August 4, 2023
Fellow Shareholders,
Scholastic finished fiscal 2023 strongly, sustaining momentum from fiscal 2022 and showing the
importance of the Company’s focus on our customers, our mission and our future.
Profitability rose on solid revenue growth, as we also continued investing in the foundations of
Scholastic’s long-term growth. Successful performance management and the benefit of operational
efficiencies achieved since the pandemic helped overcome the year’s short-term headwinds.
Scholastic also demonstrated its commitment to enhance shareholder returns, returning $161 million
to shareholders through share repurchases and the regular dividend.
For more than 100 years, Scholastic has been guided by the belief that all children deserve access to
books and the power of reading. This mission is more relevant today than ever, as confirmed by nine-
and 13-year-olds’ recent performance on the National Assessment of Educational Progress. Already
low before the pandemic, scores have fallen steeply since and are now at their lowest levels in decades.
These results emphasize the critical need for children’s books and for solutions to help kids and young
students learn and love to read – a need that all parents, teachers and leaders across our country can
agree on.
As we begin fiscal 2024, we are executing an integrated, four-part strategy to address this need and
to drive growth and shareholder value for the long term, at the same time protecting margins and
sustaining the growth we achieved in fiscal 2023:
First, we are building on the strengths and scale of our market-leading Children’s Book businesses to
achieve sustainable, long-term revenue growth and increasing profitability.
Scholastic’s content and direct access to customers provide a unique strategic position to further
expand our share of the children’s book market and grow the market itself, bringing the power and
joy of reading and books to more kids. Because of our scale and efficiencies in Children’s Books, even
modest growth can generate substantial growth in the Company’s overall earnings and free cash flow.
We are very excited about the combination of Scholastic’s Book Fairs and Book Clubs into the newly
formed School Reading Events division, which we expect to be a key driver of future growth in our
Children’s Books segment. Building on the success of new customer-centric strategies and operational
improvements in Book Fairs, integrated School Reading Events will remove structural barriers and
create synergies to accelerate growth and enable a more holistic approach to serving our children and
adult customers.
Scholastic’s high-quality, engaging book publishing and entertainment assets are also key opportunities
to profitably grow our Children’s Books segment long term. We are focused on continuing to develop
unrivaled content, driving revenue and building on our tentpole series and titles, as we acquire
and develop our next wave of prospective hits. We will continue our innovation in new publishing
categories, like graphic novels and multiplatform series, while Scholastic Entertainment creates
the virtuous circle from page to screen to page, including with this fall’s release of a live-action
Goosebumps, just as the brand celebrates its 30th anniversary.
Second, we are investing to grow our digital sales in Education Solutions with new blended literacy
programs, which combine digital and print components, while building on the long-time strengths of
our profitable content businesses.
Here again Scholastic’s opportunity is both strategic and financial. Our strong reputation in schools
and with teachers, our unique reading and literacy content, and our sales and distribution capabilities
position us to grow our blended sales with new solutions that address the critical and growing need to
improve reading skills.
As part of this blended strategy, earlier this summer we launched Ready4Reading, a simple-to-
implement, speech-recognition enabled print and digital K-3 foundational reading phonics program,
aligned with science-based approaches to literacy. We are also keenly focused on growing Scholastic’s
strong print-based education offerings, including our summer programs, classroom library collections,
state-based partnerships, and programs with community-based organizations. These programs
diversify Scholastic’s customers beyond the limits of school and district budgets, while expanding our
reach and impact.
Third, we are focused on continuing to improve operating efficiencies across the Company, while
holding recent gains achieved during the pandemic.
Scholastic is a more efficient organization today, both in our centralized functions and in our divisions,
than three years ago before the pandemic. As we invest in new capabilities to support our long-term
strategy, we are committed to protecting the hard-fought gains that we have already achieved. Looking
ahead, we are pursuing further opportunities to lower costs and improve efficiencies in fiscal 2024.
Fourth, we remain committed to using Scholastic’s strong free cash flow and balance sheet to invest
in profitable growth and to return capital to shareholders, thus driving sustainable growth
and shareholder value.
In fiscal 2023, Scholastic invested to grow our Education Solutions business, including acquiring
Learning Ovations, increasing spending on new products and investing in new go-to-market
capabilities. We intend to continue this strategy, while also making strategic investments to profitably
grow our Children’s Books segment, generate income from our real estate assets and build new
revenue and efficiency opportunities in our supply chain and distribution.
Looking ahead, Scholastic is committed to continuing to return to our shareholders capital that is not
needed to maintain a secure balance sheet or to invest in growth. To this end, last month the Scholastic
Board authorized a $100 million increase in the Company’s open-market share buyback authorization.
I am optimistic that this strategy provides a compelling path for Scholastic to meet the needs of our
customers, grow profitably and sustainably for the long term and balance investment and profitability
now and into the future. Just as important, I am confident that the mission we pursue will be relevant
for many years to come.
I am grateful for the hard work of Scholastic’s employees and for the support of our shareholders, as
together we bring the power of reading and books to all kids.
Sincerely,
Peter Warwick
President & CEO
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, 2023
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 ý No o
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 o No ý
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 ý No o
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 ý No o
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.
ý
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. o
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. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ý
The aggregate market value of the Common Stock, par value $0.01, held by non-affiliates as of November 30, 2022, was approximately
$1,175,620,524. 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, 2023 was as follows:
Title of each class
Common Stock, $0.01 par value
Class A Stock, $0.01 par value
Number of shares outstanding as of June 30, 2023
29,953,334
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 20, 2023.
Documents Incorporated By Reference
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Table of Contents
Part I
Part II
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
[Reserved]
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
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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
PAGE
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S-1
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 120 international locations.
Segments
The Company categorizes its businesses into three reportable segments: Children’s Book Publishing and Distribution;
Education Solutions; 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
2023
1,038.0
$
Education Solutions
International
Total
(Amounts in millions)
2022
2021
$
946.5
$
386.6
393.6
675.0
312.3
279.4
$ 1,704.0
302.8
$ 1,642.9
313.0
$ 1,300.3
Additional financial information relating to the Company’s reportable segments is included in Note 3, Segment
Information , of Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and
Supplementary Data,” which is included herein.
CHILDREN’S BOOK PUBLISHING AND DISTRIBUTION
(60.9% of fiscal 2023 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 the trade channel.
The Company is the world’s largest publisher and distributor of children’s books and is the leading operator of school-
based book clubs and school-based book fairs in the United States. The Company is also a leading publisher of
children’s print books, ebooks and audiobooks distributed through the trade channel. Scholastic offers a broad range
of children’s books through its school and trade channels, many of which have received awards for excellence in
children’s literature, including the Caldecott and Newbery Medals.
The Company obtains titles for sale through its distribution channels from three principal sources. The first source for
titles is the Company’s publication of books created under agreements with authors, illustrators, book packagers or
other media companies. Scholastic generally controls the exclusive rights to sell and distribute 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 sell books exclusively in specified channels of distribution, including reprints of books
1
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. Approximately 37% of kindergarten ( K ) to grade 5 elementary school teachers in the United States
who received promotional materials in fiscal 2023 participated in the Company’s school-based book clubs. In fiscal
2023, approximately 97% 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 57% of such revenues
being placed by parents via the Company's online ordering platform. Alternatively, the teacher may manually
aggregate the students’ orders and forward them to the Company. Products are typically shipped to the classroom for
distribution to the students. 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. 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.
Effective June 1, 2023, the Company has combined the school-based book fairs and book clubs businesses into the
newly formed reading events business.
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®, The Magic School Bus®, Captain Underpants®, Dog Man®, Wings of Fire™, Cat Kid
Comic Club®, I Survived, Goosebumps® and Clifford The Big Red Dog®, and licensed properties such as Peppa Pig®
and Pokemon®. In addition, Klutz® and Make Believe Ideas™ publish and create “books plus” and novelty products for
children, including Klutz titles such as Ink and Paint Manga, Mini Clay World Puppy Treat Truck, and LEGO® Race Cars
and titles in the Never Touch series from Make Believe Ideas.
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
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. Top selling new
release titles in the trade division during fiscal 2023 included Dog Man #11: Twenty Thousand Fleas Under the Sea, Cat
Kid Comic Club: Collaborations, Harry Potter and the Order of the Phoenix: The Illustrated Edition, Wings of Fire
Graphix #6: Moon Rising, The Baby-Sitters Club® Graphic Novel #13: Mary Anne's Bad Luck Mystery and Nick and
Charlie: A HeartstopperTM Novella.
2
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, and for developing new
programming. During fiscal 2023, the Company produced the animated series Eva the Owlet, ® based on the Owl
DiariesTM books, which was released on AppleTV+® in March 2023.
EDUCATION SOLUTIONS
(22.7% of fiscal 2023 revenues)
The Education Solutions 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 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.
Classroom Libraries and Collections
The Company is a leading provider of classroom libraries and paperback collections, including best-selling titles, to
individual teachers and other educators and schools and school district customers. Scholastic helps schools build
classroom and library collections with high quality, award-winning books for every grade, reading level and
multicultural background, including the Company’s Rising Voices Library® offering, which meets the increasing
demand for culturally responsive content and instruction. In addition, the Company provides books to students for
summer reading through its Grab and Go reading packs.
Instructional Products and Programs
Scholastic serves customer needs with customized support for literacy instruction, by providing comprehensive core
and supplemental literacy and reading 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. The Company’s offerings include comprehensive reading programs such as Scholastic Bookroom and
Guided Reading, early childhood programs such as PreK On My WayTM and comprehensive literacy programs such as
Scholastic LiteracyTM. In addition, the Company offers summer learning products to provide students with increased
access to books and learning opportunities over the summer. During fiscal 2023, the Company acquired Learning
Ovations, Inc., a U.S.-based education technology business and developer of a literacy assessment and instructional
system, and integrated the acquired technology into its new K-3 phonic program, Ready4ReadingTM, which was
launched in June 2023.
Teaching Resources and Professional Learning
The Company provides a variety of resources to teachers and school leadership including lesson planning, reading
management, classroom management, classroom organization, and other instructional resources. These products are
available on the Company's on-line teacher store (www.scholastic.com/teacherstore), which provides professional
books and other educational materials to teachers and other educators. 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.
Literacy Initiatives
The Company provides books to community-based organizations and other groups engaged in literacy initiatives
through Scholastic Family and Community Engagement (FACE)TM. The Company also partners with mission-driven
organizations to support literacy by increasing children's access to books through the Scholastic Literacy Partners
program.
Scholastic Magazines+TM
Scholastic is the leading publisher of classroom magazines, Scholastic Magazines+TM. Teachers in grades pre-K to 12
use the Company’s 33 classroom magazines, including Scholastic News®, Scholastic Scope®, Storyworks®, Let's Find
Out® and Junior Scholastic®, to supplement formal learning programs by bringing subjects of current interest into the
classroom, including current events, literature, math, science, social studies and foreign languages. These offerings
provide schools with substantial non-fiction material, which is required to meet new higher educational standards.
Each magazine has its own website with online digital resources that supplement the print materials, as well as
providing access to the magazine in a digital format. A digital only subscription to the magazine is also offered.
3
Scholastic’s classroom magazine circulation in the United States in fiscal 2023 was approximately 13.3 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.
Sponsored Programs
The Company works with state partners to provide books to eligible students, generally those reading below grade
level, at no cost to the student. The books are purchased with state funds and typically shipped directly to students’
homes.
INTERNATIONAL
(16.4% of fiscal 2023 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 Major Markets, which include Canada, the United Kingdom, Ireland, Australia, and New
Zealand, as well as in 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 also sells products in approximately 120 international
locations through its export business. 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 operates 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.
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.
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.
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.
4
Asia
The Company’s Asian operations consist of initiatives for educational publishing programs based out of Singapore. 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, certain of which were temporarily closed during fiscal 2023 to
limit the spread of the coronavirus. All tutorial centers were open as of May 31, 2023.
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 120 international locations 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.
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, as
well as from the Company's Jefferson City warehouse and distribution facility. The Company’s international school-
based book clubs, school-based book fairs, trade and educational operations use distribution systems similar to those
employed in the United States.
CONTENT ACQUISITION
Access to intellectual property or content (“Content”) for the Company’s product offerings is critical to the success of
the Company’s operations. The Company incurs significant costs for the acquisition and development of Content for
its product offerings. These costs are often deferred and recognized as the Company generates revenues derived from
the benefits of these costs. These costs include the following:
•
•
•
Prepublication costs - Prepublication costs are incurred in all of the Company’s reportable
segments. Prepublication costs include costs incurred to create the art, prepress, editorial, digital
conversion and other content required for the creation of the master copy of a book or other media.
Royalty advances - Royalty advances are incurred in all of the Company’s reportable segments, but
are most prevalent in the Children’s Book Publishing and Distribution segment and enable the
Company to obtain contractual commitments from authors to produce Content. The Company
regularly provides authors with advances against expected future royalty payments, often before the
books are written. Upon publication and sale of the books or other media, the authors generally will
not receive further royalty payments until the contractual royalties earned from sales of such books or
other media exceed such advances. The Company values its position in the market as the largest
publisher and distributor of children's books in obtaining Content, and the Company’s experienced
editorial staff aggressively acquires Content from both new and established authors.
Acquired intangible assets - The Company may acquire fully or partially developed Content from
third parties via acquisitions of entities or the purchase of the rights to Content outright.
5
SEASONALITY
The Company’s Children’s Book Publishing and Distribution school-based book club and book fair channels and most
of its Education Solutions 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. Education channel revenues are generally higher in the
fourth quarter. Trade sales can vary throughout the year due to varying release dates of published titles.
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, library, reference
material and educational publishers, including of core and supplemental educational materials in both print and digital
formats, distributors and other resellers (including over the internet) of children’s books and 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.
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG)
Environmental Responsibility
Paper consumption is a significant environmental concern for the Company and although the Company creates
engaging digital content, educators and parents agree that physical books are the best way to engage and teach
young children how to read and become avid readers into adulthood. The Company maintains a procurement
policy that extends purchasing preference to products and suppliers that are aligned with the Company's
environmental goals such as sustainable forestry practices, efficient use of resources, including the use of recycled
paper and materials, clean manufacturing practices, economic viability and credible reporting and verification. The
Company strives for all paper manufactured for Scholastic product to be free of unacceptable sources of fiber as
described by the Forest Stewardship Council (FSC) controlled wood standard. The Company has a preference for
FSC-certified paper and continues to maintain a minimum goal of 60% of paper purchases for publications to be
FSC-certified.
Social Responsibility
Promoting literacy has been at the core of Scholastic's mission since the founding of the Company over 100 years
ago. The Company's business is focused around providing engaging educational content to help improve childhood
literacy. In the United States, during fiscal 2023, the Company distributed over 500 million books and educational
materials and, through the book fairs channel, schools earned over $210 million in proceeds in cash and incentive
program credits primarily used for books, supplies and other classroom-related materials. The Company also
6
worked with more than 85 partners to sponsor over 700 books fairs in high-need schools, ensuring that each child
that participated in these fairs left with a book at no cost.
In addition to its core business, the Company supports the following initiatives and programs:
•
•
•
The Scholastic Possible Fund, established by the Company to provide donations of quality books to children in
underserved communities and in communities recovering from crises or natural disasters with the goal of
improving global literacy, donating approximately 5 million books and over $500,000 in cash to partners such
as Save the Children, National Book Foundation, Toys for Tots, Share the Magic Foundation, Hindi's Libraries
and Barbershop Books in fiscal 2023.
providing teachers with a free platform, ClassroomsCount™, to raise funds for books and reading materials for
their classrooms.
serving as the presenting sponsor of the Scholastic Art & Writing Awards, the largest creative scholarship
program in the country, providing direct scholarships to approximately 100 students in fiscal 2023.
Governance
Scholastic selects board members with diverse and relevant backgrounds to provide the right expertise and
oversight to management. The Human Resources and Compensation Committee of the Board of Directors (“HRCC )
provides oversight on human capital matters. The HRCC is responsible for evaluating executive compensation,
senior management selection, retention and succession planning and human resources strategies in respect to
general employee benefit programs (including retirement plan programs) as well as talent management. For detailed
background information on senior management and the Board of Directors visit the Company's About Us section
of the Scholastic home page https://www.scholastic.com/home or use the following link:
https://www.scholastic.com/aboutscholastic/senior-management/.
Human Capital
As of May 31, 2023, the Company had approximately 6,760 employees, of which 5,100 were located in the United
States and 1,660 outside the United States. Globally, approximately 74% of its employees are employed on a full-
time basis, 18% part-time, and 8% seasonal. The seasonal employees are largely associated with the school-based
businesses which are dependent on the fall and spring seasons when schools are in session.
The table below represents the approximate number of employees by business channel and function.
Full-time
Part-time
Seasonal
Total
Central Functions1
720
1,050
Primary U.S. Warehouse
740
Book Fairs Warehouses
440
Book Fairs
60
Book Clubs
220
Trade
530
Education Solutions
950
International
270
International Warehouses
Total
4,980
1 Includes functions such as finance, accounting, executive, information technology, human
resources, legal, and inventory demand planning.
10
150
700
20
—
10
90
100
130
1,210
—
60
250
50
—
—
—
20
190
570
730
1,260
1,690
510
60
230
620
1,070
590
6,760
Diversity, Equity, Inclusion and Belonging
The Company is committed to diverse representation in the books, authors and illustrators that it publishes in its
trade and education groups. The Company offers age-appropriate books and content featuring storylines and
characters that positively represent a wide range of cultures, ethnicities and race, sexual orientation and gender
identity, individuals with physical, mental, and emotional exceptionalities, other historically underrepresented
groups, and portrayals of varying family structures. The Company applies this same commitment to its selection
process for book fairs and books clubs when reviewing content from partner publishers.
In fiscal 2021, the Diversity, Equity, Inclusion and Belonging Task Force was created to advance the Company's goals
in three priority focus areas: People and Culture focusing on creating an inclusive workplace culture, enabling
ongoing internal education, and increasing overall staff diversity; Publishing and Education focusing on promoting
equity, social justice, representation and civic understanding in the classroom and in the world; and Procurement
and Purchasing with a focus on expanding supplier diversity and sourcing from minority-owned businesses.
7
The Company will continue to build on its credo and commitment to the individual worth of each and every child,
regardless of race, sexual orientation, gender identity and expression, economic, political, attitudinal, neurodiverse,
religious or demographic background and to inspire everyone who works at the Company with contemporary
employee policies and programs dedicated to creating a safe, inclusive environment where every employee can be
heard and feel respected.
Compensation and Benefits
The Company is committed to helping its employees and their families lead healthy productive lives. The Company's
benefits packages and wellness programs help its employees succeed at work and at home. The Company offers
comprehensive compensation and benefits packages designed to attract, retain and recognize its employees and is
committed to achieving pay equity and aligning rewards to performance. The Company's benefits program provides
an array of flexible plans to meet the needs of eligible employees, which includes, among other things, medical,
dental and vision plans, health management and incentive programs, flexible spending arrangements, life and
disability insurance, retirement plans, work/life balance programs, 401k contribution matching, an employee
discount program including discounts on Scholastic products and an Employee Stock Purchase Plan (“ESPP”). The
ESPP provides eligible employees the opportunity to purchase Scholastic common stock at a discount. The
Company also provides eligible employees paid time off, in addition to volunteer hours to enable involvement in
community affairs.
Learning and Development
Successful execution of the Company's strategy is dependent on attracting, retaining and developing employees
and members of its management teams. The Company's learning and development program enhances current and
future organizational effectiveness by identifying skill gaps and assessing needs that can be supported by providing
high quality educational and developmental programs that are strategic, measurable, effective, and serve to increase
employees’ skills, knowledge, and effectiveness. In addition to annual trainings on key topics including compliance,
ethics and integrity and information security, employees have access to the Scholastic Learning Center, a learning
portal that includes self-paced online courses, books, and videos, as well as virtual and live instructor-led
opportunities.
Health and Safety
The safety and well-being of the Company's employees, customers, and community is a top priority. The Company
has a safety program in place that focuses on policies and training programs to prevent injuries and incidents in the
distribution centers. In response to the COVID-19 pandemic, the Company has implemented continuing additional
safety measures in all its offices and facilities, including work from home flexibility for non-site specific roles,
enhanced cleaning protocols, and health monitoring and temperature screening of employees as necessary.
8
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.
Employed by
Registrant Since Previous Position(s) Held as of July 21, 2023
Name
Peter Warwick
Kenneth J. Cleary
Andrew S. Hedden
Iole Lucchese
Age
71
58
82
56
2021
2008
2008
1991
Sasha Quinton
45
2020
Rosamund M. Else-Mitchell
53
2021
AVAILABLE INFORMATION
President and Chief Executive Officer (since 2021); Board of
Directors Member (since 2014); Chief People Officer of
Thomson Reuters (2012 - 2018).
Chief Financial Officer (since 2017); Senior Vice President,
Chief Accounting Officer (2014-2017); Vice President,
External Reporting and Compliance (2008-2014).
Executive Vice President, General Counsel and Secretary
(since 2008).
Chair of the Board of Directors (since 2021); Executive Vice
President (since 2016); Chief Strategy Officer (since 2014);
President, Scholastic Entertainment (since 2018); President,
Scholastic Canada (2016).
Executive Vice President and President, School Reading
Events (since 2023), Executive Vice President and President,
Scholastic Book Fairs (2020-2023); 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).
President, Education Solutions (since 2021); Houghton
Mifflin Harcourt - Chief Learning Officer & General Manager
(2017 -2019), Executive Vice President, Professional Services
(2015-2019).
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 which may affect the
Company’s operating results in the conduct of its business, the Company’s past financial performance should not be
considered an indicator of future performance. It is further noted that the Company’s operating results for the fiscal
year ended May 31, 2021, and to a lesser extent the fiscal years ended May 31, 2022 and 2023, also reflect the direct
effects of the COVID-19 pandemic on the businesses of the Company during those fiscal years.
Risks Related to Our Business and Operations
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, 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. Further, changes in educational practices affecting
structure or content of educational materials or requiring adaption to new learning approaches, particularly in grades
pre-K through 6, as well as those which may arise from new legislation or policies at the state or local level directed at
content or teaching practices and materials, to which the Company is unable to successfully adapt could result in a
loss of business adversely affecting the Company's business and financial performance. In addition, in a highly
politicized environment, the content of some of the product being sold by the Company could become controversial,
negatively impacting sales made to schools, through partnerships with government agencies or through sponsorships
and funding programs. Within the children's book publishing business, the Company's financial performance could be
adversely affected by the adaptability of its U.S. book clubs channel. The Company has taken a new holistic approach
to serving its customers as part of the newly formed school reading events division and the Company's ability to
execute on new customer-centric strategies and operational improvements may not align with customer purchasing
behaviors which could negatively impact operating results.
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, 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, as well as labor
supply chain issues, such as the impact of union strikes, may cause the Company's costs to increase beyond increases
normally expected.
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. The Company is also subject to inflationary pressures on printing, paper, transportation
and labor costs. While the Company has taken steps to manage and budget for 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.
10
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 senior executives and editorial staff members, have substantial experience in
the publishing and education markets. In addition, the Company continues 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. Additionally, high industry-wide demand for truck
drivers may impact the Company's ability to hire and retain adequate staffing levels to deliver book fairs in the number
anticipated.
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 outsource providers fail
to execute their contracted functionality, or if such providers experience a substantial data breach, the Company
could experience damage to its reputation and disruptions to its distribution and other business activities and may
incur higher costs.
Risks Related to Competition
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, such as the internet cloud technologies, tablets, mobile and other devices and
school-based technologies and uncertainties involving the use of artificial intelligence in connection with the
foregoing. 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 relevant market
segment 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. This could specifically impact the Company's ability to
execute on a digital and print literacy solution, which requires a multi-year investment, through internal development,
third party providers and/or acquisitions. 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 in responding
to changes in how schools plan to utilize technology for virtual or remote learning and the potential 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 fairs and book clubs, two of our core businesses.
The Company’s school-based book fairs and book clubs businesses, which have now been combined to form the
Company's reading events business, 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 the
school-based book fairs and book clubs components of the reading events business in response to future customer
trends or technological changes or that it will not otherwise meet market needs in this newly combined business in a
timely or cost-effective fashion. The book clubs component also relies on attracting and retaining new sponsor-
11
teachers to promote and support the distribution of its offerings. 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 Company has differentiated itself from competitors by providing curated offerings in both of the book clubs and
book fairs components of the reading events business designed to make reading attractive for children, in furtherance
of its mission as a champion of literacy. Competition from mass market and on-line distributors using customer-
specific curation tools could reduce this differentiation, posing a risk to the Company's results.
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 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 invests in various literacy program solutions, including both digital
and print products, covering grades pre-K through 6 which can be in direct competition with traditional basal
textbook offerings, as well as new digital instruction offerings with associated assessment tools, 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 Company's new literacy program solutions in preference to basal textbooks or new digital
instruction products offered by others or be successful in state adoptions, nor, in the case of basal textbook
publishers, that such 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 textbook publishers also generally maintain
larger sales forces than the Company, and sell across several academic disciplines, allowing them a larger presence
than the Company. 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.
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 as well as of publishing best sellers to meet consumer demand.
Currently, the Company’s top five trade customers make up approximately 77% of the Company’s U.S. trade business
and 14% of the Company’s 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 including any
requirements related to ESG with which the Company must comply, more specifically those related to environmental
sustainability, could negatively affect the profitability of the Company’s trade business and the Company’s financial
performance.
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 book sales.
The growing use of self-publishing technologies by authors also increases competition and could result in the
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.
12
Risks Related to Information Technology and Systems
Privacy breaches and other cyber security risks related to our business could negatively affect our reputation, credibility
and business.
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 the book
fairs or book clubs components of the Company's reading events business or decisions to purchase educational
materials or programs produced by the Company's Education Solutions 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.
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 as well as 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.
Risks Related to Laws and Regulations
Our reputation is one of our most important assets, and any adverse publicity or adverse events, such as a 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.
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.
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, including a significant increase in new regulations resulting
from changes in the regulatory environment, could negatively impact the Company. The Company is also subject to
the risk that it is unable to comply with the unstandardized, rapidly-changing environmental requirements imposed
internationally by local governments, including those related to measuring and reporting on the impact its business
13
has on the environment, which could negatively impact the Company's ability to conduct business in the related
country if not met.
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.
Risks Related to Our Intellectual Property
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.
Risks Related to External Factors
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 war or 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 global
economic affiliations or conditions, such as inflation. Changes in international trade relations with foreign countries,
such as increased tariffs and duties (including those imposed by the United States) could cause the Company's costs
to rise, or its overseas revenues to decline.
Certain of our activities are subject to weather and natural disaster risks as well as other events outside our control, 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, including those caused by climate
change, such as hurricanes, tornadoes, floods, snowstorms, heat waves or earthquakes. Notably, much of the
Company’s domestic distribution facilities are located in central Missouri. A disruption of these or other facilities could
impact the Company’s school-based reading events business, as well as its trade and education businesses.
Additionally, disruptions due to weather, natural disaster, epidemic and pandemic could result in school closures,
resulting in reduced demand for the Company’s products in its school channels during the affected periods. Further,
the Company may not be able to achieve its book fair count goals and may be materially impacted if widespread
pandemic-related closures occur this coming school year. Increases in school security associated with high profile
school shootings and other tragic incidents could impact the accessibility to schools for the school book fairs
component of the Company's reading events business.
14
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, its primary distribution center in Jefferson City, Missouri and the UK facility in Warwickshire.
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. 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.
Risks Related to Stock Ownership
Control of the Company resides in the Estate of our former Chairman of the Board, President and Chief Executive Officer
through The Estate's 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. The Estate of Richard
Robinson, the former Chairman of the Board, President and Chief Executive Officer of the Company, beneficially owns
a majority of the outstanding shares of Class A Stock and is 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. Iole
Lucchese, Chair of the Board of Directors, Executive Vice President and Chief Strategy Officer of the Company and
President of Scholastic Entertainment, Inc., in her capacity as Scholastic special executor of the Estate under Mr.
Robinson's will and revocable trust, controls the voting of the Estate's Class A Stock.
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 also 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 and policies, 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.
Item 1B | Unresolved Staff Comments
None.
15
Item 2 | Properties
As of May 31, 2023, the Company operated the following facilities:
Location
Primary Purpose
Metropolitan NY Area
U.S. Various Locations (1)
Principal offices
Book Fairs warehouses
Owned Square
Footage
Leased Square
Footage
355,000
19,000
—
2,265,000
Jefferson City, MO Area
International (2)
(1) Consists of approximately 44 book fairs warehouses.
(2) Consists of approximately 60 facilities in Canada, the United Kingdom, Australia, New Zealand and Asia.
Primary warehouse and distribution facility
Warehouse and office space
1,459,000
236,000
30,000
975,000
In regards to the Jefferson City, MO facility located at 6336 Algoa Road, the Company owns the warehouse, including
office space, and related land of approximately 86 acres, in addition to two smaller warehouses in the vicinity,
including office space, and the related land of approximately 76 acres. In regards to the Company's headquarters in
Soho, New York City, the Company owns the land and buildings located at 555/557 Broadway with entrances facing
Broadway and Mercer Street. There is leasable space within the Company's headquarters which is detailed in the table
below.
Floor
1
2
3
Primary Use
Square Footage
Available for lease (1)
Available for lease (2)
Occupied by Scholastic; available for lease
23,600
36,100
37,800
Occupied by Scholastic
Occupied by Scholastic; available for lease
4
5 to 12 (3)
(1) The first floor is comprised of three rentable spaces with square footage of approximately 13,400, 7,500 and 2,700. Rentable
space of approximately 20,900 sq ft was leased to tenants as of May 31, 2023 and the remaining space was leased subsequent to
May, 31, 2023.
(2) Approximately 3,000 sq ft is leased to a tenant as of May 31, 2023.
(3) Includes the first floor lobby and sub-floors consisting of an auditorium, wellness and fitness center, mail room, storage, etc.
220,400
37,100
During fiscal 2023, the Company incurred capital expenditures of $1.8 million directly related to its headquarters
location, which represents approximately 3% of total capital expenditures. During fiscal 2023, the Company
recognized rental income of $7.1 million. The lease terms with the Company's tenants typically range from 10 to 15
years and, with respect to the 23,900 square footage leased as of May 31, 2023, the Company expects annualized
straight-line rental income to total approximately $9.8 million.
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 Note 1, Description of the Business, Basis of Presentation and Summary of Significant Accounting Policies,
and Note 9, Leases, 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.
16
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 12, 2023 were 3 and approximately
21,200, 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 19, 2023, the Board of Directors,
declared a regular cash dividend of $0.20 per Class A and Common share in respect of the first quarter of fiscal 2024.
The dividend is payable on September 15, 2023 to shareholders of record as of the close of business on August 31,
2023. All dividends have been in compliance with the Company’s debt covenants.
Share Purchases: During fiscal 2023, the Company repurchased 3,310,489 of its Common shares at an average price
paid per share of $40.80 for a total cost of approximately $135.1 million. This included the purchase of 533,793 of its
Common shares through a modified Dutch auction tender offer at a price of $40.00 per share for a total cost of
$23.3 million, including related fees and expenses. See Note 14, Treasury Stock, of Notes to Consolidated Financial
Statements in Item 8, Consolidated Financial Statements and Supplementary Data for further details regarding this
transaction. During fiscal 2022, the Company repurchased 870,258 of its Common shares at an average price paid per
share of $38.39 for a total cost of approximately $33.4 million. This included a privately negotiated transaction with a
related party for 300,000 Common shares at a 4.2% discount to market prices. See Note 21, Related Party
Transactions, of Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and
Supplementary Data” for further details regarding this transaction. In addition, the Company entered into a privately
negotiated transaction with a third party for the repurchase of 190,290 Common shares at a 4.0% discount to market
prices. As of May 31, 2023, approximately $21.6 million remains available for future purchases of Common shares,
which represents the amount remaining under the current $50.0 million Board authorization for Common share
repurchases announced on March 22, 2023, which is available for further repurchases, from time to time as conditions
allow, on the open market or through negotiated private transactions. Subsequent to May 31, 2023, the Board
authorized an increase of $100.0 million for common stock repurchases, resulting in a current Board authorization of
$119.2 million, which includes the remaining amount from the previous Board authorization less share repurchases of
$2.4 million subsequent to May 31, 2023.
The following table provides information with respect to repurchases of shares of Common Stock by the Corporation
during the three months ended May 31, 2023:
Date
March 1, 2023 through March 31, 2023
April 1, 2023 through April 30, 2023
May 1, 2023 through May 31, 2023
Total
Total number
of shares
purchased
Average
price paid
per share
199,095
636,789
657,720
1,493,604
37.65
35.78
39.93
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)
199,095
636,789
657,720
1,493,604
$
$
70.7
47.9
21.6
21.6
(i) Total represents the amount remaining under the current $50.0 million Board authorization for Common share repurchases announced
on March 22, 2023, which is available for further repurchases, from time to time as conditions allow, on the open market or through
negotiated private transactions. Subsequent to May 31, 2023, the Board authorized an additional $100.0 million, resulting in a current
authorization of $119.2 million, for Common share repurchases, which includes the remaining $21.6 million from the previous Board
authorization less share repurchases of $2.4 million subsequent to May 31, 2023.
18
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 Solutions; 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 from operations for the fiscal year ended May 31, 2023 increased by $61.1 million, or 3.7%, to $1,704.0
million, compared to $1,642.9 million in the prior fiscal year. The Company reported net income per basic and diluted
share of Class A and Common Stock of $2.56 and $2.49, respectively, for the fiscal year ended May 31, 2023,
compared to $2.33 and $2.27, respectively, in the prior fiscal year.
The Children's Book Publishing and Distribution segment revenues increased 29%, outperforming the continued
softness in retail, primarily from the book fairs channel due to higher fair count, which approximated 85% of pre-
pandemic levels, and improved revenue per fair. The Education Solutions segment experienced an overall reduction in
schools' purchasing levels when compared to the prior year when schools were refilling classrooms with in-person
learning materials as pandemic restrictions were fully lifted. Although sales were lower in certain instructional products
and programs, the Company's diversified portfolio of products met the needs of customers through customized
product offers and state sponsored programs. Internationally, local currency revenues increased in the Major Markets
as the book fairs channels continued to recover from the pandemic, which offset the lower revenues from the
disposition of the direct sales business in Asia.
Operating income in fiscal 2023 was $106.3 million compared to $97.4 million in the prior fiscal year, representing an
improvement of $8.9 million, primarily driven by the book fairs channel which continues to benefit from top-line
growth and operational efficiencies. In addition, the Company realized improved operating margin in Asia attributable
to the exit from the direct sales business, which generated losses in the prior year. The Company continues to benefit
from the operational efficiencies achieved since the pandemic.
Outlook
The Company previously announced the combination of its book fairs and book clubs channels into an integrated
school reading events business which the Company expects will provide multiple opportunities to grow Scholastic's
reach, serve its customers better and improve efficiencies within the Children’s Books Publishing and Distribution
segment. The Company expects fair count to increase to approximately 90% of pre-pandemic levels with modest
growth in revenue per fair. In the Education Solutions segment, the Company expects to continue to invest in new
products and capabilities to grow its digital and print literacy solutions and expects the segment to benefit from
continued growth in state-sponsored programs in the second half of fiscal 2024. Internationally, the Company
expects to benefit from the continued recovery in the Major Markets and in Asia, as well as the reorganization in
Canada. The Company also plans to invest in process improvements in its manufacturing and distribution functions,
which should result in improved efficiencies going forward, and continue to utilize positive cash flows to increase
shareholder value.
20
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 ongoing 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; recoverability of prepublication costs; royalty advance reserves; customer reward programs;
and the impairment assessment of long-lived assets, goodwill and other intangibles. For a complete description of the
Company’s significant accounting policies, see Note 1, Description of Business, Basis of Presentation and Summary of
Significant Accounting Policies, 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 has identified the allocation of the transaction price to contractual performance obligations related to
revenues within the school-based book fairs channel, as described below, as a critical accounting estimate.
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.
Revenues associated with virtual fairs are recognized upon shipment of the products and related incentive program
credits are expensed upon issuance.
Estimated returns:
For sales that include a right of return, the Company estimates the transaction price and records 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, 2023 of approximately $3.0 million and approximately $3.2 million,
respectively.
21
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
expected future sales of existing inventory driven by estimates around forecasted purchases, inventory consumption
costs, and the sell-through rate of current fiscal year purchases. In accordance with the Company's inventory
retention policy, expected future sales of existing inventory are compared against historical usage by channel for
reasonableness and any specifically identified excess or obsolete inventory, due to an anticipated lack of demand, will
also be reserved. 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, 2023 of approximately $4.2 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.
Evaluation of Goodwill impairment:
Goodwill is not amortized and is reviewed for impairment annually or more frequently if impairment indicators arise.
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 quantitative goodwill impairment
test. The Company measures goodwill impairment by the amount the carrying value exceeds the fair value of a
reporting unit. 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 six 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.
Income taxes:
The Company uses the asset and liability method of accounting for income taxes. Under this method, for purposes of
determining taxable income, deferred tax assets and liabilities are determined based on differences between financial
reporting and tax 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.
22
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 ongoing 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.
23
Results of Operations - Consolidated
Revenues:
Children’s Book Publishing and Distribution
Education Solutions
International
Total revenues
Cost of goods sold
Selling, general and administrative expenses (2)
Depreciation and amortization
Asset impairments and write downs
Operating income (loss)
Interest income
Interest expense
Other components of net periodic benefit (cost)
Gain (loss) on assets held for sale (3)
Gain (loss) on sale of assets and other (4)
Earnings (loss) before income taxes
Provision (benefit) for income taxes (5)
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
Diluted
(1) Represents percentage of total revenues.
(Amounts in millions, except per share data)
For fiscal years ended May 31,
2023
2022
$
% (1)
$
% (1)
$ 1,038.0
386.6
279.4
1,704.0
786.4
756.6
54.7
—
106.3
7.2
(1.4)
0.3
—
—
112.4
25.9
86.5
0.2
86.3
$
$
60.9
22.7
16.4
100.0
46.2
44.4
3.2
—
6.2
0.5
(0.1)
0.0
—
—
6.6
1.5
5.1
0.0
5.1
$ 946.5
393.6
302.8
1,642.9
765.5
722.8
56.8
0.4
97.4
0.5
(2.9)
0.1
(15.1)
9.7
89.7
8.7
81.0
0.1
80.9
$
$
57.6
24.0
18.4
100.0
46.6
44.0
3.5
0.0
5.9
0.1
(0.2)
0.0
(0.9)
0.6
5.5
0.5
4.9
0.0
4.9
$
$
2.56
2.49
$
$
2.33
2.27
(2) In fiscal 2022, the Company recognized $6.6 of pretax insurance proceeds related to an intellectual property legal settlement accrued in
fiscal 2021, pretax severance and related charges of $6.2 and pretax branch consolidation costs of $0.5.
(3) In fiscal 2022, the Company recognized pretax loss on assets held for sale related to the Company's plan to exit the direct sales business
in Asia of $15.1.
(4) In fiscal 2022, the Company recognized a pretax gain of $3.5 on the sale of its UK distribution center located in Witney and a pretax gain
of $6.2 on the sale of its Lake Mary facility.
(5) In fiscal 2022, the Company recognized a benefit for income taxes in respect to one-time pretax charges of $1.3.
24
Results of Operations – Consolidated
The section below is a discussion of the Company's fiscal year 2023 results compared to fiscal year 2022. A detailed
discussion of the Company's fiscal year 2021 results and year-over-year comparisons between fiscal years 2022 and
2021 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, 2022, filed as part of the Company's Form 10-K dated
July 22, 2022.
Fiscal 2023 compared to fiscal 2022
Revenues from operations for the fiscal year ended May 31, 2023 increased by $61.1 million, or 3.7%, to $1,704.0
million, compared to $1,642.9 million in the prior fiscal year. Children’s Book Publishing and Distribution segment
revenues increased $91.5 million, partially offset by lower revenues from the Education Solutions segment and
International segment of $7.0 million and $23.4 million, respectively.
Within the Children’s Book Publishing and Distribution segment, revenues in the book fairs channel increased $123.4
million primarily on higher fair count. Increased redemptions of book fair incentive program credits compared to the
prior year and an improvement in revenue per fair also drove higher revenues. Lower book clubs channel revenues
of $8.6 million were due to lower sponsor participation and fewer events. To address the continued decline, the
Company has combined the U.S.-based book clubs and book fairs businesses into an integrated school reading
events business subsequent to year-end. The integration is expected to create synergies in operations and a
coordinated go-to-market strategy to result in additional opportunities and improved efficiencies. Trade channel
revenues decreased $23.3 million, primarily driven by the industry-wide decline in retail market sales, partially offset
by higher media channel revenues as the Company completed the delivery of episodes associated with the
production of the Eva the Owlet animated series.
Within the Education Solutions segment, decreased revenues of $7.0 million were driven by an overall reduction in
schools' purchasing levels when compared to the prior year when schools were refilling classrooms with in-person
learning materials as pandemic restrictions were fully lifted. Demand for certain of the Company's instructional
products and programs, including Scholastic Bookroom, Guided Reading and Scholastic Literacy was lower as
customer purchasing shifted to the Company's more customized products and digital and print literacy solutions.
This was partially offset by increased revenues from sponsored programs, which had a full year of shipments in fiscal
2023 compared to a partial year in fiscal 2022. The Company sells to non-school customers through its community
and state-sponsored programs and the related sales increased in fiscal 2023.
Revenues in the International segment decreased $23.4 million primarily attributable to unfavorable foreign currency
exchange of $23.0 million and the disposition of the direct sales business resulting in $15.0 million in lower
revenues. Excluding the foregoing, revenues increased $14.6 million primarily driven by the Major Markets as the
book fairs channels continued to recover from the pandemic.
Components of Cost of goods sold for fiscal years 2023 and 2022 are as follows:
Product, service, production costs and inventory reserves
$
Royalty costs
Prepublication and production amortization
Postage, freight, shipping, fulfillment and all other costs
Total cost of goods sold
$
2023
% of
revenue
($ amounts in millions)
2022
% of
revenue
475.2
132.8
26.0
152.4
786.4
27.9 % $
448.8
27.3 %
7.8
1.5
9.0
46.2 % $
139.1
27.4
150.2
765.5
8.5
1.8
9.1
46.6 %
Cost of goods sold as a percentage of revenue for the fiscal year ended May 31, 2023 was 46.2%, compared to 46.6%
in the prior fiscal year. Cost of goods sold benefited from increased sales volume in the U.S. book fairs channel, which
also resulted in lower royalty costs as a percentage of revenue. Traditionally, the book fairs channel has a higher mix of
non-royalty bearing titles. This was partially offset by higher excess and obsolete inventory due to the softness in the
global retail channels. The Company also incurred higher production costs related to the Eva the Owlet animated
series in fiscal 2023 and higher print costs, primarily in the U.S. trade channel, as well as an increase in inbound and
outbound freight costs in the U.S. and in the Major Markets. As of the end of fiscal 2023, inbound freight costs have
returned to pre-pandemic levels, however, there remains uncertainty regarding potential shipping courier union strikes
25
which could result in increased freight costs for the Company in the near future and impact the Company's ability to
ship product to customers.
Selling, general and administrative expenses for the fiscal year ended May 31, 2023 were $756.6 million, compared to
$722.8 million in the prior fiscal year. The $33.8 million increase was primarily due to higher spending in the U.S. book
fairs channel as a result of the increased fair count resulting in higher labor and other overhead costs, including fuel
charges, marketing expenses and bank fees, as well as increased rent for warehouse space. In addition, the Company
incurred higher employee-related costs in the Education Solutions segment associated with increased spending on
strategic initiatives such as the integration efforts related to the Learning Ovations acquisition and the launch of
Ready4Reading, as well as higher labor and marketing costs to support the growth in sponsored programs. The
increase was also attributable to the prior year receipt of insurance recoveries of $6.6 million related to the intellectual
property legal settlement accrued in fiscal 2021. Partially offsetting this increase the Company had lower severance
expense from its restructuring programs of $6.2 million, recognized higher COVID-related governmental employee
retention credits of $2.1 million received in fiscal 2023, incurred lower costs in Asia as a result of the disposition of the
direct sales business of approximately $12.6 million, benefited from an insurance recovery of $5.0 million in fiscal 2023
related to photo litigation settlements and also benefited from a favorable settlement of $1.8 million related to legacy
sales tax matters. Additionally, bad debt expense was favorable as the prior fiscal year was negatively impacted by a
discrete systems issue in the book clubs channel which resulted in $6.6 million of higher uncollectible receivable
balances. The Company expects to incur severance costs in the first quarter of fiscal 2024 related to restructuring
programs in Canada as well as in the U.S. as a result of combining the book clubs and book fairs businesses into an
integrated school reading events business.
Depreciation and amortization expenses for the fiscal year ended May 31, 2023 were $54.7 million, compared to $56.8
million in the prior fiscal year. The $2.1 million decrease primarily related to the Company's shift to cloud computing
arrangements (e.g. software as a service) which resulted in capitalized software being amortized through Selling,
general and administrative expenses rather than Depreciation and amortization. Amortization of capitalized cloud
software increased $2.4 million when compared to the prior fiscal year which offset the decrease in Depreciation and
amortization. Management expects Depreciation and amortization expense to increase as the Company's capitalized
spending has and will continue to increase into the next fiscal year.
Asset impairments and write downs for the fiscal year ended May 31, 2022 were $0.4 million due to the impairment of
right-of-use assets associated with certain operating leases as part of the book fairs warehouse consolidation effort.
Interest income for the fiscal year ended May 31, 2023 was $7.2 million, compared to $0.5 million in the prior fiscal
year. $4.7 million of the increase was driven by overall higher average investment balances as compared to the prior
fiscal year, coupled with higher interest rates in fiscal 2023. The Company invests excess cash in short term
investments which earn competitive interest rates that change directionally in relation to the Federal Funds rate. In
addition, the Company recognized $2.0 million of interest income related to tax refunds received during fiscal 2023
that will not repeat in the next fiscal year. Interest expense for the fiscal year ended May 31, 2023 was $1.4 million,
compared to $2.9 million in the prior fiscal year. The decrease in interest expense was due to lower average debt
borrowings as compared to the prior fiscal year as the outstanding borrowings on the U.S. credit agreement were paid
down during fiscal 2022, resulting in no outstanding borrowings as of the beginning of fiscal 2023.
Gain (loss) on assets held for sale for the fiscal year ended May 31, 2022 was a loss of $15.1 million related to the
Company's exit of the direct sales business in Asia as it was no longer a part of the strategic growth plan for the
Company. The exit resulted in the sale of remaining assets, primarily accounts receivable and inventory, and the assets
were written down to their recoverable value which equated to the selling price. The loss on assets held for sale
included accrued exit costs.
Gain (loss) on sale of assets and other for the fiscal year ended May 31, 2022 was a gain of $9.7 million. In the prior
fiscal year, the Company sold its UK distribution facility located in Witney and its facility located in Lake Mary, Florida,
resulting in a recognized gain on sale of $3.5 million and $6.2 million, respectively.
The Company’s effective tax rate for the fiscal year ended May 31, 2023 was a 23.0% tax provision, compared to 9.7%
in the prior fiscal year. The 2022 fiscal year tax provision benefited from the release of uncertain tax positions resulting
from the effective settlement of the IRS examination from the 2015-2020 tax years.
Net income for fiscal 2023 was $86.5 million compared to $81.0 million in fiscal 2022, an increase of $5.5 million. The
basic and diluted income per share of Class A Stock and Common Stock was $2.56 and $2.49, respectively, in fiscal
2023, compared to basic and diluted income per share of Class A Stock and Common Stock of $2.33 and $2.27,
26
respectively, in fiscal 2022. Outstanding shares decreased 7% from 34.2 million to 31.7 million as of May 31, 2023
which will benefit earnings per share calculations in fiscal 2024.
Net income attributable to noncontrolling interest for fiscal 2023 and fiscal 2022 was $0.2 million and $0.1 million,
respectively.
Results of Operations – Segments
CHILDREN’S BOOK PUBLISHING AND DISTRIBUTION
2023
2022
$ change
% change
2023 compared to 2022
($ amounts in millions)
Revenues
Cost of goods sold
Other operating expenses *
Asset impairments and write downs
$
1,038.0
$
481.7
412.9
—
$
946.5
450.3
380.5
0.4
Operating income (loss)
$
143.4
$
115.3
$
Operating margin
13.8 %
12.2 %
91.5
31.4
32.4
(0.4)
28.1
9.7 %
7.0
8.5
NM
24.4 %
* Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization.
NM Not meaningful
Fiscal 2023 compared to fiscal 2022
Revenues for the fiscal year ended May 31, 2023 increased by $91.5 million to $1,038.0 million, compared to $946.5
million in the prior fiscal year. The increase in segment revenues was driven by the book fairs channel with an increase
of $123.4 million, or 29%, exceeding pre-pandemic revenues for this channel. The increased revenues were driven by a
15% increase in fair count, coupled with higher revenue per fair and a year-over-year increase in redemptions of book
fair incentive program credits. Revenues from the book clubs channel decreased $8.6 million as a result of the multi-
year trend of lower sponsor participation and fewer events held in fiscal 2023. To address this continued decline, the
Company has combined the U.S.-based book clubs and book fairs businesses into an integrated school reading events
business and expects the synergies in operations and a coordinated go-to-market strategy to result in additional
opportunities and improved efficiencies. Trade channel revenues decreased $23.3 million primarily reflecting the
industry-wide decline in retail market sales driving overall lower revenues. The prior fiscal year also included the
release of J.K. Rowling's The Christmas Pig as well as limited edition foil cover versions of titles in Dav Pilkey's Dog
Man series which helped lift overall sales across the series. During fiscal 2023, the trade channel released numerous
best-sellers, including Dog Man #11: Twenty Thousand Fleas Under the Sea, Cat Kid Comic Club: Collaborations,
Harry Potter and the Order of the Phoenix: The Illustrated Edition, Wings of Fire Graphix #6: Moon Rising, The Baby-
Sitters Club Graphic Novel #13: Mary Anne's Bad Luck Mystery and Nick and Charlie: A Heartstopper Novella. In
addition, the Company completed the delivery of episodes associated with the production of the animated series Eva
the Owlet . The unfavorable economic trends in the retail book markets could continue to negatively impact the trade
channel in fiscal 2024.
Cost of goods sold for the fiscal year ended May 31, 2023 was $481.7 million, or 46.4% of revenues, compared to
$450.3 million, or 47.6% of revenues, in the prior fiscal year. The decrease in Cost of goods sold as a percentage of
revenues was primarily driven by increased sales volume in the book fairs channel, which also resulted in lower royalty
costs as a percentage of revenue. Traditionally, the book fairs channel has a higher mix of non-royalty bearing titles.
The favorability was partially offset by increased product costs in the trade channel due to higher print and inbound
freight costs driven by the continued impact of inflationary pressures and higher production costs related to the
production of the Eva the Owlet animated series in the media business. Cost of goods sold benefited from lower
excess and obsolete inventory in the book fairs channel in fiscal 2023 as a result of better utilization of aged inventory.
This was substantially offset by higher excess and obsolete inventory in the trade channel due to the softness in the
retail market and in the book clubs channel which expects to reduce offerings in fiscal 2024 as part of its integration
into the school reading events business. As of the end of fiscal 2023, inbound freight costs have returned to pre-
pandemic levels, however, there remains uncertainty regarding potential shipping courier union strikes which could
result in increased freight costs for the Company in the near future.
Other operating expenses were $412.9 million for the fiscal year ended May 31, 2023, compared to $380.5 million in
the prior fiscal year. The $32.4 million increase was primarily due to increased labor and other overhead costs in the
book fairs channel, including fuel charges, marketing expenses and bank fees, as a result of the increased fair count in
27
fiscal 2023, as well as increased rent for warehouse space. The higher labor costs were partially offset by a COVID-
related governmental employee retention credit of $3.3 million received and recognized in fiscal 2023. In addition, bad
debt expense was favorable as the prior fiscal year was negatively impacted by a discrete systems issue in the book
clubs channel which resulted in $6.6 million of higher uncollectible receivable balances.
Asset impairments were $0.4 million for the fiscal year ended May 31, 2022. In the prior fiscal year, the Company
recorded an impairment of right-of-use assets associated with certain operating leases as part of the book fairs
warehouse consolidation effort.
Segment operating income for the fiscal year ended May 31, 2023 was $143.4 million, compared to $115.3 million in
the prior fiscal year. The $28.1 million increase was primarily driven by the continued improvement in the book fairs
channel, which resulted in a $123.4 million increase in revenue primarily on higher fair count. The book fairs channel
continued to drive an increase in revenue per fair by approximately 5% which benefited operating income due to the
fixed distribution costs on a delivered fair. In addition, the production and delivery of the Eva the Owlet animated
series drove additional profit contribution in fiscal 2023. Operating income was negatively impacted by a decrease in
trade channel revenue reflecting the industry-wide decline in retail market sales, and continued inflationary pressures
driving higher print and inbound freight costs, primarily in the trade channel. As of the end of fiscal 2023, inbound
freight costs have returned to pre-pandemic levels, however, there remains uncertainty regarding potential shipping
courier union strikes which could result in increased freight costs for the Company in the near future. Lower
participation levels in the book clubs channel was also unfavorable to operating income in the current fiscal year. The
Company has combined the U.S.-based book clubs and book fairs businesses into an integrated school reading events
business subsequent to year-end. The integration is expected to create synergies in operations and a coordinated go-
to-market strategy to result in additional opportunities and improved efficiencies.
EDUCATION SOLUTIONS
($ amounts in millions)
2023
2022
$ change
% change
2023 compared to 2022
Revenues
Cost of goods sold
Other operating expenses *
$
$
386.6
143.0
185.2
$
393.6
142.4
169.4
Operating income (loss)
$
58.4
$
81.8
$
(7.0)
0.6
15.8
(23.4)
(1.8) %
0.4
9.3
(28.6) %
Operating margin
15.1 %
20.8 %
* Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization.
Fiscal 2023 compared to fiscal 2022
Revenues for the fiscal year ended May 31, 2023 decreased by $7.0 million to $386.6 million, compared to $393.6
million in the prior fiscal year. The decrease in segment revenues was largely driven by an overall reduction in schools'
purchasing levels when compared to the prior year when schools were refilling classrooms with in-person learning
materials as pandemic restrictions were being lifted. Demand for certain of the Company's instructional products and
programs, including Scholastic Bookroom, Guided Reading and Scholastic Literacy, as well as early childhood
programs and summer learning product offerings was lower, due in part to customer purchasing shifting to the
Company's more customized products and digital and print literacy solutions. Changes to the methods in which
schools approach literacy instruction also contributed to the decline in certain offerings and the Company's new K-3
phonic program, Ready4ReadingTM, is expected to align with the modified instruction methods. The decrease in
revenues related to instructional products and programs was also due to the timing of revenues in fiscal 2022, which
benefited from shipments, primarily consisting of summer learning products, that shifted from the fourth quarter of
fiscal 2021 due to supply chain constraints at that time. During the fourth quarter of fiscal 2022, orders were shipped
more timely with fewer sales shifting into the first quarter of fiscal 2023. The segment also had lower sales of Rising
Voices Library® products, professional books and teaching resource products. Cultural awareness products like Rising
Voices Library continue to be requested by customers and are subject to fluctuations based on large district sales. The
Company continues to actively market these products and make additional investments and improvements in
accordance with market demand. The overall decrease in segment revenues was partly offset by revenues from
sponsored programs, which had a full year of shipments in fiscal 2023 compared to a partial year in fiscal 2022 and the
addition of another state program in fiscal 2023. Additionally, the segment benefited from increased revenues from
traditional classroom book collections and Grab and Go reading packs as well as products from the Scholastic Family
and Community Engagement (FACE)TM initiative, in which a renewed focus helped to increase offerings and expand
into new school districts. Revenues from Magazines+ remained relatively consistent with the prior fiscal year and
digital subscription revenues modestly increased year over year.
28
Cost of goods sold for the fiscal year ended May 31, 2023 was $143.0 million, or 37.0% of revenue, compared to
$142.4 million, or 36.2% of revenue, in the prior fiscal year. The increase in Cost of goods sold as a percentage of
revenues was primarily attributable to higher product costs, including higher inbound freight costs, in addition to
increased postage and outbound freight costs, as the Company continued to be impacted by inflationary pressures. In
fiscal 2022, the segment benefited from sales of inventory purchased prior to the cost increases. As of the end of fiscal
2023, inbound freight costs have returned to pre-pandemic levels, however, there remains uncertainty regarding
potential shipping courier union strikes which could result in increased freight costs for the Company in the near
future.
Other operating expenses were $185.2 million for the fiscal year ended May 31, 2023, compared to $169.4 million in
the prior fiscal year. The $15.8 million increase in Other operating expenses was primarily related to higher spending
associated with the integration efforts related to the Learning Ovations acquisition which approximated $3 million and
the launch of Ready4Reading as well as the growth within sponsored programs, partially offset by lower bonuses and
commissions. In addition, the segment incurred higher marketing costs associated with sponsored programs and
continued to incur costs related to strategic initiatives related to the Company's digital and print literacy offerings.
Segment operating income for the fiscal year ended May 31, 2023 was $58.4 million, compared to $81.8 million in the
prior fiscal year. The $23.4 million decrease was attributable to lower revenues, primarily from instructional products
and programs, coupled with increased employee-related costs and increased spending associated with growth
initiatives.
INTERNATIONAL
($ amounts in millions)
2023
2022
$ change
% change
2023 compared to 2022
Revenues
Cost of goods sold
Other operating expenses *
Operating income (loss)
Operating margin
$
$
$
279.4
169.7
113.3
$
302.8
169.8
129.7
(3.6)
$
3.3
$
— %
1.1 %
(23.4)
(0.1)
(16.4)
(6.9)
(7.7) %
(0.1)
(12.6)
NM
* Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization.
NM Not meaningful
Fiscal 2023 compared to fiscal 2022
Revenues for the fiscal year ended May 31, 2023 decreased by $23.4 million to $279.4 million compared to $302.8
million in the prior fiscal year. Local currency revenues in the Company's ongoing foreign operations increased $14.6
million when compared to the prior fiscal year, which excluded $15.0 million in lower revenues from the disposition of
the direct sales business and unfavorable foreign exchange impact of $23.0 million. In the Asia channel, excluding the
lower revenues from the disposition of the direct sales business, local currency revenues increased $2.1 million
primarily attributable to higher revenues in India from the book fairs and trade channels. In Australia and New Zealand,
local currency revenues increased $7.3 million, driven by increased sales in the trade and book fairs channels as the
prior year was negatively impacted by additional lockdowns imposed by the COVID variant. In the UK, local currency
revenues increased $4.5 million largely driven by the continued recovery in the book fairs channel which resulted in a
70% increase in fair count as compared to the prior fiscal year, in addition to increased book clubs channel revenues.
This was partially offset by lower education and magazine channel revenues as well as marginally lower revenues in
the trade channel due to softness in the retail market which was partially offset by new releases in fiscal 2023
including The Baddies by Julia Donaldson and Dog Man® #11: Twenty Thousand Fleas Under the Sea by Dav Pilkey. In
Canada, local currency revenues increased $1.4 million primarily driven by the book fairs channel which continued to
recover from the pandemic, resulting in a 37% increase in fair count and higher revenue per fair, largely offset by lower
trade channel revenues due to an industry wide decline in the retail market and lower sales in the book clubs channel
due to lower sponsor participation. Export sales decreased $0.7 million primarily due to lower distributor sales.
Cost of goods sold for the fiscal year ended May 31, 2023 was $169.7 million, or 60.7% of revenues, compared to
$169.8 million, or 56.1% of revenues, in the prior fiscal year. The increase in Cost of goods sold as a percentage of
revenues was driven by continued inflationary pressures in the Major Markets which resulted in an overall increase in
product costs due to higher inbound freight costs as well as higher outbound postage and freight costs. Certain
foreign operations, primarily Canada, purchase inventory in U.S. dollars and the strengthening of the U.S. dollar
29
unfavorably impacted Cost of goods sold. Fulfillment costs also increased, primarily in Canada, driven by higher labor
costs. In addition, higher excess and obsolete inventory in Canada was due to lower inventory utilization in the trade
channel, which was partially offset by lower excess and obsolete inventory in Asia as a result of the exit of the direct
sales business.
Other operating expenses were $113.3 million for the fiscal year ended May 31, 2023, compared to $129.7 million in
the prior fiscal year. In local currencies, Other operating expenses decreased $8.3 million coupled with unfavorable
foreign exchange impact of $8.1 million. Approximately $12.6 million of the decrease related to the disposition of the
direct sales business in Asia driving lower employee-related expenses, general overhead costs and bad debt expense.
In addition, the segment incurred severance expense of $1.2 million related to restructuring programs and UK branch
consolidation costs of $0.5 million in the prior fiscal year, both of which did not reoccur in fiscal 2023. Partially
offsetting this decrease, Other operating expenses were impacted by higher employee-related expenses due to the
increased volume in the book fairs channels and the discontinuation of government subsidies related to COVID-
related governmental retention programs in which $1.2 million was recognized in the prior fiscal year.
Segment operating loss for the fiscal year ended May 31, 2023 was $3.6 million, compared to operating income of
$3.3 million in the prior fiscal year. Operating loss increased $6.9 million, primarily driven by cost pressures in Canada
related to the impact of the weakening Canadian dollar on inventory purchases which are primarily denominated in
U.S. dollars, higher excess and obsolete inventory due to the softness in the retail market, coupled with higher freight
and fulfillment labor costs which, in addition to Canada, also impacted the other Major Markets due to continued
inflationary pressures. This was partially offset by improved operating margin in Asia of $4.6 million attributable to the
exit from the direct sales business, which generated losses in the prior period. The Company expects to incur
severance costs in the first quarter of fiscal 2024 related to restructuring programs in Canada as efforts are being
made to utilize efficiencies across North American operations.
Overhead
Fiscal 2023 compared to fiscal 2022
Unallocated overhead expense for the fiscal year ended May 31, 2023 decreased by $11.1 million to $91.9 million,
compared to $103.0 million in the prior fiscal year. The decrease was primarily attributable to $5.0 million of insurance
recoveries received and recognized in fiscal 2023 related to photo litigation settlements paid in prior periods and a
$1.8 million benefit related to the favorable settlement of certain legacy sales tax matters. In addition, the Company
incurred lower unallocated employee-related costs, including lower severance and related charges from the
Company's restructuring programs of $5.0 million. This was partially offset by $6.6 million of insurance recoveries
received and recognized in the prior fiscal year related to the intellectual property legal settlement accrued in fiscal
2021.
Liquidity and Capital Resources
Fiscal 2023 compared to fiscal 2022
Cash provided by operating activities was $148.9 million for the fiscal year ended May 31, 2023, compared to cash
provided by operating activities of $226.0 million for the prior fiscal year, representing a decrease in cash provided by
operating activities of $77.1 million. The decrease in cash was primarily driven by higher inventory purchases of
approximately $110 million. In the first half of the fiscal year, the Company increased purchases by approximately
$140 million to mitigate long lead times related to global supply chain challenges. The Company expects to return to
historical purchasing patterns as lead times have returned to pre-pandemic levels, however, due to the continued
growth of the book fairs business, working capital requirements are expected to remain elevated. The decrease was
also attributable to lower net refunds from income taxes of $51.3 million relative to the prior fiscal year, increased
spending on general expenses in the book fairs channel to support the increased fair count and lower cash
remittances related to book fairs incentive credits. This was partially offset by higher customer remittances on
receivable balances in fiscal 2023 of approximately $62.6 million.
Cash used in investing activities was $99.6 million for the fiscal year ended May 31, 2023, compared to cash used in
investing activities of $43.2 million for the prior fiscal year, representing an increase in cash used in investing activities
of $56.4 million. The increase in cash used was driven by higher capital expenditures of $20.0 million, primarily for
new equipment at the Company's Jefferson City, Missouri distribution facility and in the book fairs warehouses to
meet expected demand, payments related to the Learning Ovations acquisition of $10.7 million, and increased
prepublication spending of $9.7 million associated with product development in Education Solutions. In addition, the
30
prior fiscal year included net proceeds of $10.4 million from the sale of the U.S. Lake Mary facility and $5.6 million
from the sale of the UK distribution facility located in Witney.
Cash used by financing activities was $139.5 million for the fiscal year ended May 31, 2023, compared to cash used in
financing activities of $229.2 million for the prior fiscal year. The decrease in cash used in financing activities of $89.7
million was primarily related to repayments of borrowings under the U.S. credit agreement of $175.0 million during the
prior fiscal year, coupled with an increase in net proceeds from stock option exercises of $10.5 million. Partially
offsetting this decrease, the Company repurchased $132.1 million of common stock, compared to repurchases of
$33.4 million in the prior fiscal year, and paid higher dividends of $4.9 million as part of the Company's shareholder
enhancement initiatives. As a result, outstanding shares decreased 7% from 34.2 million to 31.7 million as of May 31,
2023 which will benefit earnings per share calculations in fiscal 2024.
Cash Position
The Company’s cash and cash equivalents totaled $224.5 million at May 31, 2023 and $316.6 million at May 31, 2022.
Cash and cash equivalents held by the Company’s U.S. operations totaled $174.6 million at May 31, 2023 and $275.5
million at May 31, 2022.
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 fiscal 2023, the Company repurchased $135.1 million of its
common stock, which included shares repurchased through a modified Dutch auction tender offer and open-market
repurchases. See Note 14, Treasury Stock, of Notes to the Consolidated Financial Statements in Item 8, Consolidated
Financial Statements and Supplementary Data for further details regarding the modified Dutch auction tender offer.
Under the Company's open-market buy-back program, $21.6 million remained available for future purchases of
common shares as of May 31, 2023. Subsequent to May 31, 2023, the Board authorized an increase of $100.0 million
for common stock repurchases, resulting in a current Board authorization of $119.2 million, which includes the
remaining amount from the previous Board authorization less share repurchases of $2.4 million subsequent to May 31,
2023.
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 of May 31, 2023,
the Company’s primary sources of liquidity consisted of cash and cash equivalents of $224.5 million, cash from
operations and the Company's U.S. credit agreement. The Company expects the U.S. credit agreement to provide it
with an appropriate level of flexibility to strategically manage its business operations. The Company's U.S. credit
agreement, less commitments of $0.4 million, has $299.6 million of availability. Additionally, the Company has short-
term credit facilities of $34.5 million, less current borrowings of $6.0 million and commitments of $3.4 million,
resulting in $25.1 million of current availability under these facilities at May 31, 2023. 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.
31
The following table summarizes, as of May 31, 2023, 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”):
Contractual Obligations
Minimum print quantities
Royalty advances
Lines of credit and short-term debt
Finance leases (1)
Operating leases
Pension and postretirement plans (2)
Total
Payments Due By Period
Years 2-3
Years 4-5
After Year 5
Total
$ amounts in millions
0.2 $
— $
— $
1 Year or Less
$
0.3 $
28.9
6.0
2.4
25.4
2.3
11.9
—
2.8
36.4
4.8
0.3
—
1.9
25.1
4.5
0.2
—
0.3
25.4
10.7
$
65.3 $
56.1 $
31.8 $
36.6 $
0.5
41.3
6.0
7.4
112.3
22.3
189.8
(1) Includes principal and interest.
(2) Excludes expected Medicare Part D subsidy receipts.
Financing
Loan Agreement
The Company is party to the U.S. credit agreement, as well as certain credit lines with various banks. For a more
complete description of the U.S. credit agreement, as well as the Company's other debt obligations, reference is made
to Note 5 of Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and
Supplementary Data.” The Company had no outstanding borrowings under the U.S. credit agreement as of May 31,
2023. On February 28, 2023, the Company entered into the First and Second Amendments to the U.S. credit
agreement which adjusted the credit spread adjustment for SOFR (the secured overnight financing rate as
administered by the Federal Reserve Bank of New York) to 0.10% and transitioned the reference rate from LIBOR (the
London interbank offered rate) to SOFR. Reference is made to Note 1 and Note 5 of Notes to Consolidated Financial
Statements in Item 8, “Consolidated Financial Statements and Supplementary Data for further details.
The Company is party to other loan agreements, notes or other documents or instruments which previously
referenced USD LIBOR as the benchmark interest rate index used to set the borrowing rate on certain short-term and
variable-rate loans or advances. As of May 31, 2023, the Company has effectively replaced USD LIBOR with alternative
reference rates in all financial contracts. The Company does not believe that the change in reference rates has or will
have any material effect on its ability to access the credit markets under its existing financing agreements, or its ability
to modify or amend financial contracts, if required.
Acquisitions
In the ordinary course of business, the Company explores domestic and international expansion opportunities,
including potential niche and strategic acquisitions. As part of this process, the Company engages with interested
parties in discussions concerning possible transactions. The Company will continue to evaluate such expansion
opportunities and prospects. See Note 10, Acquisitions , 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, 2023. 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.
32
Additional information relating to the Company’s derivative transactions and outstanding financial instruments is
included in Note 19, Derivatives and Hedging, and Note 5, Debt, respectively, 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, 2023:
Fiscal Year Maturity
$ amounts in millions
Fair Value
2024
2025
2026
2027
2028
Thereafter
Total
2023
Debt Obligations
Lines of credit and current
portion of long-term debt
$ 6.0
$
— $
— $
— $
— $
— $
6.0 $
6.0
Average interest rate
4.9 %
—
—
—
—
—
33
Item 8 | Consolidated Financial Statements and Supplementary Data
Consolidated Statements of Operations for the years ended May 31, 2023, 2022 and 2021
Consolidated Statements of Comprehensive Income (Loss) for the years ended May 31, 2023,
2022 and 2021
Consolidated Balance Sheets at May 31, 2023 and 2022
Consolidated Statement of Changes in Stockholders’ Equity for the years ended May 31, 2023,
2022 and 2021
Consolidated Statements of Cash Flows for the years ended May 31, 2023, 2022 and 2021
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Supplementary Financial Information - Summary of Quarterly Results of Operations
The following consolidated financial statement schedule for the years ended May 31, 2023, 2022
and 2021 is filed with this annual report on Form 10-K:
Schedule II — Valuation and Qualifying Accounts and Reserves
Page
35
36
37
38
39
41
78
81
S-1
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.
34
Consolidated Statements of Operations
(Amounts in millions, except per share data)
For fiscal years ended May 31,
2022
2021
2023
Revenues
$ 1,704.0
$ 1,642.9
$ 1,300.3
Operating costs and expenses
Cost of goods sold
Selling, general and administrative expenses
Depreciation and amortization
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 assets held for sale
Gain (loss) on sale of assets and other
Earnings (loss) before income taxes
Provision (benefit) for income taxes
Net income (loss)
Less: Net income (loss) attributable to noncontrolling interest
786.4
756.6
54.7
—
1,597.7
106.3
7.2
(1.4)
0.3
—
—
112.4
25.9
86.5
0.2
765.5
722.8
56.8
0.4
1,545.5
97.4
0.5
(2.9)
0.1
(15.1)
9.7
89.7
8.7
81.0
0.1
$
628.7
622.7
60.5
11.1
1,323.0
(22.7)
0.4
(6.2)
(0.1)
—
10.4
(18.2)
(7.3)
(10.9)
0.1
$
$
Net income (loss) attributable to Scholastic Corporation
$
86.3
$
80.9
$
(11.0)
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
$
$
$
2.56
$
2.33
$
(0.32)
2.49
0.80
$
$
2.27
0.60
$
$
(0.32)
0.60
35
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
2023
(Amounts in millions)
For fiscal years ended May 31,
2022
2021
$
86.5
$
81.0
$
(10.9)
(5.4)
(5.0)
(10.4) $
76.1
0.2
75.9
$
(14.5)
3.8
(10.7) $
70.3
0.1
70.2
$
19.9
3.7
23.6
12.7
0.1
12.6
$
$
36
Consolidated Balance Sheets
ASSETS
Current Assets:
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Income tax receivable
Prepaid expenses and other current assets
Assets held for sale
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:
(Amounts in millions)
Balances at May 31,
2022
2023
$
224.5
$
278.0
334.5
8.9
47.0
—
892.9
521.4
56.4
85.7
56.8
132.7
21.0
99.8
973.8
316.6
299.4
281.4
26.8
68.1
3.7
996.0
517.0
55.5
81.9
49.2
125.3
21.5
94.4
944.8
$
1,866.7
$
1,940.8
Lines of credit and current portion of long-term debt
$
6.0
$
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:
170.9
52.8
169.1
168.9
13.4
21.2
602.3
—
73.8
26.1
99.9
—
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
6.5
162.3
61.3
172.8
193.3
2.7
20.8
619.7
—
69.8
32.9
102.7
—
—
0.0
Common Stock, $0.01 par value: Authorized, 70.0 shares; Issued, 42.9 shares;
Outstanding, 30.0 and 32.5 shares, respectively
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Treasury stock at cost: 12.9 shares and 10.4 shares, respectively
Total stockholders' equity of Scholastic Corporation
Noncontrolling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes
0.4
632.2
(55.8)
1,035.6
(449.5)
1,162.9
1.6
1,164.5
1,866.7
$
0.4
627.0
(45.4)
976.5
(341.5)
1,217.0
1.4
1,218.4
1,940.8
$
37
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
(Amounts in millions)
Total
Stockholders'
Equity of
Scholastic
Corporation
Noncontrolling
Interest
Total
Stockholders'
Equity
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
Net Income (loss)
Foreign currency
translation adjustment
Pension and post-
retirement adjustments
(net of tax of $2.2)
Stock-based
compensation
Proceeds from issuance
of common stock
pursuant to stock-based
compensation plans
Purchases of treasury
stock at cost
Treasury stock issued
pursuant to stock
purchase plans
Dividends
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.2
—
—
—
—
—
—
—
—
—
—
—
—
—
6.6
0.4
—
(2.9)
—
—
(11.0)
19.9
3.7
—
—
—
—
—
—
—
—
—
—
(20.6)
—
—
—
—
—
—
5 5
—
(11.0)
0.1
(10.9)
19.9
—
19.9
3.7
6.6
0.4
—
2.6
(20.6)
—
—
—
—
—
—
3.7
6.6
0.4
—
2.6
(20.6)
Balance at May 31, 2021
1.7 $
0.0
32.7 $
0.4 $
626.5
$
(34.7) $ 916.4 $ (327.8) $
1,180.8 $
1.5 $
1,182.3
Net Income (loss)
Foreign currency
translation adjustment
Pension and post-
retirement adjustments
(net of tax of $0.3)
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
Other (noncontrolling
interest)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(0.9)
—
—
0.7
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7.8
10.4
—
(17.7)
—
—
—
80.9
(14 5)
3.8
—
—
—
—
—
—
—
—
—
—
—
(20.8)
—
—
—
—
—
—
80.9
0.1
81.0
(14 5)
—
(14.5)
3.8
7.8
—
—
3.8
7.8
10.4
—
10.4
(33.4)
(33.4)
—
(33.4)
19.7
—
—
2.0
(20.8)
—
—
2.0
(20.8)
—
(0.2)
(0.2)
Balance at May 31, 2022
1.7 $
0.0
32.5 $
0.4 $
627.0
$
(45.4) $ 976 5 $
(341 5) $
1,217.0 $
1.4 $
1,218.4
Net Income (loss)
Foreign currency
translation adjustment
Pension and post-
retirement adjustments
(net of tax of $0.0)
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
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(3.3)
—
0.8
—
—
—
—
—
—
—
—
—
—
—
—
—
10 5
18.4
—
(23.7)
—
—
86 3
(5.4)
(5.0)
—
—
—
—
—
—
—
—
—
—
—
(27 2)
—
—
—
—
—
86.3
0.2
86.5
(5.4)
—
(5.4)
(5.0)
—
(5.0)
10 5
—
10.5
18.4
—
18.4
(135.1)
(135.1)
—
(135.1)
27.1
—
3.4
(27.2)
—
—
3.4
(27.2)
Balance at May 31, 2023
1.7 $
0.0
30.0 $
0.4 $
632.2
$
(55.8) $ 1,035.6 $ (449 5) $
1,162.9 $
1.6 $
1,164.5
See accompanying notes
38
Consolidated Statements of Cash Flows
Cash flows - operating activities:
Net income (loss) attributable to Scholastic Corporation
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
Amortization of prepublication costs
Depreciation and amortization
Amortization of pension and postretirement plans
Deferred income taxes
Stock-based compensation
Income from equity investments
Non cash write off related to asset impairments and write downs
Non cash write off related to assets held for sale
(Gain) loss on sale of assets and other
Changes in assets and liabilities, net of amounts acquired:
Accounts receivable
Inventories
Income tax receivable
Prepaid expenses and other current assets
Assets held for sale
Royalty advances
Accounts payable
Accrued income taxes
Liabilities related to assets held for sale
Accrued royalties
Deferred revenue
Other accrued expenses
Other, net
Net cash provided by (used in) operating activities
Cash flows - investing activities:
Prepublication expenditures
Additions to property, plant and equipment
Proceeds from sale of assets
Acquisition-related payments
Net cash provided by (used in) investing activities
See accompanying notes
2023
2022
2021
(Amounts in millions)
Years ended May 31,
$
86.3 $
80.9 $
(11.0)
3.3
26.5
4.2
25.1
64.6
(0.4)
(0.7)
10.5
(0.9)
—
—
—
15.0
(83.6)
17.7
21.5
—
(12.0)
9.4
10.9
—
(7.6)
(2.9)
(15.3)
(22.7)
148.9
(26.9)
(62.0)
—
(10.7)
(99.6)
15.2
27.7
4.1
26.4
64.9
0.0
3.2
7.8
(2.0)
0.4
11.6
(9.7)
(73.1)
(46.7)
62.0
(22.2)
(3.7)
(10.4)
27.4
(0.1)
3.5
17.0
74.7
(6.8)
(26.1)
226.0
(17.2)
(42.0)
16.0
—
(43.2)
5.2
36.6
5.4
25.4
64.9
—
(8.0)
6.6
(7.4)
11.1
—
(10.4)
(14.6)
(26.2)
1.4
(3.5)
—
(8.5)
(17.9)
1.3
—
6.2
(19.5)
36.5
(2.6)
71.0
(20.7)
(47.2)
17.4
—
(50.5)
39
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
$
2023
2022
2021
(Amounts in millions)
Years ended May 31,
3.5
(3.7)
(2.3)
(132.1)
20.7
(25.6)
—
(139.5)
(1.9)
(92.1)
316.6
224.5 $
3.2
(186.2)
(2.3)
(33.4)
10.2
(20.7)
—
(229.2)
(3.5)
(49.9)
366.5
316.6 $
4.0
(33.9)
(2.3)
—
0.4
(20.6)
0.1
(52.3)
4.5
(27.3)
393.8
366.5
Supplemental Information:
Income tax payments (refunds)
Interest paid
See accompanying notes
2023
2022
2021
$
2.5 $
(48.8) $
1.5
3.3
1.3
5.4
40
(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 120 international locations.
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.
Noncontrolling Interest
As of May 31, 2023, the Company owned a 95.0% majority ownership interest in Make Believe Ideas Limited ( MBI ), a
UK-based children's book publishing company. 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. See Note 22, Subsequent Events .
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 ongoing basis, the Company evaluates the adequacy of its reserves and the
estimates used in calculations, including, but not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
Accounts receivable allowance for credit losses
Pension and postretirement benefit plans
Uncertain tax positions
The timing and amount of future income taxes and related deductions
Inventory reserves
Cost of goods sold from book fair operations during interim periods based on estimated gross profit rates
Sales tax contingencies
Royalty advance reserves and royalty expense accruals
Impairment testing for goodwill, intangibles and other long-lived assets and investments
Assets and liabilities acquired in business combinations
Variable consideration related to anticipated returns
Allocation of transaction price to contractual performance obligations
41
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. Revenues associated with virtual fairs are recognized upon
shipment of the products and related incentive program credits are expensed upon issuance.
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. Revenue from contracts with multiple
deliverables are recognized as each performance obligation is satisfied in which the transaction price is allocated
on a relative standalone selling price basis.
Film Production and Licensing – Revenue from the sale of film rights, principally for the home video, streaming and
domestic and foreign television markets, is deferred during production and recognized when the film or episodes
have been delivered and are 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.
Export – Revenue from the export 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.
Cash equivalents
Cash equivalents consist of short-term investments with original maturities of three months or less.
42
Accounts receivable
Accounts receivable are recognized net of an allowance for credit losses. In the normal course of business, the
Company extends credit to customers that satisfy predefined credit criteria. The Company recognizes an allowance
for credit losses on trade receivables that are expected to be incurred over the lifetime of the receivable. Reserves for
estimated credit losses are established at the time of sale and are based on relevant information about past events,
current conditions, and supportable forecasts impacting its ultimate collectability, including specific reserves on a
customer-by-customer basis, creditworthiness of the Company’s customers and prior collection experience. 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 credit losses was $16.7
and $25.9 as of May 31, 2023 and 2022, respectively.
Estimated returns
For sales that include a right of return, the Company estimates the transaction price and records 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
expected future sales of existing inventory driven by estimates around forecasted purchases, inventory consumption
costs, and the sell-through rate of current fiscal year purchases. In accordance with the Company's inventory
retention policy, expected future sales of existing inventory are compared against historical usage by channel for
reasonableness and any specifically identified excess or obsolete inventory, due to an anticipated lack of demand, will
also be reserved.
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 $62.7 and $60.3 at May 31, 2023
and 2022, respectively. Capitalized software is amortized over a period of three to ten years. Amortization expense for
capitalized software was $25.3, $26.4 and $27.6 for the fiscal years ended May 31, 2023, 2022 and 2021, 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.
Cloud Computing Arrangements
The Company incurs costs to implement cloud computing arrangements that are hosted by a third party vendor.
Implementation costs incurred during the application development stage are capitalized and amortized over the term
of the hosting arrangement on a straight-line basis. The Company capitalized $6.2 and $7.3 of costs incurred in fiscal
2023 and 2022, respectively, to implement cloud computing arrangements, primarily related to digital and consumer
data platforms. These amounts are included within Other assets and deferred charges on the Company's Consolidated
Balance Sheets.
Leases
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
43
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
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
based on 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 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.
Long-lived assets
Long-lived assets, including operating lease right-of-use assets, property, plant, and equipment, prepublication costs
and definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of any such asset may not be recoverable. For the purposes of impairment testing,
long-lived assets are grouped at the lowest level of identifiable cash flows. If impairment indicators are present, the
Company performs a recoverability test by comparing the sum of the estimated undiscounted future cash flows
attributable to the asset to its carrying amount. If it is determined that a long-lived asset is not recoverable, an
impairment loss is recognized based on the excess of the carrying amount over the fair value of the asset. The fair
values determined by the Company require significant judgment and include certain assumptions regarding future
sales and expenses, discount rates and real estate market conditions.
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,
44
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 $79.1 and $76.0 as of May 31, 2023 and 2022, respectively.
Goodwill and intangible assets
The Company records intangible assets based on their fair value on the date of acquisition. Goodwill is recorded as the
difference between the fair value of the purchase consideration and the fair value of the net identifiable tangible and
intangible assets acquired.
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
quantitative goodwill impairment test. The Company measures goodwill impairment by the amount the carrying value
exceeds the fair value of a reporting unit. 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 six 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.
45
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 ongoing 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 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.
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 – 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.
Other postretirement benefits – The Company provides postretirement benefits, consisting of healthcare and life
insurance benefits, to eligible retired United State-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
46
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 $76.9, $69.5 and $60.1 for
the twelve months ended May 31, 2023, 2022 and 2021, respectively.
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
2023, 2022 and 2021 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
$
11.62
$
8.04
$
3.80
2023
2022
2021
Assumptions:
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
Average expected life of options
1.9 %
32.8 %
3.8 %
5 years
1.8 %
31.9 %
0.9 %
5 years
2.9 %
30.2 %
0.2 %
4 years
47
New Accounting Pronouncements
Current Fiscal Year Adoptions:
ASU No. 2021-8
The Company adopted ASU No. 2021-8, Business Combinations (Topic 805): Accounting for Contract Assets and
Contract Liabilities from Contracts with Customers (ASU 2021-8), in the beginning of the second quarter of fiscal
2023. The updates in this guidance seek to improve the accounting for acquired revenue contracts with customers in
a business combination by addressing diversity in practice and inconsistency related to the following: 1. Recognition of
an acquired contract liability and 2. Payment terms and their effect on subsequent revenue recognized by the
acquirer. The amendments in ASU 2021-8 improve comparability for both the recognition and measurement of
acquired revenue contracts with customers at the date of and after a business combination. The amendments improve
comparability by specifying for all acquired revenue contracts regardless of their timing of payment: (1) the
circumstances in which the acquirer should recognize contract assets and contract liabilities that are acquired in a
business combination and (2) how to measure those contract assets and contract liabilities. The amendments improve
comparability after the business combination by providing consistent recognition and measurement guidance for
revenue contracts with customers acquired in a business combination and revenue contracts with customers not
acquired in a business combination. The Company early adopted ASU 2021-8 and applied the amendments in
accounting for the acquisition of Learning Ovations, Inc. during the second quarter of fiscal 2023, which was
accounted for as a business combination under the acquisition method of accounting. The adoption of this ASU did
not have a material impact to the Company's Consolidated Financial Statements.
ASU No. 2020-4 and ASU No. 2022-6
In March 2020, the FASB issued ASU No. 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting (ASU 2020-4), and in December 2022, the FASB issued ASU No.
2022-6, Reference Rate Reform (Topic 848): Deferral of the Sunset Date for Topic 848 (ASU 2022-6). ASU 2020-4
provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other
transactions affected by reference rate reform if certain criteria are met. This guidance is elective and applies to all
entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference
rate expected to be discontinued because of reference rate reform. ASU 2022-6 defers the sunset date of Topic 848
from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in
Topic 848. During the third quarter of fiscal 2023, the Company adopted the expedient in accounting for the
amendments to the Company's Credit Agreement which were made as a result of the replacement of LIBOR as a
reference rate. Refer to Note 5, Debt, for further details regarding the interest rate effected by these amendments,
which will be applied prospectively. The adoption of these ASUs did not have a material impact to the Company's
Consolidated Financial Statements.
48
2. REVENUES
Disaggregated Revenue Data
The following table presents the Company’s segment revenues disaggregated by region and domestic channel during
the year ended May 31:
Book Clubs - U.S.
Book Fairs - U.S.
Trade - U.S.
Trade - International (1)
Total Children's Book Publishing and Distribution
Education Solutions - U.S.
Total Education Solutions
International - Major Markets (2)
International - Other Markets (3)
Total International
Total Revenues
2023
2022
2021
$
117.8
$
126.4
$
553.1
325.8
41.3
1,038.0
386.6
386.6
229.7
49.7
279.4
429.7
344.0
46.4
946.5
393.6
393.6
237.1
65.7
302.8
145.4
164.3
328.8
36.5
675.0
312.3
312.3
226.8
86.2
313.0
$
1,704.0
$
1,642.9
$
1,300.3
(1) Primarily includes foreign rights and certain product sales in the UK.
(2) Includes Canada, UK, Australia and New Zealand.
(3) Primarily includes markets in Asia.
In fiscal years 2023 and 2022, there were no customers that accounted for more than 10% of consolidated revenues.
In fiscal 2021, the Company had one customer that accounted for more than 10% of consolidated revenues. Total
revenues from this customer were $152.7, or approximately 12% of consolidated revenues, during the year ended
May 31, 2021. Approximately $119.7 was reported within the Children's Book Publishing & Distribution segment, $8.8 in
the Education Solutions segment and $24.2 in the International segment.
Estimated Returns
A liability for expected returns of $34.9 and $42.2 was recorded within Other accrued expenses on the Company's
Consolidated Balance Sheets as of May 31, 2023 and 2022, respectively. In addition, a return asset of $4.7 and $5.3 was
recorded within Prepaid expenses and other current assets as of May 31, 2023 and 2022, respectively, for the
recoverable cost of product estimated to be returned by customers.
Deferred Revenue
The following table presents further detail regarding the Company's deferred revenue balance for the years ended May
31:
Book fairs incentive credits
Magazines+ subscriptions
U.S. digital subscriptions
U.S. education-related (1)
Media-related
Stored value cards
Other (2)
Total deferred revenue
2023
$ 110.8
5.0
22.8
9.8
0.0
12.4
8.3
$ 169.1
2022
$ 100.1
4.5
19.5
13.6
15.8
9.4
9.9
$ 172.8
(1) Primarily includes deferred revenue related to contracts with school districts and professional services.
(2) Primarily includes deferred revenue related to various international products and services.
49
The Company's deferred revenue consists of contract liabilities in respect to 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, 2023
and 2022 included within the opening Deferred revenue balance was $146.4 and $85.0, respectively.
Allowance for Credit Losses
The following table presents the change in the allowance for credit losses, which is included in Accounts Receivable,
net on the Consolidated Balance Sheets:
Balance as of June 1, 2022
Current period provision
Write-offs and other
Balance as of May 31, 2023
3. SEGMENT INFORMATION
Allowance for
Credit Losses
$
$
25.9
3.3
(12.5)
16.7
The Company categorizes its businesses into three reportable segments: Children’s Book Publishing and Distribution
and Education Solutions, 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 Solutions includes the publication and distribution to schools and libraries of children’s books,
classroom magazines, print and digital 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 one operating segment.
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.
50
The following tables set forth information for the Company’s segments for the three fiscal years ended May 31:
2023
2022
2021
Revenues
Children's Book Publishing and Distribution
$
1,038.0
$
Education Solutions
International
Total
Operating income (loss)
Children's Book Publishing and Distribution
Education Solutions
International
Overhead (1)
Total
Depreciation and amortization (2)
Children's Book Publishing and Distribution
Education Solutions
International
Overhead (1)
Total
Segment assets at May 31
Children's Book Publishing and Distribution
Education Solutions
$
$
$
$
$
$
386.6
279.4
1,704.0
143.4
58.4
(3.6)
(91.9)
106.3
22.9
20.2
5.1
41.5
89.7
$
$
$
$
$
946.5
393.6
302.8
1,642.9
115.3
81.8
3.3
(103.0)
97.4
24.9
15.1
6.2
45.1
91.3
599.9
290.8
$
559.4
289.4
$
$
$
$
$
$
$
675.0
312.3
313.0
1,300.3
8.9
57.7
21.2
(110.5)
(22.7)
25.6
12.7
6.6
45.4
90.3
518.0
239.8
International
Overhead (1)
Total
(1) Overhead includes all domestic corporate amounts not allocated to segments, including expenses and costs related to the management
of corporate assets.
948.4
2,008.3
833.7
1,940.8
716.0
1,866.7
260.0
258.3
302.1
$
$
$
(2) Includes depreciation of property, plant and equipment, amortization of intangible assets and prepublication, deferred financing and
cloud computing costs.
4. ASSET WRITE DOWN
During fiscal 2022, the Company committed to a plan to cease operations and sell the direct sales business in Asia,
including the sale of the Malaysia legal entity. The Company wrote down the related assets which were included in the
International segment and consisted of accounts receivable, inventory, other current assets and long-lived assets, to
their recoverable value which equated to the selling price of $3.7. The remaining assets, consisting of accounts
receivable and inventory, were classified as held for sale and recorded as a current asset on the Company's
Consolidated Balance Sheet at May 31, 2022. The Company recognized a loss of $15.1 in fiscal 2022 which was
included in Gain (Loss) on assets held for sale within the Company's Consolidated Statement of Operations for the
fiscal year ended May 31, 2022. The impact of the impairment was a loss per basic and diluted share of Class A and
Common Stock of $0.33 and $0.32, respectively, in the twelve months ended May 31, 2022.
During fiscal 2021, the Company committed to a plan to cease use of certain leased office space in New York City and
consolidate into the company-owned New York headquarters building. The right-of-use (ROU) assets and the other
long-lived assets associated with these operating leases were included in the Overhead segment. An impairment
expense of $8.5 was recognized in fiscal 2021 of which $7.0 related to the ROU assets and $1.5 related to other long-
lived assets, primarily leasehold improvements. The Company also committed to a plan to permanently close 13 of the
54 book fairs warehouses in the U.S. as part of a branch consolidation project. The ROU assets and the other long-
lived assets associated with these warehouse operating leases were included in the Children’s Book Publishing and
Distribution segment. An impairment expense of $2.6 was recognized in fiscal 2021, primarily related to the ROU
51
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 Credit
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, 2023, the Company had no outstanding borrowings under the Credit Agreement.
The Credit Agreement contains certain financial covenants related to leverage and interest coverage ratios (as defined
in the Credit Agreement), limitations on the amount of dividends and other distributions, and other limitations on
fundamental changes to the Company or its business. The Company was in compliance with required covenants for
all periods presented.
At May 31, 2023, the Company had open standby letters of credit totaling $3.8 issued under certain credit lines,
including $0.4 under the Loan Agreement and $3.4 under the domestic credit lines discussed below.
UK Loan Agreements
On January 24, 2020, Scholastic Limited UK entered into a term loan facility to fund the construction of the new UK
facility in Warwickshire. The term loan facility was repaid and closed on March 31, 2022.
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 the new UK facility in Warwickshire. The loan agreement was repaid
and closed on May 12, 2022.
Lines of Credit
As of May 31, 2023, the Company’s domestic credit lines available under unsecured money market bid rate credit lines
totaled $10.0. There were no outstanding borrowings under these credit lines as of May 31, 2023 and May 31, 2022. As
of May 31, 2023, availability under these unsecured money market bid rate credit lines totaled $6.6, excluding
commitments of $3.4. 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, 2023, the Company had various local currency international credit lines totaling $24.5, underwritten by
banks primarily in the United States, Canada and the United Kingdom. Outstanding borrowings under these facilities
were $6.0 at May 31, 2023 at a weighted average interest rate of 4.9%, compared to outstanding borrowings of $6.5 at
May 31, 2022 at a weighted average interest rate of 5.4%. As of May 31, 2023, the amounts available under these
facilities totaled $18.5. 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, 2023 relating to
royalty advances and minimum print quantities for the fiscal years ending May 31:
2024
2025
2026
2027
2028
Thereafter
Total commitments
Royalty
Advances
Minimum Print
Quantities
$
28.9
$
10.5
1.4
0.2
0.1
0.2
$
41.3
$
0.3
0.1
0.1
—
—
—
0.5
53
The Company had open standby letters of credit of $3.8 and $4.1 issued under certain credit lines as of May 31, 2023
and 2022, 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
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.
During fiscal 2023, the Company received $5.0 in recoveries from its insurance programs related to photo litigation
settlements accrued and paid in prior periods. The recoveries were recognized as an offset to the legal settlements
and reflected in Selling, general and administrative expenses in the Company's Consolidated Statement of Operations.
During fiscal 2022, the Company received $6.6 in recoveries from its insurance programs related to an intellectual
property legal settlement, which was accrued in fiscal 2021. The recoveries were recognized as an offset to the legal
settlement and reflected in Selling, general and administrative expenses in the Company's Consolidated Statement of
Operations. While the Company expects to receive additional recoveries from its insurance programs, it is premature
to determine with any level of probability or accuracy the amount of those recoveries at this time.
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, 2023:
2023
2022
Equity method investments
$
31.6
$
Other equity investments
6.0
Total investments
$
37.6
$
31.0
6.0
37.0
Segment
International
Children's Book Publishing & Distribution
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.
The Company has 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, 2023 and May 31,
2022.
Income from equity investments reported in Selling, general and administrative expenses in the Consolidated
Statements of Operations totaled $0.9 for the year ended May 31, 2023, $2.0 for the year ended May 31, 2022 and $7.4
for the year ended May 31, 2021. The Company did not receive dividends for the year ended May 31, 2023 and
received dividends of $1.4 for the year ended May 31, 2022.
54
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
2023
2022
$
79.5
$
231.7
270.2
212.9
218.7
46.0
$
$
1,059.0
$
(537.6)
521.4
$
79.6
232.5
243.6
206.5
214.9
33.9
1,011.0
(494.0)
517.0
Included in Other assets and deferred charges
Capitalized Cloud Computing Arrangements
2023
2022
$
32.2
$
32.3
Depreciation and amortization expense related to property, plant, and equipment was $52.5, $54.8 and $58.3 for the
fiscal years ended May 31, 2023, 2022 and 2021, respectively. Amortization expense related to cloud computing
arrangements was $6.3, $3.9 and $0.7 for the fiscal years ended May 31, 2023, 2022 and 2021, respectively.
In fiscal 2021, the Company recognized a pretax impairment charge of $1.5 related to its plan to cease use of certain
leased office space in New York City and consolidate into its company-owned New York headquarters building. Refer
to Note 4, Asset Write Down , for further discussion regarding the impairment.
The following table presents long-lived assets and related additions by reportable segment for the fiscal years ended
May 31:
Additions
2023
2022
Long-lived assets (1)
2022
2023
Children's Book Publishing and Distribution
$
10.6
$
Education Solutions
International
Overhead (2)
Total (3)
0.3
4.4
22.3
37.6
$
5.7
0.5
3.9
4.3
$
34.4
2.1
25.1
397.1
$
32.3
2.7
25.0
396.7
$
14.4
$
458.7
$
456.7
(1) Long-lived assets consist of property, plant and equipment, net, excluding capitalized software.
(2) Overhead includes all domestic corporate amounts not allocated to segments, including expenses and costs related to the management
of corporate assets.
(3) Long-lived assets held in the United States were $432.8 and $431.3 as of May 31, 2023 and 2022, respectively. Long-lived assets held
outside the United States were $25.9 and $25.4 as of May 31, 2023 and 2022, respectively.
Sale of Long-Lived Assets
Refer to Note 4, Asset Write Down and Sale, for details regarding the disposition of the direct sales business in Asia
completed during fiscal 2023.
During the fourth quarter of fiscal 2022, the Company sold the UK distribution center located in Witney to consolidate
the operations into a new facility in Warwickshire. The long-lived assets related to the Witney facility, which consisted
of building and building improvements, were included in the International segment. These assets had a carrying value
of $2.1 and were classified as held for sale as of the third quarter of fiscal 2020. The net proceeds from the sale were
$5.6 and the Company recognized a gain on sale of $3.5. This amount is included within Gain (loss) on sale of assets
and other within the Company's Consolidated Statements of Operations.
55
During the second quarter of fiscal 2022, the Company sold a facility, which included office and warehouse space,
located in Lake Mary, Florida as part of an initiative to rightsize its real estate footprint to reduce occupancy costs. The
long-lived assets, which consisted of land, building, building improvements, furniture and fixtures, were included in the
Children's Book Publishing and Distribution segment. These assets had a carrying value of $4.2 and were classified as
held for sale as of the third quarter of fiscal 2021. The net proceeds from the sale were $10.4 and the Company
recognized a gain on sale of $6.2. This amount is included within Gain (loss) on sale of assets and other within the
Company's Consolidated Statements of Operations.
During the third quarter of fiscal 2021, the Company sold the UK distribution center located in Southam. The long-
lived assets related to the Southam facility, which consisted of land, building and building improvements, were
included in the International segment. The assets had a carrying value of $1.3 and were classified as held for sale as of
the fiscal year ended May 31, 2020. The net proceeds from the sale were $5.1 and the Company recognized a gain on
sale of $3.8. This amount is included within Gain (loss) on sale of assets and other within the Company's Consolidated
Statements of Operations.
During the first quarter of fiscal 2021, the Company-owned facility located in Danbury, Connecticut was sold and the
Company relocated the book fairs warehousing and distribution operations conducted in Danbury to a leased
warehouse in Easton, Pennsylvania. The long-lived assets related to the Danbury facility, which consisted of land,
building, and building improvements, were included in the Overhead segment. These assets had a carrying value of
$5.7 and were classified as held for sale as of the fiscal year ended May 31, 2020. The net proceeds from the sale were
$12.3 and the Company recognized a gain on sale of $6.6. This amount is included within Gain (loss) on sale of assets
and other within the Company's Consolidated Statements of Operations.
9. LEASES
The following table summarizes right-of-use assets and lease liabilities recorded on the Company's Consolidated
Balance Sheet for the fiscal years ended May 31, 2023 and May 31, 2022:
May 31, 2023
May 31, 2022
Location within Consolidated Balance Sheet
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
$
$
$
85.7 $
6.1
91.8 $
21.2 $
73.8
95.0 $
2.2 $
4.6
6.8 $
101.8 $
81.9 Operating lease right-of-use assets, net
Property, plant and equipment, net
8.1
90.0
20.8 Current portion of operating lease liabilities
Long-term operating lease liabilities
69.8
90.6
2.3 Other accrued expenses
6.7 Other noncurrent liabilities
9.0
99.6
In fiscal 2021, the Company recognized a pretax impairment charge of $9.6 related to operating lease right-of-use
assets in connection with its plan to cease use of certain leased office space in New York City and consolidate into its
company-owned New York headquarters building and its plan to permanently close 13 of its 54 book fair warehouses
in the U.S. as part of a branch consolidation project. Refer to Note 4, Asset Write Down , for further discussion
regarding the impairment.
56
The following table summarizes the lease expense activity for the fiscal years ended May 31:
Operating lease expense
Finance lease costs :
Depreciation of leased assets
Accretion of lease liabilities
Total lease expense
2023
2022
2021
Location within Consolidated Statements of
Operations
$
26.6 $
25.9 $
28.3 Selling, general and administrative expenses
2.1
0.3
$
29.0 $
2.2
0.4
28.5 $
2.3 Depreciation and amortization
0.4 Interest expense
31.0
The following table summarizes certain cash flows information related to the Company's leases for the fiscal years
ended May 31:
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
Noncash transactions:
2023
2022
2021
$
25.9 $
31.4 $
0.3
2.3
0.4
2.3
Lease assets obtained in exchange for new lease liabilities
27.4
31.8
27.4
0.4
2.3
13.7
The following table provides the maturities of the Company's lease liabilities recorded on the Company's Consolidated
Balance Sheet for the fiscal year ended May 31, 2023:
Fiscal 2024
Fiscal 2025
Fiscal 2026
Fiscal 2027
Fiscal 2028
Thereafter
Total lease payments
Less: interest
Total lease liabilities
Operating Leases
Finance Leases
$
25.4
$
20.6
15.8
13.6
11.5
25.4
$
112.3
(17.3)
95.0
$
$
$
2.4
1.6
1.2
1.1
0.8
0.3
7.4
(0.6)
6.8
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 years ended
May 31, 2023 and May 31, 2022:
Weighted-average remaining lease term (years):
2023
2022
Operating Leases
Finance Leases
Weighted-average discount rate:
Operating Leases
Finance Leases
6.3
4.9
4.3 %
4.0 %
6.1
4.2
5.1 %
4.0 %
57
The following table summarizes Other intangibles for the fiscal years ended May 31:
Other intangibles subject to amortization - beginning balance
$
Additions
Amortization expense
Foreign currency translation
Total other intangibles subject to amortization, net of accumulated amortization
of $36.5 and $34.3, respectively
$
Total other intangibles not subject to amortization
Total other intangibles
$
2023
2022
$
6.0
4.1
(2.2)
(0.1)
7.8
$
2.1
9.9
$
8.4
—
(2.0)
(0.4)
6.0
2.1
8.1
In fiscal 2023, the Company acquired Learning Ovations, Inc., a U.S.-based education technology business, which
resulted in the recognition of $4.1 of amortizable intangible assets. These intangible assets are amortized over the
estimated useful life of 7 years. Refer to Note 10, Acquisitions, for further details regarding the acquisition.
There were no additions to intangible assets for the fiscal year ended May 31, 2022.
Amortization expense for Other intangibles totaled $2.2, $2.0 and $2.2 for the fiscal years ended May 31, 2023, 2022
and 2021, respectively.
The following table reflects the estimated amortization expense for intangibles for future fiscal years ending May 31:
2024
2025
2026
2027
2028
Thereafter
$
2.1
1.8
0.9
0.9
0.9
1.2
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, technology/know-how 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 5.1 years.
There were no impairment charges related to Intangible assets in any of the periods 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
2023
2022
2021
$
$
106.3
6.1
$
$
76.9
12.8
112.4
$
89.7
$
(45.8)
27.6
(18.2)
59
The provision (benefit) for income taxes for the fiscal years ended May 31 consisted of the following components:
Current
Federal
State and local
Non-United States
Total Current
Deferred
Federal
State and local
Non-United States
Total Deferred
Total Current and Deferred
Effective Tax Rate Reconciliation
2023
2022
2021
$
$
$
$
$
$
26.4
1.6
1.6
29.6
$
(6.6) $
3.9
(1.0)
(3.7) $
(2.1) $
0.6
$
$
3.0
1.5
6.1
2.4
(1.3)
7.2
$
2.3
(0.3)
6.0
8.0
(10.9)
(1.3)
(3.1)
(15.3)
25.9
$
8.7
$
(7.3)
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:
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
Foreign derived intangible income deduction
Various tax credits
Valuation allowances
Uncertain positions
Equity and other compensation
Return to provision adjustments
Other, net
Effective tax rates
Total provision (benefit) for income taxes
Unremitted Earnings
2023
2022
2021
21.0 %
4.6
0.0
—
0.4
(1.7)
(1.5)
—
(0.8)
2.9
(1.3)
(0.6)
23.0 %
25.9
$
21.0 %
3.1
(0.2)
—
—
—
(1.9)
0.2
(8.1)
1.2
(4.4)
(1.2)
9.7 %
8.7
$
21.0 %
(10.4)
7.0
19.3
(2.7)
—
6.5
25.7
(14.6)
(8.7)
—
(3.0)
40.1 %
(7.3)
$
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,
2023, there have been no adjustments to the income tax provision related to unremitted earnings.
60
Deferred Taxes
The significant components for deferred income taxes for the fiscal years ended May 31 were as follows:
Deferred tax assets:
Tax uniform capitalization
Prepublication expenses
Inventory reserves
Allowance for credit losses
Deferred revenue
Stock based compensation
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
Research and development costs capitalized
Other
Total deferred tax liability
Total net deferred tax assets
2023
2022
$
18.0
$
1.4
20.7
2.2
3.8
4.5
5.9
2.2
25.2
24.2
13.6
121.7
(18.1)
$
103.6
$
(45.2)
(21.8)
(12.1)
(3.5)
(82.6) $
21.0
$
$
$
$
$
9.8
0.6
21.3
4.0
2.5
8.0
8.4
2.3
35.2
22.8
15.7
130.6
(23.1)
107.5
(66.4)
(20.7)
—
(2.5)
(89.6)
17.9
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, 2023, the valuation allowance decreased by $5.0 primarily due to the disposition of the
direct sales business in Asia and the write-off of the related foreign net operating losses. For the fiscal year ended
May 31, 2022, there was no significant change to the valuation allowance as the release of a prior fiscal year foreign
net operating loss was offset by an accrual related to foreign tax credits.
The Company has tax effected federal, state and foreign net operating loss carryforwards of $0.3, $3.2 and $19.9,
respectively, for the fiscal year ended May 31, 2023. In addition, the Company has certain tax carryforwards related to
tax credits of $1.8 for the fiscal year ended May 31, 2023. Certain state net operating loss carryforwards, if not utilized,
expire at various times, primarily between fiscal year 2024 and fiscal year 2043. 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 2024 and fiscal year 2043 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
as part of the Company’s income tax expense and constitute part of Other noncurrent liabilities on the Company’s
Consolidated Balance Sheets.
61
The total amount of unrecognized tax benefits at May 31, 2023, 2022, and 2021 were $2.0, excluding $0.1 accrued for
interest and penalties, $3.1, excluding $0.3 accrued for interest and penalties, and $12.3, excluding $2.6 accrued for
interest and penalties, respectively. Of the total amount of unrecognized tax benefits at May 31, 2023, 2022, and 2021,
$2.0, $3.1 and $12.3, 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 a benefit of $0.1, a benefit of
$2.3, and an expense of $0.5 for the years ended May 31, 2023, 2022, and 2021, respectively.
The table below presents a reconciliation of the unrecognized tax benefits for the fiscal years indicated:
Gross unrecognized benefits at May 31, 2020
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, 2021
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, 2022
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
$
$
$
10.2
(0.2)
2.6
0.2
(0.2)
(0.3)
12.3
(6.8)
0.5
0.6
(3.5)
—
3.1
(1.7)
0.1
0.5
—
—
Gross unrecognized benefits at May 31, 2023
$
2.0
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. The Company was previously under
audit for the fiscal 2015 through fiscal 2020 tax years and the examination was completed in the second quarter of
fiscal 2023 with no impact to the financial results. The fiscal 2021 and fiscal 2022 tax years remain subject to audit.
Tax Legislation Updates
In response to the COVID-19 pandemic, the U.S. government enacted the Coronavirus Aid, Relief and Economic
Security Act (the “CARES Act”), which, among other things, included provisions related to the carry back of net
operating losses and the Employee Retention Credit. The Company applied these provisions as applicable. During the
first quarter of fiscal 2022, the Company received a federal tax refund of $63.1 primarily related to the carry back of net
operating losses generated in the U.S. In fiscal 2021, the Company applied for employee retention credits in the U.S.
and received all amounts as of May 31, 2023.
62
Non-income Taxes
The Company is subject to tax examinations for sales-based taxes. A number of these examinations are ongoing and,
in certain cases, have resulted in assessments from taxing authorities. The Company assesses sales tax contingencies
for each jurisdiction in which it operates, considering all relevant facts including statutes, regulations, case law and
experience. Where a sales tax liability in respect to a jurisdiction is probable and can be reliably estimated for such
jurisdiction, the Company has made accruals for these matters which are reflected in the Company’s Consolidated
Financial Statements. These amounts are included in the Consolidated Financial Statements in Selling, general and
administrative expenses. Future developments relating to the foregoing could result in adjustments being made to
these accruals. During fiscal 2023, the Company recognized a benefit of $1.8 related to a favorable settlement of
certain legacy sales tax matters.
13. CAPITAL STOCK AND STOCK-BASED AWARDS
Class A Stock and Common Stock
Capital stock consisted of the following as of May 31, 2023:
Authorized
Reserved for Issuance
Outstanding
Class A Stock
Common Stock
Preferred Stock
4,000,000
70,000,000
2,000,000
—
7,005,664
1,656,200
30,004,691
—
—
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, 2023, the Company maintained four stockholder-approved stock-based compensation plans with regard to
the Common Stock:
•
•
•
•
Scholastic Corporation 2021 Stock Incentive Plan (the 2021 Plan );
Scholastic Corporation 2011 Stock Incentive Plan (the “2011 Plan”), under which no further grants can be
made;
Scholastic Corporation 2017 Outside Directors Stock Incentive Plan (the “2017 Directors Plan”); and
Scholastic Corporation 2007 Outside Directors Stock Incentive Plan (the “2007 Directors Plan”), under which
no further grants can be made.
In September 2021, the Class A Stockholders approved the 2021 Plan which provides for the issuance of certain equity
awards, including non-qualified stock options, time-vested restricted stock units, performance-based restricted stock
units, incentive stock options and other equity awards. There are 2,500,000 shares available for issuance pursuant to
awards granted under the 2021 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
63
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. No further awards can be granted 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.
At May 31, 2023, non-qualified stock options to purchase 617,607 and 2,365,853 shares of Common Stock were
outstanding under the 2021 and 2011 Plan, respectively. During fiscal 2023, 294,486 options were granted under the
2021 Plan at a weighted average exercise price of $41.86.
At May 31, 2023, 1,621,732 shares of Common Stock were available for issuance under the 2021 Plan.
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/or 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 2022,
the Board approved the fiscal 2023 grant to each non-employee director, on the date of the 2022 annual meeting of
stockholders, of stock options and restricted stock units having a combined value, as determined by the Board, of one
hundred thousand dollars ($100,000), (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.
In September 2007, the Class A Stockholders approved the 2007 Directors Plan. From September 2007 through
September 2011, the 2007 Directors Plan provided for the automatic grant to each non-employee director, on the
date of each annual meeting of stockholders, of non-qualified stock options to purchase 3,000 shares of Common
Stock at a purchase price per share equal to the fair market value of a share of Common Stock on the date of grant
and 1,200 restricted stock units. In September 2012, the Class A Stockholders approved an amendment and
restatement of the 2007 Directors 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.
During fiscal 2023, an aggregate of 20,510 options at a weighted average exercise price of $42.40 per share and 9,905
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, 2023, non-qualified stock options to purchase 160,124 and
44,817 shares were outstanding under the 2017 Directors Plan and 2007 Directors Plan, respectively. At May 31, 2023,
147,736 shares of Common Stock were available for issuance under the 2017 Directors Plan.
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 seven to 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.
64
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
2023
2022
2021
$
8.2
$
10.5
(7.8)
$
5.1
7.8
2.3
0.1
6.6
(3.7)
Weighted average grant date fair value per option
$
11.62
$
8.04
$
3.80
Pretax stock-based compensation cost is recognized in Selling, general and administrative expenses. As of May 31,
2023, the total pretax compensation cost not yet recognized by the Company with regard to outstanding unvested
stock options was $3.4. The weighted average period over which this compensation cost is expected to be recognized
is 1.7 years.
The following table sets forth the stock option activity under the Company's equity plans for the fiscal year ended
May 31, 2023:
Outstanding at May 31, 2022
Granted
Exercised
Expired, canceled and forfeited
Outstanding at May 31, 2023
Exercisable at May 31, 2023
Weighted
Average
Exercise
Price
Average
Remaining
Contractual
Term (in years)
Aggregate
Intrinsic
Value (in
millions)
30.54
41.90
31.28
39.06
29.63
31.16
4.6 $
4.2 $
41.3
19.7
Options
4,257,925 $
314,996
(689,711)
(694,809)
3,188,401
1,717,085
$
$
Restricted Stock Units – In addition to stock options, the Company has issued restricted stock units to certain officers
and senior management under the 2021 Plan and 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 three
or four equal annual installments beginning with the first anniversary of the date of grant. During fiscal 2023, there
were 41,177 and 99,237 shares of Common Stock issued upon the vesting of restricted stock units under the 2021 Plan
and 2011 Plan, respectively. 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
2023
2022
2021
139,111
178,461
137,106
Weighted average grant date price per unit
$
41.99
$
34.45
$
21.24
As of May 31, 2023, the total pretax compensation cost not yet recognized by the Company with regard to unvested
restricted stock units was $4.6. The weighted average period over which this compensation cost is expected to be
recognized is 1.5 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
65
expense over the vesting term on a straight-line basis, or sooner if the employee effectively vests upon termination of
employment under certain circumstances.
The following table sets forth the MSPP RSUs activity for the fiscal years ended May 31:
MSPP RSUs allocated
Purchase price per unit
2023
2022
2021
37,865
33,761
$
25.51
$
24.67
$
5,665
16.88
At May 31, 2023, there were 242,672 shares of Common Stock remaining authorized for issuance under the MSPP.
As of May 31, 2023, the total pretax compensation cost not yet recognized by the Company with regard to unvested
MSPP RSUs was $0.2. The weighted average period over which this compensation cost is expected to be recognized is
2.2 years.
The following table sets forth the restricted stock unit and MSPP RSUs activity for the year ended May 31, 2023:
Nonvested as of May 31, 2022
Granted
Vested
Forfeited
Nonvested as of May 31, 2023
Restricted
stock units and
MSPP RSUs
Weighted
Average grant
date fair value
317,593
$
176,976
(153,543)
(8,440)
332,586
$
30.17
37.00
31.59
33.18
33.08
The total fair value of shares vested during the fiscal years ended May 31, 2023, 2022 and 2021 was $4.9, $2.8 and
$3.2, 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
2023
2022
2021
80,897
59,322
67,097
$ 29.07
$ 32.52
$ 22.19
At May 31, 2023, there were 148,923 shares of Common Stock remaining authorized for issuance under the ESPP.
66
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
March 2020
December 2022
March 2023
Total current Board authorizations
Less repurchases made under the authorizations as of May 31, 2023
Remaining Board authorization at May 31, 2023
Amount
50.0
48.8
50.0
148.8
(127.2)
21.6
$
$
$
Remaining Board authorization at May 31, 2023 represents the amount remaining under the current $50.0 Board
authorization for Common share repurchases announced on March 22, 2023, which is available for further
repurchases, from time to time as conditions allow, on the open market or through negotiated private transactions.
See Note 22, Subsequent Events , for additional Board authorization for Common share repurchases.
Pursuant to a Board authorization on October 19, 2022, the Company commenced a modified Dutch auction tender
offer on October 25, 2022, which expired on November 22, 2022. Pursuant to this offer, the Company purchased
533,793 of its Common shares at a price of $40.00 per share for a total cost of $23.3, including related fees and
expenses. The Common shares purchased represented approximately 1.6% of the Common shares outstanding as of
November 21, 2022. The Company funded the purchase of the shares in the tender offer using cash on hand.
During the twelve months ended May 31, 2023, there were $135.1 repurchases of the Company's Common Stock,
which included the shares repurchased through the modified Dutch auction tender offer and excise tax on share
repurchases of $0.6. 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.
Postretirement Benefits
The Company provides postretirement benefits to eligible retired United States-based employees (the “US
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 fiscal 2021, the Company made a change in benefits for certain US postretirement benefit plan participants.
Beginning January 1, 2021, the plan established Health Reimbursement Accounts (HRAs) to provide these participants
with additional flexibility to choose healthcare options based on individual needs. As a result of this change, the
Company remeasured its US Postretirement Benefits obligation as of November 30, 2020, and recognized a reduction
of $7.6 to its benefit obligation and a reduction to its accumulated comprehensive loss of $7.6 in fiscal 2021. The
related prior service credit is being amortized as a Component of net periodic benefit (cost) over the average
remaining life expectancy of plan participants of approximately 12.0 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 US 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 2023, 2022 and 2021, the Company recognized a
67
The following table sets forth the net periodic benefit (cost) for the UK Pension Plan and US Postretirement Benefits
for the fiscal years ended May 31:
Components of net (benefit) cost:
Interest cost
Expected return on assets
Amortization of prior service (credit) loss
Amortization of net actuarial (gain) loss
UK Pension Plan
US Postretirement Benefits
2023
2022
2021
2023
2022
2021
1.0
(1.3)
0.0
0.5
0.8
(1.2)
0.0
0.9
0.7
(0.9)
0.0
0.6
0.3
—
(0.8)
—
0.2
—
(0.8)
—
0.3
—
(0.6)
—
Net periodic (benefit) cost
$
0.2 $
0.5 $
0.4 $
(0.5) $
(0.6) $
(0.3)
Actuarial gains and losses are amortized using a corridor approach. The gain or loss corridor is equal to 10% of the
greater of the projected benefit obligation and the market-related value of assets. Gains and losses in excess of the
corridor are amortized over the future working lifetime.
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 Plan by asset category at
May 31:
Equity securities
Cash and cash equivalents
Liability-driven instruments
Real estate
Other
UK Pension Plan
2023
2022
29.6 %
5.1 %
41.7 %
6.8 %
16.8 %
56.1 %
1.1 %
23.2 %
5.7 %
13.9 %
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
Real estate
Other
Total
UK Pension Plan
30 %
5 %
42 %
7 %
16 %
100 %
The fair values of the Company’s Pension Plan assets are measured using Level 1, Level 2 and Level 3 fair value
measurements.
70
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, 2023
UK Pension Plan
Level 1
Level 2
Level 3
Total
Cash and cash equivalents
$
1.0
$
—
$
—
$
Equity securities:
U.S. (1)
International (2)
Pooled, Common and Collective Funds (3) (4)
Annuities
Real estate (5)
1.1
4.7
—
—
1.3
—
—
8.2
—
—
—
—
—
3.3
—
1.0
1.1
4.7
8.2
3.3
1.3
Total
$
8.1
$
8.2
$
3.3
$
19.6
Cash and cash equivalents
$
0.3
$
—
$
—
$
0.3
Assets at Fair Value as of May 31, 2022
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)
2.4
14.7
—
—
1.7
—
—
7.1
—
—
—
—
—
4.2
—
$
19.1
$
7.1
$
4.2
$
2.4
14.7
7.1
4.2
1.7
30.4
Total
(1)
(2)
(3)
(4)
(5)
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 $3.3 and $4.2 at May 31,
2023 and May 31, 2022, respectively.
71
The following table summarizes the changes in fair value of these Level 3 assets for the fiscal years ended May 31,
2023 and 2022:
Balance at May 31, 2021
Actual Return on Plan Assets:
Relating to assets still held at May 31, 2021
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, 2022
Actual Return on Plan Assets:
Relating to assets still held at May 31, 2022
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, 2023
Contributions
$
6.0
(1.2)
—
—
—
(0.6)
4.2
(0.9)
—
—
—
(0.0)
3.3
$
$
In fiscal 2024, the Company expects to make contributions of $1.2 to the UK Pension Plan.
Estimated future benefit payments
The following table sets forth the expected future benefit payments under the UK Pension Plan and the US
Postretirement Benefits by fiscal year:
UK Pension
Plan
US Postretirement Benefits
Pension
benefits
Benefit
payments
Medicare
subsidy
receipts
$
2024
2025
2026
2027
2028
2029 - 2033
$
1.2
1.5
1.4
1.4
1.4
7.6
$
1.1
1.0
0.9
0.9
0.8
3.1
0.0
0.0
0.0
0.0
0.0
0.1
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
Defined contribution plans
2023
2022
6.0 %
5.0 %
2028
5.8 %
5.0 %
2026
The Company also provides defined contribution plans for certain eligible employees. In the United States, the
Company sponsors a 401(k) retirement plan and has contributed $8.1, $7.2 and $6.0 for fiscal years 2023, 2022 and
2021, respectively.
72
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:
Amortization of prior service
(credit) loss
Amortization of net actuarial
loss (gain)
Tax (benefit) expense
Amounts reclassified from
Accumulated other
comprehensive income (loss)
2023
2022
2021
UK
Pension
Plan
US
Postretirement
Benefits
UK
Pension
Plan
US
Postretirement
Benefits
UK
Pension
Plan
US
Postretirement
Benefits
$
0.0 $
(0.8) $
0.0 $
(0.8) $
0.0 $
(0.6)
0.5
—
—
0.2
0.9
—
—
0.2
0.6
—
—
0.1
$
0.5 $
(0.6) $
0.9 $
(0.6) $
0.6 $
(0.5)
The amounts reclassified out of Accumulated other comprehensive income (loss) were recognized in Other
components of net periodic benefit (cost) for all periods presented.
The following tables summarize the activity in Accumulated other comprehensive income (loss), net of tax, by
component for the periods indicated:
Foreign
currency
translation
adjustments
UK Pension
Plan
US
Postretirement
Benefits
Total
Balance at May 31, 2021 (1)
Other comprehensive income (loss) before
reclassifications
Less: amount reclassified from Accumulated other
comprehensive income (loss) (net of taxes)
Amortization of net actuarial loss
Amortization of prior service (credit) cost
Other comprehensive income (loss)
Balance at May 31, 2022 (1)
Other comprehensive income (loss) before
reclassifications
Less: amount reclassified from Accumulated other
comprehensive income (loss) (net of taxes)
Amortization of net actuarial loss
Amortization of prior service (credit) cost
Other comprehensive income (loss)
Balance at May 31, 2023 (1)
$
$
$
$
$
$
(30.1) $
(10.4) $
5.8
$
(34.7)
(14.5) $
2.1
$
1.4
$
(11.0)
$
—
—
(14.5)
0.9
0.0
3.0
(44.6) $
(7.4) $
$
—
$
(0.6)
0.8
6.6
$
(5.4) $
(5.5) $
0.6
$
(10.3)
0.9
(0.6)
(10.7)
(45.4)
0.5
(0.6)
(10.4)
(55.8)
—
$
0.5
$
—
$
—
(5.4)
0.0
(5.0)
(0.6)
0.0
$
(50.0) $
(12.4) $
6.6
$
(1) Accumulated other comprehensive income (loss) related to the UK Pension Plan and US Postretirement Benefits are reported net of taxes
of $2.2, $2.2 and $2.0 at May 31, 2023, 2022, and 2021, respectively.
73
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:
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)
2023
2022
2021
$
86.3
$
80.6
$
(11.0)
33.8
0.9
34.7
34.5
1.1
35.6
34.3
—
34.3
Earnings (loss) per share of Class A Stock and Common Stock
Basic earnings (loss) per share
Diluted earnings (loss) per share
$
$
2.56
2.49
$
$
2.33
2.27
$
$
(0.32)
(0.32)
Anti-dilutive shares pursuant to stock-based compensation plans
0.6
1.6
2.0
*The Company experienced a net loss for the fiscal year ended May 31, 2021 and therefore did not report any dilutive share impact.
The Company measures diluted earnings per share using the Treasury Stock method.
The following table sets forth Options outstanding pursuant to stock-based compensation plans for the fiscal years
ended May 31:
Options outstanding pursuant to stock-based compensation plans (in millions)
2023
3.2
2022
4.3
As of May 31, 2023, $21.6 remains available for future purchases of common shares under the current repurchase
authorization of the Board of Directors.
See Note 14, “Treasury Stock,” and Note 22, Subsequent Events, 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:
2023
2022
Accrued payroll, payroll taxes and benefits
$
29.2
$
Accrued bonus and commissions
Accrued other taxes
Returns liability
Accrued advertising and promotions
Other accrued expenses
Total accrued expenses
31.2
24.8
34.9
7.3
41.5
32.2
44.2
26.8
42.2
10.3
37.6
$
168.9
$
193.3
74
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
2023
2022
$
$
3.0
2.3
(5.0)
$
0.3
$
3.7
8.1
(8.8)
3.0
The Company implemented cost reduction programs in fiscal 2022, recognizing severance and related charges of
$6.2.
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 recognizes the unrealized gain or loss in other current assets or other
current liabilities. The notional values of the contracts as of May 31, 2023 and 2022 were $22.8 and $24.3, respectively.
Net unrealized gains of $0.5 and $0.1 were recognized at May 31, 2023 and May 31, 2022, 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.
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 and long term debt. The fair value of the Company's debt approximates the carrying value for all periods
presented. 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.
Long-lived assets
Non-financial assets and liabilities for which the Company employs fair value measures on a non-recurring basis
include:
•
• Operating lease right-of-use (ROU) assets
•
•
•
Investments
Assets acquired in a business combination
Impairment assessment of goodwill and intangible assets
75
•
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 11, “Goodwill and Other
Intangibles. 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. See Note 7, Investments , for a more complete description of the fair value measurements employed.
During fiscal 2022, operating lease ROU assets were recorded at fair value in connection with an impairment and fair
value was determined using the discounted cash flow method. See Note 4, Asset Write Down , for a more complete
description of the impairment recognized in the year ended May 31, 2022. See Note 10, Acquisitions , for a more
complete description of the assets acquired in a business combination in the year ended May 31, 2023.
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, 2023
Level 1
Level 2
Level 3
May 31, 2023
Additions due
to acquisitions
Goodwill
Intangible assets
$
7.6
3.6
S —
$ —
$
—
—
$
7.6
4.1
$
—
—
7.6
4.1
Net carrying
value as of
Fair value measured and
recognized using
Impairment
losses
for fiscal year
ended
May 31, 2022
$
Level 1
$ —
Level 2
$ —
Level 3
$
May 31, 2022
$
Accounts Receivable (1)
Inventory (1)
Other Assets (1)
Operating lease right-of-use
—
assets, net
(1) These assets are related to the direct sales business in Asia. Refer to Note 4, Asset Write Down , for a more complete description.
1.6
0.7
—
—
—
—
—
—
—
0.4
9.3
2.3
2.3
1.4
1.4
—
—
—
—
—
Additions due
to acquisitions
—
$
Net carrying
value as of
Fair value measured and
recognized using
Impairment
losses
for fiscal year
ended
May 31, 2021
Level 1
Level 2
Level 3
May 31, 2021
Additions due
to acquisitions
Operating lease right-of-use
assets, net
Property, plant and
equipment, net
$
8.1 $ —
$ —
$
9.1 $
9.6 $
—
—
—
—
1.5
—
—
21. RELATED PARTY TRANSACTIONS
On January 12, 2022, the Company entered into a share repurchase agreement to purchase shares of its common
stock from the Estate of M. Richard Robinson, Jr. in a privately negotiated transaction. Pursuant to the repurchase
agreement, the Company purchased 300,000 shares of common stock on January 19, 2022 at a price of $40.65 per
share, representing an aggregate purchase price of $12.2. The price per share paid represented a 4.2% discount to the
closing price of the stock, $42.43, on the date of execution of the repurchase agreement. The repurchase was made
pursuant to the Company’s current share repurchase program as previously approved by the Board. The
aforementioned transaction was approved by the Board upon the recommendation of the Audit Committee.
22. SUBSEQUENT EVENTS
On June 1, 2023, the Company acquired the remaining shares of Make Believe Ideas Limited for £1.6, increasing the
Company's total ownership to 100%.
76
On July 19, 2023, the Board of Directors declared a quarterly cash dividend of $0.20 per share on the Company's Class
A and Common Stock for the first quarter of fiscal 2024. The dividend is payable on September 15, 2023 to
shareholders of record as of the close of business on August 31, 2023.
On July 19, 2023, the Board also authorized an increase of $100.0 for Common share repurchases under the
Company's share buy-back program, resulting in a current Board authorization of $119.2, which includes $21.6
remaining from the previous Board authorization less share repurchases of $2.4 subsequent to May 31, 2023.
77
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, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), changes in
stockholders’ equity and cash flows for each of the three fiscal years in the period ended May 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for
each of the three fiscal years in the period ended May 31, 2023, 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, 2023, 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 21, 2023 expressed an unqualified opinion
thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
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.
78
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 based 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 21, 2023
79
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, 2023, 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, 2023, 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, 2023 and 2022, the related
consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity and cash flows
for each of the three fiscal years in the period ended May 31, 2023, and the related notes and financial statement
schedule listed in the Index at Item 15(c) and our report dated July 21 2023 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 21, 2023
80
Supplementary Financial Information
2023
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)
2022
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:
Summary of Quarterly Results of Operations
(Unaudited, amounts in millions except per share data)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal Year
Ended May 31,
$
262.9
$
587.9
$
324.9
$
528.3
$
1,704.0
144.5
(45.4)
(45.5)
260.4
75.4
75.3
161.1
(19.3)
(19.2)
220.4
75.8
75.7
786.4
86.5
86.3
$
$
$
(1.33) $
(1.33) $
2.17
2.12
$
$
(0.57) $
(0.57) $
2.33
2.26
$
$
2.56
2.49
259.8
$
524.2
$
344.5
$
514.4
$
1,642.9
133.3
(24.4)
(24.2)
238.0
68.4
68.3
169.6
(15.1)
(15.3)
224.6
52.1
52.1
765.5
81.0
80.9
2.33
2.27
Basic (1)
Diluted (1)
$
$
(0.70) $
(0.70) $
1.97
1.91
$
$
(0.44) $
(0.44) $
1.51
1.46
$
$
(1) The sum of the quarters may not equal the full year basic and diluted earnings per share since each quarter is calculated separately.
81
Item 9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A | Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Chief Executive Officer and Chief Financial Officer of the Corporation, after conducting an evaluation, together
with other members of the Company’s management, of the effectiveness of the design and operation of the
Corporation’s disclosure controls and procedures as of May 31, 2023, 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 the 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, 2023.
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, 2023, 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,
2023 that materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over
financial reporting.
Item 9B | Other Information
None.
Item 9C | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
82
Item 10 | Directors, Executive Officers and Corporate Governance
Part III
Information required by this item is incorporated herein by reference from the Corporation’s definitive proxy
statement for the Annual Meeting of Stockholders to be held September 20, 2023 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 20, 2023 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 20, 2023 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 20, 2023 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 20, 2023 to be filed pursuant to Regulation 14A under the Exchange Act.
83
Item 15 | Exhibits, Financial Statement Schedules
(a)(1)
Financial Statements:
Part IV
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, 2023, 2022 and 2021;
Consolidated Statements of Comprehensive Income (Loss) for the years ended May 31, 2023, 2022
and 2021;
Consolidated Balance Sheets at May 31, 2023 and 2022;
Consolidated Statement of Changes in Stockholders’ Equity for the years ended May 31, 2023, 2022
and 2021;
Consolidated Statements of Cash Flows for the years ended May 31, 2023, 2022 and 2021; 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.
84
10.1
10.2
10.3
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
Amended and Restated Credit Agreement dated as of October 27, 2021 (the “Credit Agreement”) among
Scholastic Corporation and Scholastic Inc., as Borrowers, the lenders from time to time party thereto,
Wells Fargo Bank, National Association and Truist Bank as Co-Syndication Agents, Fifth Third Bank,
National Association, HSBC Bank USA, National Association, and Citibank, N.A. as Co-Agents and Bank of
America, N.A., as Administrative Agent (incorporated by reference to the Corporation's Quarterly Report
on Form 10-Q as filed with the SEC on March 24, 2023, SEC File No. 000-19860 (the February 28, 2023
10-Q ).
First Amendment, dated as of February 28, 2023, to the Amended and Restated Credit Agreement dated as
of October 27, 2021 (the “Credit Agreement”) by and between Scholastic Corporation and Scholastic Inc.,
the lenders from time to time party thereto, and Bank of America, N.A., as administrative agent
(incorporated by reference to the Corporation's Quarterly Report on Form 10-Q as filed with the SEC on
March 24, 2023, SEC File No. 000-19860 (the February 28, 2023 10-Q ).
Second Amendment, dated as of February 28,2023, to the Amended and Restated Credit Agreement
dated as of October 27, 2021 (the “Credit Agreement”) by and between Scholastic Corporation and
Scholastic Inc., the lenders from time to time party thereto, and Bank of America, N.A., as
administrative agent (incorporated by reference to the February 28, 2023 10-Q).
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 under the 2007 Directors' Plan, effective
July 18, 2012 (incorporated by reference to the November 30, 2012 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).
85
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*
Offer of employment letter, effective November 18, 2019, between Scholastic Inc. 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).
Offer of employment letter, effective September 14, 2020, between Scholastic Inc. and Rosamund M.
Else-Mitchell (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with
the SEC on September 24, 2021, SEC file No. 000-19860)(the August 31,2021 10-Q”).
10.17*
Scholastic Corporation 2021 Stock Incentive Plan (incorporated by reference to the August 31, 2022 10-
Q).
10.18*
Form of Stock Option Agreement under the Scholastic Corporation 2021 Stock Incentive Plan
(incorporated by reference to the November 30, 2021 10-Q).
10.19*
Form of Restricted Stock Unit Agreement under the Scholastic Corporation 2021 Stock Incentive Plan
(incorporated by reference to the November 30, 2021 10-Q).
10.20*
Amended and Restated Employment Agreement between Scholastic Corporation and Peter Warwick,
effective August 1, 2021 (incorporated by reference to the August 31, 2022 10-Q).
10.21*
Stock Option Agreement between Scholastic Corporation and Peter Warwick, dated August 1, 2021
(incorporated by reference to the November 30, 2021 10-Q).
10.22*
Restricted Stock Unit Agreement between Scholastic Corporation and Peter Warwick, dated August 1,
2021 (incorporated by reference to the November 30, 2021 10-Q).
10.23*
Performance Stock Unit Agreement between Scholastic Corporation and Peter Warwick, dated August 1,
2021 (incorporated by reference to the November 30, 2021 10-Q).
10.24*
Share Repurchase Agreement between Scholastic Corporation and the Preliminary co-Executors of the
Estate of M. Richard Robinson, Jr., effective January 12, 2022, (incorporated by reference to the
Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on March 18, 2022, SEC file No.
000-19860)(“the February 28, 2022 10-Q”).
10.25*
Supplemental Incentive Bonus Plan Agreement between Scholastic Corporation and Rosamund M. Else-
Mitchell, effective February 8, 2022, (incorporated by reference to the February 28, 2022 10-Q).
10.26*
Performance Stock Unit Agreement between Scholastic Corporation and Peter Warwick, dated July 19,
2022, (incorporated by reference to the August 31, 2022 10-Q).
21
23
Subsidiaries of the Corporation, as of May 31, 2023.
Consent of Ernst & Young LLP.
86
31.1
31.2
32
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.”
Item 16 | Summary
None.
87
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: July 21, 2023
SCHOLASTIC CORPORATION
By: /s/ Peter Warwick
President and Chief Executive Officer
88
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
Peter Warwick 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/ Peter Warwick
Peter Warwick
President and Chief Executive Officer and Director
(principal executive officer)
/s/ Kenneth J. Cleary
Kenneth J. Cleary
Chief Financial Officer
(principal financial officer)
/s/ Paul Hukkanen
Paul Hukkanen
/s/ Andrés Alonso
Andrés Alonso
/s/ James W. Barge
James W. Barge
/s/ John L. Davies
John L. Davies
/s/ Robert L. Dumont
Robert L. Dumont
/s/ Linda Li
Linda Li
/s/ Iole Lucchese
Iole Lucchese
/s/ Verdell Walker
Verdell Walker
/s/ David J. Young
David J. Young
Senior Vice President and Chief Accounting Officer
(principal accounting officer)
Director
Director
Director
Director
Director
Director
Director
Director
89
Date
July 21, 2023
July 21, 2023
July 21, 2023
July 21, 2023
July 21, 2023
July 21, 2023
July 21, 2023
July 21, 2023
July 21, 2023
July 21, 2023
July 21, 2023
Scholastic Corporation
Financial Statement Schedule
ANNUAL REPORT ON FORM 10-K
YEAR ENDED May 31, 2023
ITEM 15(c)
S-1
Schedule II
Valuation and Qualifying Accounts and Reserves
2023
Allowance for credit losses
Returns liability
Reserves for obsolescence
Reserve for royalty advances
2022
Allowance for credit losses
Returns liability
Reserves for obsolescence
Reserve for royalty advances
2021
Allowance for credit losses
Returns liability
Reserves for obsolescence
Reserve for royalty advances
(Amounts in millions)
Years ended May 31,
Balance at
Beginning of
Year
Expensed
Write-Offs
and Other
Balance at
End of Year
$
$
$
25.9
42.2
106.6
76.0
21.4
45.2
99.6
115.5
19.9
43.5
91.1
109.5
$
3.3
$
60.2
26.5
4.2
$
15.2
$
58.8
27.7
4.1
$
5.2
$
66.0
36.6
5.4
$
$
$
12.5
67.5 (1)
32.2
1.1
10.7
61.8 (1)
20.7
43.6 (2)
3.7
64.3 (1)
28.1
(0.6)
16.7
34.9
100.9
79.1
25.9
42.2
106.6
76.0
21.4
45.2
99.6
115.5
(1) Represents actual returns charged to the reserve.
(2) Primarily represents write-offs for fully reserved advances.
S-2