UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended February 29, 2020 Commission File No. 000-19860

SCHOLASTIC CORPORATION

(Exact name of Registrant as specified in its charter)

Delaware		13-3385513
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
557 Broadway,
New York,	New York	10012
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (212) 343-6100

Title of Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	SCHL	The NASDAQ Stock Market LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date:

Title of each class	Number of shares outstanding as of February 29, 2020
Common Stock, $.01 par value	32,614,515
Class A Stock, $.01 par value	1,656,200

1

SCHOLASTIC CORPORATION

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED FEBRUARY 29, 2020

INDEX

Part I - Financial Information		Page
Item 1.	Financial Statements
	Condensed Consolidated Statements of Operations (Unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	4
	Condensed Consolidated Balance Sheets (Unaudited)	5
	Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37
Item 4.	Controls and Procedures	38
Part II - Other Information
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 6.	Exhibits	41
Signatures		43

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

(Dollar amounts in millions, except per share data)

 

	Three months ended		Nine months ended
	February 29,	February 28,	February 29,	February 28,
	2020	2019	2020	2019
Revenues	$373.3	$360.1	$1,203.1	$1,183.2
Operating costs and expenses:
Cost of goods sold	183.0	176.9	584.4	564.6
Selling, general and administrative expenses	194.9	190.9	574.8	584.3
Depreciation and amortization	15.4	13.7	46.2	41.3
Asset impairments and write downs	40.0	—	40.0	—
Total operating costs and expenses	433.3	381.5	1,245.4	1,190.2
Operating income (loss)	(60.0)	(21.4)	(42.3)	(7.0)
Interest income (expense), net	0.3	1.0	1.0	2.3
Other components of net periodic benefit (cost)	(0.4)	(0.4)	(1.0)	(1.1)
Earnings (loss) before income taxes	(60.1)	(20.8)	(42.3)	(5.8)
Provision (benefit) for income taxes	(16.8)	(8.2)	(11.6)	(3.5)
Net income (loss)	(43.3)	(12.6)	(30.7)	(2.3)
Less: Net income attributable to noncontrolling interest	0.0	—	0.1	—
Net income (loss) attributable to Scholastic Corporation	$(43.3)	$(12.6)	$(30.8)	$(2.3)
Basic and diluted earnings (loss) per Share of Class A and Common Stock
Basic	$(1.25)	$(0.36)	$(0.89)	$(0.07)
Diluted	$(1.25)	$(0.36)	$(0.89)	$(0.07)

See accompanying notes

3

SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - UNAUDITED

(Dollar amounts in millions)

 

	Three months ended		Nine months ended
	February 29,	February 28,	February 29,	February 28,
	2020	2019	2020	2019
Net income (loss)	$(43.3)	$(12.6)	$(30.7)	$(2.3)
Other comprehensive income (loss), net:
Foreign currency translation adjustments	(2.3)	1.7	(0.4)	(2.0)
Pension and postretirement adjustments (net of tax)	0.3	0.2	0.7	3.1
Total other comprehensive income (loss), net	$(2.0)	$1.9	$0.3	$1.1
Comprehensive income (loss)	$(45.3)	$(10.7)	$(30.4)	$(1.2)
Less: Net income attributable to noncontrolling interest	0.0	—	0.1	—
Comprehensive income (loss) attributable to Scholastic Corporation	$(45.3)	$(10.7)	$(30.5)	$(1.2)

 See accompanying notes

4

SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(Dollar amounts in millions, except per share data)

	February 29, 2020 (unaudited)	May 31, 2019 (audited)	February 28, 2019 (unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$263.8	$334.1	$338.1
Accounts receivable, net	281.2	250.1	317.3
Inventories, net	307.7	323.7	356.8
Prepaid expenses and other current assets	88.5	52.7	84.8
Total current assets	941.2	960.6	1,097.0
Noncurrent Assets:
Property, plant and equipment, net	579.1	577.7	574.9
Prepublication costs, net	70.8	70.2	65.3
Operating lease right-of-use assets, net	71.7	—	—
Royalty advances, net	51.1	47.5	52.3
Goodwill	125.3	125.2	119.1
Noncurrent deferred income taxes	37.1	37.0	43.6
Other assets and deferred charges	72.1	60.3	70.9
Total noncurrent assets	1,007.2	917.9	926.1
Total assets	$1,948.4	$1,878.5	$2,023.1
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Lines of credit and current portion of long-term debt	$9.7	$7.3	$11.0
Accounts payable	187.9	195.3	215.3
Accrued royalties	77.3	41.9	76.8
Deferred revenue	158.1	130.8	154.7
Other accrued expenses	170.9	164.8	236.2
Accrued income taxes	3.7	1.4	2.1
Operating lease liabilities	22.7	—	—
Total current liabilities	630.3	541.5	696.1
Noncurrent Liabilities:
Long-term debt	6.4	—	—
Operating lease liabilities	52.0	—	—
Other noncurrent liabilities	60.4	64.2	57.9
Total noncurrent liabilities	118.8	64.2	57.9
Commitments and Contingencies (see Note 6)	—	—	—
Stockholders’ Equity:
Preferred Stock, $1.00 par value: Authorized, 2.0 shares; Issued and Outstanding, none	—	—	—
Class A Stock, $0.01 par value: Authorized, 4.0 shares; Issued and Outstanding, 1.7 shares	0.0	0.0	0.0
Common Stock, $0.01 par value: Authorized, 70.0 shares; Issued, 42.9 shares; Outstanding, 32.6, 33.4 and 33.6 shares, respectively	0.4	0.4	0.4
Additional paid-in capital	621.9	620.8	619.4
Accumulated other comprehensive income (loss)	(59.4)	(59.7)	(54.6)
Retained earnings	966.2	1,012.6	1,000.5
Treasury stock, at cost: 10.3, 9.5 and 9.3 shares, respectively	(331.2)	(302.6)	(296.6)
Total stockholders’ equity of Scholastic Corporation	1,197.9	1,271.5	1,269.1
Noncontrolling interest	1.4	1.3	—
Total stockholders’ equity	1,199.3	1,272.8	1,269.1
Total liabilities and stockholders’ equity	$1,948.4	$1,878.5	$2,023.1

See accompanying notes

5

SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - UNAUDITED
(Dollar amounts in millions, except per share data)

	Class A Stock		Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Treasury Stock At Cost			Total Stockholders' Equity of Scholastic Corporation			Noncontrolling interest	Total Stockholders' Equity
	Shares	Amount	Shares		Amount
Balance at June 1, 2018	1.7	$0.0	33.3		$0.4		$614.4			$(55.7)		$1,065.2			$(303.5)			$1,320.8		$0.0	$1,320.8
Net Income (loss)	—	—	—		—		—			—		(61.3	)		—			(61.3	)	—	(61.3	)
Adoption of ASC 606 ( net of tax of $16.0)	—	—	—		—		—			—		(46.5	)		—			(46.5	)	—	(46.5	)
Foreign currency translation adjustment	—	—	—		—		—			(3.1	)	—			—			(3.1	)	—	(3.1	)
Pension and post-retirement adjustments (net of tax of $0.0)	—	—	—		—		—			0.2		—			—			0.2		—	0.2
Stock-based compensation	—	—	—		—		1.5			—		—			—			1.5		—	1.5
Proceeds pursuant to stock-based compensation plans	—	—	—		—		2.8			—		—			—			2.8		—	2.8
Treasury stock issued pursuant to equity-based plans	—	—	0.1		—		(3.2	)		—		—			3.5			0.3		—	0.3
Dividends ($0.15 per share)	—	—	—		—		—			—		(5.3	)		—			(5.3	)	—	(5.3	)
Balance at August 31, 2018	1.7	$0.0	33.4		$0.4		$615.5			$(58.6)		$952.1			$(300.0)			$1,209.4		$0.0	$1,209.4
Net Income (loss)	—	—	—		—		—			—		71.6			—			71.6		—	71.6
Foreign currency translation adjustment	—	—	—		—		—			(0.6	)	—			—			(0.6	)	—	(0.6	)
Pension and post-retirement adjustments (net of tax of $0.8)	—	—	—		—		—			2.7		—			—			2.7		—	2.7
Stock-based compensation	—	—	—		—		3.7			—		—			—			3.7		—	3.7
Proceeds pursuant to stock-based compensation plans	—	—	—		—		2.5			—		—			—			2.5		—	2.5
Purchases of treasury stock at cost	—	—	—		—		—			—		—			—			—		—	—
Treasury stock issued pursuant to equity-based plans	—	—	0.2		—		(3.8	)		—		—			4.4			0.6		—	0.6
Dividends ($0.15 per share)	—	—	—		—		—			—		(5.3	)		—			(5.3	)	—	(5.3	)
Balance at November 30, 2018	1.7	$0.0	33.6		$0.4		$617.9			$(56.5)		$1,018.4			$(295.6)			$1,284.6		$0.0	$1,284.6
Net Income (loss)	—	—	—		—		—			—		(12.6	)		—			(12.6	)	—	(12.6	)
Foreign currency translation adjustment	—	—	—		—		—			1.7		—			—			1.7		—	1.7
Pension and post-retirement adjustments (net of tax of $0.0)	—	—	—		—		—			0.2		—			—			0.2		—	0.2
Stock-based compensation	—	—	—		—		1.6			—		—			—			1.6		—	1.6
Proceeds pursuant to stock-based compensation plans	—	—	—		—		0.5			—		—			—			0.5		—	0.5
Purchases of treasury stock at cost	—	—	(0.1	)	—		—			—		—			(2.0	)		(2.0	)	—	(2.0	)
Treasury stock issued pursuant to equity-based plans	—	—	0.1		—		(0.6	)		—		—			1.0			0.4		—	0.4
Dividends ($0.15 per share)	—	—	—		—		—			—		(5.3	)		—			(5.3	)	—	(5.3	)
Balance at February 28, 2019	1.7	$0.0	33.6		$0.4		$619.4			$(54.6)		$1,000.5			$(296.6)			$1,269.1		$0.0	$1,269.1

See accompanying notes

6

SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - UNAUDITED
(Dollar amounts in millions, except per share data)

	Class A Stock		Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Treasury Stock At Cost			Total Stockholders' Equity of Scholastic Corporation			Noncontrolling interest		Total Stockholders' Equity
	Shares	Amount	Shares		Amount
Balance at June 1, 2019	1.7	$0.0	33.4		$0.4		$620.8			$(59.7)		$1,012.6			$(302.6)			$1,271.5		$1.3		$1,272.8
Net Income (loss)	—	—	—		—		—			—		(58.5	)		—			(58.5	)	—		(58.5	)
Foreign currency translation adjustment	—	—	—		—		—			(2.0	)	—			—			(2.0	)	—		(2.0	)
Pension and post-retirement adjustments (net of tax of $0.0)	—	—	—		—		—			0.2		—			—			0.2		—		0.2
Stock-based compensation	—	—	—		—		1.5			—		—			—			1.5		—		1.5
Purchases of treasury stock at cost	—	—	(0.3	)	—		—			—		—			(12.6	)		(12.6	)	—		(12.6	)
Treasury stock issued pursuant to equity-based plans	—	—	0.0		—		(0.1	)		—		—			0.6			0.5		—		0.5
Dividends ($0.15 per share)	—	—	—		—		—			—		(5.2	)		—			(5.2	)	—		(5.2	)
Noncontrolling interest in Make Believe Ideas	—	—	—		—		—			—		—			—			—		(0.0	)	—
Balance at August 31, 2019	1.7	$0.0	33.1		$0.4		$622.2			$(61.5)		$948.9			$(314.6)			$1,195.4		$1.3		$1,196.7
Net Income (loss)	—	—	—		—		—			—		71.0			—			71.0		—		71.0
Foreign currency translation adjustment	—	—	—		—		—			3.9		—			—			3.9		—		3.9
Pension and post-retirement adjustments (net of tax of $0.0)	—	—	—		—		—			0.2		—			—			0.2		—		0.2
Stock-based compensation	—	—	—		—		0.9			—		—			—			0.9		—		0.9
Proceeds pursuant to stock-based compensation plans	—	—	—		—		0.3			—		—			—			0.3		—		0.3
Purchases of treasury stock at cost	—	—	(0.1	)	—		—			—		—			(7.1	)		(7.1	)	—		(7.1	)
Treasury stock issued pursuant to equity-based plans	—	—	—		—		(2.1	)		—		—			2.7			0.6		—		0.6
Dividends ($0.15 per share)	—	—	—		—		—			—		(5.2	)		—			(5.2	)	—		(5.2	)
Noncontrolling interest in Make Believe Ideas	—	—	—		—		—			—		—			—			—		0.0		—
Balance at November 30, 2019	1.7	$0.0	33.0		$0.4		$621.3			$(57.4)		$1,014.7			$(319.0)			$1,260.0		$1.3		$1,261.3
Net Income (loss)	—	—	—				—			—		(43.3	)		—			(43.3	)	—		(43.3	)
Foreign currency translation adjustment	—	—	—		—		—			(2.3	)	—			—			(2.3	)	—		(2.3	)
Pension and post-retirement adjustments (net of tax of $0.0)	—	—	—		—		—			0.3		—			—			0.3		—		0.3
Stock-based compensation	—	—	—		—		0.7			—		—			—			0.7		—		0.7
Proceeds pursuant to stock-based compensation plans	—	—	—		—		0.4			—		—			—			0.4		—		0.4
Purchases of treasury stock at cost	—	—	(0.4	)	—		—			—		—			(13.0	)		(13.0	)	—		(13.0	)
Treasury stock issued pursuant to equity-based plans	—	—	0.0		—		(0.5	)		—		—			0.8			0.3		—		0.3
Dividends ($0.15 per share)	—	—	—		—		—			—		(5.2	)		—			(5.2	)	—		(5.2	)
Noncontrolling interest in Make Believe Ideas	—	—	—		—		—			—		—			—			—		0.1		0.1
Balance at February 29, 2020	1.7	$0.0	32.6		$0.4		$621.9			$(59.4)		$966.2			$(331.2)			$1,197.9		$1.4		$1,199.3

See accompanying notes

7

SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
(Dollar amounts in millions)

 

	Nine months ended
	February 29,	February 28,
	2020	2019
Cash flows - operating activities:
Net income (loss) attributable to Scholastic Corporation	$(30.8)	$(2.3)
Adjustments to reconcile Net income (loss) to net cash provided by (used in) operating activities:
Provision for losses on accounts receivable	7.3	5.7
Provision for losses on inventory	13.7	12.2
Provision for losses on royalty advances	3.8	3.0
Amortization of prepublication and production costs	19.7	16.6
Depreciation and amortization	48.1	43.7
Amortization of pension and postretirement actuarial gains and losses	0.7	0.5
Deferred income taxes	(0.2)	(2.6)
Stock-based compensation	3.1	6.8
Income from equity investments	(3.6)	(5.7)
Non cash write off related to asset impairments and write downs	40.0	—
Changes in assets and liabilities, net of amounts acquired:
Accounts receivable	(38.9)	(87.9)
Inventories	(36.2)	(77.9)
Prepaid expenses and other current assets	(35.9)	(24.5)
Royalty advances	(9.1)	(10.7)
Accounts payable	(0.1)	29.4
Accrued income taxes	2.3	0.2
Accrued royalties	35.6	42.5
Deferred revenue	27.5	43.9
Other assets and liabilities	(