment 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. In response to
COVID-19 school closings, the Company has introduced alternative temporary distribution methods including "take
home packs" that are provided to schools and school districts, allowing families access to educational materials when
arriving at local facilities to access meals as part of the National School Lunch Program and, in certain circumstances,
were mailed to individual residences. In addition, the Company offered a "learning at home" service providing free
learning activities and resources to students and their families, which has been turned into a paid subscription service
as of July 1, 2020.
Scholastic Literacy
In the spring of 2019, the Company launched Scholastic Literacy, a comprehensive approach to core literacy for
students in kindergarten to grade 6 that includes curriculum materials in both digital and print. Scholastic Literacy's
instructional methodology leads to responsive teaching in three classroom configurations: (1) to students with
teacher-led whole class instruction; (2) with children through teacher-facilitated small group differentiated instruction;
and (3) by students through independent reading practice and mastery. The Company believes that the Scholastic
Literacy core curriculum reading program contains a number of key differentiators, including the highest volume of
authentic and culturally-relevant texts in the market and data to inform responsive, personalized instruction for
students, that helped position this product for initial market penetration in fiscal 2020.
Supplemental
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 to community-based organizations and other groups engaged
in literacy initiatives through Scholastic Family and Community Engagement (FACE). Professional consulting services
are also provided to support academic leadership with training on a multitude of topics, ranging from product
implementation to engaging with families and communities. Scholastic helps schools build classroom collections of
high quality, award-winning books for every grade, reading level and multicultural background. Scholastic serves
customer needs with customized support for literacy instruction, by providing comprehensive literacy programs which
include print and digital content, as well as providing assessment tools. These materials are designed to support
instruction based teaching and learning, and are generally purchased by district and school leadership, 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.
Scholastic is also 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
3
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, as well as providing access to the magazine in a
digital format. A "digital only" subscription to the magazine is also being offered in response to COVID-19. Digital
delivery is expected to be increasingly important due to COVID-19 uncertainties. Scholastic’s classroom magazine
circulation in the United States in fiscal 2020 was approximately 14.4 million, with approximately 80% 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 2020. Also included in the segment is the Company's custom publishing business, which is being phased out, or
in some cases, assigned to other business units for particular clients.
INTERNATIONAL
(21.8% of fiscal 2020 revenues)
General
The International segment includes the publication and distribution of products and services outside the United States
by the Company’s international operations, and its export and foreign rights businesses.
Scholastic has operations in the Major Markets, which include Canada, the United Kingdom, Ireland, Australia, and
New Zealand, as well as 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 165 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; and produce and distribute magazines and on-line subscription
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 provide English language learning for their children at home
and engages in direct sales in shopping malls and door to door, as well as operating a franchise program for tutorial
centers that provide English language training to students primarily in China.
Canada
Scholastic Canada, founded in 1957, is a leading publisher and distributor of English and French language children’s
books in Canada. 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. In response to the COVID-19 school closures, the Canadian school-based
businesses identified alternative methods to deliver products to students, which included shipping products directly to
parents' homes.
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.
The UK school-based business has responded to the COVID-19 pandemic by implementing increased digital
marketing while operating a safe warehouse that has enabled deliveries directly to parents' homes for the book clubs
channel.
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. In addition, Scholastic Australia holds an equity method investment in a
publisher and distributor of children's books.
4
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 has traditionally sold English language and early
childhood learning materials through a network of independent sales representatives in India, Indonesia, Malaysia, the
Philippines, and Thailand and engages in direct sales in shopping malls and door to door, business activities which
were disrupted by the COVID-19 pandemic in an effort to curtail the spread of the virus. 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 franchise program for English language tutorial centers in China in
cooperation with local partners, which have been temporarily closed to limit the spread of the coronavirus.
Foreign Rights and Export
The Company licenses the rights to select Scholastic titles in 65 languages to other publishing companies around the
world. The Company’s export business sells educational materials, digital educational resources and children’s books
to schools, libraries, bookstores and other book distributors in approximately 150 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.
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. See also Item 1A, Risk Factors, for
further discussion on potential risks associated with the COVID-19 pandemic.
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 the magazines are shipped
directly from printers.
School-based book fairs are fulfilled through a network of warehouses across the country, a significant number of
which were closed in the fourth quarter of fiscal 2020 due to the absence of physical book fairs, 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.
The Company does not anticipate fulfillment issues, however see Item 1A, Risk Factors, for further discussion on
potential risks associated with the COVID-19 pandemic.
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,
5
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 the purchase of the rights to Content outright.
•
•
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
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. The COVID-19 pandemic began to significantly impact the Company in the fourth fiscal quarter and is expected
to continue to negatively impact the Company at least through the first quarter of fiscal 2021, ending August 31, 2020,
which is traditionally a loss quarter. Presently, there are many uncertainties concerning the timing of, and any patterns
which may emerge from, school reopenings for the new school year, and the nature and continuing magnitude of the
negative impact of COVID-19 into and beyond the second quarter of fiscal 2021 will depend on the actual timing and
emerging patterns of such reopenings throughout the United States. Reference is also made to Item 1A, Risk Factors,
for further discussion on potential risks associated with the COVID-19 pandemic.
6
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
include regional and local school-based book fair operators and other fund raising activities in schools and
bookstores, as well as one other competitor operating on a national level. 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.
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.
7
Employed by
Registrant Since Previous Position(s) Held
Name
Richard Robinson
Age
83
Kenneth J. Cleary
Iole Lucchese
Satbir Bedi
Judith A. Newman
55
53
56
62
1962
2008
1991
2012
1993
Sasha Quinton
42
2020
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 Entertainment (since 2018),
President, Scholastic Canada (2016).
Executive Vice President and Chief Technology Officer (since
2018); Senior Vice President and Chief Technology Officer
(2012-2018).
Executive Vice President and President, Scholastic Book Clubs
(since 2014), Book Clubs and eCommerce (2011-2014), Book
Clubs (2005-2011); Senior Vice President and President, Book
Clubs and Scholastic At Home (2004-2005); Senior Vice
President, Book Clubs (1997-2004).
Executive Vice President and President, Scholastic Book Fairs
(2020); Vice President & GMM, Bookstore, Barnes and Noble,
Inc. (2019); Senior Vice President, Marketing and Procurement,
ReaderLink Distribution Services (2017-2019); Vice President,
Marketing and Procurement, ReaderLink Distribution Services
(2014-2017).
Andrew S. Hedden
79
2008
Executive Vice President, General Counsel and Secretary (since
2008) and member of the Board of Directors (since 1991).
8
AVAILABLE INFORMATION
The Corporation’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any
amendments to those reports are accessible at the Investor Relations portion of its website (scholastic.com) and are
available, without charge, as soon as reasonably practicable after such reports are electronically filed or furnished to
the Securities and Exchange Commission (“SEC”). The Company also posts the dates of its upcoming scheduled
financial press releases, telephonic investor calls and investor presentations on the “Events and Presentations” portion
of its website at least five days prior to the event. The Company’s investor calls are open to the public and remain
available through the Company’s website for at least 45 days thereafter.
The public may also read and copy materials that the Company files with the SEC at the SEC’s Public Reference Room
at 100 F Street, N.E., Washington, DC 20549. The public may obtain information, as well as copies of the Company’s
filings, from the Office of Investor Education and Advocacy by calling the SEC at 1-800-SEC-0330. The SEC also
maintains an internet site, at www.sec.gov, that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC.
9
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, particularly in the context of the current COVID-19 pandemic.
Our business, results of operations and financial condition may continue to be adversely affected by the
COVID-19 pandemic and other infectious diseases.
The COVID-19 pandemic and actions taken, or which may be taken in the future following any easing of current restrictions
based on the future course of the pandemic, by governments, businesses and individuals to limit the spread of the virus
may continue to have an adverse effect on the Company’s results of operations and financial condition. The following
are ways that the virus and steps taken to curtail it have impacted or may in the future impact the Company’s businesses
and operations:
Books Fairs / Book Clubs: A major part of the Company’s business depends upon access to and activities at schools in
the United States and other markets. If schools continue to be closed or if in-person group activities in schools are
prohibited or limited at those schools that remain open, the book fair and book clubs businesses may continue to be
adversely affected. This may also have a continuing effect on the Company’s current business models for book fairs
and book clubs, requiring the Company to adapt its current models or develop alternative models to respond to in-
school and remote-learning patterns which may emerge, whether temporarily or permanently, with the new school
year, and there can be no assurance that the Company will be successful in meeting this challenge, which would have
an adverse effect on the previous levels of revenue and operating results the Company has been able to achieve
through these school channels.
Education: Similarly, school closings or other measures designed to prevent the spread of the virus in schools that
remain open may adversely impact the Company’s Education segment, particularly if school administrators and other
personnel who order educational products decide, in order to limit the spread of the virus or to limit spending, to
curtail purchases of the Company’s curated collections of physical books which are meant to be shared by students in
classrooms or print copies of classroom magazines which are used in the classrooms. In addition, during the current
phase of the response to COVID-19, with the majority of schools completely closed, the Company has been affected
by school administrators and other personnel who order educational products not being present in the schools and in
a position to order products. While this may be expected to be resolved through new school administrative practices,
and the Company believes it has a strong suite of both physical and digital products and programs to meet current
educational learning needs, whether in the classroom or through remote learning, the Company’s Education business
may be adversely affected by changing patterns in the nature of the products and programs being ordered by schools,
whether print or digital. In addition, this business may also be adversely affected by schools diverting funds from
educational materials to safety measures in response to COVID-19.
Trade Publishing: To the extent that malls and other brick and mortar outlets, including independent bookstores,
remain closed or subject to limits on customers, the Company’s trade sales business may also be adversely affected by
lower foot traffic at these establishments, although this impact may continue to be mitigated by widespread access to
online ordering platforms. The Trade business may also be affected to the extent independent bookstores which have
been closed due to governmental actions taken to curtail the spread of the virus find themselves financially unable to
reopen, as conditions permit, resulting in a further decline in the number of independent bookstores.
International: The Company’s International segment is also subject to the same continuing risks from steps taken to
limit the spread of the virus, which had resulted in the temporary closing of the Company’s franchised English
language learning centers in China, and continues to cause disruption in the Company’s direct sales business in other
parts of Southeast Asia, as well as adversely affecting the Company’s book fairs and book clubs businesses in certain of
its Major Markets, particularly Canada and the UK.
Facility Closures; Business Suppliers: In addition to the impact on the Company’s ability to market and sell its products,
measures taken by governmental authorities and private actors to limit the spread of the virus may interfere with the
ability of employees, suppliers, and other business providers to carry out their assigned tasks or supply materials at
ordinary levels of performance relative to the conduct of the Company’s business, which may make it necessary for
the Company to limit certain of its business operations. Many of the Company’s employees in the United States and
10
around the globe are working remotely, as multiple business locations, including the Company’s headquarters office in
New York City, remain closed. Although the Company’s digital platforms and business systems have successfully
allowed a large part of the work force to continue to work remotely, there can be no assurance that continued
closures of (or limited attendance at) the Company’s facilities will not have an adverse impact on the Company’s
results of operations or financial condition. While the Company’s headquarters and certain other facilities are expected
to reopen through a multi-phased approach, the Company expects that, at least during the course of the pandemic, a
significant shift will continue in the number of employees continuing to work remotely, which may ultimately result in
a continuing change in working patterns to which the Company will need to adapt.
Business Operations: Business closures, curtailed business activities and exceptional demand for shipping and delivery
to homes of parents rather than to schools may in the future result in delays in customers receiving products that they
purchase from the Company and also may result in higher costs to the Company, each of which may have an adverse
impact on the Company’s results of operations and financial condition.
Finally, the COVID-19 pandemic is having a significant adverse impact on employment and general economic conditions
in the United States and elsewhere, resulting in lower consumer spending for non-essentials and lower tax revenues,
which may lead to strained school district budgets and procurement of new materials and programs, whether in digital,
or, in particular, print form. As a result, lower consumer spending in general and pressures on school budgets in the
United States and elsewhere may have a continuing adverse impact on the Company’s results of operations and financial
condition.
The Company cannot predict how long the COVID-19 pandemic may continue to impact its businesses or the
magnitude of the adverse consequences of the virus on the Company’s business, results of operations or financial
condition, but it anticipates that such effects may be material, especially if, during any phases of the pandemic,
schools remain closed or are closed again after being reopened, or the patterns of the physical presence of children in
schools are materially altered, and the Company is unsuccessful in adapting its relevant business models to such
changed conditions.
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 recurring basis until a
pattern develops and becomes more defined. In addition, the Company faces market risks associated with systems
development and service delivery in its evolving school ordering and ecommerce businesses as well as responding to
changes in how schools plan to utilize technology for virtual or remote learning as a result of the COVID-19
pandemic, and the associated impact on the demand for printed materials in schools.
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. For example, the COVID-19 pandemic has resulted in school closures around the globe and created the need
for virtual learning. The book clubs business relies on attracting and retaining new sponsor-teachers to promote its
products. With teachers not being physically present in a classroom or at a school, their ability to encourage book club
participation could be significantly impacted. If the Company cannot attract new millennial and younger teachers and
meet the changing preferences and demands of these teachers, its revenues and cash flows could be negatively
impacted. The book fairs business relies on large in-person gatherings at a school. If these kinds of in-person
11
gatherings continue to be prohibited or discouraged in schools and the Company cannot develop feasible alternatives
to such in-person book fairs that meet the preferences or service expectations of individuals and groups within
schools who organize and run book fairs in this new environment, the Company's revenues and cash flows could be
negatively impacted.
The Company has differentiated 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.
The Company also has the ability to accumulate book club orders on-line as well as run "virtual" book fairs.
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.
If we fail to maintain strong relationships with our authors, illustrators and other creative talent, as well as to
develop relationships with new creative talent, our business could be adversely affected.
The Company’s business, in particular the trade publishing and media portions of the business, is highly dependent on
maintaining strong relationships with the authors, illustrators and other creative talent who produce the products and
services that are sold to its customers. Any overall weakening of these relationships, or the failure to develop
successful new relationships, could have an adverse impact on the Company’s business and financial performance.
If we fail to adapt to new purchasing patterns or 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, which could be significantly influenced by constraints
caused by the COVID-19 pandemic, or by 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 has invested 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. Traditional basal text book publishers generally maintain larger sales
forces than the Company, and sell across several academic disciplines, allowing them a larger presence than the
Company which only carries core and supplemental literacy solutions. 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 distribution channels include 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 81% of the Company’s trade business and
12
17% of the Company’s total revenues, with one customer accounting for 36% of the trade business and 8% 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 financial condition 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 or
received from schools. 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 the
collection and use of personal information, including the European Union General Data Protection Regulation, which
became enforceable on May 25, 2018, and the California Consumer Privacy Act, which became effective in January
2020. 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. If the Company were unable to continue to adequately maintain and develop a workforce of this
nature meeting the foregoing needs, including the development of new skills in the context of a rapidly changing
business environment created by technology, involving new business processes and increased access to data and data
analytics, it could negatively impact the Company’s operations and growth prospects.
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 in response to the COVID-19 pandemic in a
timely and flexible manner. Examples include:
strategies for its respective business units to adapt to changes in the school market related to virtual or
remote learning
strategies in implementing on-going cost containment and reduction programs
• 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 international educational publishing operation
in Singapore
• The ability to expand in the global markets that it serves
13
• The ability to meet demand for content meeting current standards in the United States
• The ability to implement cross channel marketing and pricing
Difficulties, delays or failures experienced in connection with any of these factors could materially affect the future
growth of the Company.
Failure of one or more of our information technology platforms could affect our ability to execute our
operating strategy.
The Company relies on a variety of information technology platforms to execute its operations, including human
resources, payroll, finance, order-to-cash, procurement, vendor payment, inventory management, distribution and
content management systems 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 the implementation of 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 implementation of
the remaining stages 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. In addition, the COVID-19 pandemic has resulted in third party mail and delivery services
to be at capacity. The increased demand to receive products directly at the home, versus at a retail store, could drive
an increase in the Company's shipping costs.
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. While the Company has taken steps to manage certain expected operating cost
increases, 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. In addition, supplier bankruptcy may
cause price increases for the Company.
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. The inability to publish best-selling new titles in future years could negatively impact the Company.
In addition, competition among electronic and print book retailers, including the decrease in the number of
independent booksellers, could decrease prices for new title releases, as well as the number of outlets for books sales.
The growing use of self-publishing technologies by authors also increases competition and could result in the
14
decreased use of traditional publishing services. The effects of any of the foregoing factors could have an adverse
impact on the Company's business, financial condition or results of operation.
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 United Kingdom’s exit from the European Union, could affect the Company's sales in the
UK, as the current uncertain state of negotiations between the EU and the UK regarding the terms of the exit 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. In addition, supply chain disruptions in Asia related to
COVID-19 could cause increased costs for the Company.
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 and natural disaster 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 and natural disaster events, such as hurricanes, tornadoes, floods,
snowstorms or earthquakes. Notably, much of the Company’s domestic distribution facilities are located in central
15
Missouri. A disruption of these or other facilities could impact the Company’s school-based book clubs, school-based
book fairs, trade and education businesses. Additionally, weather and natural disaster disruptions could result in school
closures, resulting in reduced demand for the Company’s products in its school channels during the affected periods.
Accordingly, the Company could be adversely affected by any future significant weather and natural disaster events.
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.
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 has recently completed the renovation of its New York
headquarters, which includes 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. The COVID-19 pandemic could adversely impact the demand for and
value of real estate holdings in New York City, including both office space and retail space.
Note
The risk factors listed above should not be construed as exhaustive of all possible risks that the Company may face.
Additional risks not currently known to the Company or that the Company does not consider to be significant at the
present time could impact the Company's consolidated financial position and results of operations.
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 and strategic 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.
16
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
0.4 million square feet of space. The Company owns the entirety of its principal headquarters including land, building,
fixtures and related personal property located at 557 Broadway in New York City. The Company holds certain space
within its New York headquarters to be leased to retail tenants and some of this space is currently vacant.
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 3.0 million square feet of office and warehouse space across 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 committed to a plan to sell the company-owned facility located in Danbury, Connecticut and relocate
the warehousing and distribution operations conducted at the Danbury facility to a leased warehouse in Allentown,
Pennsylvania. This facility was subsequently sold on June 5, 2020. The Company also committed to a plan to sell two
UK distribution centers and consolidate the operations into a new facility currently under construction. The Company
expects the sale of these facilities to be completed within one year.
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 9 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 6, "Commitments and Contingencies," of Notes to the Consolidated
Financial Statements in Item 8, "Consolidated Financial Statements and Supplementary Data" for further discussion.
Item 4 | Mine Safety Disclosures
Not Applicable.
17
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 (the "NASDAQ") 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.
Holders: The number of holders of Class A Stock and Common Stock as of July 16, 2020 were 3 and approximately
9,400, respectively.
Dividends: On a quarterly basis, the Board of Directors considers the payment of cash dividends based upon its
review of Company earnings, cash position and other relevant factors. On July 22, 2020, the Board of Directors,
having considered such factors, including the current impact of COVID-19 on the Company's financial position,
determined to continue its current dividend practice at the present time and declared a regular cash dividend of $0.15
per Class A and Common share in respect of the first quarter of fiscal 2021. The dividend is payable on September 15,
2020 to shareholders of record on August 31, 2020. All dividends have been in compliance with the Company’s debt
covenants.
Share purchases: During fiscal 2020, the Company repurchased 1,036,658 Common shares on the open market at
an average price paid per share of $34.23 for a total cost of approximately $35.5 million, pursuant to a share buy-back
program authorized by the Board of Directors. During fiscal 2019, pursuant to the same share buy-back program, the
Company repurchased 216,612 Common shares on the open market at an average price paid per share of $39.42 for a
total cost of approximately $8.5 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, 2020:
Period
March 1, 2020 through March 31, 2020
April 1, 2020 through April 30, 2020
May 1, 2020 through May 31, 2020
Total
Total
number of
shares
purchased
93,248 $
—
—
93,248
Average
price paid
per share
30.16
—
—
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)
93,248
—
—
93,248
$
$
67.3
67.3
67.3
67.3
(i) Total represents the amount remaining under the Board authorization for Common share repurchases on March 21, 2018 and the current
$50.0 million Board authorization for Common share repurchases announced on March 18, 2020, which is available for further repurchases,
from time to time as conditions allow, on the open market or through negotiated private transactions.
18
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, 2015 to May 31, 2020.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Scholastic Corporation, the NASDAQ Composite Index
and a Peer Group
*$100 invested on 5/31/15 in stock or index, including reinvestment of dividends
Scholastic Corporation
NASDAQ Composite Index
Peer Group
Fiscal year ending May 31,
2015
2016
2017
2018
2019
2020
$100.00 $ 89.15 $ 98.49 $105.78 $ 78.93 $ 71.39
100.00
97.59 122.26
146.79
147.00 187.18
100.00
70.27
58.40
76.63
67.16
41.14
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
19
Item 6 | Selected Financial Data
Statement of Operations Data:
Revenues
Cost of goods sold (1)
Selling, general and administrative expenses(2)
Depreciation and amortization
Severance (3)
Asset impairments and write downs (4)
Operating income (loss)
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)
Less: Net income (loss) attributable to noncontrolling interest
Net income (loss) attributable to Scholastic Corporation
Share Information:
Basic:
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations
Net Income (loss) attributable to Scholastic Corporation
Diluted:
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations
Net Income (loss) attributable to Scholastic Corporation
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
$
$
$
$
$
$
$
$
$
$
$
$
2020
2019
2018
2017
2016
(Amounts in millions, except per share data)
For fiscal years ended May 31,
$
1,487.1
751.0
705.3
61.5
17.2
40.6
(88.5)
(0.1)
(1.3 )
—
(89.7)
(46.0)
(43.7)
—
(43.7) $
0.1
(43.8) $
1,653.9
779.9
781.4
56.1
10.6
0.9
25.0
(3.4)
(1.4)
(1.0)
26.0
10.4
15.6
—
15.6
0.0
15.6
$
$
$
(1.27 ) $
— $
(1.27 ) $
(1.27 ) $
— $
(1.27 ) $
34.6
34.6
0.60
$
0.44
$
— $
$
0.44
0.43
$
— $
$
0.43
35.2
35.8
0.60
533.8
393.8
2,033.6
210.6
218.5
9.5
11.6
1,180.6
$
$
419.1
334.1
1,878.5
—
7.3
8.4
10.1
1,272.8
$
$
$
$
1,628.4
744.6
765.7
41.4
9.9
11.2
55.6
(1.1 )
(58.2)
0.0
(1.5 )
3.5
(5.0)
—
(5.0) $
—
(5.0) $
(0.14) $
— $
(0.14) $
(0.14) $
— $
(0.14) $
35.0
35.0
0.60
$
1,741.6
814.5
777.5
38.7
14.9
6.8
89.2
1.0
(0.3)
—
87.9
35.4
52.5
(0.2)
52.3
—
52.3
$
$
$
1.51
$
(0.00) $
$
1.51
1.48
$
(0.01) $
1.47
$
34.7
35.4
0.60
$
1,672.8
762.3
773.6
38.9
11.9
14.4
71.7
1.1
(4.1)
2.2
68.7
24.7
44.0
(3.5)
40.5
—
40.5
1.29
(0.11 )
1.18
1.26
(0.10)
1.16
34.1
34.9
0.60
512.5
391.9
1,825.4
—
7.9
6.2
7.4
1,320.8
$
$
583.4
444.1
1,760.4
—
6.2
6.5
7.6
1,307.9
$
$
571.8
399.7
1,713.1
—
6.3
7.5
8.6
1,257.6
(1) In fiscal 2018, the Company recognized pretax costs related to branch warehouse consolidation in Canada of $0.1. In 2017, the Company recognized pretax exit costs
related to its software distribution business in Australia of $0.5.
(2) In fiscal 2020, the Company recognized a pretax charge of $1.0 related to a settlement of an intellectual property producing agreement and a pretax settlement expense
of $1.5 related to an alleged patent infringement claim. In fiscal 2019, the Company recognized pretax charges related to a settlement of a legacy sales tax assessment of
$8.1 and pretax costs associated with branch consolidation charges 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.
(3) In fiscal years 2020, 2019, 2018, 2017 and 2016, the Company recognized pretax severance expense primarily related to cost reduction and restructuring programs of
$13.1, $6.5, $7.4, $12.9 and $9.5, respectively.
(4) In fiscal 2020, the Company recognized a pretax impairment charge of $40.0 related to the write down of inventory from lower anticipated requirements in the
Company's school channels and a pretax impairment charge of $0.6 related to an outdated technology platform in Canada. In fiscal 2019, the Company recognized a
pretax impairment charge of $0.9 related to legacy building improvements. In fiscal 2018, the Company recognized a pretax impairment charge 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.
20
(5) In fiscal 2018, the Company recognized a pretax charge related to the final settlement of the Company's domestic defined benefit pension plan of $57.3.
(6) In fiscal 2019, the Company recognized a pretax charge of $1.0 related to the recognition of foreign currency translation adjustment previously recorded within
accumulated other comprehensive income (loss) as a result of the acquisition of Make Believe Ideas Limited. In fiscal 2016, the Company recognized a pretax gain of $2.2
on the sale of a China-based cost method investment.
(7) In fiscal 2020, the Company recognized a benefit for income taxes in respect to one-time pretax charges of $15.3. In fiscal 2019, the Company recognized a benefit for
income taxes in respect to one-time pretax charges of $4.2 and income tax provision of $4.7 primarily related to the Company's state deferred tax balances. 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.
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
Overview
Revenues in fiscal 2020 were $1.49 billion, a decrease of 10.1% from $1.65 billion in fiscal 2019, reflecting lower sales
in the Company's Children's Book Publishing and Distribution segment of $114.9 million, decreased revenues in
the Education segment of $10.1 million, and lower local currency revenues in the International segment of $33.9
million, coupled with an unfavorable impact of foreign exchange of $7.9 million. Loss per diluted share was $1.27 for
the fiscal year ended May 31, 2020, compared to Earnings per diluted share of $0.43 in the prior fiscal year.
The COVID-19 pandemic had a significant adverse impact on the results of operations and cash flows in fiscal 2020.
Global school closings during the fourth fiscal quarter adversely impacted the Company’s school-based channels as
well as the education business as school administrators, teachers and specialists were working remotely during this
period. In the Children's Book Publishing and Distribution segment, the book fairs channel was particularly impacted
as school closings led to the cancellation of virtually all of the book fairs in the fourth quarter. In the book club
channel, school closings led to a significant decrease in the participation by teacher sponsors in scheduled book clubs
offerings. In the Education segment, the last quarter of the fiscal year is normally a significant quarter as school
administrators and other educational personnel, prior to breaking for the summer, receive product in preparation for
the following academic school year. These orders were significantly impacted by the absence from the schools of
such administrators and other educational personnel resulting from school closings. The International segment
school-based channels were also significantly impacted by the COVID-19 mandated school closings as well as the
temporary closing of English language learning centers in China and the disruption in the direct sales business in Asia
resulting from measures imposed to curtail the spread of COVID-19. Partially offsetting the declines, the Company's
trade channel, in both domestic and international markets, ended the fiscal year with higher sales driven by frontlist
titles including The Ballad of Songbirds and Snakes, the fourth title in The Hunger Games series by Suzanne Collins.
When compared to the prior fiscal year, domestic trade channel sales increased $56.5 million even as industry-wide
bookstore sales declined as a result of brick-and-mortar store closures in the fourth quarter.
Operating loss in fiscal 2020 was $88.5 million compared to Operating income in the prior fiscal year of $25.0 million,
an increase in Operating loss of $113.5 million. The increase in the Operating loss was directly attributable to the
pandemic-related drop in sales, as well as other, mostly non-cash, consequences of the COVID-19 economic
slowdown, including higher inventory obsolescence reserves, customer bad debt, return reserves, unearned author
advances and vacation accruals. In addition, the Company had a non-cash inventory write-down of $40.0 million in
the third fiscal quarter as a result of a change in procurement and retention practices, and experienced higher one-
time severance of $6.6 million in fiscal 2020 when compared to the prior fiscal year in connection with both its on-
going restructuring projects, as well as staffing decisions made to mitigate the pandemic's impact on the Company’s
profitability. This was partially offset by cost-saving initiatives, including the closing of distribution centers in highly
impacted regions, scaling the operations to meet near-term business needs, reductions to labor-related costs and
inventory purchases, and suspension of the stock buy-back program.
21
Outlook
There is still significant uncertainty surrounding COVID-19’s near-term and long-term effects on schools and retailers
at this time. Measures are still being taken to curtail the spread of the virus, including mandated school closings,
resulting in uncertain timing and manner of subsequent school openings, as well as remaining capacity restrictions on
“non-essential” businesses which continue to impact most brick-and-mortar booksellers. The Company is planning
for a slower than normal start to the 2020-21 school year, with expectations for most schools to be open, but with a
variety of in-person, distance learning and hybrid options. As schools re-open, the Company expects demand for
children’s books delivered through book clubs and book fairs to schools and direct-to-home. The Company also
expects demand for digital education programs, including classroom magazines, as schools look for digital learning
tools to bridge the gap between home and school. The trade channel is expected to benefit from new titles such as
Dog Man: Grime and Punishment, Cat Kid Comic Club™, a new series by Dav Pilkey, and The Ickabog® by J.K.
Rowling, as well as new titles from other best-selling authors including Tui T. Sutherland, Alan Gratz, Kelly Yang and
Varian Johnson. Given the uncertainties around the duration and magnitude of the current COVID-19 economic
slowdown, as well as the pattern of school openings, the Company has implemented cost savings initiatives, including
labor-related reductions, as well as process improvements to provide the Company with increased flexibility to
achieve higher operating leverage and adjust its cost structure to align with changes in volume.
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; variable
consideration related to anticipated returns; allocation of transaction price to contractual performance obligations;
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 impairment assessment 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.” 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.
School-Based Book Fairs – Revenues associated with school-based book fairs relate to the sale of children's books
and other products to book fair sponsors. In addition, the Company employs an incentive program to encourage the
sponsorship of book fairs and increase the number of fairs held each school year. The Company identifies two
potential performance obligations within its school-based book fair contracts, which include the fulfillment of book
fairs product and the fulfillment of product upon the redemption of incentive program credits by customers. The
Company allocates the transaction price to each performance obligation and recognizes revenue at a point in time.
The Company utilizes certain estimates based on historical experience, redemption patterns and future expectations
related to the participation in the incentive program to determine the relative fair value of each performance
obligation when allocating the transaction price. Changes in these estimates could impact the timing of the
recognition of revenue. Revenue allocated to the book fairs product is recognized at the point at which product is
delivered to the customer and control is transferred. The revenue allocated to the incentive program credits is
recognized upon redemption of incentive credits and the transfer of control of the redeemed product. Incentive
credits are generally redeemed within 12 months of issuance. Payment for school-based book fairs product is due at
the completion of a customer's fair.
22
Trade – Revenue from the sale of children’s books for distribution in the retail channel is primarily recognized when
performance obligations are satisfied and control is transferred 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 control of the product is 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. The
sale of trade product generally includes a right of return.
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 contractual terms. Revenue from digital products
is deferred and recognized ratably over the subscription period. Revenue from professional development services is
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 Custom Publishing – 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.
Direct Sales – Revenue from the direct sales channel is recognized upon acceptance of the physical product by the
customer.
The Company has elected to present sales and other related taxes on a net basis, excluded from revenues, and as
such, these are included within Other accrued expenses until remitted to taxing authorities.
Accounts receivable:
Accounts receivable are recognized net of allowances for doubtful accounts. 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 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, 2020 of approximately $2.5 million.
Estimated returns:
For sales that include a right of return, the Company will estimate the transaction price and record revenues as
variable consideration based on the amounts the Company expects to ultimately be entitled. In order to determine
estimated returns, the Company utilizes historical return rates, sales patterns, types of products and expectations and
recognizes a corresponding reduction to Revenues and Cost of goods sold. Management also considers patterns of
sales and returns in the months preceding the fiscal year, as well as actual returns received subsequent to the fiscal
year, available customer and market specific data and other return rate information that management believes is
relevant. In addition, a refund liability is recorded within Other accrued expenses for the consideration to which the
Company believes it will not ultimately be entitled and a return asset is recorded within Prepaid expenses and other
current assets for the expected inventory to be returned. 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, 2020 of approximately $2.4 million.
23
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 by channel, expected future sales of existing inventory 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, 2020 of approximately $3.7 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 goodwill impairment 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 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 tradenames, 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 useful life. Intellectual
property assets are amortized over their remaining useful lives, which is approximately five years.
24
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.
Pension obligations
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. 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, 2020 of approximately $0.7 million and approximately $0.6 million, respectively.
A one percentage point change in the expected long-term return on plan assets would have resulted in an increase
or decrease in operating income for the year ended May 31, 2020 of approximately $0.3 million.
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 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, 2020 of approximately $0.1 million and less than $0.1 million, respectively. A one
percentage point change in the health care cost trend rate would have resulted in an increase or decrease in
operating income for the year ended May 31, 2020 of approximately $0.1 million and an increase or decrease in the
postretirement benefit obligation as of May 31, 2020 of approximately $1.9 million and approximately $1.7 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, based on the
award’s fair value at the date of grant, 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. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing model. The determination of the
assumptions used in the Black-Scholes model requires management to make significant judgments and estimates.
The use of different assumptions and estimates in the option-pricing model could have a material impact on the
estimated fair value of option grants and the related expense. The risk-free interest rate is based on a U.S. Treasury
rate in effect on the date of grant with a term equal to the expected life. The expected term is determined based on
historical employee exercise and post-vesting termination behavior. The expected dividend yield is based on actual
dividends paid or to be paid by the Company. The volatility is estimated based on historical volatility corresponding
to the expected life. 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.
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
25
differences between financial reporting and tax basis of such 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 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. The Company elects to recognize the
tax on Global Intangible Low-Taxed Income (GILTI) earned by foreign subsidiaries as a period expense in the period
the tax is incurred.
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 and these amounts are included in the Consolidated Statements of Operations in Selling, general
and administrative expenses. Future developments relating to the foregoing could result in adjustments being made
to these accruals.
26
Results of Operations
Revenues:
Children’s Book Publishing and Distribution
Education
International
Total revenues
Cost of goods sold
Selling, general and administrative expenses (2)
Depreciation and amortization
Severance (3)
Asset impairments and write downs (4)
Operating income (loss)
Interest income
Interest expense
Other components of net periodic benefit (cost)
Gain (loss) on investments and other (5)
Earnings (loss) before income taxes
Provision (benefit) for income taxes (6)
Net income (loss)
Less: Net income (loss) attributable to noncontrolling interest
Net income (loss) attributable to Scholastic Corporation
Earnings (loss) per share:
Basic:
Net income (loss) attributable to Scholastic Corporation
Diluted:
Net income (loss) attributable to Scholastic Corporation
(1) Represents percentage of total revenues.
(Amounts in millions, except per share data)
For fiscal years ended May 31,
2020
2019
$
% (1)
$
% (1)
59.9
18.0
22.1
100.0
47.2
47.2
3.4
0.6
0.1
1.5
0.3
(0.1)
(0.1)
(0.0)
1.6
0.7
0.9
0.0
0.9
$
$
$
$
$
875.4
287.3
324.4
1,487.1
751.0
705.3
61.5
17.2
40.6
(88.5)
3.1
(3.0)
(1.3 )
—
(89.7)
(46.0)
(43.7)
0.1
(43.8)
(1.27 )
(1.27 )
$
58.9
19.3
21.8
100.0
50.5
47.5
4.1
1.2
2.7
(6.0)
0.2
(0.2)
(0.0)
—
(6.0)
(3.1 )
(2.9) $
0.0
(2.9) $
990.3
297.4
366.2
1,653.9
779.9
781.4
56.1
10.6
0.9
25.0
5.6
(2.2)
(1.4)
(1.0)
26.0
10.4
15.6
0.0
15.6
$
$
0.44
0.43
(2) In fiscal 2020, the Company recognized a pretax charge of $1.0 related to a settlement of an intellectual property producing agreement
and a pretax settlement expense of $1.5 related to an alleged patent infringement claim. In fiscal 2019, the Company recognized pretax
charges related to the settlement of a legacy sales tax assessment of $8.1, and pretax costs associated with the Canadian book fairs branch
consolidation of $0.5.
(3) In fiscal 2020 and 2019, the Company recognized pretax severance expense of $13.1 and $6.5, respectively, primarily related to cost
reduction and restructuring programs.
(4) In fiscal 2020, the Company recognized a pretax impairment charge of $40.0 related to the write down of inventory from lower
anticipated requirements in the Company's club and fair channels and a pretax impairment charge of $0.6 related to an outdated technology
platform in Canada. In fiscal 2019, the Company recognized pretax impairment charges of $0.9 related to legacy building improvements.
(5) In fiscal 2019, the Company recognized a pretax charge of $1.0 related to the recognition of foreign currency translation adjustment
previously recorded within accumulated other comprehensive income (loss) as a result of the acquisition of Make Believe Ideas Limited.
(6) In fiscal 2020, the Company recognized a benefit for income taxes in respect to one-time pretax charges of $15.3. In fiscal 2019, the
Company recognized a benefit for income taxes in respect to one-time pretax charges of $4.2 and income tax provision of $4.7 primarily
related to the Company's state deferred tax balances.
27
Results of Operations – Consolidated
The Securities and Exchange Commission (SEC or Commission) adopted a final rule that modernizes and simplifies
certain disclosure requirements in Regulation S-K. Accordingly, the section below is a discussion of the Company's
fiscal year 2020 results compared to fiscal year 2019. A detailed discussion of the Company's fiscal year 2018 results
and year-over-year comparisons between fiscal years 2019 and 2018 that are not included in this Form 10-K can be
found in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the year
ended May 31, 2019, filed with the Company's Form 10-K dated July 29, 2019.
The impact of the COVID-19 pandemic is referenced throughout this section. Refer to "Overview and Outlook" for a
discussion of this impact on the Company's operations.
Revenues from operations for the fiscal year ended May 31, 2020 decreased by $166.8 million, or 10.1%, to $1,487.1
million, compared to $1,653.9 million in the prior fiscal year. The decrease in revenues was primarily due to lower
Children’s Book Publishing and Distribution segment revenues of $114.9 million, lower sales in the Education segment
of $10.1 million, and lower International revenue of $41.8 million. Within the Children’s Book Publishing and
Distribution segment, revenues from the school-based channels were adversely impacted by COVID-19 mandated
school closures, resulting in lower book fairs channel revenues of $115.8 million and lower book clubs channel
revenues of $55.6 million. Lower revenues were partially offset by increased revenues from the trade channel of $56.5
million primarily due to increased sales of frontlist titles led by the May 2020 release of The Ballad of Songbirds and
Snakes, the fourth title in The Hunger Games series by Suzanne Collins. The trade channel revenues were also
impacted by the completion of the acquisition of a majority interest in MBI and its full consolidation in the financial
statements in the current fiscal year. The Education segment revenues decreased $10.1 million, primarily due to lower
sales of instructional products, including Scholastic Edge, Guided Reading, Level Bookroom and LitCamp, as a result of
the COVID-19 pandemic. Local currency revenues in the International segment decreased $33.9 million, primarily
driven by lower sales in Canada, the UK, and Asia due to COVID-19 mandated school closures. The decrease in
International revenues was also impacted by unfavorable foreign currency exchange of $7.9 million, driven by the
strengthening of the U.S. dollar.
Components of Cost of goods sold for fiscal years 2020 and 2019 are as follows:
Product, service and production costs
Royalty costs
Prepublication and production amortization
Postage, freight, shipping, fulfillment and all other costs
Total cost of goods sold
2020
% of
revenue
($ amounts in millions)
2019
% of
revenue
$
$
411.3
119.2
27.4
193.1
751.0
27.7 % $
8.0
1.8
13.0
50.5% $
428.0
118.7
25.6
207.6
779.9
25.9%
7.2
1.5
12.6
47.2%
Cost of goods sold as a percentage of revenue for the fiscal year ended May 31, 2020 was 50.5%, compared to 47.2%
in the prior fiscal year. The increase in Cost of goods sold as a percentage of revenue was primarily driven by higher
inventory obsolescence reserves in the book clubs and book fairs channels due to excess inventory from lower fourth
fiscal quarter sales due to COVID-19. The increase was also impacted by the completion of the acquisition of the
majority interest in MBI and its full consolidation in the financial statements in the current fiscal year. MBI
manufacturing costs associated with specialty products resulted in a higher percentage of Cost of goods sold. The
Company also recognized higher tariff costs in the current fiscal year.
Selling, general and administrative expenses for the fiscal year ended May 31, 2020 were $705.3 million, compared to
$781.4 million in the prior fiscal year. The decrease was primarily related to cost saving initiatives to offset the lower
revenues driven by COVID-19, including reductions in employee-related expenses throughout the Company, reduced
marketing expenses in the book clubs and education channels, and reductions to operating expenses in the book fairs
channel such as the closing of distribution centers in highly impacted regions. The decrease in expense was also
impacted by the absence of a prior period pretax charge related to a legacy sales tax assessment. The decreases in
expenses were partially offset by increased bad debt and lower equity method investment income due to the
consolidation of MBI.
Depreciation and amortization expenses for the fiscal year ended May 31, 2020 were $61.5 million, compared to $56.1
million in the prior fiscal year. The increase was primarily attributable to upgraded point-of-sale machines placed in
28
service in the book fairs channel in the current fiscal year and assets placed in service for capitalized strategic
technology investments during fiscal 2020.
Severance expense for the fiscal year ended May 31, 2020 was $17.2 million, compared to $10.6 million in the prior
fiscal year, which included charges of $13.1 million and $6.5 million in fiscal 2020 and fiscal 2019, respectively, related
to cost reduction and restructuring programs.
Asset impairments and write downs for the fiscal year ended May 31, 2020 were $40.6 million, compared to $0.9
million in the prior fiscal year. In the third quarter of fiscal 2020, the Company recognized a write down of $40.0
million related to changes that were made to the Company's North American purchasing protocols, product offerings
and inventory retention policies, which reduced the anticipated inventory requirements in the Company's school
channels. The changes resulted in lower inventory requirements, more efficient asset utilization, lower inventory
obsolescence expense and reduced warehouse labor and storage costs expected in future periods. As a result of the
foregoing, the Company recorded a write down of inventory of $37.6 million. Capitalized prepublication and author
advances costs, related to the inventory, of $0.8 million and $1.6 million, respectively, were written down as well. The
Company also recognized an impairment charge of $0.6 million related to an outdated technology platform in
Canada. In fiscal 2019, the Company recognized impairment charges of $0.9 million on the abandonment of legacy
building improvements in connection with the Company's renovation of its headquarters location in New York City.
For the fiscal year ended May 31, 2020, the net amount of Interest income and Interest expense was $0.1 million,
compared to the net amount of Interest income and Interest expense of $3.4 million in the prior fiscal year. The
decrease was primarily due to interest expense on long-term debt borrowings in fiscal 2020, lower U.S. interest rates
and lower short-term investment balances driven, in part, by higher common stock repurchases.
The Company’s effective tax rate for the fiscal year ended May 31, 2020 was 51.3%, compared to 40.0% in the prior
fiscal year. The higher benefit for income taxes when compared to the previous fiscal year was primarily driven by net
operating losses generated in the U.S. which are expected to be carried back to previous periods.
Net loss for fiscal 2020 increased by $59.3 million to $43.7 million compared to Net income of $15.6 million in fiscal
2019. The basic and diluted loss per share of Class A Stock and Common Stock were $1.27 and $1.27, respectively, in
fiscal 2020, compared to basic and diluted earnings per share of Class A Stock and Common Stock of $0.44 and
$0.43, respectively, in fiscal 2019.
Net income attributable to noncontrolling interest for fiscal 2020 was $0.1 million. The Net income attributable to
noncontrolling interest for fiscal 2019 was less than $0.1 million.
Results of Operations – Segments
CHILDREN’S BOOK PUBLISHING AND DISTRIBUTION
($ amounts in millions)
2020 compared to 2019
2020
2019
$ change
% change
Revenues
Cost of goods sold
Other operating expenses *
Operating income (loss)
Operating margin
$
$
$
$
875.4
430.9
420.9
23.6
2.7%
$
$
990.3
443.4
464.0
82.9
8.4%
(114.9 )
(12.5 )
(43.1)
(59.3)
(11.6 )%
(2.8)
(9.3)
(71.5 )%
* Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization.
Fiscal 2020 compared to fiscal 2019
Revenues for the fiscal year ended May 31, 2020 decreased by $114.9 million to $875.4 million, compared to $990.3
million in the prior fiscal year. Book fairs channel revenues decreased $115.8 million primarily driven by lower fair
count and book clubs channel revenues decreased $55.6 million primarily driven by lower events, both adversely
impacted by the COVID-19 mandated school closings. These revenue declines were partially offset by increased trade
channel revenues of $56.5 million, driven by the May 2020 release of The Ballad of Songbirds and Snakes and strong
performance of best-selling titles, including Harry Potter and the Goblet of Fire: The Illustrated Edition, Dog Man: For
Whom the Ball Rolls, Dog Man: Fetch-22, Guts, The Baby-Sitters Club: Boy Crazy Stacey (graphic novel), The Wonky
29
Donkey and The Dinky Donkey titles, Refugee, titles in the Wings of Fire series and Klutz book plus titles, including
LEGO® Chain Reactions and LEGO® Gadgets. Additional revenues were attributable to the completion of the
acquisition of a majority interest in MBI and its full consolidation in the financial statements.
Cost of goods sold for the fiscal year ended May 31, 2020 was $430.9 million, or 49.2% of revenues, compared to
$443.4 million, or 44.8% of revenues, in the prior fiscal year. The increase in cost of goods sold as a percentage of
revenue was primarily driven by higher inventory obsolescence reserves in the book clubs and book fairs channels due
to excess inventory from the COVID-19 impacted fourth fiscal quarter and increased fulfillment costs in the book
clubs channel for online orders shipped directly to teachers. The increase was also due to the completion of the
acquisition of the majority interest in MBI and its full consolidation in the financial statements. MBI manufacturing
costs associated with specialty products represented a portion of the increase in Cost of goods sold as a percentage
of revenues. Manufacturing costs also increased as a result of higher tariff costs.
Other operating expenses were $420.9 million for the fiscal year ended May 31, 2020, compared to $464.0 million in
the prior fiscal year. In the book clubs channel, lower costs were primarily driven by a reduction in direct promotional
expenses and employee-related costs as a result of cost saving initiatives to offset the impact from COVID-19, as well
as lower net sales tax expense in the fiscal year. Decreased costs in the book fairs channel were primarily driven by
cost saving initiatives which resulted in a decrease in employee-related expenses and warehouse and distribution
center costs, resulting from warehouse closures primarily in regions highly impacted by COVID-19, partially offset by
increased depreciation costs attributable to upgraded point-of-sale machines placed into service in fiscal 2020. Cost
savings initiatives implemented prior to the pandemic contributed to the full year decrease in costs for both book
clubs and book fairs. Other operating expenses were also impacted by increased bad debt expenses primarily in the
trade channel.
Segment operating income for the fiscal year ended May 31, 2020 was $23.6 million, compared to Operating income
of $82.9 million in the prior fiscal year. The decrease in Operating income was primarily driven by revenue declines in
the school-based channels as a result of the COVID-19 pandemic, partially offset by higher trade channel revenue and
cost saving measures resulting in a decrease in employee-related costs, direct promotional expenses and warehouse
and distribution center costs. The Company expects continued impact from COVID-19 and related school reopening
patterns, and is reducing its cost base in the school channels while simultaneously preparing for varied customer
requirements as a result of the pandemic.
EDUCATION
($ amounts in millions)
2020
2019
$ change
% change
2020 compared to 2019
Revenues
Cost of goods sold
Other operating expenses *
Operating income (loss)
Operating margin
$
$
$
$
287.3
100.7
156.7
29.9
10.4%
$
$
297.4
100.6
166.2
30.6
10.3%
(10.1 )
0.1
(9.5)
(0.7)
(3.4)%
0.1
(5.7)
(2.3)%
* Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization.
Fiscal 2020 compared to fiscal 2019
Revenues for the fiscal year ended May 31, 2020 decreased by $10.1 million to $287.3 million, compared to $297.4
million in the prior fiscal year, due to lower sales of core instructional products, including Scholastic Edge, Guided
Reading, Level Bookroom and LitCamp, resulting from COVID-19 mandated school closures as key decision-makers
in schools and districts were inaccessible due to the pandemic, and lower revenue from custom publishing programs.
This was partially offset by increased revenue from summer reading programs as the Company shifted focus to take-
home packs for students and delivery of professional learning services, as well as increased dealer trade sales within
the Company's teaching resources business which offers skill-building activities for students learning from home such
as Jumbo Workbooks and the Summer Express series of workbooks. Classroom magazines revenues were not
impacted by COVID-19 in fiscal 2020 as these subscriptions were sold prior to the pandemic and were delivered by
the Company. The Company expects demand for these products in fiscal 2021, but selling efforts for fiscal 2021 have
been hindered by the pandemic.
30
Cost of goods sold for the fiscal year ended May 31, 2020 was $100.7 million, or 35.1% of revenue, compared to
$100.6 million, or 33.8% of revenue, in the prior fiscal year. Cost of goods sold as a percentage of revenue increased
primarily due to an increase in the amortization of prepublication costs related to digital subscription components of
the recently launched Scholastic Literacy product.
Other operating expenses were $156.7 million for the fiscal year ended May 31, 2020, compared to $166.2 million in
the prior fiscal year. The $9.5 million decrease was primarily related to lower marketing expenses and a decrease in
employee-related costs in an effort to offset the impact of COVID-19, partially offset by an increase in bad debt
expenses.
Segment operating income for the fiscal year ended May 31, 2020 was $29.9 million, compared to $30.6 million in the
prior fiscal year. The decrease in operating income was primarily driven by the decline in revenues, partially offset by
lower employee-related costs.
INTERNATIONAL
($ amounts in millions)
2020
2019
$ change
% change
2020 compared to 2019
Revenues
Cost of goods sold
Other operating expenses *
Asset impairments and write
downs
Operating income (loss)
Operating margin
$
$
324.4
177.3
153.0
0.6
(6.5)
(2.0)%
$
$
$
$
366.2
190.8
161.6
—
13.8
3.8%
(41.8)
(13.5 )
(8.6)
0.6
(20.3)
(11.4 )%
(7.1 )%
(5.3)%
100.0 %
(147.1 )%
* Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization.
Fiscal 2020 compared to fiscal 2019
Revenues for the fiscal year ended May 31, 2020 decreased by $41.8 million to $324.4 million compared to $366.2
million in the prior fiscal year, including an adverse foreign exchange impact of $7.9 million due to the strengthening
of the U.S. dollar. Total local currency revenues across the Company's foreign operations decreased $33.9 million
when compared to the prior fiscal year. In Canada and the UK, local currency revenues decreased $17.3 million and
$3.2 million, respectively, primarily driven by lower school-based channel sales due to COVID-19 mandated school
closures, partially offset by higher sales in the trade channel due in part to the release of the new Hunger Games title,
The Ballad of Songbirds and Snakes, as well as increased demand for trade products through internet sales. In Asia,
local currency revenues decreased $14.6 million primarily related to lower revenues from the direct sales channel due
in part to the local actions taken to curtail the spread of the coronavirus and lower sales in the education channels due
to mandated school closures. In Australia and New Zealand, local currency revenues increased $2.1 million on higher
trade channel sales primarily due to the new Hunger Games title release.
Cost of goods sold for the fiscal year ended May 31, 2020 was $177.3 million, or 54.7% of revenues, compared to
$190.8 million, or 52.1% of revenues, in the prior fiscal year. The higher cost of goods sold as a percentage of revenue
was driven by higher fulfillment costs on lower revenues and higher inventory obsolescence reserves due in part to
the impact of COVID-19 on sales.
Other operating expenses were $153.0 million for the fiscal year ended May 31, 2020, compared to $161.6 million in
the prior fiscal year. In local currencies, Other operating expenses decreased by $6.1 million primarily due to lower
employee-related expenses and direct promotional expenses, partially offset by an increase in bad debt expenses.
Severance expense for the fiscal year ended May 31, 2020 was $1.7 million, compared to $1.3 million in the prior fiscal
year. Other operating expenses were also impacted by unfavorable foreign currency exchange of $2.5 million due to
the strengthening of the U.S. Dollar.
Asset impairments were $0.6 million for the fiscal year ended May 31, 2020. In fiscal 2020, the Company recognized
an impairment charge related to an outdated technology platform in Canada.
Segment operating loss for the fiscal year ended May 31, 2020 was $6.5 million, compared to Operating income of
$13.8 million in the prior fiscal year. Total local currency operating results across the Company's foreign operations
31
decreased $20.0 million, driven by decreased revenues in school-based channels and increased bad debt expenses,
partially offset by higher trade channel sales and lower employee-related expenses compared to the prior year.
Overhead
Fiscal 2020 compared to fiscal 2019
Unallocated overhead expense for fiscal 2020 increased by $33.2 million to $135.5 million, compared to $102.3 million
in the prior fiscal year. This increase was primarily driven by the $40.0 million third quarter non-cash write down of
inventory as changes were made to the Company's North American purchasing protocols, product offerings and
inventory retention policies reducing the anticipated inventory requirements in the Company's school channels.
Severance expense related to cost reduction strategies increased by $6.5 million to $12.0 million compared to $5.5
million in the prior fiscal year period. The increase was also attributable to a $1.0 million pretax charge related to a
settlement arising from an intellectual property producing agreement, a $1.5 million settlement, without admission of
liability, for alleged patent infringement and higher legal settlements and corresponding defense costs related to
legacy photo license infringement claims that were resolved in the fiscal year. The increase was partially offset by
lower employee-related costs and technology-related spending in an effort to offset the impact of COVID-19 as well
as a $8.1 million pretax charge in the prior fiscal period related to a legacy sales tax assessment.
Liquidity and Capital Resources
Fiscal 2020 compared to fiscal 2019
Cash provided by operating activities was $2.1 million for the fiscal year ended May 31, 2020, compared to cash
provided by operating activities of $116.4 million for the prior fiscal year, representing a decrease in cash provided by
operating activities of $114.3 million. The lower revenues in fiscal 2020 resulted in a reduction of cash generated from
earnings, which was partially offset by lower inventory purchases, lower royalty advance payments and a reduction in
general spending as part of cost saving initiatives due to COVID-19 such as a hiring freeze, employee furlough
programs, and limitations on expenditures related to travel, events, and conferences. The Company will continue to
limit spending in view of the economic uncertainty brought on by the global pandemic.
Cash used in investing activities was $95.7 million for the fiscal year ended May 31, 2020, compared to cash used in
investing activities of $147.3 million for the prior fiscal year, representing a decrease in cash used in investing activities
of $51.6 million. The decrease in cash used was primarily driven by lower capital spending on the Company's now
completed headquarters building modernization project, lower prepublication spending, and a decrease in spending
related to strategic technology initiatives. In addition, cash used in investing activities decreased as a result of lower
acquisition-related payments in fiscal 2020 compared to fiscal 2019, when the Company completed the acquisition of
a majority interest in Make Believe Ideas and an equity investment in a U.S.-based production company. This decrease
was partially offset by increased capital spending relating to a UK warehouse optimization project. The Company will
continue to limit investment spending in view of the economic uncertainty brought on by the global pandemic.
Cash provided by financing activities was $154.1 million for the fiscal year ended May 31, 2020, compared to cash used
in financing activities of $25.7 million for the prior fiscal year, representing an increase in cash provided by financing
activities of $179.8 million. The Company borrowed $200.0 million under its revolving credit facility in the fourth
quarter of fiscal 2020. Partially offsetting this source of cash were net higher repurchases of common stock of $27.0
million in fiscal 2020 and lower proceeds pursuant to employee equity plans of $5.3 million as well as lower short-
term credit facility net borrowings of $2.0 million. The Company has suspended its share buy-back program as a result
of the pandemic.
Cash Position
The Company’s cash and cash equivalents totaled $393.8 million at May 31, 2020 and $334.1 million at May 31, 2019.
Cash and cash equivalents held by the Company’s U.S. operations totaled $364.2 million at May 31, 2020 and $308.7
million at May 31, 2019.
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. As a precautionary measure due to the uncertainty of the COVID-19 pandemic in
32
the fourth fiscal quarter, the Company accessed its $375.0 million committed bank credit facility by taking a U.S. dollar
LIBOR-based advance for $200.0 million, although there was no immediate working capital requirement.
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, 2020, the Company purchased
approximately $35.5 million of its Common shares on the open market, compared to approximately $8.5 million of
share purchases in the prior fiscal year. The Company’s open-market buy-back program was put on hold in early
March in the face of COVID-19 uncertainties.
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, debt service,
planned capital expenditures and other investments, as well as dividends and share repurchases as appropriate in the
context of COVID-19 considerations. The Company expects continued lower cash from operations, particularly from
its school channel revenues, in fiscal 2021. To mitigate these reductions in available cash, the Company has executed
substantial cost savings programs and is prepared to scale its school channel operations should the markets return to
past levels, or decrease from current expectations. As of May 31, 2020, the Company’s primary sources of liquidity
consisted of cash and cash equivalents of $393.8 million, cash from operations, and the Company's loan agreements
in the US and the UK totaling approximately $385.6 million, less current borrowings of $210.6 million, resulting in
approximately $175.0 of current availability. In addition, 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 US Loan Agreement be increased
by an amount of $10.0 million or an integral multiple of $10.0 million (but not to exceed $150.0 million). Additionally,
the Company has short-term credit facilities of $50.4 million, less current borrowings of $7.9 million and
commitments of $3.9 million, resulting in $38.6 million of current availability at May 31, 2020. Accordingly, the
Company believes these sources of liquidity are sufficient to finance its currently anticipated ongoing operating needs,
as well as its financing and investing activities, taking COVID-19 into consideration.
The following table summarizes, as of May 31, 2020, the Company’s contractual cash obligations by future period (see
Notes 5, 6, 9 and 15 of Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and
Supplementary Data”):
Payments Due By Period
Years 2-3
Years 4-5
After Year 5
Total
$ amounts in millions
Contractual Obligations
Minimum print quantities
Royalty advances
Lines of credit and short-term debt
Long-term debt
Capital leases (1)
Pension and postretirement plans (2)
Operating leases
1 Year or Less
$
40.9 $
16.2
7.9
—
2.5
2.6
26.8
$
3.1
5.9
—
210.6
4.7
5.2
44.7
— $
0.0
—
—
3.4
6.0
19.4
— $
0.1
—
—
2.4
14.4
24.8
Total
$
96.9 $
274.2 $
28.8 $
41.7 $
(1) Includes principal and interest.
(2) Excludes expected Medicare Part D subsidy receipts.
Financing
Loan Agreements
44.0
22.2
7.9
210.6
13.0
28.2
115.7
441.6
The Company is party to two loan agreements, as well as certain credit lines with various banks. For a more complete
description of the loan agreements, as well as the Company's other debt obligations, reference is made to Note 5 of
Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and Supplementary Data.”
Acquisitions
In the ordinary course of business, the Company explores domestic and international expansion opportunities,
including potential niche and strategic acquisitions. As part of this process, the Company engages with interested
33
parties in discussions concerning possible transactions. The Company will continue to evaluate such expansion
opportunities and prospects. See Note 11 of Notes to Consolidated Financial Statements in Item 8, “Consolidated
Financial Statements and Supplementary Data.”
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, 2020. 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 5 of Notes to
Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and Supplementary Data,” which is
included herein.
The following table sets forth information about the Company’s debt instruments as of May 31, 2020:
Fiscal Year Maturity
$ amounts in millions
Fair Value
2021
2022
2023
2024
2025
Thereafter
Total
2020
Debt Obligations
Lines of credit and current
portion of long-term debt
Average interest rate
Long-term debt
Average interest rate
$
$
7.9
$
— $
— $
— $
— $
— $
7.9 $
7.9
4.6%
—
—
—
—
—
— $ 210.6
$
— $
— $
— $
— $ 210.6 $
210.6
—
2.2%
—
—
—
—
34
Item 8 | Consolidated Financial Statements and Supplementary Data
Consolidated Statements of Operations for the years ended May 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income (Loss) for the years ended May 31, 2020,
2019 and 2018
Consolidated Balance Sheets at May 31, 2020 and 2019
Consolidated Statement of Changes in Stockholders’ Equity for the years ended May 31, 2020,
2019 and 2018
Consolidated Statements of Cash Flows for the years ended May 31, 2020, 2019 and 2018
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, 2020, 2019
and 2018 is filed with this annual report on Form 10-K:
Schedule II — Valuation and Qualifying Accounts and Reserves
Page
36
37
38
39
40
42
80
83
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.
35
Consolidated Statements of Operations
(Amounts in millions, except per share data)
For fiscal years ended May 31,
2019
2018
2020
Revenues
$
1,487.1
$
1,653.9
$
1,628.4
Operating costs and expenses:
Cost of goods sold
Selling, general and administrative expenses
Depreciation and amortization
Severance
Asset impairments and write downs
Total operating costs and expenses
Operating income (loss)
Interest income
Interest expense
Other components of net periodic benefit (cost)
Gain (loss) on investments and other
Earnings (loss) before income taxes
Provision (benefit) for income taxes
Net income (loss)
Less: Net income (loss) attributable to noncontrolling interest
Net income (loss) attributable to Scholastic Corporation
Basic and diluted earnings (loss) per share of Class A and Common Stock
Basic:
Net Income (loss) attributable to Scholastic Corporation
Diluted:
Net Income (loss) attributable to Scholastic Corporation
Dividends declared per share of Class A and Common Stock
See accompanying notes
751.0
705.3
61.5
17.2
40.6
1,575.6
(88.5)
3.1
(3.0)
(1.3 )
—
(89.7)
(46.0)
(43.7)
0.1
$
779.9
781.4
56.1
10.6
0.9
1,628.9
25.0
5.6
(2.2)
(1.4)
(1.0)
26.0
10.4
15.6
0.0
(43.8)
$
15.6
$
$
744.6
765.7
41.4
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)
(1.27 ) $
0.44
$
(0.14)
(1.27 ) $
0.60 $
$
0.43
0.60 $
(0.14)
0.60
$
$
$
$
$
36
Consolidated Statements of Comprehensive Income (Loss)
Net income (loss)
Other comprehensive income (loss), net:
Foreign currency translation adjustments
Pension and postretirement adjustments net of tax
Total other comprehensive income (loss)
Comprehensive income (loss)
Less: Net income (loss) attributable to noncontrolling interest
Comprehensive income (loss) attributable to Scholastic Corporation
See accompanying notes
2020
(Amounts in millions)
For fiscal years ended May 31,
2019
2018
(43.7)
$
15.6
$
(5.0)
(2.9)
4.3
1.4
(42.3)
0.1
(42.4)
$
$
(5.2)
1.2
(4.0)
11.6
0.0
11.6
$
$
3.4
35.1
38.5
33.5
—
33.5
$
$
$
37
Consolidated Balance Sheets
ASSETS
Current Assets:
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Income tax receivable
Prepaid expenses and other current assets
Total current assets
Noncurrent Assets:
Property, plant and equipment, net
Prepublication costs, net
Operating lease right-of-use assets, 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:
Lines of credit and current portion of long-term debt
Accounts payable
Accrued royalties
Deferred revenue
Other accrued expenses
Accrued income taxes
Operating lease liabilities
Total current liabilities
Noncurrent Liabilities:
Long-term debt
Operating lease liabilities
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
$
— $
0.0
Common Stock, $0.01 par value: Authorized, 70.0 shares; Issued, 42.9 shares;
Outstanding, 32.5 and 33.4 shares, respectively
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Treasury stock at cost: 10.4 shares and 9.5 shares, respectively
Total stockholders' equity of Scholastic Corporation
Noncontrolling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes
0.4
622.4
(58.3)
948.0
(333.3)
1,179.2
1.4
1,180.6
2,033.6
$
$
38
(Amounts in millions)
Balances at May 31,
2019
2020
$
393.8
$
239.8
270.6
90.0
41.1
1,035.3
576.9
70.6
95.3
39.9
124.9
18.6
72.1
998.3
334.1
250.1
323.7
10.3
42.4
960.6
577.7
70.2
—
47.5
125.2
37.0
60.3
917.9
2,033.6
$
1,878.5
$
$
7.9
$
153.6
37.8
116.5
161.5
1.4
22.8
501.5
210.6
75.7
65.2
351.5
—
7.3
195.3
41.9
130.8
164.8
1.4
—
541.5
—
—
64.2
64.2
—
—
0.0
0.4
620.8
(59.7)
1,012.6
(302.6)
1,271.5
1.3
1,272.8
1,878.5
Consolidated Statement of Changes in Stockholders’ Equity
Class A Stock
Common Stock
Shares
Amount
Shares
Amount
Additional
Paid-in Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Treasury
Stock
At Cost
Total
Stockholders'
Equity of
Scholastic
Corporation
Noncontrolling
interest
Total
Stockholders'
Equity
(Amounts in millions)
Balance at May 31, 2017
1.7
$
0.0
33.4
$
0.4
$
606.8
$
(94.2)
$ 1,091.2
$ (296.3)
$
1,307.9 $
— $
1,307.9
Net Income (loss)
Foreign currency
translation adjustment
Pension and post-
retirement 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
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(0.7)
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)
—
—
—
—
—
—
—
—
(5.0)
3.4
35.1
10.7
15.8
(27.2)
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 $
— $
1,320.8
Net Income (loss)
Adoption of ASC606 (net
of tax of $16.0)
Foreign currency
translation adjustment
Pension and post-
retirement adjustments
(net of tax of $0.5)
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
Fair value of
noncontrolling interest in
Make Believe Ideas
Limited
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(0.2)
0.3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8.3
6.0
—
(7.9)
—
—
—
(5.2)
1.2
—
—
—
—
—
15.6
(47.0)
—
—
—
—
—
—
(21.2 )
—
—
—
—
—
—
(8.5)
9.4
—
15.6
(47.0)
(5.2)
1.2
8.3
6.0
(8.5)
1.5
(21.2 )
—
—
—
—
—
—
—
—
—
15.6
(47.0)
(5.2)
1.2
8.3
6.0
(8.5)
1.5
(21.2 )
1.3
1.3
Balance at May 31, 2019
1.7
$
0.0
33.4
$
0.4
$
620.8
$
(59.7)
$ 1,012.6
$ (302.6)
$
1,271.5 $
1.3 $
1,272.8
Net Income (loss)
Foreign currency
translation adjustment
Pension and post-
retirement 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
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1.0)
0.1
—
—
—
—
—
—
—
—
—
—
—
—
3.8
0.7
—
(2.9)
—
—
(43.8)
(2.9)
4.3
—
—
—
—
—
—
—
—
—
—
(20.8)
—
—
—
—
—
(43.8)
(2.9)
4.3
3.8
0.7
(35.5)
(35.5)
4.8
—
1.9
(20.8)
0.1
(43.7)
—
—
—
—
—
—
—
(2.9)
4.3
3.8
0.7
(35.5)
1.9
(20.8)
Balance at May 31, 2020
1.7
$
0.0
32.5
$
0.4
$
622.4
$
(58.3)
$ 948.0
$ (333.3)
$
1,179.2 $
1.4 $
1,180.6
See accompanying notes
39
Consolidated Statements of Cash Flows
Cash flows - operating activities:
Net income (loss) attributable to Scholastic Corporation
$
(43.8) $
15.6 $
(5.0)
2020
2019
2018
(Amounts in millions)
Years ended May 31,
Adjustments to reconcile Net income (loss) to
net cash provided by (used in) operating activities:
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 and write downs
(Gain) loss on investments
Changes in assets and liabilities, net of amounts acquired:
Accounts receivable
Inventories
Income tax receivable
Prepaid expenses and other current assets
Royalty advances
Accounts payable
Accrued income taxes
Accrued royalties
Deferred revenue
Other, net
Total adjustments
Net cash provided by (used in) operating activities
Cash flows - investing activities:
Prepublication and production expenditures
Additions to property, plant and equipment
Other investment and acquisition-related payments
Land acquisition
Net cash provided by (used in) investing activities
See accompanying notes
15.6
34.3
8.1
—
26.2
64.0
0.8
17.9
3.8
(3.2)
40.6
—
(7.0)
(20.8)
(79.8)
0.9
(2.6)
(33.6)
0.1
(3.8)
(13.8)
(1.8)
45.9
2.1
(28.5)
(62.7)
(1.2 )
(3.3)
(95.7)
7.0
20.8
6.8
—
22.4
59.3
0.7
3.3
8.3
(5.9)
0.9
1.0
(11.9 )
(49.8)
7.4
8.1
(9.8)
11.8
(0.9)
7.9
20.1
(6.7)
100.8
116.4
(38.1)
(95.0)
(14.2)
—
(147.3 )
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)
(13.8)
(8.3)
(7.0)
45.9
(1.1 )
(0.3)
0.2
(11.1 )
146.5
141.5
(36.1)
(121.5 )
(4.4)
—
(162.0)
40
Consolidated Statements of Cash Flows
Cash flows - financing activities:
Borrowings under lines of credit, credit agreement and revolving loan
Repayments of lines of credit, credit agreement and revolving loan
Repayment of capital lease obligations
Reacquisition of common stock
Proceeds pursuant to stock-based compensation plans
Payment of dividends
Other, net
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
2020
2019
2018
(Amounts in millions)
Years ended May 31,
234.2
(26.7)
(2.0)
(35.5)
0.7
(20.8)
4.2
154.1
(0.8)
59.7
334.1
393.8 $
58.8
(60.1)
(1.6)
(8.5)
6.0
(21.1 )
0.8
(25.7)
(1.2 )
(57.8)
391.9
334.1 $
44.9
(42.0)
(1.3 )
(27.3)
15.8
(21.1 )
(1.0)
(32.0)
0.3
(52.2)
444.1
391.9
2020
2019
2018
7.2 $
2.5 $
1.5
2.5
1.3
6.1
14.5
1.4
23.7
$
$
41
(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, as well as parents and children,
customized and comprehensive solutions to support children’s learning and reading 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 165 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.
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:
Pension and postretirement benefit plans
The timing and amount of future income taxes and related deductions
Inventory reserves
• Accounts receivable allowance for doubtful accounts
•
• Uncertain tax positions
•
•
• Cost of goods sold from book fair operations during interim periods based on estimated gross profit rates
•
• Royalty advance reserves and royalty expense accruals
•
• Assets and liabilities acquired in business combinations
• Variable consideration related to anticipated returns
• Allocation of transaction price to contractual performance obligations
Impairment testing for goodwill, intangibles and other long-lived assets and investments
Sales tax contingencies
42
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 relate to the sale of children's books
and other products to book fair sponsors. In addition, the Company employs an incentive program to encourage
the sponsorship of book fairs and increase the number of fairs held each school year. The Company identifies two
potential performance obligations within its school-based book fair contracts, which include the fulfillment of book
fairs product and the fulfillment of product upon the redemption of incentive program credits by customers. The
Company allocates the transaction price to each performance obligation and recognizes revenue at a point in time.
The Company utilizes certain estimates based on historical experience, redemption patterns and future
expectations related to the participation in the incentive program to determine the relative fair value of each
performance obligation when allocating the transaction price. Changes in these estimates could impact the timing
of the recognition of revenue. Revenue allocated to the book fairs product is recognized at the point at which
product is delivered to the customer and control is transferred. The revenue allocated to the incentive program
credits is recognized upon redemption of incentive credits and the transfer of control of the redeemed product.
Incentive credits are generally redeemed within 12 months of issuance. Payment for school-based book fairs
product is due at the completion of a customer's fair.
Trade – Revenue from the sale of children’s books for distribution in the retail channel is primarily recognized when
performance obligations are satisfied and control is transferred 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 control of the product is 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. The sale of trade product generally includes a right of return.
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 contractual terms. Revenue from digital products
is deferred and recognized ratably over the subscription period. Revenue from professional development services is
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 Custom Publishing – 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.
Direct Sales – Revenue from the direct sales channel is recognized upon acceptance of the physical product by the
customer.
The Company has elected to present sales and other related taxes on a net basis, excluded from revenues, and as
such, these are included within Other accrued expenses until remitted to taxing authorities.
43
Cash equivalents
Cash equivalents consist of short-term investments with original maturities of three months or less.
Accounts receivable
Accounts receivable are recognized net of allowances for doubtful accounts. 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 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. Accounts receivable allowance for doubtful accounts
was $19.9 and $11.6 as of May 31, 2020 and 2019, respectively.
Estimated returns
For sales that include a right of return, the Company will estimate the transaction price and record revenues as
variable consideration based on the amounts the Company expects to ultimately be entitled. In order to determine
estimated returns, the Company utilizes historical return rates, sales patterns, types of products and expectations and
recognizes a corresponding reduction to Revenues and Cost of goods sold. Management also considers patterns of
sales and returns in the months preceding the fiscal year, as well as actual returns received subsequent to the fiscal
year, available customer and market specific data and other return rate information that management believes is
relevant. In addition, a refund liability is recorded within Other accrued expenses for the consideration to which the
Company believes it will not ultimately be entitled and a return asset is recorded within Prepaid expenses and other
current assets for the expected inventory to be returned. Actual returns could differ from the Company's estimate.
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 by channel, expected future sales of existing inventory 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 an 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 $52.3 and $43.9 at May 31, 2020
and 2019, respectively. Capitalized software is amortized over a period of three to seven years. Amortization expense
for capitalized software was $22.2, $25.4 and $16.3 for the fiscal years ended May 31, 2020, 2019 and 2018,
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
The Company adopted ASU No. 2016-02, “Leases (Topic 842),” as of the beginning of the first quarter of fiscal 2020.
Refer to "New Accounting Pronouncements" section below, specifically Current Fiscal Year Adoptions for further
details.
The Company's lease arrangements primarily relate to corporate offices and warehouse facilities, and to a lesser
extent, certain equipment and other assets. The Company's leases generally have initial terms ranging from 3 to 10
years and certain leases include renewal or early-termination options, rent escalation clauses, and/or lease incentives.
Lease renewal rent payment terms generally reflect adjustments for market rates prevailing at the time of renewal. The
Company's leases require fixed minimum rent payments and also often require the payment of certain other costs that
do not relate specifically to its right to use an underlying leased asset, but are associated with the asset, such as real
estate taxes, insurance, common area maintenance fees and/or certain other costs (referred to collectively herein as
"non-lease components"), which may be fixed or variable in amount depending on the terms of the respective lease
agreement. The Company's leases do not contain significant residual value guarantees or restrictive covenants.
The Company determines whether an arrangement contains a lease at the inception of the arrangement. If a lease is
determined to exist, the term of such lease is assessed based on the date on which the underlying asset is made
available for the Company's use by the lessor. The Company's assessment of the lease term reflects the non-
cancelable term of the lease, inclusive of any rent-free periods and/or periods covered by early-termination options
44
which the Company is reasonably certain of not exercising, as well as periods covered by renewal options which the
Company is reasonably certain of exercising. The Company also determines lease classification as either operating or
finance at lease commencement, which governs the pattern of expense recognition and the presentation reflected in
the Consolidated Statements of Operations over the lease term.
For leases with a term exceeding 12 months, a lease liability is recorded on the Company's Consolidated Balance
Sheet at lease commencement reflecting the present value of its fixed minimum payment obligations over the lease
term. A corresponding right-of-use ("ROU") asset equal to the initial lease liability is also recorded, adjusted for any
prepaid rent and/or initial direct costs incurred in connection with execution of the lease and reduced by any lease
incentives received. The Company includes fixed payment obligations related to non-lease components in the
measurement of ROU assets and lease liabilities, as it elects to account for lease and non-lease components together
as a single lease component. ROU assets associated with finance leases are presented separate from ROU assets
associated with operating leases and are included within Property, plant and equipment, net on the Company's
Consolidated Balance Sheet. For purposes of measuring the present value of its fixed payment obligations for a given
lease, the Company uses its incremental borrowing rate, determined based on information available at lease
commencement, as rates implicit in its leasing arrangements are typically not readily determinable. The Company's
incremental borrowing rate reflects the rate it would pay to borrow on a secured basis, and incorporates the term and
economic environment of the associated lease.
For operating leases, fixed lease payments are recognized as lease expense on a straight-line basis over the lease
term. For finance leases, the initial ROU asset is depreciated on a straight-line basis over the lease term, along
with recognition of interest expense associated with accretion of the lease liability, which is ultimately reduced
by the related fixed payments. For leases with a term of 12 months or less, any fixed lease payments are recognized on
a straight-line basis over the lease term, and are not recognized on the Company's Consolidated Balance Sheet.
Variable lease costs for both operating and finance leases, if any, are recognized as incurred.
Sublease rental 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. 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
a two-to-five-year period based on expected future revenues. The Company regularly reviews the recoverability of
these capitalized costs based on expected future cash flows.
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. The reserve for royalty advances was $109.5 and $102.9 as of May 31, 2020 and 2019, respectively.
45
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 goodwill impairment 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 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.
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 such 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.
46
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. The Company elects to recognize the tax
on Global Intangible Low-Taxed Income (GILTI) earned by foreign subsidiaries as a period expense in the period the
tax is incurred.
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.
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.
Pension obligations – Scholastic Corporation's UK subsidiary has a defined benefit pension plan covering the
majority of its employees who meet certain eligibility requirements. The Company’s pension plan and other
postretirement benefits are accounted for using actuarial valuations.
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.
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
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
Advertising costs are expensed by the Company as incurred. Total advertising expense was $85.2, $106.8 and $110.0
for the twelve months ended May 31, 2020, 2019 and 2018, respectively.
47
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
2020, 2019 and 2018 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
New Accounting Pronouncements
Current Fiscal Year Adoptions:
2020
2019
2018
$
6.99
$
11.97
$
10.45
1.9%
27.4%
1.3 %
5 years
1.4%
28.4%
3.0%
6 years
1.5 %
29.8%
2.1 %
6 years
ASU No. 2016-02, ASU No. 2018-10, ASU No. 2018-11 and ASU No. 2019-01
In February 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update
("ASU") No. 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in ASC
Topic 840, Leases. The amendments in this ASU require lessees to account for leases as either finance leases or
operating leases and generally require all leases to be recorded on the balance sheet, through the recognition of
right-of-use (ROU) assets and corresponding lease liabilities. The lease liability should be measured at the
present value of the lease payments over the lease term. The ROU asset should be measured at the lease liability
amount, adjusted for lease prepayments, lease incentives received and the lessee's initial direct costs (e.g.,
commissions). The guidance also requires specific qualitative and quantitative disclosures about leasing
activities. In addition, in July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842,
Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provide an additional (and
optional) transition method whereby the new lease standard is applied at the adoption date and recognized as
an adjustment to retained earnings.
The Company adopted ASU No. 2016-02 as of the beginning of the first quarter of fiscal 2020 using the
modified retrospective approach with no restatement of prior year amounts. In connection with the adoption of
this standard, the Company applied the package of practical expedients intended to ease transition for existing
48
leases by not requiring the Company to reassess: 1) its initial lease classification conclusions for existing or
expired leases; 2) whether an existing or expired contract is a lease or contains an embedded lease; 3) the
capitalization of initial direct costs for existing or expired leases. Upon adoption of ASU No. 2016-02, the
Company recognized initial ROU assets and lease liabilities consistent with the range previously disclosed in the
Company's Annual Report on Form 10-K for the year ended May 31, 2019 with no adjustment to retained
earnings. Refer to the above section "Summary of Significant Accounting Policies" and Note 9, Leases, for further
discussion of the Company's lease accounting policy and related disclosures.
ASU No. 2018-15
In August 2018, the FASB issued ASU No. 2018-15, Intangibles— Goodwill and Other—Internal-Use Software
(Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement that is a Service Contract, which reduces the complexity in accounting for costs of implementing a
cloud computing service arrangement. This standard aligns the accounting for implementation costs of hosting
arrangements, regardless of whether it conveys a license of the hosted software. ASU No. 2018-15 aligns the
following requirements for capitalizing implementation costs: (1) those incurred in a hosting arrangement that is
a service contract and (2) those incurred to develop or obtain internal-use software (and hosting arrangements
that include an internal-use software license).
The Company adopted ASU No. 2018-15 as of the beginning of the first quarter of fiscal 2020 using the
prospective approach. In fiscal year 2020, the Company capitalized approximately $11.9 of cloud computing
costs which have not yet been placed into service. This amount is included within Other assets and deferred
charges on the Company's Consolidated Balance Sheets and within the operating section of the Company's
Consolidated Statements of Cash Flows.
ASU No. 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 Tax Cuts and Jobs 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 Company adopted ASU No. 2018-02 as of the beginning
of the first quarter of fiscal 2020, which resulted in no impact on the Company's Consolidated Financial
Statements.
Forthcoming Adoptions:
ASU No. 2016-13
In June 2016, the FASB issued ASU No. 2016-13, "Measurement of Credit Losses on Financial Instruments" (ASU
2016-13). ASU 2016-13, which was further updated and clarified by the FASB through the issuance of additional
related ASUs, amends the guidance surrounding measurement and recognition of credit losses on financial assets
measured at amortized cost, including trade receivables and debt securities, by requiring recognition of an allowance
for credit losses expected to be incurred over an asset's lifetime based on relevant information about past events,
current conditions, and supportable forecasts impacting its ultimate collectability. This "expected loss" model may
result in earlier recognition of credit losses than the current "as incurred" model, under which losses are recognized
only upon an occurrence of an event that gives rise to the incurrence of a probable loss.
The ASU will be effective for the Company in the first quarter of fiscal 2021, with early adoption permitted. The
adoption of ASU 2016-13 is not expected to have a material impact on the Company’s Consolidated Financial
Statements.
ASU No. 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 carrying value exceeds the fair value of a reporting
unit.
49
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 is
currently evaluating the impact that ASU 2017-04 will have on its consolidated financial position, results of
operations and cash flows.
ASU No. 2019-12
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for
Income Taxes. The updates in this guidance remove the following exceptions: 1. Exception to the incremental
approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain
from other items (for example, discontinued operations or other comprehensive income); 2. Exception to the
requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary
becomes an equity method investment; 3. Exception to the ability not to recognize a deferred tax liability for a
foreign subsidiary when a foreign equity method investment becomes a subsidiary; 4. Exception to the general
methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated
loss for the year. The guidance also simplifies the accounting for income taxes by: 1. Requiring that an entity
recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account
for any incremental amount incurred as a non-income-based tax; 2. Requiring that an entity evaluate when a
step up in the tax basis of goodwill should be considered part of the business combination in which the book
goodwill was originally recognized and when it should be considered a separate transaction; 3. Specifying that
an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal
entity that is not subject to tax in its separate financial statements; 4. Requiring that an entity reflect the effect of
an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that
includes the enactment date. The guidance further provides a policy election to not allocate consolidated
income taxes when a member of a consolidated tax return is not subject to income tax and provides guidance
to evaluate whether a step-up in tax basis of goodwill relates to a business combination or a separate
transaction.
The ASU will be effective for the Company in the first quarter of fiscal 2022. Early adoption is permitted,
including adoption in any interim period for which financial statements have not yet been issued. An entity that
elects to early adopt in an interim period should reflect any adjustments as of the beginning of the annual period
that includes that interim period and an entity that elects early adoption must adopt all the amendments in the
same period. The Company is evaluating the impact of this ASU on its consolidated financial position, results of
operations and cash flows.
2. REVENUES
Disaggregated Revenue Data
The following table presents the Company’s revenues disaggregated by region and channel during the year ended
May 31:
Book Clubs
Book Fairs
Trade
Total Children's Book Publishing & Distribution
Education
Major Markets(1)
Other Markets(2)
Total International
Total Revenues
(1) - Includes Canada, UK, Australia and New Zealand.
(2) - Primarily includes markets in Asia.
2020
2019
2018
156.8
$
212.4
$
383.8
306.8
847.4
287.1
256.6
96.0
352.6
1,487.1
$
$
$
$
499.6
275.4
987.4
297.3
257.9
111.3
369.2
1,653.9
$
$
$
$
224.3
513.6
232.3
970.2
288.6
258.3
111.3
369.6
1,628.4
$
$
$
$
$
50
Estimated Returns
A liability for expected returns of $43.5 and $34.5 was recorded within Other accrued expenses on the Company's
Consolidated Balance Sheets as of May 31, 2020 and 2019, respectively. In addition, a return asset of $2.7 and $1.6 was
recorded within Prepaid expenses and other current assets as of May 31, 2020 and 2019, respectively, for the
recoverable cost of product estimated to be returned by customers.
Deferred Revenue
The Company's contract liabilities consist of advance billings and payments received from customers in excess of
revenue recognized and revenue allocated to outstanding book fairs incentive credits. These liabilities are recorded
within Deferred revenue on the Company's Consolidated Balance Sheets and are classified as short term, as
substantially all of the associated performance obligations are expected to be satisfied, and related revenue
recognized, within one year. The amount of revenue recognized during the years ended May 31, 2020 and 2019
included within the opening Deferred revenue balance was $121.8 and $107.2, respectively.
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 programs 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 three 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.
The following table sets forth information for the Company’s segments for the three fiscal years ended May 31:
51
2020
Revenues
Bad debts
Depreciation and
amortization(2)
Asset impairments and write
downs
Segment operating income
(loss)
Segment assets at May 31,
2020
Goodwill at May 31, 2020
Expenditures for other non-
current assets(3)
Other non-current assets at
May 31, 2020(3)
2019
Revenues
Bad debts
Depreciation and
amortization(2)
Asset impairments and write
downs
Segment operating income
(loss)
Segment assets at May 31,
2019
Goodwill at May 31, 2019
Expenditures for other non-
current assets(3)
Other non-current assets at
May 31, 2019(3)
2018
Revenues
Bad debts
Depreciation and
amortization(2)
Asset impairments and write
downs
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)
Children's
Book
Publishing &
Distribution
Education
Overhead (1)
Total
Domestic
International
Total
$
875.4
$
287.3
$
— $
1,162.7
$
324.4
$
1,487.1
5.8
26.5
—
23.6
523.7
46.9
49.5
169.6
2.5
13.0
—
29.9
223.4
68.1
20.1
123.8
—
43.4
40.0
8.3
82.9
40.0
7.3
7.3
0.6
15.6
90.2
40.6
(135.5 )
(82.0)
(6.5)
(88.5)
1,012.7
—
49.0
499.8
1,759.8
115.0
118.6
793.2
273.8
9.9
22.0
74.6
2,033.6
124.9
140.6
867.8
$
990.3
$
297.4
$
— $
1,287.7
$
366.2
$
1,653.9
3.8
23.7
—
82.9
523.4
47.0
71.4
175.0
1.4
9.5
—
30.6
214.7
68.2
22.6
116.3
—
41.7
0.9
(102.3)
887.6
—
77.6
507.7
5.2
74.9
0.9
11.2
1,625.7
115.2
171.6
799.0
1.8
6.8
—
13.8
252.8
10.0
13.5
65.3
7.0
81.7
0.9
25.0
1,878.5
125.2
185.1
864.3
$
970.2
$
288.6
$
— $
1,258.8
$
369.6
$
1,628.4
4.4
23.3
0.2
105.8
434.8
40.9
58.6
151.2
1.4
7.4
—
33.9
202.4
68.3
19.2
101.8
—
29.1
11.0
(101.8 )
927.9
—
104.5
492.7
5.8
59.8
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
66.0
11.2
55.6
1,825.4
119.2
197.6
820.0
(1)
(2)
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.
52
(3)
Other non-current assets include property, plant and equipment, prepublication assets, production assets, cloud computing
costs, 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 $17.3, $8.2 and $10.0 for the fiscal years
ended May 31, 2020, 2019 and 2018, respectively. Other non-current assets for the International reportable segment include
long-lived assets of $43.8, $35.9 and $36.8 at May 31, 2020, 2019 and 2018, respectively.
4. ASSET WRITE DOWN
During the third quarter, the Company implemented new systems, processes and a centralized management structure
to better coordinate demand planning and procurement activity across North America, and to optimize inventory
utilization and management. As a result of the foregoing, the Company determined that substantial quantities of
inventory will not be required to meet future profitable demand, and will be donated, liquidated or disposed.
Accordingly, a $40.0 non cash write down was recognized in the third quarter of fiscal 2020 for this excess inventory
and associated costs. The inventory cost, net of reserves, was $37.6. In addition, $1.6 and $0.8 of author advances and
prepublication costs, respectively, were written down as they were directly related to the inventory. The related impact
was a loss per basic and diluted share of Class A and Common Stock of $0.84 in the twelve months ended May 31,
2020.
5. DEBT
The following table summarizes the Company's debt as of May 31:
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
2020
2019
Loan Agreement:
Revolving Loan
Unsecured Lines of Credit (weighted
average interest rates of 4.6% and 4.1%,
respectively)
UK long-term debt
Total debt
Less: lines of credit and current portion of
long-term debt
Total long-term debt
$
$
$
200.0 $
200.0 $
— $
7.9
10.6
7.9
10.6
218.5
$
218.5
$
(7.9)
(7.9)
210.6
$
210.6
$
7.3
—
7.3
$
(7.3)
— $
—
7.3
—
7.3
(7.3)
—
The fair value of the Company's debt approximates the carrying value for all periods presented.
The following table sets forth the maturities of the carrying values of the Company’s debt obligations as of May 31,
2020 for the fiscal years ended May 31:
2021
2022
2023
2024
2025
Thereafter
Total debt
$
$
7.9
210.6
—
—
—
—
218.5
53
US Loan Agreement
On January 5, 2017, Scholastic Corporation and Scholastic Inc. (each, a “Borrower” and together, the “Borrowers”) entered
into a 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 1.00%, as well as, 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, 2020, 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, 2020, 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.
As of May 31, 2020, the Company had outstanding borrowings of $200.0 under the Loan Agreement. The Company
incurred this obligation in the fourth quarter of fiscal 2020 as a precautionary measure due to the uncertainty resulting
from the COVID-19 pandemic. While this obligation is not due until the January 5, 2022 maturity date, the Company
may, from time to time, make payments to reduce this obligation when cash from operations becomes available for
this purpose. No borrowings were outstanding under the Loan Agreement as of May 31, 2019.
At May 31, 2020, the Company had open standby letters of credit totaling $4.3 issued under certain credit lines,
including $0.4 under the Loan Agreement and $3.9 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, 2020, the Company was in compliance with these
covenants.
UK Loan Agreements
On September 23, 2019, Scholastic Limited UK entered into a term loan agreement to borrow £2.0 to fund a land
purchase in connection with the construction of a new UK facility. The loan has a maturity date of July 31, 2021. Under
the agreement, the principal balance is due in full in a single payment on the last day of the term and interest on the
amount borrowed is due and payable quarterly. The interest is charged at 1.77% per annum over the Base Rate. The
Base Rate is currently equal to 0.10% per annum and is subject to change. As of May 31, 2020, the Company had $2.5
outstanding on the loan.
54
On January 24, 2020, Scholastic Limited UK entered into a term loan facility with a borrowing limit of £6.6 to fund the
construction of the new UK facility. The loan has a maturity date of July 31, 2021. Under the agreement, the principal
balance is due in full in a single payment on the last day of the term and interest on the amount borrowed is due and
payable quarterly. The interest is charged at 1.77% per annum over the Base Rate. The Base Rate is currently equal to
0.10% per annum and is subject to change. As of May 31, 2020, the Company had $8.1 outstanding on the loan and no
remaining available credit under this facility.
Lines of Credit
As of May 31, 2020, 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, 2020 and May 31, 2019. As
of May 31, 2020, availability under these unsecured money market bid rate credit lines totaled $21.1. 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, 2020, the Company had various local currency credit lines, totaling $25.4, underwritten by banks
primarily in the United States, Canada and the United Kingdom. Outstanding borrowings under these facilities were
$7.9 at May 31, 2020 at a weighted average interest rate of 4.6%, compared to outstanding borrowings of $7.3 at
May 31, 2019 at a weighted average interest rate of 4.1%. As of May 31, 2020, amounts available under these facilities
totaled $17.5. 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.
6. COMMITMENTS AND CONTINGENCIES
Contractual Commitments
The following table sets forth the aggregate minimum future contractual commitments at May 31, 2020 relating to
royalty advances and minimum print quantities for the fiscal years ending May 31:
2021
2022
2023
2024
2025
2026 and thereafter
Total commitments
Royalty
Advances
Minimum Print
Quantities
16.2
$
40.9
5.3
0.6
0.0
0.0
0.1
1.7
1.4
—
—
—
22.2
$
44.0
$
$
The Company may be subject to penalties if it fails to meet these minimum print quantities due to changes in the
marketplace as a result of COVID-19.
The Company had open standby letters of credit of $4.3 and $5.3 issued under certain credit lines as of May 31, 2020
and 2019, respectively, 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
COVID-19
The COVID-19 pandemic and actions taken, or which may be taken in the future following any easing of current
restrictions based on the future course of the pandemic, by governments, businesses and individuals to limit the
spread of the virus may continue to have an adverse effect on the Company’s results of operations and financial
condition. Refer to Item 1A, Risk Factors, for a detailed discussion regarding the ways that the virus and steps taken to
curtail it have impacted or may in the future impact the Company’s businesses and operations.
The Company is not currently aware of any loss contingencies related to the foregoing that would require recognition
in the current fiscal year ended May 31, 2020.
55
Legal Matters
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.
In fiscal 2020, the Company entered into a settlement agreement, without admission of liability, related to an alleged
patent infringement claim and recognized an expense of $1.5. In addition, the Company entered into settlement
agreements related to photo copyright infringement cases, recognizing $2.4 in total in fiscal 2020.
Sales Tax Matters
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 now has an
obligation, at least on a go forward basis, based on each state's enforcement date, to collect and remit sales and use
taxes, 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 having no physical presence in such states.
The Company continues to monitor its compliance based on anticipated enforcement dates and an assumption as to
each state's likely interpretation and application of the Court's decision. As the Company continues to monitor each
state, the staggered enforcement dates, and the progress towards compliance, expenses will be incurred by the
Company. The Company remits sales tax to all required 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.
In fiscal 2019, the Company entered into a settlement with the State of Wisconsin in order to resolve legacy sales and
use tax assessments for fiscal years 2003 through 2014. The Company recorded $8.1 of expense in the Overhead
segment.
7. INVESTMENTS
Investments are included in Other assets and deferred charges on the Consolidated Balance Sheets. The following
table summarizes the Company’s investments for the fiscal years ended May 31:
Equity method investments
Other equity investments
Total investments
$
$
25.0
6.0
31.0
$
$
2020
2019
23.4
Segment
International
6.0
Children's Book Publishing & Distribution
29.4
The Company’s 26.2% equity interest in a 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.
In April 2019, the Company acquired an equity investment for $6.0, which provided a 4.6% ownership interest in a
financing and production company that makes film, television, and digital programming designed for the youth
market. This equity investment does not have a readily determinable fair value and the Company has elected to apply
the measurement alternative, and report this investment at cost, less impairment, on the Company's Consolidated
Balance Sheets. There have been no impairments or adjustments to the carrying value of this investment.
The Company has other equity investments with a net carrying value of less than $0.1 at May 31, 2020 and May 31,
2019, respectively.
56
Income from equity investments reported in Selling, general and administrative expenses in the Consolidated
Statements of Operations totaled $3.2 for the year ended May 31, 2020, $5.9 for the year ended May 31, 2019 and $4.8
for the year ended May 31, 2018.
8. 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
Construction in progress
Total at cost
Less: Accumulated depreciation and amortization
Property, plant and equipment, net
2020
2019
$
$
$
82.5 $
246.7
189.5
217.0
212.2
49.0
996.9 $
(420.0)
576.9 $
79.1
239.1
158.9
213.4
211.0
46.8
948.3
(370.6)
577.7
Depreciation and amortization expense related to property, plant, and equipment was $60.5, $56.2 and $41.8 for the
fiscal years ended May 31, 2020, 2019 and 2018, respectively.
In fiscal 2020, the Company recognized a pretax impairment charge of $0.6 related to an outdated technology
platform in Canada. In fiscal 2019, the Company recognized pretax impairment charges of $0.9 related to the
abandonment of legacy building improvements. 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.
Assets Held For Sale
The Company committed to a plan to sell the company-owned facility located in Danbury, Connecticut to relocate
the book fairs warehousing and distribution operations conducted in Danbury to a warehouse in Allentown,
Pennsylvania. This asset is included in the Overhead segment. The Company also committed to a plan to sell the UK
distribution centers located in Witney and Southam to consolidate the operations into a new facility in Warwickshire
which is currently under construction. These assets are included in the International segment. The Company expects
the sale of these facilities to be completed within one year and to recognize a gain on sale. The long-lived assets
which consist of land, building, and building improvements are classified as held for sale. These assets are carried at
the lower of carrying value or fair value less costs to sell and no additional depreciation is being recognized. As of May
31, 2020, the carrying amounts totaled $8.8.
57
9. LEASES
The following table summarizes right-of-use assets and lease liabilities recorded on the Company's Consolidated
Balance Sheet for the fiscal year ended May 31, 2020:
Operating leases
Finance leases
Total lease assets
Operating leases :
Current portion
Non-current portion
Total operating lease liabilities
Finance leases :
Current portion
Non-current portion
Total finance lease liabilities
Total lease liabilities
$
$
$
$
$
$
$
May 31, 2020
Location within Consolidated Balance Sheet
95.3 Operating lease right-of-use assets, net
Property, plant and equipment, net
Current portion of operating lease liabilities
Long-term operating lease liabilities
10.9
106.2
22.8
75.7
98.5
2.1 Other accrued expenses
9.5 Other noncurrent liabilities
11.6
110.1
The following table summarizes the activity for the fiscal year ended May 31, 2020:
Fiscal Year Ended
May 31, 2020
Location within Consolidated Statements of Operations
Operating lease expense (1)
Finance lease costs :
Depreciation of leased assets
Accretion of lease liabilities
Total lease expense
$
$
28.6
Selling, general and administrative expenses
Depreciation and amortization
Interest expense
2.1
0.4
31.1
(1) The Company elected to account for rent concessions negotiated in connection with COVID-19 as if they were
contemplated as part of the existing contract. Under this accounting model, the Company continued to recognize
lease expense as the lessee and rental income as the lessor. There is an immaterial impact from these concessions for
the fiscal year ended May 31, 2020. COVID-19 may cause changes in the market that could impact future lease
payments.
The following table summarizes certain cash flows information related to the Company's leases for the fiscal year
ended May 31, 2020:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Fiscal Year Ended
May 31, 2020
$
3.2
0.4
2.0
58
The following table provides a maturity analysis summary of the Company's lease liabilities recorded on the
Company's Consolidated Balance Sheet for the fiscal year ended May 31, 2020:
Fiscal 2021
Fiscal 2022
Fiscal 2023
Fiscal 2024
Fiscal 2025
Fiscal 2026 and thereafter
Total lease payments
Less: interest
Total lease liabilities
Operating Leases
Finance Leases
$
$
$
26.8
$
25.3
19.4
11.8
7.6
24.8
115.7
(17.2 )
98.5
$
$
2.5
2.4
2.3
2.1
1.3
2.4
13.0
(1.4)
11.6
The following table summarizes the weighted-average remaining lease terms and weighted-average discount rates
related to the Company's leases recorded on the Company's Consolidated Balance Sheet for the fiscal year ended
May 31, 2020:
Weighted-average remaining lease term (years)
Weighted-average discount rate
5.8
4.7%
5.9
3.8%
Operating Leases
Finance Leases
10. 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
2020
2019
$
$
$
$
$
164.8
(39.6)
125.2
—
(0.3)
—
124.9
$
158.8
(39.6)
119.2
6.3
(0.3)
—
125.2
There were no impairment charges related to Goodwill in any of the periods presented. As of May 31, 2020, $66.7 of
Goodwill is attributable to a reporting unit whose fair value reasonably exceeds carrying value. This reporting unit is
associated with the Education segment. If there is a continued adverse impact on the school-based market related to
the COVID-19 pandemic, the Company will need to reassess the Goodwill related to this reporting unit for
impairment, as well as other related assets including prepublication costs.
In fiscal 2019, the Company completed the purchase of a majority-ownership position in MBI, a UK-based children's
book publishing business, resulting in the recognition of $6.3 of Goodwill. See Note 11, "Acquisitions," for more
information.
59
The following table summarizes Other intangibles for the fiscal years ended May 31:
Other intangibles subject to amortization - beginning balance
Additions
Other
Amortization expense
Foreign currency translation
Total other intangibles subject to amortization, net of accumulated amortization
of $30.1 and $26.9, respectively
Total other intangibles not subject to amortization
Total other intangibles
2020
2019
$
$
$
$
12.2
1.6
—
(3.2)
(0.1)
10.5
$
2.1
12.6
$
10.1
4.5
0.6
(2.8)
(0.2)
12.2
2.1
14.3
In fiscal 2020, the Company purchased a U.S.-based book fair business resulting in $1.6 of amortizable intangible
assets. In fiscal 2019, the Company completed the purchase of a majority interest in a UK-based children's book
publishing business, which resulted in $3.9 of amortizable intangible assets. In fiscal 2019, the Company also
purchased a U.S.-based book fair business resulting in $0.3 of amortizable intangible assets and a UK-based book
clubs business resulting in $0.3 of amortizable intangible assets.
Amortization expense for Other intangibles totaled $3.2, $2.8 and $2.1 for the fiscal years ended May 31, 2020, 2019
and 2018, respectively.
The following table reflects the estimated amortization expense for intangibles for future fiscal years ending May 31:
2021
2022
2023
2024
2025
Thereafter
$
2.2
2.1
1.9
1.6
1.3
1.4
Intangible assets with indefinite lives consist principally of trademark and tradename rights. Intangible assets with
definite lives consist principally of customer lists, intellectual property, tradenames 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 5.7 years.
11. ACQUISITIONS
Fiscal 2020
In fiscal 2020, the Company acquired a U.S.-based book fair business resulting in the recognition of $1.6 of
amortizable intangible assets. The results of operations of this business subsequent to the acquisition are included in
the Children's Book Publishing and Distribution segment.
Fiscal 2019
Make Believe Ideas Limited Acquisition
On March 27, 2019, the Company completed the acquisition of a majority ownership interest in Make Believe Ideas
Limited, a UK-based children's book publishing company, by acquiring an additional 46.5% of equity interest in MBI to
bring the Company's total ownership interest to 95.0%. Prior to March 27, 2019, the Company accounted for its 48.5%
equity interest under the equity method of accounting. In connection with the acquisition, the carrying value of the
pre-existing equity-method investment was remeasured to a fair value of $12.1, resulting in the recognition of a gain
of $0.1. The fair value was estimated using future operating cash flow projections that were discounted at a rate of
17.0%, which accounted for the relative risks of the estimated future cash flows. The Company classified this as a Level
3 fair value measurement due to the use of these significant unobservable inputs. Additionally, a loss of $1.0 was
60
recorded related to the recognition of accumulated foreign currency translation adjustments previously recorded
within accumulated other comprehensive income (loss).
The founder and chief executive officer of MBI retains a 5.0% noncontrolling ownership interest in MBI. The Company
fully consolidated MBI as of the acquisition date, and the 5.0% noncontrolling interest is classified within stockholder's
equity. The results of operations subsequent to the acquisition date are included in the Children's Book Publishing and
Distribution segment.
The Company accounted for the acquisition of the additional ownership interest as a business combination under the
acquisition method of accounting. The acquisition date fair value of the consideration for the additional 46.5% interest
was $4.6, consisting of $7.6 net cash paid and the elimination of a $3.0 pre-acquisition payable owed to MBI by the
Company. As part of the business combination, the Company determined that the fair value of 100% of MBI was $22.3.
Estimated fair values were assigned to the assets and liabilities acquired, including inventory, receivables, payables and
a trade name. The Company utilized internally-developed discounted cash flow forecasts to determine the estimated
fair value of the trade name of $3.9 and has therefore classified this as a Level 3 fair value measurement. As a result of
this acquisition, $6.3 of goodwill was assigned to the Company’s Children's Book Publishing and Distribution segment,
which is not deductible for tax purposes.
Other Acquisitions
In fiscal 2019, the Company purchased a U.S.-based book fair business and a UK-based book clubs business resulting
in $0.6 of amortizable intangible assets. The results of operations of these businesses subsequent to the acquisitions
were included in the Children's Book Publishing and Distribution and International segments, respectively.
The transactions in fiscal 2020 and 2019 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.
12. TAXES
The components of Earnings (loss) before income taxes for the fiscal years ended May 31 were:
United States
Non-United States
Total
2020
2019
2018
$
$
(92.5) $
2.8
(89.7) $
8.7
17.3
26.0
$
$
(18.4)
16.9
(1.5)
The provision for income taxes for the fiscal years ended May 31 consisted of the following components:
2020
2019
2018
(72.2) $
(1.2 )
2.1
(71.3 )
$
27.3
(0.9)
(1.1 )
25.3
$
$
(0.2) $
4.8
2.8
7.4
$
1.1
3.1
(1.2 )
3.0
$
$
$
(3.6)
0.7
4.9
2.0
5.0
(3.5)
—
1.5
3.5
(46.0)
$
10.4
Current
Federal
State and local
Non-United States
Total Current
Deferred
Federal
State and local
Non-United States
Total Deferred
Total Current and Deferred
$
$
$
$
$
61
Effective Tax Rate Reconciliation
A reconciliation of the significant differences between the effective income tax rate and the federal statutory rate on
Earnings (loss) before income taxes for the fiscal years ended May 31 was as follows:
2020
2019
2018
Computed federal statutory provision
State income tax provision, net of federal income tax benefit
Difference in effective tax rates on earnings of foreign
subsidiaries
Rate differential on net operating loss carrybacks
GILTI inclusion
Charitable contributions
Tax credits
Valuation allowances
Uncertain positions
Remeasurement of deferred tax balances
Permanent differences
Other
Effective tax rates
Total provision (benefit) for income taxes
$
21.0%
2.0
1.8
34.2
(2.4)
0.1
0.8
(1.1 )
(2.3)
—
(1.1 )
(1.7 )
51.3%
(46.0)
$
21.0%
25.7
2.3
—
3.4
(0.6)
(3.1 )
2.3
(6.3)
—
0.1
(4.8)
40.0%
10.4
$
29.2 %
37.1
(1.3 )
—
—
28.6
42.8
68.1
110.3
(371.3 )
(177.6 )
0.8
(233.3)%
3.5
Tax Legislation Updates
In response to the COVID-19 pandemic, many governments have enacted or are contemplating measures to provide
aid and economic stimulus. These measures may include deferring the due dates of tax payments or other changes to
their income and non-income-based tax laws as well as providing direct government assistance through grants and
forgivable loans. On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief and Economic Security
Act (the “CARES Act”). The CARES Act, among other things, includes provisions relating to refundable payroll tax
credits, deferment of employer-side social security payments, net operating loss carryback periods, alternative
minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax
depreciation methods for qualified improvement property.
On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. The Tax Cuts and Jobs Act, among other
things, reduced the U.S. federal corporate tax rate from 35% to 21% and imposed a new minimum tax on Global
Intangible Low-Taxed Income ("GILTI") earned by foreign subsidiaries.
Effective Tax Rate
The effective tax rate for the fiscal year ended May 31, 2020 was impacted by the loss before income taxes of $89.7,
which reflected lower operating results as a result of the COVID-19 pandemic. In addition, the Company expects to
carry back net operating losses generated in the U.S. to previous periods which were taxed at the higher 35% federal
corporate tax rate.
The effective tax rate for the fiscal year ended May 31, 2019 was impacted by a reduction in the federal statutory rate
under the Tax Cuts and Jobs Act, as the new rate was applicable to the entire current fiscal year period. The Company's
income tax expense for the fiscal period included $0.9 of expense related to GILTI, partially offset by applicable
deductions and foreign tax credits. The Company's state income tax expense was primarily impacted by variations in
state earnings and corresponding state net operating carryforwards.
The effective tax rate for the fiscal year ended May 31, 2018 was impacted by the loss 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 was also impacted by a reduction in the federal statutory rate under the Tax Cuts
and Jobs Act, for a portion of the prior fiscal year period, and the re-measurement of the Company's U.S. deferred tax
balances, resulting in $5.7 of additional tax provision.
62
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. The Company is permanently reinvested in certain foreign
subsidiaries representing a portion of the Company's investments in foreign subsidiaries. Any required adjustment to
the income tax provision would be reflected in the period that the Company changes this assessment. As of May 31,
2020, there have been no adjustments to the income tax provision related to unremitted earnings.
Deferred Taxes
The significant components for deferred income taxes for the fiscal years ended May 31 were as follows:
2020
2019
Deferred tax assets:
Tax uniform capitalization
Prepublication expenses
Inventory reserves
Allowance for doubtful accounts
Deferred revenue
Other reserves
Postretirement, post employment and pension obligations
Tax carryforwards
Lease Liabilities
Other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Depreciation and amortization
Lease Right of Use Assets
Prepaid expenses
Other
Total deferred tax liability
Total net deferred tax assets
$
$
$
$
$
$
10.4
0.8
10.3
2.9
—
18.0
5.3
51.1
25.2
11.9
135.9
(31.3 )
104.6
$
$
(65.8)
(24.4)
(0.2)
(1.9)
(92.3) $
12.3
$
12.8
1.2
15.1
1.9
23.5
17.2
6.0
31.8
—
13.7
123.2
(25.7)
97.5
(60.3)
—
(0.2)
—
(60.5)
37.0
The total net deferred tax assets include deferred tax liabilities of $6.3 which are included in Other noncurrent liabilities
on the Company's Consolidated Balance Sheet and deferred tax assets of $18.6 as of May 31, 2020.
The Company regularly assesses the realizability of deferred tax assets considering all available evidence including, to
the extent applicable, the nature, frequency and severity of prior cumulative losses, forecasts of future taxable income,
tax filing status, duration of statutory carryforward periods, tax planning strategies and historical experience. For the
fiscal year ended May 31, 2020, the valuation allowance increased by $5.6 and there were no valuation allowance
releases. For the fiscal year ended May 31, 2019, the valuation allowance increased by $0.6, driven by increases to the
valuation allowance of $3.9, partially offset by $3.3 of valuation allowance releases and other items. For the fiscal year
ended May 31, 2020, the Company has tax effected state and foreign net operating loss carryforwards of $15.4 and
$28.1, respectively. Certain state net operating loss carryforwards, if not utilized, expire at various times, primarily
between fiscal year 2021 and fiscal year 2040. Certain foreign net operating loss carryforwards, if not utilized, also
expire at various times. Approximately half of the foreign net operating loss carryforwards expire between fiscal year
2021 and fiscal year 2040 and the remaining carryforwards do not have an expiration date.
Unrecognized tax benefits
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 and reduced by the associated federal deduction
for state taxes and non-U.S. tax credits. The interest and penalties related to these uncertain tax positions are recorded
63
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, 2020, 2019, and 2018 were $10.2, excluding $2.2 accrued
for interest and penalties, $9.0, excluding $1.4 accrued for interest and penalties, and $10.1, excluding $1.8 accrued for
interest and penalties, respectively. Of the total amount of unrecognized tax benefits at May 31, 2020, 2019, and 2018,
$10.2, $9.0 and $10.1, 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 $0.8, a benefit
of $0.4, and an expense of $0.1 for the years ended May 31, 2020, 2019, and 2018, respectively.
The table below presents a reconciliation of the unrecognized tax benefits for the fiscal years indicated:
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
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, 2019
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, 2020
$
$
$
14.1
(2.6)
0.4
0.5
(1.9)
(0.4)
10.1
(1.1 )
0.2
0.7
(0.2)
(0.7)
9.0
(0.2)
1.8
0.1
(0.2)
(0.3)
$
10.2
Unrecognized tax benefits for the Company increased by $1.2 for the year ended May 31, 2020 and decreased by $1.1
for the year ended May 31, 2019. Although the timing of the resolution and/or closure of 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.
Income Tax Returns
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. The Company is routinely audited by various tax authorities and the fiscal 2015 through fiscal
2019 tax years remain open. The Company has been notified by the IRS that there will be an examination of the
income tax return for fiscal 2015, however the audit has not yet started as of May 31, 2020. In fiscal 2020, there were
settlements of audits with taxing authorities, none of which were considered material to the provision for income
taxes.
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
64
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.
13. CAPITAL STOCK AND STOCK-BASED AWARDS
Class A Stock and Common Stock
Capital stock consisted of the following as of May 31, 2020:
Authorized
Reserved for Issuance
Outstanding
Class A Stock
Common Stock
Preferred Stock
4,000,000
70,000,000
2,000,000
—
1,656,200
8,409,143
32,529,874
—
—
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 on the same
basis to dividends and distributions when or if declared by the Board.
The Company issues shares of Common Stock from its Treasury stock to meet its share-based payment requirements,
net of shares required to be withheld to cover the recipient's tax obligations.
Preferred Stock
The Company's 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, 2020, the Company maintained four stockholder-approved stock-based compensation plans with regard
to the Common Stock:
•
•
•
•
Scholastic Corporation 2001 Stock Incentive Plan (the “2001 Plan”), under which no further awards can be
made;
Scholastic Corporation 2011 Stock Incentive Plan (the “2011 Plan”);
Scholastic Corporation 2007 Outside Directors Stock Incentive Plan (the “2007 Directors Plan”), under which
no further grants can be made; and
Scholastic Corporation 2017 Outside Directors Stock Incentive Plan (the “2017 Directors Plan”)
The 2011 Plan was approved by the Class A Stockholders in September 2011 and provides for the issuance of certain
equity awards, including non-qualified stock options, time-vested restricted stock units, performance-based restricted
stock units, all of which have been issued by the Company to date, and incentive stock options and other equity
awards. In September 2014, the Class A Stockholders approved the second amendment to the 2011 Plan increasing
the shares available for issuance pursuant to awards granted under the 2011 Plan by 2,475,000 shares. In September
2018, the Class A Stockholders approved the third amendment to the 2011 Plan increasing the shares available for
issuance pursuant to awards granted under the 2011 Plan by 2,540,000 shares, for a total of 7,115,000 shares available
for issuance under the 2011 Plan.
The Company’s stock-based awards vest over periods not to exceed four years and the Company's equity plans
permit the acceleration of vesting upon retirement for certain eligible employees, as well as for certain other events.
65
At May 31, 2020, non-qualified stock options to purchase 99,212 shares and 2,749,287 shares of Common Stock were
outstanding under the 2001 Plan and the 2011 Plan, respectively. During fiscal 2020, 101,266 options were granted
under the 2011 Plan at a weighted average exercise price of $30.38.
At May 31, 2020, 2,803,519 shares of Common Stock were available for issuance under the 2011 Plan.
In September 2007, the Class A Stockholders approved the 2007 Outside 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 September 2012, the Class A Stockholders approved an amendment and
restatement to the 2007 Outside Directors Stock Incentive Plan (the “Amended 2007 Directors Plan”), which 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. The total amount, as well as the relative
percentage of stock options and restricted stock units, were to be determined annually by the Board (or committee
designated by the Board) in advance of the grant date. The value of the stock option was 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 amendment number 2 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 Class A Stockholders approved the 2017 Directors Plan which has 400,000 shares of Common
Stock reserved for issuance and 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.
The total dollar amount, as well as the relative percentage of stock options and restricted stock units, is determined
annually by the Board (or Committee designated by the Board) in advance of the grant date. In July 2019, the Board
approved the fiscal 2020 grant to each non-employee director, on the date of the 2019 annual meeting of
stockholders, of stock options and restricted stock units having a combined value, as determined by the Board, of
ninety thousand dollars ($90,000), (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, such grant to vest in its
entirety on the earlier of the first anniversary of the date of grant or the date of the next annual meeting of
stockholders following the date of grant.
On September 18, 2019, an aggregate of 24,297 options at an exercise price of $39.33 per share and 9,604 restricted
stock units were granted to the non-employee directors under the 2017 Directors Plan, such grant to vest in its
entirety on the earlier of the first anniversary of the date of grant or the date of the next annual meeting of
Stockholders following the date of grant. As of May 31, 2020, non-qualified stock options to purchase 92,394 shares
and 62,088 shares were outstanding under the 2007 Plan and the 2017 Plan, respectively.
Stock Options - Generally, stock options granted under the Company's equity plans may not be exercised for a
minimum of one year after the date of grant and expire ten years after the date of grant. The intrinsic value of certain
stock options is tax deductible by the Company upon exercise, if compliant with current tax law. 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 Company's equity plans for the fiscal years ended May 31:
Total intrinsic value of stock options exercised
Total stock-based compensation cost (pretax)
Tax benefits (shortfalls) related to stock-based compensation cost
Weighted average grant date fair value per option
2020
2019
2018
$
$
$
0.2
3.8
(0.5)
$
2.1
8.3
0.5
5.0
10.7
(0.2)
6.99
$
11.97
$
10.45
66
Pretax stock-based compensation cost is recognized in Selling, general and administrative expenses. As of May 31,
2020, the total pretax compensation cost not yet recognized by the Company with regard to outstanding unvested
stock options was $1.5. The weighted average period over which this compensation cost is expected to be recognized
is 2.1 years.
The following table sets forth the stock option activity under the Company's equity plans for the fiscal year ended
May 31, 2020:
Outstanding at May 31, 2019
Additional grants (1)
Granted
Exercised
Expired, canceled and forfeited
Outstanding at May 31, 2020
Options
2,942,129
2,306
125,563
(26,326)
(40,691)
3,002,981
Exercisable at May 31, 2020
(1) Reflects an adjustment made to the September 2018 grants.
2,215,823
Weighted
Average
Exercise
Price
Average
Remaining
Contractual
Term (in
years)
Aggregate
Intrinsic
Value (in
millions)
$
$
$
36.62
42.96
32.12
30.56
40.72
36.43
35.46
5.5 $
4.6 $
1.2
1.1
Restricted Stock Units – In addition to stock options, the Company has issued restricted stock units to certain officers
and senior management under the 2011 Plan. The restricted stock units convert to shares of Common Stock on a
one-for-one basis upon vesting, which for time-vested restricted stock units is typically in four equal annual
installments beginning with the first anniversary of the date of grant, with the exception of 11,316 restricted stock units
granted in fiscal 2020 that vest over a three year period. Additionally, the Company has accrued for the issuance of
performance-based restricted stock units to two members of senior management under discrete incentive plans.
There were 43,248 shares of Common Stock issued upon the vesting of restricted stock units during fiscal 2020. 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
2020
34,632
2019
82,044
Weighted average grant date price per unit
$
32.56
$
42.86
$
2018
68,089
38.97
As of May 31, 2020, the total pretax compensation cost not yet recognized by the Company with regard to unvested
restricted stock units was $1.5. The weighted average period over which this compensation cost is expected to be
recognized is 2.4 years.
Management Stock Purchase Plan - The Company maintains the Scholastic Corporation Management Stock Purchase
Plan (the “MSPP”), which permits certain members of senior management to defer up to 100% of his or her annual
cash bonus payments in the form of restricted stock units (the "MSPP RSUs”) 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 awarded. The MSPP RSUs 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 RSUs 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.
67
The following table sets forth the MSPP RSUs activity for the fiscal years ended May 31:
MSPP RSUs allocated
Purchase price per unit
2020
3,843
2019
17,239
$
24.36
$
30.48 $
2018
73,965
28.76
At May 31, 2020, there were 283,017 shares of Common Stock remaining authorized for issuance under the MSPP.
As of May 31, 2020, the total pretax compensation cost not yet recognized by the Company with regard to unvested
MSPP RSUs was $0.0.
The following table sets forth the restricted stock unit and MSPP RSUs activity for the year ended May 31, 2020:
Nonvested as of May 31, 2019
Granted
Vested
Forfeited
Nonvested as of May 31, 2020
Restricted
stock units and
MSPP RSUs
Weighted
Average grant
date fair value
287,564
$
38,475
(98,942)
(664)
226,433
$
25.61
30.21
28.36
34.04
25.11
The total fair value of shares vested during the fiscal years ended May 31, 2020, 2019 and 2018 was $2.8, $2.7 and
$3.6, respectively.
Employee Stock Purchase Plan - The Company maintains the Scholastic Corporation Employee Stock Purchase Plan
(the “ESPP”), which is offered to eligible United States employees. The ESPP permits participating employees to
purchase Common Stock, with after-tax payroll deductions, on a quarterly basis at a 15% discount from the closing
price of the Common Stock on NASDAQ 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 began participating in the ESPP.
The following table sets forth the ESPP share activity for the fiscal years ended May 31:
Shares issued
Weighted average purchase price per share
2020
65,714
2019
48,000
2018
50,516
$
27.84
$
36.25
$
33.74
At May 31, 2020, there were 356,239 shares of Common Stock remaining authorized for issuance under the ESPP.
14. 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
March 2020
Total current Board authorizations
Less repurchases made under the authorizations as of May 31, 2020
Remaining Board authorization at May 31, 2020
Amount
50.0
50.0
50.0
150.0
(82.7)
67.3
$
$
$
$
Remaining Board authorization at May 31, 2020 represents the amount remaining under the Board authorization for
Common share repurchases on March 21, 2018 and the current $50.0 Board authorization for Common share
68
repurchases announced on March 18, 2020, 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, 2020,
the Company repurchased approximately 1.0 million shares on the open market for approximately $35.5 at an average
cost of $34.23 per share. The Company’s repurchase program may be suspended at any time without prior notice.
15. 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 previously had a cash balance retirement plan (the "U.S. Pension Plan") which was terminated in fiscal
2018.
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 became 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. The Company’s postretirement benefit plan has a measurement date of May 31.
In the second quarter of fiscal 2019, the Company made a change in benefits for certain postretirement benefit plan
participants. Beginning January 1, 2019, the plan established Health Reimbursement Accounts (HRAs) to provide
certain participants with additional flexibility to choose healthcare options based on individual needs. As a result of
this change, the Company remeasured its Postretirement Benefit obligation as of November 30, 2018 and recognized
a reduction of $2.7 to its benefit obligation and a reduction to its accumulated comprehensive loss of $2.7 in the
second quarter of fiscal 2019. The related prior service credit will be amortized as a Component of net periodic
benefit (cost) over the average remaining life expectancy of plan participants of approximately 13 years.
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 2020, 2019 and 2018, the Company recognized
a cumulative reduction of its accumulated postretirement benefit obligation of $1.2, $1.5 and $2.3, respectively, due
to the Federal subsidy under the Medicare Act.
69
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:
U.S. Pension Plan
2019 *
2020 *
2018
UK Pension Plan
Postretirement Benefits
2020
2019
2018
2020
2019
2018
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)
Expected short-term return on
plan assets (2)
Expected long-term return on plan
assets
Rate of compensation increase
*
*
*
*
*
*
*
*
*
*
*
*
—%
—
1.7 %
3.6%
2.3%
4.1%
2.6%
3.9%
2.7%
—
3.6%
—
4.0%
—
2.3%
2.4%
2.4%
2.5%
3.2%
3.7%
3.7%
4.8%
—
—
—
—
—
3.1 %
3.4%
3.4%
4.1%
3.9%
4.1%
—
—
—
—
—
—
—
—
—
* The U.S. Pension Plan was terminated in fiscal 2018.
(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 3.1% 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 UK Pension Plan and Postretirement Benefits at
May 31:
Change in benefit obligation:
Benefit obligation at beginning of year $
40.9
$
40.0 $
23.4
$
26.8
UK Pension Plan
2020
2019
Postretirement Benefits
2020
2019
Service cost
Interest cost
Plan participants’ contributions
Actuarial losses (gains)
Foreign currency translation
Plan amendments
Benefits paid, including expenses
—
0.9
—
2.4
(1.1 )
—
(1.4)
—
0.9
—
3.1
(2.0)
0.1
(1.2 )
Benefit obligation at end of year
$
41.7
$
40.9
$
—
0.6
0.2
(1.3 )
—
—
(2.1 )
20.8
$
0.0
0.8
0.4
0.1
—
(2.7)
(2.0)
23.4
70
The following table sets forth the change in plan assets for the UK Pension Plan at May 31:
UK Pension Plan
2020
2019
Change in plan assets:
Fair value of plan assets at beginning of year
$
31.8
$
Actual return on plan assets
Employer contributions
Benefits paid, including expenses
Foreign currency translation
Fair value of plan assets at end of year
6.0
1.1
(1.4)
(0.9)
$
36.6
$
30.8
2.8
1.0
(1.2 )
(1.6)
31.8
The following table sets forth the net funded status of the UK Pension Plan and Postretirement Benefits and the
related amounts recognized on the Company’s Consolidated Balance Sheets at May 31:
Current liabilities
Non-current liabilities
Net funded balance
UK Pension Plan
Postretirement Benefits
2020
2019
2020
2019
$
$
— $
(5.1 )
(5.1) $
— $
(1.5 ) $
(9.1)
(19.3)
(9.1) $
(20.8) $
(1.8)
(21.6)
(23.4)
The following amounts were recognized in Accumulated other comprehensive income (loss) for the UK Pension Plan
and Postretirement Benefits on the Company’s Consolidated Balance Sheets at May 31:
UK
Pension
Plan
2020
Post -
Retirement
Benefits
UK
Pension
Plan
Total
2019
Post -
Retirement
Benefits
Total
$
(9.6) $
1.3
$
(8.3) $
(13.0) $
0.5
$
(12.5 )
(9.6)
1.2
(8.4)
(13.0)
0.0
(13.0)
Net actuarial gain (loss)
Amount recognized in
Accumulated comprehensive
income (loss) before tax
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, 2021 is $0.5.
The Company estimates there will be no net gain or loss for the Postretirement Benefits amortized from
Accumulated other comprehensive loss into net periodic benefit (cost) for the fiscal year ending May 31, 2021.
Income tax benefit of $0.4, income tax benefit of $0.5 and income tax expense of $20.9 were recognized in
Accumulated other comprehensive loss at May 31, 2020, 2019 and 2018, respectively.
The following table sets forth the projected benefit obligations, accumulated benefit obligations and the fair value of
plan assets with respect to the UK Pension Plan as of May 31:
Projected benefit obligations
Accumulated benefit obligations
Fair value of plan assets
UK Pension Plan
2020
2019
$
$
41.7
41.4
36.6
40.9
40.2
31.8
71
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
2019 *
2018
2020 *
UK Pension Plan
Postretirement Benefits
2020
2019
2018
2020
2019
2018
Components of net (benefit)
cost:
Service cost
Interest cost
Expected return on assets
Settlement charge
Amortization of net actuarial
(gain) loss
*
*
*
*
*
* $
— $
— $
— $
— $
0.0 $
0.0 $
*
*
*
*
1.9
(4.1)
57.3
0.9
0.9
(1.0)
—
1.0
0.9
(1.0)
—
0.8
1.1
(1.0)
—
1.2
0.6
—
—
0.8
—
—
(0.2)
(0.1)
Net periodic (benefit) cost
$ — $ — $
56.0 $
0.9 $
0.7 $
1.3 $
0.4 $
0.7 $
0.0
0.8
—
—
0.1
0.9
* The U.S. Pension Plan was terminated in fiscal 2018.
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 following table sets forth the total weighted average asset allocations for the UK Pension Plans by asset category
at May 31:
Equity securities
Cash and cash equivalents
Liability-driven instruments
Real estate
Other
UK Pension Plan
2020
2019
28.6%
2.2%
48.0%
6.1%
15.1 %
35.0%
3.0%
38.0%
7.0%
17.0 %
100.0%
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
Cash and cash equivalents
Liability-driven instruments and other
Real estate
Total
UK
Pension
Plan
29%
2%
63%
6%
100%
The fair values of the Company’s Pension Plan assets are measured using Level 1, Level 2 and Level 3 fair value
measurements.
72
The following table sets forth the measurement of the Company’s Pension Plan assets at fair value by asset category at
the respective dates:
Assets at Fair Value as of May 31, 2020
UK Pension Plan
Level 1
Level 2
Level 3
Total
Cash and cash equivalents
$
0.8
$
— $
— $
Equity securities:
U.S. (1)
International (2)
Pooled, Common and Collective Funds (3) (4)
Annuities
Real estate (5)
3.7
6.8
—
—
2.2
—
—
17.5
—
—
Total
$
13.5
$
17.5
$
—
—
—
5.6
—
5.6
$
0.8
3.7
6.8
17.5
5.6
2.2
36.6
Cash and cash equivalents
$
0.9
$
— $
— $
0.9
Assets at Fair Value as of May 31, 2019
UK Pension Plan
Level 1
Level 2
Level 3
Total
Equity securities:
U.S. (1)
International (2)
Pooled, Common and
Collective Funds (3) (4)
Annuities
Real estate (5)
Total
(1)
(2)
(3)
(4)
(5)
1.1
10.0
—
—
2.3
—
—
12.0
—
—
$
14.3
$
12.0
$
—
—
—
5.5
—
5.5
$
1.1
10.0
12.0
5.5
2.3
31.8
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 on any
public exchanges. 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 $5.6 and $5.5 at May 31,
2020 and May 31, 2019, respectively.
73
The following table summarizes the changes in fair value of these Level 3 assets for the fiscal years ended May 31,
2020 and 2019:
Balance at May 31, 2018
Actual Return on Plan Assets:
Relating to assets still held at May 31, 2019
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, 2019
Actual Return on Plan Assets:
Relating to assets still held at May 31, 2020
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, 2020
Contributions
$
$
$
5.7
0.1
—
—
—
(0.3)
5.5
0.2
—
—
—
(0.1)
5.6
In fiscal 2021, the Company expects to make contributions of $1.0 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:
UK Pension
Plan
Postretirement
Pension
benefits
Benefit
payments
Medicare
subsidy
receipts
$
$
0.9
1.1
0.9
1.3
1.5
7.4
$
1.7
1.6
1.6
1.6
1.6
7.0
0.1
0.1
0.1
0.1
0.2
0.6
2021
2022
2023
2024
2025
2026 and thereafter
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
2020
2019
6.3%
5.0%
2026
6.5%
5.0%
2026
74
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
2020
2019
$
0.1
$
(0.1)
1.9
(1.7 )
0.1
(0.1)
2.1
(1.9)
The Company also provides defined contribution plans for certain eligible employees. In the United States, the
Company sponsors a 401(k) retirement plan and has contributed $6.7, $7.6 and $7.2 for fiscal years 2020, 2019 and
2018, respectively.
16. 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:
2020
2019
2018
Pension
Plans
Post -
Retirement
Benefits
Pension
Plans
Post -
Retirement
Benefits
Pension
Plans
Post -
Retirement
Benefits
Service cost
Net amortization and deferrals
Lump sum settlement charge
Amortization of net actuarial losses
(gains)
Tax (benefit) expense
Amounts reclassified from
Accumulated other comprehensive
income (loss)
$
— $
—
—
1.0
—
— $
(0.2)
—
—
0.0
— $
—
—
0.8
—
— $
(0.1)
—
—
0.0
— $
—
55.0
2.1
(22.3)
$
1.0 $
(0.2) $
0.8 $
(0.1) $
34.8 $
0.0
—
—
0.1
0.0
0.1
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.
75
The following tables summarize the activity in Accumulated other comprehensive income (loss), net of tax, by
component for the periods indicated:
Balance at May 31, 2018 (1)
Other comprehensive income (loss) before
reclassifications
Less: amount reclassified from Accumulated other
comprehensive income (loss) (net of taxes)
Amortization of net actuarial loss
Other comprehensive income (loss)
Balance at May 31, 2019 (1)
Other comprehensive income (loss) before
reclassifications
Less: amount reclassified from Accumulated other
comprehensive income (loss) (net of taxes)
Amortization of net actuarial loss
Other comprehensive income (loss)
Balance at May 31, 2020 (1)
$
$
$
$
$
$
$
Foreign
currency
translation
adjustments
Pension
Plans
Post -
Retirement
Benefits
Total
(41.9) $
(12.5) $
(1.3) $
(55.7)
(5.2) $
(1.4) $
1.9
$
(4.7)
— $
(5.2)
$
0.8
(0.6)
(47.1) $
(13.1 ) $
(2.9) $
2.5
$
— $
(2.9)
$
1.0
3.5
(50.0) $
(9.6) $
(0.1) $
1.8
0.5
1.0
$
$
(0.2) $
0.8
1.3
$
0.7
(4.0)
(59.7)
0.6
0.8
1.4
(58.3)
(1) Accumulated other comprehensive income (loss) related to Pension Plans and Postretirement Benefits are reported net of taxes of $0.4,
$0.5 and $1.1 at May 31, 2020, 2019, and 2018, respectively.
17. 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:
2020
2019
2018
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)
$
(43.8) $
15.5
$
34.6
—
34.6
35.2
0.6
35.8
(5.0)
35.0
—
35.0
Earnings (loss) per share of Class A Stock and Common Stock
Basic earnings (loss) per share
Diluted earnings (loss) per share
$
$
(1.27 ) $
(1.27 ) $
0.44
0.43
$
$
(0.14)
(0.14)
Net income (loss) attributable to Class A and Common Shares excludes earnings of $0.1 for the fiscal year ended
May 31, 2019, for earnings attributable to participating restricted stock units. The Company experienced a loss for the
fiscal years ended May 31, 2020 and May 31, 2018 and therefore did not allocate any loss to the participating restricted
stock units.
There were 2.5 million of potentially anti-dilutive shares outstanding pursuant to compensation plans as of May 31,
2020.
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.
76
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)
2020
3.0
2019
2.9
As of May 31, 2020, $67.3 remains available for future purchases of common shares under the current repurchase
authorization of the Board of Directors.
See Note 14, “Treasury Stock,” for a more complete description of the Company’s share buy-back program.
18. OTHER ACCRUED EXPENSES
Other accrued expenses consisted of the following at May 31:
2020
2019
Accrued payroll, payroll taxes and benefits
$
38.8
$
Accrued bonus and commissions
Accrued other taxes
Returns liability
Accrued advertising and promotions
Other accrued expenses
Total accrued expenses
12.1
22.9
43.5
9.9
34.3
41.2
13.7
29.3
34.5
9.6
36.5
$
161.5
$
164.8
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
2020
2019
$
$
$
5.5
17.2
(17.0)
5.7
$
4.2
10.6
(9.3)
5.5
The Company implemented cost reduction programs in fiscal 2020 and 2019, recognizing severance expense of $13.1
and $6.5, respectively.
19. DERIVATIVES AND HEDGING
The Company enters into foreign currency derivative contracts to economically hedge the exposure to foreign
currency fluctuations associated with the forecasted purchase of inventory, 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, 2020 and 2019 were $23.5 and $30.0, respectively. Net unrealized
gains of $0.6 and $0.8 were recognized at May 31, 2020 and May 31, 2019, respectively.
20. 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.
77
•
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 5, “Debt.” The fair values of foreign currency
forward contracts, used by the Company to manage the impact of foreign exchange rate changes to the financial
statements, are based on quotations from financial institutions, a Level 2 fair value measure. See Note 19, “Derivatives
and Hedging,” for a more complete description of fair value measurements employed.
Long-lived assets
Investments
Non-financial assets and liabilities for which the Company employs fair value measures on a non-recurring basis
include:
•
•
• Assets acquired in a business combination
•
•
Impairment assessment of goodwill and 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 10, “Goodwill and Other
Intangibles." For the fair value measurements employed by the Company for acquisitions see Note 11, “Acquisitions."
The Company employs fair value measurements for certain property, plant and equipment, production assets,
investments and prepublication assets and 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, 2020
Level 1
Level 2
Level 3
May 31, 2020
Additions due
to acquisitions
Author advances
$
— $
— $
— $
Prepublication costs
Property, plant and
equipment, net
Intangible assets
—
—
1.5
—
—
—
—
—
—
$
1.6
0.8
0.6
1.6
$
1.6
0.8
0.6
—
—
—
—
1.6
Property, plant and
equipment, net
Investment acquired
Intangible assets
Net carrying
value as of
Fair value measured and
recognized using
Impairment
losses
for fiscal year
ended
May 31, 2019
Level 1
Level 2
Level 3
May 31, 2019
Additions due
to acquisitions
$
— $
— $
— $
— $
0.9
$
—
—
6.0
5.1
—
—
6.0
4.9
—
—
78
—
6.0
5.1
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
$
— $
— $
— $
— $
11.2
$
3.1
—
—
3.3
—
—
3.3
Property, plant and
equipment, net
Intangible assets
21. SUBSEQUENT EVENTS
On July 22, 2020, 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 2021. The dividend is payable on September 15, 2020 to shareholders of record on
August 31, 2020.
79
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the
three fiscal years in the period ended May 31, 2020, 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, 2020, 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 27, 2020 expressed an unqualified opinion thereon.
Adoption of ASU No. 2016-02
As discussed in Note 1 to the consolidated financial statements, effective June 1, 2019, the Company changed its
method of accounting for leases due to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases and
associated amendments (Topic 842) using the modified retrospective method.
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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or
complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
80
Description of
the Matter
Revenue Recognition - allocation of contract transaction price to identified performance
obligations
As described in Note 1 to the consolidated financial statements, the Company identifies two
performance obligations within its school-based book fair contracts, which include (i) the fulfillment of
book fairs product and (ii) the fulfillment of product upon the redemption of incentive program credits
by customers. The Company allocates the transaction price to each performance obligation on a
relative standalone selling price. Changes in the allocation of the transaction price could impact the
timing of the recognition of revenue.
Considering the nature and volume of school-based book fair transactions, we identified the allocation
of the transaction price to the identified performance obligations within school-based book fair contracts
as a critical audit matter because the estimation of standalone selling price for the incentive program
credits required especially challenging auditor effort and judgment in evaluating the methodology used
to establish standalone selling price. Estimating standalone selling price for the incentive program
credits utilizes estimates of a standardized value per credit. The standardized value per credit is based
on historical experience of issuance and redemption patterns related to the incentive program, adjusted
to normalize the data and to align with expectations of future redemptions. Changes in those
assumptions can have a material effect on the amount of revenue recognized in the current or future
periods.
How We
Addressed
the Matter in
Our Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls
over the Company’s allocation of transaction price to the two performance obligations. We tested
management’s review controls over the significant assumptions, such as adjustments made to historical
experience and redemption patterns, and completeness and accuracy of the data used in the
calculation.
To test the allocation of revenue recognized in current and future periods, our audit procedures included,
among others, evaluating the methodology used and analyzing the historical experience and
redemption patterns, particularly the adjustments made to normalize the data and to align with
expectations of future redemptions. We tested the accuracy and completeness of the underlying
historical incentive credit program data used in management’s calculation. To test the accuracy and
completeness of historical incentive program issuance and redemption data used in the analysis, we
agreed the total incentive program activity to the source system and for a sample of transactions
performed transactional testing to source documents. We also evaluated the appropriateness of
management’s adjustments to historical data by gaining an understanding of the nature of the
adjustments, performing a sensitivity analysis and tracing the adjustments to the historical data to
source documents.
/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 27, 2020
81
Report of Independent Registered Public Accounting Firm
To 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, 2020, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (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, 2020, 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, 2020 and 2019, 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, 2020, and the related notes and financial statement schedule listed
in the Index at Item 15(c) and our report dated July 27, 2020 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 27, 2020
82
Supplementary Financial Information
Summary of Quarterly Results of Operations
(Unaudited, amounts in millions except per share data)
2020
Revenues
Cost of goods sold
Net income (loss)
Net income (loss) attributable to
Scholastic Corporation
Net income (loss) per share of Class A
and Common Stock:
Basic (1)
Diluted (1)
2019
Revenues
Cost of goods sold
Net income (loss)
Net income (loss) attributable to
Scholastic Corporation
Net income (loss) per share of Class A
and Common Stock:
Basic (1)
Diluted (1)
$
$
$
$
$
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal
Year
Ended
May 31,
$
232.6
137.1
(58.5)
(58.5)
(1.68) $
(1.68) $
$
218.4
125.3
(61.3)
(61.3)
$
$
$
$
597.2
264.3
71.1
71.0
2.04
2.02
604.7
262.4
71.6
71.6
$
373.3
183.0
(43.3)
(43.3)
(1.25 ) $
(1.25 ) $
$
360.1
176.9
(12.6)
(12.6)
284.0 $
166.6
(13.0)
1,487.1
751.0
(43.7)
(13.0)
(43.8)
(0.38) $
(0.38) $
$
470.7
215.3
17.9
17.9
(1.27 )
(1.27 )
1,653.9
779.9
15.6
15.6
(1.75 ) $
(1.75 ) $
2.03
1.99
$
$
(0.36) $
(0.36) $
0.51
$
0.50 $
0.44
0.43
(1) The sum of the quarters may not equal the full year basic and diluted earnings per share since each quarter is calculated separately.
83
Item 9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A | Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Chief Executive Officer and Chief Financial Officer of the Corporation, after conducting an evaluation, together
with other members of the Company’s management, of the effectiveness of the design and operation of the
Corporation’s disclosure controls and procedures as of May 31, 2020, 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 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (2013 framework), concluded that the Corporation’s internal control over financial
reporting was effective as of May 31, 2020.
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, 2020, 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,
2020 that materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over
financial reporting.
Item 9B | Other Information
None.
84
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 23, 2020 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 23, 2020 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 23, 2020 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 23, 2020 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 23, 2020 to be filed pursuant to Regulation 14A under the Exchange Act.
85
Part IV
Item 15 | Exhibits, Financial Statement Schedules
(a)(1)
Financial Statements:
The following Consolidated Financial Statements are included in Part II, Item 8, “Consolidated
Financial Statements and Supplementary Data”:
Consolidated Statements of Operations for the years ended May 31, 2020, 2019 and 2018;
Consolidated Statements of Comprehensive Income (Loss) for the years ended May 31, 2020, 2019
and 2018;
Consolidated Balance Sheets at May 31, 2020 and 2019;
Consolidated Statement of Changes in Stockholders’ Equity for the years ended May 31, 2020, 2019
and 2018;
Consolidated Statements of Cash Flows for the years ended May 31, 2020, 2019 and 2018; and
Notes to Consolidated Financial Statements
(a)(2)
Supplementary Financial Information - Summary of Quarterly Results of Operations Financial Statement
Schedule.
and (c)
The following consolidated financial statement schedule is included with this report: Schedule II-
Valuation and Qualifying Accounts and Reserves.
All other schedules have been omitted since the required information is not present or is not present in
amounts sufficient to require submission of the schedule, or because the information required is included
in the Consolidated Financial Statements or the Notes thereto.
(a)(3) and (b)
Exhibits:
3.1
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).
Bylaws of the Corporation, amended and restated as of December 12, 2007 (incorporated by reference to
the Corporation’s Current Report on Form 8-K as filed with the SEC on December 14, 2007, SEC File No.
000-19860).
4.1
Description of the Company’s securities, as filed herewith.
86
10.1
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
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).
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 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”)), 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) 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 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 30, 2011 10-Q")). Amendment No. 1 to the Scholastic Corporation 2011 Stock Incentive Plan
(incorporated by reference to the 2013 10-K), 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), and Amendment No. 3 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 20, 2018, SEC file No. 000-19860).
10.10*
Form of Restricted Stock Unit Agreement under the Scholastic Corporation 2011 Stock Incentive Plan
(incorporated by reference to the November 30, 2011 10-Q).
10.11*
Form of Stock Option Agreement under the Scholastic Corporation 2011 Stock Incentive Plan
(incorporated by reference to the November 30, 2011 10-Q).
87
10.12*
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").
10.13*
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).
10.14*
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).
10.15*
10.16*
21
23
31.1
31.2
32
Severance Arrangement, dated January 27, 2014, between the Corporation and Satbir Bedi (incorporated
by reference to the Corporation's Quarterly Report on Form 10-Q as filed with the SEC on September 20,
2019, SEC file No. 000-19860).
Offer of employment letter, effective November 18, 2019, between the Corporation and Sasha Quinton
(incorporated by reference to the Corporation's Quarterly Report on Form 10-Q as filed with the SEC on
December 20, 2019, SEC file No. 000-19860).
Subsidiaries of the Corporation, as of May 31, 2020.
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.”
88
Item 16 | Summary
None.
89
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: July 27, 2020
SCHOLASTIC CORPORATION
By: /s/ Richard Robinson
Richard Robinson, Chairman of the Board,
President and Chief Executive Officer
90
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
/s/ Mary Beech
Mary Beech
/s/ John L. Davies
John L. Davies
/s/ Andrew S. Hedden
Andrew S. Hedden
Chairman of the Board, President and
Chief Executive Officer and Director
(principal executive officer)
Chief Financial Officer
(principal financial officer)
Vice President and Chief Accounting Officer
(principal accounting officer)
Director
Director
Director
Director
Director
Date
July 27, 2020
July 27, 2020
July 27, 2020
July 27, 2020
July 27, 2020
July 27, 2020
July 27, 2020
July 27, 2020
91
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 27, 2020
July 27, 2020
July 27, 2020
92
Scholastic Corporation
Financial Statement Schedule
ANNUAL REPORT ON FORM 10-K
YEAR ENDED May 31, 2020
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,
2020
Allowance for doubtful accounts
Returns liability
Reserves for obsolescence
Reserve for royalty advances
2019
Allowance for doubtful accounts
Returns liability, after adoption of Topic 606 (1)
Reserves for obsolescence
Reserve for royalty advances
2018
Allowance for doubtful accounts
Reserve for returns
Reserves for obsolescence
Reserve for royalty advances
$
$
$
$
$
$
11.6
34.5
72.9
102.9
12.4
30.0
67.5
97.0
13.7
36.3
71.9
93.8
$
$
$
15.6
76.7
34.3
8.1
7.0
67.2
20.8
6.8
9.5
54.5
18.4
4.1
$
$
$
7.3
67.7 (2)
16.1
1.5
7.8
62.7 (2)
15.4
0.9
10.8
60.8 (2)
22.8
0.9
19.9
43.5
91.1
109.5
11.6
34.5
72.9
102.9
12.4
30.0
67.5
97.0
(1) In fiscal year 2019, this balance was reclassified from a reduction to Accounts receivable, net, to a current liability within Other accrued
expenses in accordance with Topic 606.
(2) Represents actual returns charged to the reserve.
S-2
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Offices & Corporate Information
Scholastic Corporation and Scholastic Inc.,
Corporate Headquarters
557 Broadway (enter at 130 Mercer Street)
New York, NY 10012
212 343 6100
scholastic.com
@Scholastic
Australia
Scholastic Australia Pty. Ltd.
61 2 4328 3555
Canada
Scholastic Canada Ltd.
905 887 7323
Hong Kong
Scholastic Hong Kong Limited
852 2722 6161
India
Scholastic India Private Limited
91 124 484 2800
Indonesia
Grolier International, Inc.
62 21 310 3889
U.S. Offices
National Service Organization;
Scholastic Book Clubs, Inc.
2931 East McCarty Street
Jefferson City, MO 65101
573 636 5271
Customer Service
1 800 724 6527
scholastic.com/custsupport
@ScholasticHelp
International Offices
Malaysia
Scholastic (Asia) SDN. BHD.
60 3 9078 2828
New Zealand
Scholastic New Zealand Limited
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 (Shanghai) Co., Ltd.
86 216 426 4555
Stockholder Information
Scholastic Book Fairs, Inc.
1080 Greenwood Boulevard
Lake Mary, FL 32746
407 829 7300
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 Limited
44 207 756 7756
Scholastic Ireland Limited
353 1830 6798
2020 Annual Stockholders’ Meeting
2020 Annual Meeting of Stockholders
will be held on Wednesday, September
23, 2020, at 9 a.m. via the internet at
www.virtualshareholdermeeting.com/SCHL2020
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.
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
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
Media Relations and Inquiries
The news media and others seeking information
about the Company should contact:
Media Relations
212 343 4848
bsullivan@scholastic.com
Stock Listing
Scholastic Corporation common stock
is traded on The NASDAQ Stock Market
under the symbol SCHL.
Independent Accountants
EY LLP
5 Times Square
New York, NY 10036-6530
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 (toll-free)
1 201 680 6610 (international)
www.computershare.com/investor
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
Directors & Officers
(As of August 11, 2020)
Directors of the Corporation
Richard Robinson (E)
Chairman, President
and Chief Executive Officer,
Scholastic Corporation
Andrew S. Hedden
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 Former Co-Chair, Public
Education Leadership Project,
Harvard University
Peter Warwick (A, E, H, T)
Consultant and
Former Chief People Officer,
Thomson Reuters
H: Human Resources and
Compensation Committee
N: Nominating and
Governance Committee
Margaret A. Williams (H, N)
Principal, M. Williams Consulting
T: Technology and Data
Management Committee
David J. Young (H, T)
Former Chairman and
Chief Executive Officer,
Hachette Book Group USA
James W. Barge (A, N, T)
Chief Financial Officer,
Lionsgate Entertainment Corp.
Mary Beech (T)
Chief Executive Officer,
Sarah Flint
John L. Davies (A, E, H)
Private Investor
Corporate Executive Officers
Richard Robinson
Chairman, President
and Chief Executive Officer
Satbir Bedi
Executive Vice President,
Chief Technology Officer
Sasha Quinton,
Executive Vice President and
President, Scholastic Book Fairs
Kenneth J. Cleary
Chief Financial Officer
Judith A. Newman
Executive Vice President
and President, Book Clubs
Andrew S. Hedden
Executive Vice President,
General Counsel and Secretary
Iole Lucchese
Executive Vice President,
Chief Strategy Officer and
President, Scholastic Entertainment
557 Broadway, New York, NY 10012 • 212 343 6100 • scholastic.com
557 Broadway, New York, NY 10012212 343 6100 | scholastic.comSCHOLASTICFounded 1920Art © The Norman Bridwell Trust. Art © Raina Telgemeier. Art © Dav Pilkey. Art © Joy Ang. Art © Kazu Kibuishi. Art © Aaron Blabey. Illustration by Mary GrandPré © WBEI. Art © Tedd Arnold. Art © Scholastic Inc. All rights reserved.