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1. Basis of Presentation
Principles of consolidation
The accompanying condensed consolidated financial statements include the accounts of Scholastic Corporation (the “Corporation”) and all wholly-owned and majority-owned subsidiaries (collectively, “Scholastic” or the “Company”). Intercompany transactions are eliminated in consolidation. These financial statements have not been audited but reflect those adjustments consisting of normal recurring items that management considers necessary for a fair presentation of financial position, results of operations and cash flows. These financial statements should be read in conjunction with the consolidated financial statements and related notes in the Annual Report on Form 10-K for the fiscal year ended May 31, 2011 (the “Annual Report”).
The Company’s fiscal year is not a calendar year. Accordingly, references in this document to fiscal 2011 relate to the twelve-month period ended May 31, 2011.
Change in Reportable Segments
During the quarter ended August 31, 2011, the Company determined that its reportable segment structure is now comprised of five reportable segments:
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• |
Children’s Book Publishing and Distribution |
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|
• |
Educational Technology and Services |
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• |
Classroom and Supplemental Materials Publishing |
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|
• |
Media, Licensing and Advertising |
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|
• |
International |
Accordingly, the Company has presented segment data in prior periods consistent with this change in reportable segments.
Discontinued Operations
The Company closed or sold several operations during fiscal 2009, fiscal 2010 and the first quarter of fiscal 2012, and presently holds for sale one facility. During the first quarter of fiscal 2012, the Company ceased operations in its direct-to-home catalog business specializing in toys. This business was a separate reporting unit included in the Media, Licensing and Advertising segment and is now classified as a discontinued operation in the Company’s financial statements. See Note 3, “Discontinued Operations,” for additional information concerning discontinued operations.
Seasonality
The Company’s school-based book clubs, school-based book fairs and most of its magazines operate on a school-year basis; therefore, the Company’s business is highly seasonal. As a result, the Company’s revenues in the first and third quarters of the fiscal year generally are lower than its revenues in the other two fiscal quarters. In the current fiscal quarter, revenues in the Children’s Book Publishing and Distribution segment were higher than normal due to improved sales in the trade channels. Typically, school-based book club and book fair revenues are greatest in the second and fourth quarters of the fiscal year, while revenues from the sale of instructional materials and educational technology products and services are highest in the first and fourth quarters. The Company typically experiences losses from operations in the first and third quarters of each fiscal year.
Use of estimates
The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and with the instructions to Form 10-Q and Regulation S-X. The preparation of these financial statements involves the use of estimates and assumptions by management, which affects the amounts reported in the condensed consolidated financial statements and accompanying notes. The Company bases its estimates on historical experience, current business factors, and various other assumptions believed to be reasonable under the circumstances, all of which are necessary in order to form a basis for determining the carrying values of assets and liabilities. Actual results may differ from those estimates and assumptions. On an on-going basis, the Company evaluates the adequacy of its reserves and the estimates used in calculations, including; but not limited to:
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• |
Accounts receivable, returns and allowances |
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• |
Pension and other post-retirement obligations |
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• |
Uncertain tax positions |
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• |
Inventory reserves |
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• |
Gross profits for book fair operations during interim periods |
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• |
Sales taxes |
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• |
Royalty advance reserves |
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• |
Customer reward programs |
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• |
Impairment testing for goodwill, intangibles and other long-lived assets |
Restricted Cash
The condensed consolidated balance sheets include restricted cash of $1.6, $0.5 and $1.1 at February 29, 2012, May 31, 2011 and February 28, 2011, respectively, which is reported in “Other current assets.”
New Accounting Pronouncements
In May 2011, the FASB issued an update to the authoritative guidance related to fair value measurements. The amendments will add new disclosures, with a particular focus on Level 3 measurements. The objective of these amendments is to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and International Financial Reporting Standards (“IFRS”). The disclosure amendments in this update are to be applied prospectively and are effective during interim and annual periods beginning after December 15, 2011.
In June 2011, the FASB issued an update related to the reporting of other comprehensive income. The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments also require the presentation on the face of the financial statements of reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statements where the components of net income and the components of other comprehensive income are presented. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. In December 2011, the FASB issued an update that effectively deferred the requirements related to the presentation of reclassification adjustments out of accumulated other comprehensive income. The amendments will be temporary to allow the FASB time to re-deliberate the presentation requirements for reclassifications out of accumulated other comprehensive income for annual and interim financial statements for public, private and non-profit entities.
In September 2011, the FASB issued an update to the authoritative guidance related to goodwill impairment testing. The updated guidance gives companies the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The guidance provides companies with a revised list of examples of events and circumstances to consider, in their totality, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If a company concludes that this is the case, it must perform the two-step test. Otherwise, a company can skip the two-step test. Companies are not required to perform the qualitative assessment and are permitted to skip the qualitative assessment for any reporting unit in any period and proceed directly to Step 1 of the test. A company that validates its conclusion by measuring fair value can resume performing the qualitative assessment in any subsequent period. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, and the Company expects to adopt the update for its annual impairment test in the fourth quarter of the current fiscal year.
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2. Acquisitions
On January 3, 2012, the Company acquired Learners Publishing, a Singapore-based publisher of supplemental learning materials for English-Language Learners, for $2.8, net of cash acquired. As a result of this transaction, the Company recorded $1.3 of goodwill. The Company has not completed its purchase accounting for this transaction. The results of operations of this business subsequent to the acquisition date are included in the International segment.
On February 8, 2012, the Company acquired the business and certain assets of Weekly Reader, a publisher of weekly educational classroom magazines designed for children in grades Pre-K–12, for $2.0 in cash and $4.5 in assumed liabilities. As a result of this transaction, the Company recorded $6.5 of goodwill. The Company has not completed its purchase accounting for this transaction and expects to recognize intangible assets, such as customer lists and trade names, acquired in the transaction. The results of operations of this business subsequent to the acquisition date are included in the Classroom and Supplemental Materials Publishing segment, and certain assets will benefit the Children’s Book Publishing and Distribution segment.
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3. Discontinued Operations
The Company continuously evaluates its portfolio of businesses for both impairment and economic viability. The Company monitors the expected cash proceeds to be realized from the disposition of discontinued operations’ assets, and adjusts asset values accordingly. In the first quarter of fiscal 2012, the Company ceased operations in its direct-to-home catalog business specializing in toys. This business was a separate reporting unit included in the Media, Licensing and Advertising segment. The current fiscal year loss before income taxes includes lease costs associated with a vacant facility which formerly served the Company’s direct-to-home toy catalog business.
The following table summarizes the operating results of the discontinued operations for the periods indicated:
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Three months ended |
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Nine months ended |
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February 29, |
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February 28, |
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February 29, |
|
February 28, |
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Revenues |
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$ |
0.0 |
|
$ |
9.3 |
|
$ |
0.1 |
|
$ |
17.7 |
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|
Non-cash impairment |
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|
— |
|
|
— |
|
|
(0.9 |
) |
|
(3.4 |
) |
|
Earnings (loss) before income taxes |
|
|
(0.6 |
) |
|
(1.7 |
) |
|
(4.0 |
) |
|
(6.0 |
) |
|
Income tax benefit (expense) |
|
|
0.2 |
|
|
0.6 |
|
|
1.1 |
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Earnings (loss) from discontinued operations, net of tax |
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$ |
(0.4 |
) |
$ |
(1.1 |
) |
$ |
(2.9 |
) |
$ |
(4.6 |
) |
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The following table sets forth the assets and liabilities of the discontinued operations included in the condensed consolidated balance sheets of the Company as of the dates indicated:
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February 29, 2012 |
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May 31, 2011 |
|
February 28, 2011 |
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Accounts receivable, net |
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$ |
0.0 |
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$ |
0.1 |
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$ |
0.0 |
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Inventories, net |
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|
0.0 |
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|
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|
1.2 |
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|
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|
1.3 |
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Other assets |
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|
9.3 |
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|
9.2 |
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|
9.5 |
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Current assets of discontinued operations |
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$ |
9.3 |
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|
$ |
10.5 |
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|
$ |
10.8 |
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Accounts payable |
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$ |
0.0 |
|
|
|
$ |
0.2 |
|
|
|
$ |
0.4 |
|
|
|
Accrued expenses and other current liabilities |
|
|
|
1.2 |
|
|
|
|
0.6 |
|
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities of discontinued operations |
|
|
$ |
1.2 |
|
|
|
$ |
0.8 |
|
|
|
$ |
1.0 |
|
|
|
|
|
|
|
|
|
|
|
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|
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4. Segment Information
The Company categorizes its businesses into five reportable segments: Children’s Book Publishing and Distribution; Educational Technology and Services; Classroom and Supplemental Materials Publishing; Media, Licensing and Advertising; and International. This classification reflects the nature of products and services consistent with the method by which the Company’s chief operating decision-maker assesses operating performance and allocates resources.
Children’s Book Publishing and Distribution operates as an integrated business which includes the publication and distribution of children’s books, media and interactive products in the United States through school-based book clubs and book fairs and the trade channel. This segment is comprised of three operating segments.
Educational Technology and Services includes the production and distribution to schools of curriculum-based learning technology and materials for grades pre-kindergarten to 12 in the United States, together with related implementation and assessment services and school consulting services. This segment is comprised of one operating segment.
Classroom and Supplemental Materials Publishing includes the publication and distribution to schools and libraries of children’s books, classroom magazines, supplemental classroom materials and print and on-line reference and non-fiction products for grades pre-kindergarten to 12 in the United States. This segment is comprised of two operating segments.
Media, Licensing and Advertising includes the production and/or distribution of media, consumer promotions and merchandising and advertising revenue, including sponsorship programs. This segment is comprised of two operating segments.
International includes the publication and distribution of products and services outside the United States by the Company’s international operations, and its export and foreign rights businesses. This segment is comprised of two operating segments.
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|
|
|
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|
|
|
Children’s |
|
Educational |
|
Classroom and |
|
Media, |
|
Overhead(1)(4) |
|
Total |
|
International(1) |
|
Total |
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||||||||
|
Three months ended |
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|
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|
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|
|
|
|
|
|
|
|
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|
|
|
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|
|
Revenues |
|
$ |
266.0 |
|
$ |
40.0 |
|
$ |
38.2 |
|
$ |
17.2 |
|
$ |
— |
|
$ |
361.4 |
|
$ |
105.6 |
|
$ |
467.0 |
|
|
Bad debt expense |
|
|
1.6 |
|
|
0.3 |
|
|
0.4 |
|
|
— |
|
|
— |
|
|
2.3 |
|
|
0.8 |
|
|
3.1 |
|
|
Depreciation and amortization(6) |
|
|
4.4 |
|
|
0.2 |
|
|
0.3 |
|
|
— |
|
|
9.1 |
|
|
14.0 |
|
|
2.0 |
|
|
16.0 |
|
|
Amortization(7) |
|
|
2.8 |
|
|
5.3 |
|
|
1.8 |
|
|
1.5 |
|
|
— |
|
|
11.4 |
|
|
0.6 |
|
|
12.0 |
|
|
Loss on leases and asset impairments |
|
|
0.5 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
0.5 |
|
|
0.3 |
|
|
0.8 |
|
|
Segment operating income (loss) |
|
|
11.8 |
|
|
(5.9 |
) |
|
(3.4 |
) |
|
(0.8 |
) |
|
(17.9 |
) |
|
(16.2 |
) |
|
4.3 |
|
|
(11.9 |
) |
|
Expenditures for long-lived assets including royalty advances |
|
|
11.7 |
|
|
6.7 |
|
|
4.9 |
|
|
1.3 |
|
|
9.4 |
|
|
34.0 |
|
|
5.1 |
|
|
39.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
193.0 |
|
$ |
38.2 |
|
$ |
43.1 |
|
$ |
14.9 |
|
$ |
— |
|
$ |
289.2 |
|
$ |
95.1 |
|
$ |
384.3 |
|
|
Bad debt expense |
|
|
4.7 |
|
|
— |
|
|
1.0 |
|
|
0.1 |
|
|
— |
|
|
5.8 |
|
|
0.9 |
|
|
6.7 |
|
|
Depreciation and amortization(6) |
|
|
4.1 |
|
|
0.4 |
|
|
0.2 |
|
|
— |
|
|
8.3 |
|
|
13.0 |
|
|
1.5 |
|
|
14.5 |
|
|
Amortization(7) |
|
|
3.2 |
|
|
3.9 |
|
|
1.3 |
|
|
1.8 |
|
|
— |
|
|
10.2 |
|
|
0.6 |
|
|
10.8 |
|
|
Loss on leases and asset impairments |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Segment operating income (loss) |
|
|
(9.2 |
) |
|
(4.2 |
) |
|
1.5 |
|
|
(3.6 |
) |
|
(13.1 |
) |
|
(28.6 |
) |
|
(1.4 |
) |
|
(30.0 |
) |
|
Expenditures for long-lived assets including royalty advances |
|
|
8.6 |
|
|
6.8 |
|
|
2.4 |
|
|
1.6 |
|
|
5.7 |
|
|
25.1 |
|
|
1.6 |
|
|
26.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Children’s |
|
Educational |
|
Classroom and |
|
Media, |
|
Overhead(1)(4) |
|
Total |
|
International(1) |
|
Total |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
||||||||
|
Nine months ended |
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
731.9 |
|
$ |
202.0 |
|
$ |
142.6 |
|
$ |
56.4 |
|
$ |
— |
|
$ |
1,132.9 |
|
$ |
337.4 |
|
$ |
1,470.3 |
|
|
Bad debt expense |
|
|
3.2 |
|
|
1.0 |
|
|
1.3 |
|
|
— |
|
|
— |
|
|
5.5 |
|
|
2.3 |
|
|
7.8 |
|
|
Depreciation and amortization(6) |
|
|
11.9 |
|
|
0.9 |
|
|
0.8 |
|
|
0.4 |
|
|
27.7 |
|
|
41.7 |
|
|
4.9 |
|
|
46.6 |
|
|
Amortization(7) |
|
|
9.0 |
|
|
15.6 |
|
|
4.9 |
|
|
5.1 |
|
|
— |
|
|
34.6 |
|
|
1.8 |
|
|
36.4 |
|
|
Loss on leases and asset impairments |
|
|
0.5 |
|
|
— |
|
|
— |
|
|
— |
|
|
6.2 |
|
|
6.7 |
|
|
0.3 |
|
|
7.0 |
|
|
Segment operating income (loss) |
|
|
70.6 |
|
|
47.5 |
|
|
9.0 |
|
|
(3.2 |
) |
|
(59.8 |
) |
|
64.1 |
|
|
30.8 |
|
|
94.9 |
|
|
Segment assets (at 2/29/12) |
|
|
597.1 |
|
|
156.6 |
|
|
153.3 |
|
|
38.2 |
|
|
397.4 |
|
|
1,342.6 |
|
|
294.3 |
|
|
1,636.9 |
|
|
Goodwill (at 2/29/12) |
|
|
54.3 |
|
|
22.7 |
|
|
70.5 |
|
|
5.4 |
|
|
— |
|
|
152.9 |
|
|
10.0 |
|
|
162.9 |
|
|
Expenditures for long-lived assets including royalty advances |
|
|
32.8 |
|
|
18.0 |
|
|
9.3 |
|
|
5.3 |
|
|
22.0 |
|
|
87.4 |
|
|
9.0 |
|
|
96.4 |
|
|
Long-lived assets (at 2/29/12) |
|
|
173.7 |
|
|
98.5 |
|
|
88.3 |
|
|
19.7 |
|
|
242.8 |
|
|
623.0 |
|
|
67.6 |
|
|
690.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
653.2 |
|
$ |
169.4 |
|
$ |
132.1 |
|
$ |
65.0 |
|
$ |
— |
|
$ |
1,019.7 |
|
$ |
322.9 |
|
$ |
1,342.6 |
|
|
Bad debt expense |
|
|
9.0 |
|
|
0.5 |
|
|
0.5 |
|
|
0.2 |
|
|
— |
|
|
10.2 |
|
|
2.4 |
|
|
12.6 |
|
|
Depreciation and amortization(6) |
|
|
11.6 |
|
|
1.2 |
|
|
0.8 |
|
|
0.5 |
|
|
25.2 |
|
|
39.3 |
|
|
4.1 |
|
|
43.4 |
|
|
Amortization(7) |
|
|
9.5 |
|
|
15.2 |
|
|
3.5 |
|
|
5.1 |
|
|
— |
|
|
33.3 |
|
|
2.0 |
|
|
35.3 |
|
|
Loss on leases and asset impairments |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Segment operating income (loss) |
|
|
36.5 |
|
|
29.4 |
|
|
7.4 |
|
|
(0.6 |
) |
|
(41.6 |
) |
|
31.1 |
|
|
21.7 |
|
|
52.8 |
|
|
Segment assets (at 2/28/11) |
|
|
483.6 |
|
|
147.3 |
|
|
150.5 |
|
|
40.4 |
|
|
433.5 |
|
|
1,255.3 |
|
|
288.1 |
|
|
1,543.4 |
|
|
Goodwill (at 2/28/11) |
|
|
54.3 |
|
|
22.5 |
|
|
67.4 |
|
|
5.4 |
|
|
— |
|
|
149.6 |
|
|
8.7 |
|
|
158.3 |
|
|
Expenditures for long-lived assets including royalty advances |
|
|
29.5 |
|
|
26.8 |
|
|
4.9 |
|
|
5.8 |
|
|
42.6 |
|
|
109.6 |
|
|
8.7 |
|
|
118.3 |
|
|
Long-lived assets (at 2/28/11) |
|
|
177.9 |
|
|
97.7 |
|
|
81.2 |
|
|
19.5 |
|
|
247.2 |
|
|
623.5 |
|
|
74.4 |
|
|
697.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
As discussed under “Discontinued Operations” in Note 1, “Basis of Presentation,” the Company closed or sold several operations during fiscal 2009, fiscal 2010 and the first quarter of fiscal 2012 and presently holds for sale one facility. All of these businesses are classified as discontinued operations in the Company’s financial statements and, as such, are not reflected in this table. |
|
|
|
|
(2) |
Includes assets and results of operations acquired in a business acquisition as of September 9, 2010. |
|
|
|
|
(3) |
Includes assets and results of operations acquired in a business acquisition as of February 8, 2012. |
|
|
|
|
(4) |
Overhead includes all domestic corporate amounts not allocated to segments, including expenses and costs related to the management of corporate assets. Unallocated assets are principally comprised of deferred income taxes and property, plant and equipment related to the Company’s headquarters in the metropolitan New York area, its fulfillment and distribution facilities located in Missouri and its facility located in Connecticut. Overhead also includes amounts previously allocated to the Media, Licensing and Advertising segment for the Company’s direct-to-home toy catalog business that was discontinued in the first quarter of fiscal 2012. |
|
|
|
|
(5) |
Includes assets and results of operations acquired in a business acquisition as of January 3, 2012. |
|
|
|
|
(6) |
Includes depreciation of property, plant and equipment and amortization of intangible assets. |
|
|
|
|
(7) |
Includes amortization of prepublication and production costs. |
|
|||
5. Debt
The following table summarizes debt as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
February 29, 2012 |
|
May 31, 2011 |
|
February 28, 2011 |
|
||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Lines of Credit (weighted average interest rates of 4.7%, 6.7% and 4.0%, respectively) |
|
$ |
12.6 |
|
$ |
12.6 |
|
$ |
0.7 |
|
$ |
0.7 |
|
$ |
6.7 |
|
$ |
6.7 |
|
|
Loan Agreement: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Loan |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Term Loan (interest rates of n/a, 1.0% and 1.1%, respectively) |
|
|
— |
|
|
— |
|
|
50.2 |
|
|
50.2 |
|
|
60.9 |
|
|
60.9 |
|
|
5% Notes due 2013, net of discount |
|
|
152.7 |
|
|
158.5 |
|
|
152.5 |
|
|
156.6 |
|
|
152.5 |
|
|
155.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
165.3 |
|
$ |
171.1 |
|
$ |
203.4 |
|
$ |
207.5 |
|
$ |
220.1 |
|
$ |
222.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less lines of credit, short-term debt and current portion of long-term debt |
|
|
(12.6 |
) |
|
(12.6 |
) |
|
(43.5 |
) |
|
(43.5 |
) |
|
(49.5 |
) |
|
(49.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
152.7 |
|
$ |
158.5 |
|
$ |
159.9 |
|
$ |
164.0 |
|
$ |
170.6 |
|
$ |
173.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt’s carrying value approximates fair value. Fair value of the Loan Agreement approximates its carrying value due to its variable interest rate and consistent credit rating. Fair values of the Notes were estimated based on market quotes, where available, or dealer quotes.
The following table sets forth the maturities of the Company’s debt obligations as of February 29, 2012, for the twelve-month periods ending February 28,
|
|
|
|
|
|
|
2013 |
|
$ |
12.6 |
|
|
2014 |
|
|
152.7 |
|
|
|
|
|
|
|
|
Total debt |
|
$ |
165.3 |
|
|
|
|
|
|
|
Lines of Credit
As of February 29, 2012, the Company’s domestic credit lines available under unsecured money market bid rate credit lines totaled $20.0. There were no outstanding borrowings under these credit lines at February 29, 2012, May 31, 2011 and February 28, 2011. 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 February 29, 2012, the Company had various local currency credit lines, with maximum available borrowings in amounts equivalent to $33.9, underwritten by banks primarily in the United States, Canada, Australia and the United Kingdom. These credit lines are typically available for overdraft borrowings or loans up to 364 days and may be renewed, if requested by the Company, at the sole option of the lender. Borrowings and weighted average interest rates for these lines of credit are presented in the table above.
Loan Agreement
On June 1, 2007, Scholastic Corporation and Scholastic Inc. (each, a “Borrower” and together, the “Borrowers”) entered into a $525.0 credit facility with certain banks (the “Loan Agreement”), consisting of a $325.0 revolving credit component (the “Revolving Loan”) and a $200.0 amortizing term loan component (the “Term Loan”). The Loan Agreement was amended on August 16, 2010, and again on October 25, 2011. The October 25, 2011 amendment effectively extended the maturity of the Revolving Loan facility to June 1, 2014 from June 1, 2012 and provided for the repayment of the outstanding balance of the Term Loan on October 25, 2011.
The Loan Agreement, as amended, is a contractually committed unsecured credit facility that is scheduled to expire on June 1, 2014. The $325.0 Revolving Loan allows the Company to borrow, repay or prepay and reborrow at any time prior to the stated maturity date, and the proceeds may be used for general corporate purposes, including financing for acquisitions and share repurchases. The Loan Agreement also provides for an increase in the aggregate Revolving Loan commitments of the lenders of up to an additional $150.0.
Interest on the Revolving Loan is due and payable in arrears on the last day of the interest period (defined as the period commencing on the date of the advance and ending on the last day of the period selected by the Borrower at the time each advance is made). The interest pricing under the Revolving Loan is dependent upon the Borrower’s election of a rate that is either:
|
|
|
|
|
|
• |
A Base Rate equal to the higher of (i) the prime rate, (ii) the prevailing Federal Funds rate plus 0.500% or (iii) the Eurodollar Rate for a one month interest period plus 1% plus an applicable spread ranging from 0.18% to 0.60%, as determined by the Company’s prevailing consolidated debt to total capital ratio. |
|
|
|
|
|
|
|
- or - |
|
|
|
|
|
|
• |
A Eurodollar Rate equal to the London interbank offered rate (LIBOR) plus an applicable spread ranging from 1.18% to 1.60%, as determined by the Company’s prevailing consolidated debt to total capital ratio. |
As of February 29, 2012, the indicated spread on Base Rate Advances was 0.25% and the indicated spread on Eurodollar Rate Advances was 1.25%, both based on the Company’s prevailing consolidated debt to total capital ratio. There were no Revolving Loan Advances outstanding on February 29, 2012.
The Loan Agreement also provides for the payment of a facility fee ranging from 0.20% to 0.40% per annum based upon the Company’s prevailing consolidated debt to total capital ratio. At February 29, 2012, the facility fee rate was 0.25%.
As of February 29, 2012, standby letters of credit outstanding under the Loan Agreement totaled $1.4. The Loan Agreement contains certain covenants, including interest coverage and leverage ratio tests and certain limitations on the amount of dividends and other distributions, and at February 29, 2012, the Company was in compliance with these covenants.
5% Notes due 2013
In April 2003, Scholastic Corporation issued $175.0 of 5% Notes (the “5% Notes”). The 5% Notes are senior unsecured obligations that mature on April 15, 2013. Interest on the 5% Notes is payable semi-annually on April 15 and October 15 of each year through maturity. The Company may at any time redeem all or a portion of the 5% Notes at a redemption price (plus accrued interest to the date of the redemption) equal to the greater of (i) 100% of the principal amount, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest discounted to the date of redemption.
|
|||
6. Commitments and Contingencies
Various claims and lawsuits arising in the normal course of business are pending against the Company. The Company accrues a liability for such matters when it is probable that a liability has occurred and the amount of such liability can be reasonably estimated. When only a range can be estimated, the most probable amount in the range is accrued unless no amount within the range is a better estimate than any other amount, in which case the minimum amount in the range is accrued. Legal costs associated with litigation loss contingencies are expensed in the period in which they are incurred. The Company does not 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.
|
|||
7. Comprehensive Income (Loss)
The following table sets forth comprehensive income (loss) for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
||||||||
|
|
|
February 29, 2012 |
|
February 28, 2011 |
|
February 29, 2012 |
|
February 28, 2011 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income (loss) |
|
$ |
(10.3 |
) |
$ |
(25.1 |
) |
$ |
45.4 |
|
$ |
14.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
3.7 |
|
|
4.3 |
|
|
(2.2 |
) |
|
12.5 |
|
|
Pension and post-retirement adjustments |
|
|
0.9 |
|
|
0.7 |
|
|
3.7 |
|
|
5.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss), net: |
|
|
4.6 |
|
|
5.0 |
|
|
1.5 |
|
|
17.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
$ |
(5.7 |
) |
$ |
(20.1 |
) |
$ |
46.9 |
|
$ |
32.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
9. Goodwill and Other Intangibles
Goodwill and other intangible assets with indefinite lives are reviewed annually for impairment or more frequently if impairment indicators arise.
The following table summarizes the activity in Goodwill for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
Twelve months ended |
|
Nine months ended |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Gross beginning balance |
|
$ |
175.0 |
|
$ |
174.0 |
|
$ |
174.0 |
|
|
Accumulated impairment |
|
|
(20.8 |
) |
|
(17.4 |
) |
|
(17.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
154.2 |
|
$ |
156.6 |
|
$ |
156.6 |
|
|
Additions |
|
|
7.8 |
|
|
1.0 |
|
|
1.7 |
|
|
Impairment charge |
|
|
— |
|
|
(3.4 |
) |
|
— |
|
|
Foreign currency translation |
|
|
0.0 |
|
|
0.0 |
|
|
0.0 |
|
|
Other |
|
|
0.9 |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross ending balance |
|
$ |
183.7 |
|
$ |
175.0 |
|
$ |
175.7 |
|
|
Accumulated impairment |
|
|
(20.8 |
) |
|
(20.8 |
) |
|
(17.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
162.9 |
|
$ |
154.2 |
|
$ |
158.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
On January 3, 2012, the Company acquired Learners Publishing, a Singapore-based publisher of supplemental learning materials for English-Language Learners, for $2.8, net of cash acquired. The Company utilized Level 3 fair value measurement inputs, using its own assumptions, including internally-developed discounted cash flow forecasts, to preliminarily determine the fair value of the assets acquired and the amount of goodwill to be allocated to the Learners Publishing business. As a result of this transaction, the Company recorded $1.3 of goodwill. The Company has not completed its purchase accounting for this transaction. The results of operations of this business subsequent to the acquisition date are included in the International segment.
On February 8, 2012, the Company acquired the business and certain assets of Weekly Reader, a publisher of weekly educational classroom magazines designed for children in grades Pre-K–12, for $2.0 in cash and $4.5 in assumed liabilities as of February 29, 2012. As a result of this transaction, the Company recorded $6.5 of goodwill. The Company has not completed its purchase accounting for this transaction and expects to recognize intangible assets, such as customer lists and trade names, acquired in the transaction. The results of operations of this business subsequent to the acquisition date are included in the Classroom and Supplemental Materials Publishing segment, and certain assets will benefit the Children’s Book Publishing and Distribution segment.
On September 9, 2010, the Company purchased the assets of Math Solutions, an education resources and professional development company focusing on K-12 math instruction, for $8.0, net of cash. The Company has integrated this business with its existing educational technology businesses. The Company utilized Level 3 fair value measurement inputs, using its own assumptions, including internally-developed discounted cash flow forecasts, to determine the fair value of the assets acquired and the amount of goodwill to be allocated to the Math Solutions business. As a result, the Company recognized $1.7 of goodwill and $5.6 of amortizable intangible assets. In the second quarter of fiscal 2011, the Company also recognized $0.2 of goodwill associated with a previously acquired international entity.
As of May 31, 2011, the Company determined the carrying value of its Scholastic Library Publishing and Classroom Magazines business within the Classroom and Supplemental Materials Publishing segment exceeded the fair value of this reporting unit. The Company employed internally-developed discounted cash flow forecasts and market comparisons to determine the fair value of the reporting unit and the implied fair value of the reporting unit’s assets and liabilities. Accordingly, the Company recognized an impairment charge of $3.4 at May 31, 2011.
The following table summarizes the activity in Total other intangibles subject to amortization for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
Twelve months ended |
|
Nine months ended |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Beginning balance - customer lists |
|
$ |
0.7 |
|
$ |
0.8 |
|
$ |
0.8 |
|
|
Amortization expense |
|
|
(0.2 |
) |
|
(0.2 |
) |
|
(0.2 |
) |
|
Foreign currency translation |
|
|
0.0 |
|
|
0.1 |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer lists, net of accumulated amortization of $1.3, $1.1 and $1.1, respectively |
|
$ |
0.5 |
|
$ |
0.7 |
|
$ |
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance - other intangibles |
|
$ |
17.3 |
|
$ |
2.2 |
|
$ |
2.2 |
|
|
Additions due to acquisition |
|
|
— |
|
|
5.6 |
|
|
5.6 |
|
|
Reclassified from indefinite-lived intangible assets |
|
|
— |
|
|
10.7 |
|
|
10.7 |
|
|
Impairment charge |
|
|
(0.5 |
) |
|
— |
|
|
— |
|
|
Amortization expense |
|
|
(1.1 |
) |
|
(1.2 |
) |
|
(0.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangibles, net of accumulated amortization of $5.3, $4.2 and $3.8, respectively |
|
$ |
15.7 |
|
$ |
17.3 |
|
$ |
17.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other intangibles subject to amortization |
|
$ |
16.2 |
|
$ |
18.0 |
|
$ |
18.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for Total other intangibles was $1.3 for the nine months ended February 29, 2012, $1.4 for the twelve months ended May 31, 2011 and $1.0 for the nine months ended February 28, 2011. Intangible assets with definite lives consist principally of customer lists, covenants not to compete and publishing and trademark rights. Intangible assets with definite lives are amortized over their estimated useful lives. The weighted-average remaining useful lives of all amortizable intangible assets is 16 years.
In fiscal 2011, the Company recognized $5.6 of amortizable intangible assets as a result of the Math Solutions acquisition. The Company utilized Level 3 fair value measurement inputs, using its own assumptions, including internally-developed discounted cash flow forecasts and market comparisons, to determine the fair value of the intangible assets acquired.
In the three-month period ended November 30, 2010, the Company determined that certain intangible assets associated with publishing and trademark rights, which were previously accounted for as indefinite-lived assets, were no longer indefinite-lived. Accordingly, the Company assessed these assets for impairment as of September 1, 2010, and subsequently commenced amortization of the assets. The Company determined that the fair value of the assets exceeded their carrying value as of September 1, 2010, and therefore no impairment was recognized. The Company employed Level 3 fair value measurement techniques to determine the fair value of these assets as of September 1, 2010.
The following table summarizes Other intangibles not subject to amortization at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2012 |
|
May 31, 2011 |
|
February 28, 2011 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying value by major class: |
|
|
|
|
|
|
|
|
|
|
|
Trademarks and Other |
|
$ |
0.4 |
|
$ |
1.8 |
|
$ |
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
0.4 |
|
$ |
1.8 |
|
$ |
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
10. Investments
Included in “Other assets and deferred charges” on the Company’s condensed consolidated balance sheets were investments of $21.0, $20.4 and $23.2 at February 29, 2012, May 31, 2011 and February 28, 2011, respectively.
The Company owns a non-controlling interest in a book distribution business located in the United Kingdom. In fiscal 2011, the Company determined that these assets were other than temporarily impaired. The Company employed Level 3 fair value measures, including discounted cash flow projections, and recognized an impairment loss of $3.6. The carrying value of these assets was $5.7 as of February 29, 2012.
The Company maintains an investment in an entity that produces and distributes educational children’s television programming. The Company’s investment, which consists of a 14.0% equity interest, is accounted for using the equity method of accounting. The carrying value of this investment at February 29, 2012 was $1.3.
The Company’s 26.2% non-controlling interest in a children’s book publishing business located in the UK is accounted for using the equity method of accounting. The net value of this investment at February 29, 2012 was $14.0.
Income from equity joint ventures totaled $1.9 for the nine months ended February 29, 2012 and $1.2 for the nine months ended February 28, 2011.
The following table summarizes the
Company’s investments as of the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2012 |
|
May 31, 2011 |
|
February 28, 2011 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost method investments: |
|
|
|
|
|
|
|
|
|
|
|
UK - based |
|
$ |
5.7 |
|
$ |
5.7 |
|
$ |
9.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost method investments |
|
$ |
5.7 |
|
$ |
5.7 |
|
$ |
9.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity method investments: |
|
|
|
|
|
|
|
|
|
|
|
UK - based |
|
$ |
14.0 |
|
$ |
13.4 |
|
$ |
13.4 |
|
|
U.S. - based |
|
|
1.3 |
|
|
1.3 |
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity method investments |
|
$ |
15.3 |
|
$ |
14.7 |
|
$ |
14.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
21.0 |
|
$ |
20.4 |
|
$ |
23.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
11. Employee Benefit Plans
The following table sets forth components of the net periodic benefit costs for the periods indicated under the Company’s cash balance retirement plan for its United States employees meeting certain eligibility requirements (the “U.S. Pension Plan”), the defined benefit pension plan of Scholastic Ltd., an indirect subsidiary of Scholastic Corporation located in the United Kingdom (the “UK Pension Plan”), and the defined benefit pension plan of Grolier Limited, an indirect subsidiary of Scholastic Corporation located in Canada (the “Canadian Pension Plan” and together with the U.S. Pension Plan and the UK Pension Plan, the “Pension Plans”). Also included are the post-retirement benefits, consisting of certain healthcare and life insurance benefits, provided by the Company to its eligible retired United States-based employees (the “Post-Retirement Benefits”). The Pension Plans and Post-Retirement Benefits include participants associated with both continuing operations and discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans |
|
Post-Retirement Benefits |
|
||||||||
|
|
|
February 29, 2012 |
|
February 28, 2011 |
|
February 29, 2012 |
|
February 28, 2011 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Components of net periodic benefit costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
— |
|
$ |
0.1 |
|
$ |
0.0 |
|
$ |
0.0 |
|
|
Interest cost |
|
|
2.1 |
|
|
2.2 |
|
|
0.4 |
|
|
0.5 |
|
|
Expected return on assets |
|
|
(2.7 |
) |
|
(2.3 |
) |
|
— |
|
|
— |
|
|
Net amortization of prior service credit |
|
|
— |
|
|
— |
|
|
(0.2 |
) |
|
(0.2 |
) |
|
Amortization of loss |
|
|
0.3 |
|
|
0.3 |
|
|
0.9 |
|
|
0.7 |
|
|
Settlement of Canadian plan |
|
|
— |
|
|
0.2 |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit (credit) costs |
|
$ |
(0.3 |
) |
$ |
0.5 |
|
$ |
1.1 |
|
$ |
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans |
|
Post-Retirement Benefits |
|
||||||||
|
|
|
February 29, 2012 |
|
February 28, 2011 |
|
February 29, 2012 |
|
February 28, 2011 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Components of net periodic benefit costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
— |
|
$ |
0.2 |
|
$ |
0.0 |
|
$ |
0.0 |
|
|
Interest cost |
|
|
6.3 |
|
|
6.6 |
|
|
1.4 |
|
|
1.4 |
|
|
Expected return on assets |
|
|
(8.1 |
) |
|
(7.0 |
) |
|
— |
|
|
— |
|
|
Net amortization of prior service credit |
|
|
— |
|
|
— |
|
|
(0.5 |
) |
|
(0.5 |
) |
|
Amortization of loss |
|
|
1.0 |
|
|
1.4 |
|
|
2.9 |
|
|
1.9 |
|
|
Settlement of Canadian plan |
|
|
— |
|
|
3.6 |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit (credit) costs |
|
$ |
(0.8 |
) |
$ |
4.8 |
|
$ |
3.8 |
|
$ |
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the second quarter of fiscal 2011, the Company completed the settlement of its outstanding liabilities under the Canadian Pension Plan by purchasing non-participating annuities to service these liabilities prospectively.
The Company’s funding practice with respect to the Pension Plans is to contribute on an annual basis at least the minimum amounts required by applicable laws. For the nine months ended February 29, 2012, the Company contributed $1.7 to the U.S. Pension Plan and $1.3 to the UK Pension Plan.
The Company expects, based on actuarial calculations, to contribute cash of approximately $8.4 to the Pension Plans for the fiscal year ending May 31, 2012.
|
|||
12. Stock-Based Compensation
The following table summarizes stock-based compensation expense included in Selling, general and administrative expenses for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
||||||||
|
|
|
February 29, 2012 |
|
February 28, 2011 |
|
February 29, 2012 |
|
February 28, 2011 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Stock option expense |
|
$ |
1.2 |
|
$ |
1.7 |
|
$ |
6.0 |
|
$ |
7.1 |
|
|
Restricted stock unit expense |
|
|
1.0 |
|
|
0.9 |
|
|
3.6 |
|
|
3.2 |
|
|
Management stock purchase plan |
|
|
0.0 |
|
|
0.1 |
|
|
0.2 |
|
|
0.6 |
|
|
Employee stock purchase plan |
|
|
0.0 |
|
|
0.0 |
|
|
0.2 |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
2.2 |
|
$ |
2.7 |
|
$ |
10.0 |
|
$ |
11.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During each of the three and nine-month periods ended February 29, 2012 and February 28, 2011, shares of Common Stock issued by the Corporation pursuant to its stock-based compensation plans were not material.
|
|||
13. Severance and Exit Costs
The Company implemented certain new cost reduction initiatives, notably a voluntary retirement program, in the current fiscal year and incurred severance expense of $9.3 related to this program. The table below provides information regarding the severance cost reported in the Company’s condensed consolidated statements of operations, including the costs related to this program.
Accrued severance of $1.2, $1.9 and $1.5 as of February 29, 2012, May 31, 2011 and February 28, 2011, respectively, is included in “Other accrued expenses” on the Company’s condensed consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
Twelve months ended |
|
Nine months ended |
|
|||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Beginning balance |
|
|
$ |
1.9 |
|
|
|
$ |
3.4 |
|
|
|
$ |
3.4 |
|
|
|
Accruals |
|
|
|
12.2 |
|
|
|
|
6.7 |
|
|
|
|
4.3 |
|
|
|
Payments |
|
|
|
(12.9 |
) |
|
|
|
(8.2 |
) |
|
|
|
(6.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
$ |
1.2 |
|
|
|
$ |
1.9 |
|
|
|
$ |
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additionally, consistent with the Company’s efforts to reduce costs and realign resources, during the current fiscal year, the Company entered into sublease arrangements for certain leased properties in lower Manhattan. These subleases enable the Company to reduce utilized space, effectively reducing net rental costs prospectively. The sublease arrangements provide for rents to be paid to the Company from unrelated subtenants for the remainder of the Company’s lease terms through 2018. The net rents to be received from the subtenants are less than the Company’s lease commitments for these properties over the remaining term of the leases. Accordingly, the Company recognized a loss on these subleases of $6.2 in the fiscal quarter ended November 30, 2011.
|
|||
14. Treasury Stock
The Company has announced authorizations made by the Board of Directors to repurchase Common Stock, from time to time as conditions allow, on the open market or through negotiated private transactions, as summarized in the table below:
|
|
|
|
|
|
|
Authorization |
|
Amount |
|
|
|
|
|
|
|
|
|
December 2007 |
|
$ |
20.0 |
|
|
May 2008 |
|
|
20.0 |
|
|
November 2008 |
|
|
10.0 |
|
|
February 2009 |
|
|
5.0 |
|
|
December 2009 |
|
|
20.0 |
|
|
September 2010 |
|
|
44.0 |
(a) |
|
|
|
|
|
|
|
Subtotal |
|
$ |
119.0 |
|
|
|
|
|
|
|
|
Less repurchases made from December 2007 through February 2012 |
|
|
(80.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining Board authorization at February 29, 2012 |
|
$ |
38.9 |
|
|
|
|
|
|
|
(a) Represents the remainder of $200.0 authorization after giving effect to the purchase of 5,199,699 shares at $30.00 per share pursuant to a modified Dutch auction tender offer that was completed by the Company on November 3, 2010, for a total cost of $156.0, excluding related fees and expenses. The Common shares purchased pursuant to the tender offer represented approximately 15.1% of the Common shares outstanding as of October 27, 2010. Fees for the modified Dutch auction tender offer were $1.2.
The repurchase program may be suspended at any time without prior notice.
|
|||
15. Fair Value Measurements
The accounting standard regarding fair value measurements requires that the Company determine the appropriate level in the fair value hierarchy for each fair value measurement. 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 |
||
|
|
|
|
||
|
|
|
|
o |
Quoted prices for similar assets or liabilities in active markets |
|
|
|
|
o |
Quoted prices for identical or similar assets or liabilities in inactive markets |
|
|
|
|
o |
Inputs other than quoted prices that are observable for the asset or liability |
|
|
|
|
o |
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, which were not material as of the reporting date. Cash and cash equivalents are comprised of bank deposits and short-term investments, such as money market funds, the fair value of which is based on quoted market prices, a Level 1 fair value measure. The Company employs Level 2 fair value measurements for the disclosure of the fair value of its 5% Notes and its various lines of credit. See Note 5, “Debt,” for a more complete description of fair value measurements employed. The fair values of foreign currency forward contracts, used by the Company to manage the impact of foreign exchange rate changes to the financial statements, are based on quotations from financial institutions, a Level 2 fair value measure. See Note 17, “Derivatives and Hedging,” for a more complete description of fair value measurements employed.
Non-financial assets and liabilities for which the Company employs fair value measures on a non-recurring basis include:
|
|
|
|
|
|
• |
long-lived assets |
|
|
|
|
|
|
• |
assets acquired in a business combination |
|
|
|
|
|
|
• |
goodwill and indefinite-lived intangible assets |
|
|
|
|
|
|
• |
long-lived assets held for sale |
|
|||
16. Income Taxes and Other Taxes
Income Taxes
In calculating the provision for income taxes on an interim basis, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances known and applies that rate to its year-to-date earnings or losses. The Company’s effective tax rate is based on expected income and statutory tax rates and takes into consideration permanent differences between financial statement and tax return income applicable to the Company in the various jurisdictions in which the Company operates. The effect of discrete items, such as changes in estimates, changes in enacted tax laws or rates or tax status, and unusual or infrequently occurring events, is recognized in the interim period in which the discrete item occurs. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the result of new judicial interpretations or regulatory or tax law changes.
The Company’s annual effective tax rate for the fiscal year ending May 31, 2012 is currently expected to be approximately 42%. The Company’s expected full year effective tax rate exceeds statutory rates primarily as a result of net operating losses in foreign jurisdictions, mainly in the United Kingdom, where the Company does not expect to realize future tax benefits. As a result, valuation allowances are provided for the net operating loss carry forwards in these jurisdictions.
The Corporation, 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 Corporation file income tax returns in foreign jurisdictions. The Company is routinely audited by various tax authorities. The Company is currently under audit by the Internal Revenue Service for its fiscal years ended May 31, 2007, 2008 and 2009. The Company is also currently under audit by New York State for its fiscal years ended May 31, 2002, 2003 and 2004 and New York City for its fiscal years ended May 31, 2005, 2006 and 2007.
The Company recognizes tax benefits of uncertain tax positions in accordance with the current accounting guidance pertaining to uncertainty in income taxes. The Company believes that it is reasonably possible that its existing unrecognized benefits may be reduced by approximately $1.8 million within the next twelve months. This is expected to reduce the income tax provision.
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 appropriate, the Company has made accruals for these matters which are reflected in the Company’s condensed consolidated financial statements. In the three-month period ended February 29, 2012, the Company recorded accruals of $19.7 based on the current status of sales tax assessments in two jurisdictions. These amounts are included in the condensed consolidated financial statements in Selling, general and administrative expenses. Future developments relating to the foregoing could result in adjustments being made to these accruals.
|
|||
17. 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 and the foreign exchange risk associated with certain receivables denominated in foreign currencies. These derivative contracts are economic hedges and are not designated as cash flow hedges. The Company marks-to-market these instruments and records the changes in the fair value of these items in current earnings, and it recognizes the unrealized gain or loss in other current assets or liabilities. Unrealized losses of $0.4 and $1.0 were recognized at February 29, 2012 and February 28, 2011, respectively.
|
|||
18. Subsequent Events
On March 14, 2012, the Company announced that the Board of Directors declared a cash dividend of $0.125 per Class A and Common share in respect of the third quarter of fiscal 2012. The dividend is payable on June 15, 2012 to shareholders of record on April 30, 2012.
On March 19, 2012, prior to the issuance of its financial statements for the three months ended February 29, 2012, the Company received notice of an adverse decision from the Supreme Court of Connecticut reversing an earlier trial court decision and finding that Scholastic Book Clubs, Inc., a subsidiary of the Company, was liable for sales taxes relating to the operation of its school book clubs in Connecticut. Based on the decision, the Company increased its accrual in respect of state sales taxes in the condensed consolidated financial statements as of February 29, 2012 by $11.6 as further described under “Non-Income Taxes” in Note 16, “Income Taxes and Other Taxes.” The Company does not agree with the decision and is currently considering whether it will seek to appeal the decision to the Supreme Court of the United States.
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
||||||||
|
|
|
February 29, |
|
February 28, |
|
February 29, |
|
February 28, |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Revenues |
|
$ |
0.0 |
|
$ |
9.3 |
|
$ |
0.1 |
|
$ |
17.7 |
|
|
Non-cash impairment |
|
|
— |
|
|
— |
|
|
(0.9 |
) |
|
(3.4 |
) |
|
Earnings (loss) before income taxes |
|
|
(0.6 |
) |
|
(1.7 |
) |
|
(4.0 |
) |
|
(6.0 |
) |
|
Income tax benefit (expense) |
|
|
0.2 |
|
|
0.6 |
|
|
1.1 |
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued operations, net of tax |
|
$ |
(0.4 |
) |
$ |
(1.1 |
) |
$ |
(2.9 |
) |
$ |
(4.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2012 |
|
May 31, 2011 |
|
February 28, 2011 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Accounts receivable, net |
|
|
$ |
0.0 |
|
|
|
$ |
0.1 |
|
|
|
$ |
0.0 |
|
|
|
Inventories, net |
|
|
|
0.0 |
|
|
|
|
1.2 |
|
|
|
|
1.3 |
|
|
|
Other assets |
|
|
|
9.3 |
|
|
|
|
9.2 |
|
|
|
|
9.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets of discontinued operations |
|
|
$ |
9.3 |
|
|
|
$ |
10.5 |
|
|
|
$ |
10.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
$ |
0.0 |
|
|
|
$ |
0.2 |
|
|
|
$ |
0.4 |
|
|
|
Accrued expenses and other current liabilities |
|
|
|
1.2 |
|
|
|
|
0.6 |
|
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities of discontinued operations |
|
|
$ |
1.2 |
|
|
|
$ |
0.8 |
|
|
|
$ |
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Children’s |
|
Educational |
|
Classroom and |
|
Media, |
|
Overhead(1)(4) |
|
Total |
|
International(1) |
|
Total |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
266.0 |
|
$ |
40.0 |
|
$ |
38.2 |
|
$ |
17.2 |
|
$ |
— |
|
$ |
361.4 |
|
$ |
105.6 |
|
$ |
467.0 |
|
|
Bad debt expense |
|
|
1.6 |
|
|
0.3 |
|
|
0.4 |
|
|
— |
|
|
— |
|
|
2.3 |
|
|
0.8 |
|
|
3.1 |
|
|
Depreciation and amortization(6) |
|
|
4.4 |
|
|
0.2 |
|
|
0.3 |
|
|
— |
|
|
9.1 |
|
|
14.0 |
|
|
2.0 |
|
|
16.0 |
|
|
Amortization(7) |
|
|
2.8 |
|
|
5.3 |
|
|
1.8 |
|
|
1.5 |
|
|
— |
|
|
11.4 |
|
|
0.6 |
|
|
12.0 |
|
|
Loss on leases and asset impairments |
|
|
0.5 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
0.5 |
|
|
0.3 |
|
|
0.8 |
|
|
Segment operating income (loss) |
|
|
11.8 |
|
|
(5.9 |
) |
|
(3.4 |
) |
|
(0.8 |
) |
|
(17.9 |
) |
|
(16.2 |
) |
|
4.3 |
|
|
(11.9 |
) |
|
Expenditures for long-lived assets including royalty advances |
|
|
11.7 |
|
|
6.7 |
|
|
4.9 |
|
|
1.3 |
|
|
9.4 |
|
|
34.0 |
|
|
5.1 |
|
|
39.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||