Item 1. Financial Statements
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,
2024 2023 2024 2023
Revenues $ 323.7 $ 324.9 $ 1,114.8 $ 1,175.7
Operating costs and expenses:
Cost of goods sold 148.7 161.1 512.8 566.0
Selling, general and administrative expenses 194.8 178.0 592.1 554.4
Depreciation and amortization 14.6 13.5 42.1 41.0
Asset impairments and write downs 0.5 — 0.5 —
Total operating costs and expenses 358.6 352.6 1,147.5 1,161.4
Operating income (loss) ( 34.9 ) ( 27.7 ) ( 32.7 ) 14.3
Interest income (expense), net 0.6 1.4 2.4 2.3
Other components of net periodic benefit (cost) ( 0.3 ) 0.1 ( 0.8 ) 0.2
Earnings (loss) before income taxes ( 34.6 ) ( 26.2 ) ( 31.1 ) 16.8
Provision (benefit) for income taxes ( 8.1 ) ( 6.9 ) ( 7.3 ) 6.1
Net income (loss) ( 26.5 ) ( 19.3 ) ( 23.8 ) 10.7
Less: Net income (loss) attributable to noncontrolling interest — ( 0.1 ) — 0.1
Net income (loss) attributable to Scholastic Corporation $ ( 26.5 ) $ ( 19.2 ) $ ( 23.8 ) $ 10.6
Basic and diluted earnings (loss) per share of Class A and Common Stock
Basic $ ( 0.91 ) $ ( 0.57 ) $ ( 0.80 ) $ 0.31
Diluted $ ( 0.91 ) $ ( 0.57 ) $ ( 0.80 ) $ 0.30
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,
2024 2023 2024 2023
Net income (loss) $ ( 26.5 ) $ ( 19.3 ) $ ( 23.8 ) $ 10.7
Other comprehensive income (loss), net:
Foreign currency translation adjustments ( 0.4 ) ( 1.0 ) 1.6 ( 7.6 )
Pension and postretirement adjustments (net of tax) 0.2 ( 0.0 ) 0.5 ( 0.1 )
Total other comprehensive income (loss), net $ ( 0.2 ) $ ( 1.0 ) $ 2.1 $ ( 7.7 )
Comprehensive income (loss) $ ( 26.7 ) $ ( 20.3 ) $ ( 21.7 ) $ 3.0
Less: Net income (loss) attributable to noncontrolling interest — ( 0.1 ) — 0.1
Comprehensive income (loss) attributable to Scholastic Corporation $ ( 26.7 ) $ ( 20.2 ) $ ( 21.7 ) $ 2.9
See accompanying notes
4
SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(Dollar amounts in millions, except per share data)
February 29, 2024 May 31, 2023 February 28, 2023
(unaudited) (audited) (unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 110.4 $ 224.5 $ 198.8
Accounts receivable, net 253.0 278.0 261.7
Inventories, net 282.5 334.5 367.5
Income tax receivable 29.9 8.9 28.5
Prepaid expenses and other current assets 52.9 47.0 71.4
Total current assets 728.7 892.9 927.9
Noncurrent Assets:
Property, plant and equipment, net 512.6 521.4 510.5
Prepublication costs, net 54.0 56.4 54.0
Operating lease right-of-use assets, net 91.6 85.7 75.3
Royalty advances, net 56.2 56.8 59.6
Goodwill 132.8 132.7 131.9
Noncurrent deferred income taxes 21.0 21.0 21.4
Other assets and deferred charges 118.3 99.8 96.9
Total noncurrent assets 986.5 973.8 949.6
Total assets $ 1,715.2 $ 1,866.7 $ 1,877.5
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Lines of credit and current portion of long-term debt $ 31.5 $ 6.0 $ 5.2
Accounts payable 126.1 170.9 158.4
Accrued royalties 75.1 52.8 83.2
Deferred revenue 193.8 169.1 203.0
Other accrued expenses 156.7 168.9 163.9
Accrued income taxes 2.7 13.4 1.4
Operating lease liabilities 22.6 21.2 21.8
Total current liabilities 608.5 602.3 636.9
Noncurrent Liabilities:
Operating lease liabilities 79.4 73.8 62.8
Other noncurrent liabilities 29.7 26.1 27.9
Total noncurrent liabilities 109.1 99.9 90.7
Commitments and Contingencies (see Note 5)
— — —
Stockholders’ Equity:
Preferred Stock, $ 1.00 par value: Authorized, 2.0 shares; Issued and Outstanding, none
$ — $ — $ —
Class A Stock, $ 0.01 par value: Authorized, 3.2 , 4.0 , and 4.0 shares, respectively; Issued and Outstanding, 0.8 , 1.7 , and 1.7 shares, respectively
0.0 0.0 0.0
Common Stock, $ 0.01 par value: Authorized, 70.0 shares; Issued, 42.9 shares; Outstanding, 27.8 , 30.0 , and 31.4 shares, respectively
0.4 0.4 0.4
Additional paid-in capital 603.0 632.2 630.6
Accumulated other comprehensive income (loss) ( 53.7 ) ( 55.8 ) ( 53.1 )
Retained earnings 993.5 1,035.6 966.4
Treasury stock, at cost: 15.1 , 12.9 and 11.5 shares, respectively
( 545.6 ) ( 449.5 ) ( 395.9 )
Total stockholders’ equity of Scholastic Corporation 997.6 1,162.9 1,148.4
Noncontrolling interest — 1.6 1.5
Total stockholders’ equity 997.6 1,164.5 1,149.9
Total liabilities and stockholders’ equity $ 1,715.2 $ 1,866.7 $ 1,877.5
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, 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) — — — — — — ( 45.5 ) — ( 45.5 ) 0.1 ( 45.4 )
Foreign currency translation adjustment — — — — — ( 9.6 ) — — ( 9.6 ) — ( 9.6 )
Pension and post-retirement adjustments (net of tax of $ 0.1 )
— — — — — 0.0 — — 0.0 — 0.0
Stock-based compensation — — — — 1.7 — — — 1.7 — 1.7
Proceeds pursuant to stock-based compensation plans — — — — 11.6 — — — 11.6 — 11.6
Purchases of treasury stock at cost — — ( 0.1 ) — — — — ( 5.1 ) ( 5.1 ) — ( 5.1 )
Treasury stock issued pursuant to equity-based plans — — 0.3 — ( 10.8 ) — — 12.4 1.6 — 1.6
Dividends ($ 0.20 per share)
— — — — — — ( 6.9 ) — ( 6.9 ) — ( 6.9 )
Balance at August 31, 2022 1.7 $ 0.0 32.7 $ 0.4 $ 629.5 $ ( 55.0 ) $ 924.1 $ ( 334.2 ) $ 1,164.8 $ 1.5 $ 1,166.3
Net Income (loss) — — — — — — 75.3 — 75.3 0.1 75.4
Foreign currency translation adjustment — — — — — 3.0 — — 3.0 — 3.0
Pension and post-retirement adjustments (net of tax of $ 0.0 )
— — — — — ( 0.1 ) — — ( 0.1 ) — ( 0.1 )
Stock-based compensation — — — — 4.2 — — — 4.2 — 4.2
Proceeds pursuant to stock-based compensation plans — — — — 1.5 — — — 1.5 — 1.5
Purchases of treasury stock at cost — — ( 0.6 ) — — — — ( 26.0 ) ( 26.0 ) — ( 26.0 )
Treasury stock issued pursuant to equity-based plans — — 0.3 — ( 6.2 ) — — 7.0 0.8 — 0.8
Dividends ($ 0.20 per share)
— — — — — — ( 7.0 ) — ( 7.0 ) — ( 7.0 )
Balance at November 30, 2022 1.7 $ 0.0 32.4 $ 0.4 $ 629.0 $ ( 52.1 ) $ 992.4 $ ( 353.2 ) $ 1,216.5 $ 1.6 $ 1,218.1
Net Income (loss) — — — — — — ( 19.2 ) — ( 19.2 ) ( 0.1 ) ( 19.3 )
Foreign currency translation adjustment — — — — — ( 1.0 ) — — ( 1.0 ) — ( 1.0 )
Pension and post-retirement adjustments (net of tax of $ 0.1 )
— — — — — 0.0 — — 0.0 — 0.0
Stock-based compensation — — — — 2.3 — — — 2.3 — 2.3
Proceeds pursuant to stock-based compensation plans — — — — 3.1 — — — 3.1 — 3.1
Purchases of treasury stock at cost — — ( 1.1 ) — — — — ( 46.9 ) ( 46.9 ) — ( 46.9 )
Treasury stock issued pursuant to equity-based plans — — 0.1 — ( 3.8 ) — — 4.2 0.4 — 0.4
Dividends ($ 0.20 per share)
— — — — — — ( 6.8 ) — ( 6.8 ) — ( 6.8 )
Balance at February 28, 2023 1.7 $ 0.0 31.4 $ 0.4 $ 630.6 $ ( 53.1 ) $ 966.4 $ ( 395.9 ) $ 1,148.4 $ 1.5 $ 1,149.9
6
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, 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
Net Income (loss) — — — — — — ( 74.2 ) — ( 74.2 ) — ( 74.2 )
Foreign currency translation adjustment — — — — — 1.8 — — 1.8 — 1.8
Pension and post-retirement adjustments (net of tax of $ 0.1 )
— — — — — 0.2 — — 0.2 — 0.2
Stock-based compensation — — — — 2.3 — — — 2.3 — 2.3
Proceeds pursuant to stock-based compensation plans — — — — 3.0 — — — 3.0 — 3.0
Purchases of treasury stock at cost — — ( 0.8 ) — — — — ( 36.2 ) ( 36.2 ) — ( 36.2 )
Treasury stock issued pursuant to equity-based plans — — 0.1 — ( 4.3 ) — — 5.9 1.6 — 1.6
Dividends ($ 0.20 per share)
— — — — — — ( 6.3 ) — ( 6.3 ) — ( 6.3 )
Other (noncontrolling interest) — — — — ( 0.5 ) — — — ( 0.5 ) ( 1.6 ) ( 2.1 )
Balance at August 31, 2023 1.7 $ 0.0 29.3 $ 0.4 $ 632.7 $ ( 53.8 ) $ 955.1 $ ( 479.8 ) $ 1,054.6 $ — $ 1,054.6
Net Income (loss) — — — — — — 76.9 — 76.9 — 76.9
Foreign currency translation adjustment — — — — — 0.2 — — 0.2 — 0.2
Pension and post-retirement adjustments (net of tax of $ 0.0 )
— — — — — 0.1 — — 0.1 — 0.1
Stock-based compensation — — — — 4.1 — — — 4.1 — 4.1
Proceeds pursuant to stock-based compensation plans — — — — 0.6 — — — 0.6 — 0.6
Purchases of treasury stock at cost — — ( 1.4 ) — — — — ( 52.3 ) ( 52.3 ) — ( 52.3 )
Treasury stock issued pursuant to equity-based plans — — 0.3 — ( 6.6 ) — — 7.5 0.9 — 0.9
Dividends ($ 0.20 per share)
— — — — — — ( 6.0 ) — ( 6.0 ) — ( 6.0 )
Balance at November 30, 2023 1.7 $ 0.0 28.2 $ 0.4 $ 630.8 $ ( 53.5 ) $ 1,026.0 $ ( 524.6 ) $ 1,079.1 $ — $ 1,079.1
Net Income (loss) — — — — — — ( 26.5 ) — ( 26.5 ) — ( 26.5 )
Foreign currency translation adjustment — — — — — ( 0.4 ) — — ( 0.4 ) — ( 0.4 )
Pension and post-retirement adjustments (net of tax of $ 0.1 )
— — — — — 0.2 — — 0.2 — 0.2
Stock-based compensation — — — — 2.3 — — — 2.3 — 2.3
Proceeds pursuant to stock-based compensation plans — — — — 2.5 — — — 2.5 — 2.5
Purchases of treasury stock at cost — — ( 1.4 ) — — — — ( 54.2 ) ( 54.2 ) — ( 54.2 )
Treasury stock issued pursuant to equity-based plans — — 0.1 — ( 4.0 ) — — 4.6 0.6 — 0.6
Dividends ($ 0.20 per share)
— — — — — — ( 6.0 ) — ( 6.0 ) — ( 6.0 )
Other (share conversion) ( 0.9 ) — 0.9 — ( 28.6 ) — — 28.6 — — —
Balance at February 29, 2024 0.8 $ 0.0 27.8 $ 0.4 $ 603.0 $ ( 53.7 ) $ 993.5 $ ( 545.6 ) $ 997.6 $ — $ 997.6
See accompanying notes
7
SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
(Dollar amounts in millions)
Nine months ended
February 29, February 28,
2024 2023
Cash flows - operating activities:
Net income (loss) attributable to Scholastic Corporation $ ( 23.8 ) $ 10.6
Adjustments to reconcile Net income (loss) to net cash provided by (used in) operating activities:
Provision for losses on accounts receivable 4.0 1.8
Provision for losses on inventory 15.7 15.2
Provision for losses on royalty advances 2.2 2.6
Amortization of prepublication costs 19.9 18.5
Depreciation and amortization 49.2 48.3
Amortization of pension and postretirement plans 0.3 ( 0.3 )
Deferred income taxes 0.2 ( 0.4 )
Stock-based compensation 8.7 8.2
Income from equity-method investments ( 0.1 ) ( 1.5 )
Non cash write off related to asset impairments and write downs 0.5 —
Changes in assets and liabilities, net of amounts acquired:
Accounts receivable 21.2 32.9
Inventories 36.7 ( 105.4 )
Prepaid expenses and other current assets ( 5.8 ) ( 2.9 )
Income tax receivable ( 21.0 ) ( 1.8 )
Royalty advances ( 1.5 ) ( 13.4 )
Accounts payable ( 44.6 ) ( 2.7 )
Accrued income taxes ( 10.6 ) ( 1.1 )
Accrued royalties 22.3 22.8
Deferred revenue 24.7 31.0
Other accrued expenses ( 15.3 ) ( 30.5 )
Other, net 1.8 ( 3.0 )
Net cash provided by (used in) operating activities 84.7 28.9
Cash flows - investing activities:
Prepublication expenditures ( 17.2 ) ( 17.8 )
Additions to property, plant and equipment ( 43.8 ) ( 36.8 )
Other investment and acquisition-related payments ( 8.5 ) ( 10.7 )
Net cash provided by (used in) investing activities ( 69.5 ) ( 65.3 )
Cash flows - financing activities:
Borrowings under lines of credit, credit agreement and revolving loan 52.9 2.5
Repayments of lines of credit, credit agreement and revolving loan ( 27.5 ) ( 3.6 )
Repayment of capital lease obligations ( 1.7 ) ( 1.7 )
Reacquisition of common stock ( 143.0 ) ( 75.9 )
Proceeds pursuant to stock-based compensation plans 8.7 18.4
Payment of dividends ( 18.9 ) ( 18.9 )
Other 0.1 ( 0.1 )
Net cash provided by (used in) financing activities ( 129.4 ) ( 79.3 )
Effect of exchange rate changes on cash and cash equivalents 0.1 ( 2.1 )
Net increase (decrease) in cash and cash equivalents ( 114.1 ) ( 117.8 )
Cash and cash equivalents at beginning of period 224.5 316.6
Cash and cash equivalents at end of period $ 110.4 $ 198.8
See accompanying notes
8
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
(Dollar amounts in millions, except per share data)
1. BASIS OF PRESENTATION
Principles of consolidation
The accompanying condensed consolidated interim financial statements (referred to as the “Financial Statements” herein) 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.
The Company’s fiscal year is not a calendar year. Accordingly, references in this document to fiscal 2024 relate to the twelve-month period ending May 31, 2024.
Noncontrolling Interest
On June 1, 2023, the Company acquired the remaining shares of Make Believe Ideas Limited ("MBI"), a UK-based children's book publishing company, which represented a 5.0 % noncontrolling interest, increasing the Company's total ownership from 95.0 % to 100 %.
Prior to June 1, 2023, the founder and chief executive officer of MBI retained a 5.0 % noncontrolling ownership interest in MBI. The Company fully consolidated MBI as of the acquisition date and the 5.0 % noncontrolling interest was classified within stockholder's equity.
Interim Financial Statements
The accompanying Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information, and should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2023. The Financial Statements presented in this Quarterly Report on Form 10-Q are unaudited; however, in the opinion of management, the Financial Statements reflect all adjustments, consisting solely of normal, recurring adjustments, necessary for the fair presentation of the Financial Statements for the periods presented.
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.
Use of estimates
The preparation of these Financial Statements involves the use of estimates and assumptions by management, which affects the amounts reported in the 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 certain 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 these 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
9
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
(Dollar amounts in millions, except per share data)
• Royalty advance reserves and royalty expense accruals
• Impairment testing for goodwill, intangible 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
New Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, “Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures.” This ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU will be effective for the Company's fiscal year 2025, and interim periods starting in fiscal year 2026. Early adoption is permitted. The amendments in this ASU are to be applied retrospectively to all prior periods presented in the financial statements. The Company is currently assessing the impact of the disclosure requirements on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740)." The amendments in this update enhance the transparency and decision usefulness of income tax disclosures to provide information to better assess how an entity’s operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. The amendments in this ASU require more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This ASU will be effective for the Company's fiscal year 2026. Early adoption is permitted. The amendments are to be applied prospectively, but may be applied retrospectively to all prior periods presented in the financial statements. The Company is currently assessing the impact of the disclosure requirements on its consolidated financial statements.
Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2023, for more information on current applicable authoritative guidance and its impact on the Company's financial statements.
10
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
(Dollar amounts in millions, except per share data)
2. REVENUES
Disaggregated Revenue Data
The following table presents the Company’s segment revenues disaggregated by region and domestic channel:
Three months ended Nine months ended
February 29, February 28, February 29, February 28,
2024 2023 2024 2023
Book Clubs - U.S. $ 13.3 $ 27.7 $ 48.3 $ 91.6
Book Fairs - U.S. 102.7 103.5 372.1 372.6
Trade - U.S. 70.0 64.8 233.5 248.9
Trade - International (1)
7.6 8.0 35.3 33.9
Total Children's Book Publishing and Distribution $ 193.6 $ 204.0 $ 689.2 $ 747.0
Education Solutions - U.S. $ 68.5 $ 70.0 $ 215.5 $ 223.2
Total Education Solutions $ 68.5 $ 70.0 $ 215.5 $ 223.2
International - Major Markets (2)
$ 48.0 $ 41.3 $ 171.2 $ 171.8
International - Other Markets (3)
11.1 9.6 31.6 33.7
Total International $ 59.1 $ 50.9 $ 202.8 $ 205.5
Total (4)
$ 321.2 $ 324.9 $ 1,107.5 $ 1,175.7
(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.
(4) Total revenues of $ 323.7 and $ 1,114.8 for the three and nine months ended February 29, 2024, respectively, included rental income of $ 2.5 and $ 7.3 , respectively, related to leased space in the Company's headquarters which was not allocated to a segment. Rental income of $ 1.5 and $ 4.6 for the three and nine months ended February 28, 2023, respectively, was recognized as a reduction to Selling, general and administrative expenses.
Estimated Returns
A liability for expected returns of $ 38.3 , $ 34.9 , and $ 44.8 is recorded within Other accrued expenses as of February 29, 2024, May 31, 2023, and February 28, 2023, respectively. In addition, a return asset of $ 4.4 , $ 4.7 , and $ 3.5 is recorded within Prepaid expenses and other current assets as of February 29, 2024, May 31, 2023, and February 28, 2023, respectively, for the recoverable cost of product estimated to be returned by customers.
Contract Liabilities
The following table presents further detail regarding the Company's contract liabilities as of the dates indicated:
February 29, 2024 May 31, 2023 February 28, 2023
Book fairs incentive credits $ 109.9 $ 110.8 $ 105.2
Magazines+ subscriptions 30.5 5.0 30.7
U.S. digital subscriptions 16.8 22.8 25.2
U.S. education-related (1)
10.6 9.8 13.5
Media-related 0.1 0.0 4.4
Stored value programs
20.1 12.4 14.8
Other (2)
12.1 8.3 9.2
Total contract liabilities $ 200.1 $ 169.1 $ 203.0
(1) Primarily includes contract liabilities related to contracts with school districts and professional services.
(2) Primarily includes contract liabilities related to various international products and services.
The Company's contract liabilities consist of advance billings and payments received from customers in excess of revenue recognized and revenue allocated to outstanding book fairs incentive credits. As of February 29, 2024, contract liabilities of $ 193.8 are recorded within Deferred revenue on the Company's Condensed
11
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
(Dollar amounts in millions, except per share data)
Consolidated Balance Sheet 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 remaining $ 6.3 of contract liabilities as of February 29, 2024 are recorded within Other noncurrent liabilities on the Company's Condensed Consolidated Balance Sheet as the associated performance obligations are expected to be satisfied, and related revenue recognized, in excess of one year. Contract liabilities of $ 169.1 and $ 203.0 as of May 31, 2023 and February 28, 2023, respectively, are recorded within Deferred revenue on the Company's Condensed Consolidated Balance Sheets. The Company recognized revenue which was included in the opening Deferred revenue balance in the amount of $ 33.0 and $ 113.7 for the three and nine months ended February 29, 2024, respectively, and $ 45.9 and $ 126.2 for the three and nine months ended February 28, 2023, respectively.
Allowance for Credit Losses
The Company recognizes an allowance for credit losses on customer 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. The Company reviews new information as it becomes available and makes adjustments to the reserves accordingly. 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.
The following table presents the change in the allowance for credit losses, which is included in Accounts Receivable, net on the Condensed Consolidated Balance Sheets:
Allowance for Credit Losses
Balance as of June 1, 2023 $ 16.7
Provision (benefit) 0.6
Write-offs and other ( 0.2 )
Balance as of August 31, 2023 $ 17.1
Provision (benefit) 2.5
Write-offs and other ( 3.4 )
Balance as of November 30, 2023 $ 16.2
Provision (benefit) 0.9
Write-offs and other ( 1.5 )
Balance as of February 29, 2024 $ 15.6
12
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
(Dollar amounts in millions, except per share data)
3. SEGMENT INFORMATION
The Company categorizes its businesses into three reportable segments: Children’s Book Publishing and Distribution, Education Solutions 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 primarily in the United States through its school reading events business, which includes the book clubs and book fairs channels, and through the trade channel. This segment is comprised of two 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 related support services, and print and online 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 businesses. This segment is comprised of three operating segments.
The following table sets forth the Company's revenue and operating income (loss) by segment for the periods indicated:
Three months ended Nine months ended
February 29, February 28, February 29, February 28,
2024 2023 2024 2023
Revenues
Children's Book Publishing and Distribution $ 193.6 $ 204.0 $ 689.2 $ 747.0
Education Solutions 68.5 70.0 215.5 223.2
International 59.1 50.9 202.8 205.5
Total (1)
$ 321.2 $ 324.9 $ 1,107.5 $ 1,175.7
Operating income (loss)
Children's Book Publishing and Distribution $ ( 0.8 ) $ 1.9 $ 68.5 $ 85.0
Education Solutions ( 0.8 ) 0.7 ( 13.7 ) 3.4
International ( 5.9 ) ( 9.0 ) ( 6.1 ) ( 5.8 )
Overhead (2)
( 27.4 ) ( 21.3 ) ( 81.4 ) ( 68.3 )
Total $ ( 34.9 ) $ ( 27.7 ) $ ( 32.7 ) $ 14.3
(1) Total revenues of $ 323.7 and $ 1,114.8 for the three and nine months ended February 29, 2024, respectively, included rental income of $ 2.5 and $ 7.3 , respectively, related to leased space in the Company's headquarters which was not allocated to a segment. Rental income of $ 1.5 and $ 4.6 for the three and nine months ended February 28, 2023, respectively, was recognized as a reduction to Selling, general and administrative expenses.
(2) Overhead includes all domestic corporate amounts not allocated to segments, including expenses and costs related to the management of corporate assets.
4. DEBT
The following table summarizes the carrying value of the Company's debt as of the dates indicated:
February 29, 2024 May 31, 2023 February 28, 2023
US Revolving Credit Agreement $ 25.0 $ — $ —
Unsecured lines of credit 6.5 6.0 5.2
Total debt $ 31.5 $ 6.0 $ 5.2
Less lines of credit, short-term debt and current portion of long-term debt ( 31.5 ) ( 6.0 ) ( 5.2 )
Total long-term debt $ — $ — $ —
The Company's debt obligations as of February 29, 2024 have maturities of one year or less.
13
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
(Dollar amounts in millions, except per share data)
US Credit Agreement
On October 27, 2021, Scholastic Corporation and its principal operating subsidiary, Scholastic Inc., entered into an amended and restated 5-year credit agreement with a syndicate of banks and Bank of America, N.A., as administrative agent and Truist Bank and Wells Fargo Bank, National Association, as co-syndication agents (the “Credit Agreement”). The Credit Agreement provides for a $ 300.0 unsecured revolving credit facility and allows the Company to borrow, repay or prepay and reborrow at any time prior to the October 27, 2026 maturity date. The Credit Agreement also provides an unlimited basket for permitted payments of dividends and other distributions in respect of capital stock so long as the Corporation’s pro forma Consolidated Net Leverage Ratio, as defined, is not in excess of 2.75 :1.
On February 28, 2023, the Company entered into the First and Second Amendments to the Credit Agreement (collectively the "Amendments"). The Amendments, among other things, (i) 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 % (10 basis points) and (ii) transitioned the reference rate under the Credit Agreement for borrowings from LIBOR (the London interbank offered rate) to SOFR, together with various other conforming changes to accommodate such replacement.
Under the Credit Agreement, interest on amounts borrowed thereunder is due and payable in arrears on the last day of the interest period (defined as the period commencing on the date of the advance and ending on the last day of the period selected by the Borrower at the time each advance is made). The interest pricing under the Credit Agreement is dependent upon the Borrower’s election of a rate that is either:
• a Base Rate equal to the higher of (i) the prime rate, (ii) the prevailing Federal Funds rate plus 0.50 % or (iii) the Term SOFR Rate plus 1.00 % plus, in each case, an applicable margin ranging from 0.35 % to 0.75 %, as determined by the Company’s prevailing Consolidated Leverage Ratio (as defined in the Credit Agreement);
- or -
• a SOFR rate (Daily Simple or Term), plus a SOFR adjustment of 0.10 % per annum and an applicable margin ranging from 1.35 % to 1.75 %, as determined by the Company’s prevailing Consolidated Leverage Ratio.
As of February 29, 2024, the applicable margin on Base Rate Advances was 0.35 % and the applicable margin on SOFR Advances was 1.35 %, both based on the Company’s prevailing Consolidated Leverage Ratio.
The Credit Agreement provides for payment of a commitment fee in respect of the aggregate unused amount of revolving credit commitments ranging from 0.20 % per annum to 0.30 % per annum based upon the Corporation’s then prevailing Consolidated Leverage Ratio. As of February 29, 2024, the commitment fee rate was 0.20 %.
A portion of the revolving credit facility, up to a maximum of $ 50.0 , is available for the issuance of letters of credit. In addition, a portion of the revolving credit facility, up to a maximum of $ 15.0 , is available for swingline loans. The 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 February 29, 2024, outstanding borrowings under the Credit Agreement were $ 25.0 at an all-in borrowing rate of 6.77 %. As of May 31, 2023 and February 28, 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 February 29, 2024, the Company had open standby letters of credit totaling $ 3.8 issued under certain credit lines, including $ 0.4 under the Credit Agreement and $ 3.4 under the domestic credit lines discussed below.
14
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
(Dollar amounts in millions, except per share data)
Lines of Credit
As of February 29, 2024, 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 February 29, 2024, May 31, 2023 and February 28, 2023. As of February 29, 2024, 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 February 29, 2024, the Company had various local currency international credit lines totaling $ 23.6 underwritten by banks primarily in the United States, Canada and the United Kingdom. Outstanding borrowings under these facilities were $ 6.5 at February 29, 2024 at a weighted average interest rate of 3.8 %, compared to outstanding borrowings of $ 6.0 at May 31, 2023 at a weighted average interest rate of 4.9 %, and $ 5.2 at February 28, 2023 at a weighted average interest rate of 5.0 %. As of February 29, 2024, the amounts available under these facilities totaled $ 17.1 . These credit lines are typically available for overdraft borrowings or loans up to 364 days and may be renewed, if requested by the Company, at the sole option of the lender.
5. COMMITMENTS AND CONTINGENCIES
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 the third quarter of 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 Condensed Consolidated Statement of Operations for the quarter ended February 28, 2023.
The Company expects to receive additional recoveries from its insurance programs related to an intellectual property legal settlement accrued during fiscal 2021, however, it is premature to determine with any level of probability or accuracy the amount of those recoveries at this time.
15
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
(Dollar amounts in millions, except per share data)
6. 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 periods indicated:
Three months ended Nine months ended
February 29, February 28, February 29, February 28,
2024 2023 2024 2023
Net income (loss) attributable to Class A and Common Stockholders $ ( 26.5 ) $ ( 19.2 ) $ ( 23.8 ) $ 10.6
Weighted average Shares of Class A Stock and Common Stock outstanding for basic earnings (loss) per share (in millions) 29.1 33.7 29.9 34.2
Dilutive effect of Class A Stock and Common Stock potentially issuable pursuant to stock-based compensation plans (in millions) — — — 0.9
Adjusted weighted average Shares of Class A Stock and Common Stock outstanding for diluted earnings (loss) per share (in millions) 29.1 33.7 29.9 35.1
Earnings (loss) per share of Class A Stock and Common Stock:
Basic $ ( 0.91 ) $ ( 0.57 ) $ ( 0.80 ) $ 0.31
Diluted $ ( 0.91 ) $ ( 0.57 ) $ ( 0.80 ) $ 0.30
Anti-dilutive shares pursuant to stock-based compensation plans
1.1 0.7 0.7 0.6
The following table sets forth options outstanding pursuant to stock-based compensation plans as of the dates indicated:
February 29, 2024 February 28, 2023
Options outstanding pursuant to stock-based compensation plans (in millions) 3.0 3.3
As of February 29, 2024, $ 46.0 remained available for future purchases of common shares under the repurchase authorization of the Board of Directors (the "Board") in effect on that date. See Note 12, Treasury Stock, for a more complete description of the Company’s share buy-back program and Note 18, "Subsequent Events", for additional Board authorization for Common share repurchases.
7. ACQUISITIONS
On June 1, 2023, the Company acquired the remaining shares of Make Believe Ideas Limited, a UK-based children's book publishing company, for $ 2.1 , increasing the Company's total ownership from 95.0 % to 100 %. The acquisition was accounted for as an equity transaction as there was no change in control. The carrying value of the noncontrolling interest at the acquisition date was $ 1.6 . The difference between the fair value of consideration paid and the carrying value was recognized as an adjustment to Additional paid-in capital of $ 0.5 .
On September 1, 2022, the Company acquired 100 % of the share capital of Learning Ovations, Inc., a U.S.-based education technology business and developer of a literacy assessment and instructional system, for $ 11.1 , net of cash acquired. The Company accounted for the acquisition as a business combination under the acquisition method of accounting. Fair values were assigned to the assets and liabilities acquired, including cash, receivables, and technology/know-how. The receivables acquired had a fair value of $ 0.1 and were collected as of the end of the first quarter of fiscal 2024. The Company utilized internally-developed discounted cash flow forecasts to determine the fair value of the technology/know-how using a discount rate of 17.5 % to account for the relative risks of the estimated future cash flows. The Company classified this as a Level 3 fair value measurement due to the use of these significant unobservable inputs. The fair values of the net assets were $ 3.6 , which included $ 4.1 of amortizable intangible assets attributable to the technology/know-how and a $ 0.6 deferred tax liability. This acquisition resulted in $ 7.6 of goodwill that was assigned to the Company's Education Solutions segment and was not deductible for tax purposes. The results of operations of this business subsequent to the acquisition are included in the Education Solutions segment. The transaction was not
16
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
(Dollar amounts in millions, except per share data)
determined to be material to the Company's results and therefore pro forma financial information has not been presented.
8. GOODWILL AND OTHER INTANGIBLES
The Company assesses goodwill and other intangible assets with indefinite lives for impairment annually or more frequently if indicators arise. The Company monitors impairment indicators in light of changes in market conditions, near and long-term demand for the Company’s products and other relevant factors.
The following table summarizes the activity in Goodwill for the periods indicated:
February 29, 2024 May 31, 2023 February 28, 2023
Gross beginning balance $ 172.3 $ 164.9 $ 164.9
Accumulated impairment ( 39.6 ) ( 39.6 ) ( 39.6 )
Beginning balance $ 132.7 $ 125.3 $ 125.3
Additions — 7.6 7.0
Foreign currency translation 0.1 ( 0.2 ) ( 0.4 )
Ending balance $ 132.8 $ 132.7 $ 131.9
In fiscal 2023, the Company acquired Learning Ovations, Inc, a U.S.-based education technology business, which resulted in the recognition of $ 7.6 of Goodwill included in the Education Solutions segment. Refer to Note 7, Acquisitions, for further details regarding the acquisition.
There were no impairment charges related to Goodwill in any of the periods presented.
The following table summarizes the activity in other intangibles included in Other assets and deferred charges on the Company’s Financial Statements for the periods indicated:
February 29, 2024 May 31, 2023 February 28, 2023
Beginning balance - Other intangibles subject to amortization $ 7.8 $ 6.0 $ 6.0
Additions 6.0 4.1 4.1
Amortization expense ( 1.9 ) ( 2.2 ) ( 1.7 )
Foreign currency translation 0.0 ( 0.1 ) ( 0.1 )
Total other intangibles subject to amortization, net of accumulated amortization of $ 38.4 , $ 36.5 and $ 36.0 , respectively
$ 11.9 $ 7.8 $ 8.3
Total other intangibles not subject to amortization $ 2.1 $ 2.1 $ 2.1
Total other intangibles $ 14.0 $ 9.9 $ 10.4
During the second quarter of fiscal 2024, the Company acquired certain amortizable intangible assets related to educational programs for $ 5.8 . These intangible assets are amortized over the estimated useful life of 8 years. During the third quarter of fiscal 2024, the Company acquired $ 0.2 of certain amortizable intangible assets of a U.S.- based children's book publishing business. These intangible assets are amortized over the estimated useful life of 5 years.
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.
Intangible assets with indefinite lives consist principally of trademark and trade name rights. Intangible assets with definite lives consist principally of customer lists, intellectual property, trade names 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 6.0 years.
There were no impairment charges related to Intangible assets in any of the periods presented.
17
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
(Dollar amounts in millions, except per share data)
9. INVESTMENTS
Investments are included in Other assets and deferred charges on the Condensed Consolidated Balance Sheets. The following table summarizes the Company’s investments as of the dates indicated:
February 29, 2024 May 31, 2023 February 28, 2023 Segment
Equity method investments $ 30.8 $ 31.6 $ 31.1 International
Other equity investments 6.0 6.0 6.0 Children's Book Publishing & Distribution
Total Investments $ 36.8 $ 37.6 $ 37.1
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 Condensed Consolidated Balance Sheets. There have been no impairments or adjustments to the carrying value of this investment.
Income (loss) from equity investments is reported in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and totaled a loss of $ 0.2 and income of $ 0.1 for the three and nine months ended February 29, 2024, respectively, and income of $ 0.2 and $ 1.5 for the three and nine months ended February 28, 2023, respectively. The Company received dividends of $ 1.3 in the three and nine month period ended February 29, 2024. The Company did not receive any dividends in the three and nine month period ended February 28, 2023.
10. EMPLOYEE BENEFIT PLANS
The following table sets forth the components of net periodic benefit cost for the periods indicated under the Company’s defined benefit pension plan of Scholastic Ltd., an indirect subsidiary of Scholastic Corporation located in the United Kingdom (the “UK Pension Plan”), and the postretirement benefits plan, consisting of certain healthcare and life insurance benefits provided by the Company to its eligible retired United States-based employees (the “US Postretirement Benefits”), for the periods indicated:
UK Pension Plan US Postretirement Benefits
Three months ended Three months ended
February 29, February 28, February 29, February 28,
2024 2023 2024 2023
Components of net periodic benefit cost:
Interest cost $ 0.3 $ 0.3 $ 0.1 $ 0.1
Expected return on assets ( 0.2 ) ( 0.4 ) — —
Amortization of prior service (credit) loss 0.0 0.0 ( 0.3 ) ( 0.3 )
Amortization of net actuarial (gain) loss 0.4 0.2 0.0 —
Total $ 0.5 $ 0.1 $ ( 0.2 ) $ ( 0.2 )
18
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
(Dollar amounts in millions, except per share data)
UK Pension Plan US Postretirement Benefits
Nine months ended Nine months ended
February 29, February 28, February 29, February 28,
2024 2023 2024 2023
Components of net periodic benefit cost:
Interest cost $
1.0 $
0.8 $
0.3 $ 0.3
Expected return on assets ( 0.8 ) ( 1.0 ) — —
Amortization of prior service (credit) loss 0.0 0.0 ( 0.7 ) ( 0.7 )
Amortization of net actuarial (gain) loss 1.0 0.4 0.0 —
Total $ 1.2 $ 0.2 $ ( 0.4 ) $ ( 0.4 )
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.
The Company’s funding practice with respect to the UK Pension Plan is to contribute on an annual basis at least the minimum amounts required by applicable law. For the nine months ended February 29, 2024, the Company contributed $ 0.9 to the UK Pension Plan. The Company expects, based on actuarial calculations, to contribute cash of approximately $ 1.2 to the UK Pension Plan for the fiscal year ending May 31, 2024.
11. 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, February 28, February 29, February 28,
2024 2023 2024 2023
Stock option expense $ 0.6 $ 0.7 $ 3.6 $ 3.7
Restricted stock unit expense 1.6 1.4 4.5 3.7
Management stock purchase plan 0.0 0.1 0.3 0.5
Employee stock purchase plan 0.1 0.1 0.3 0.3
Total stock-based compensation expense $ 2.3 $ 2.3 $ 8.7 $ 8.2
The following table sets forth Common Stock issued pursuant to stock-based compensation plans for the periods indicated:
Three months ended Nine months ended
February 29, February 28, February 29, February 28,
2024 2023 2024 2023
Common Stock issued pursuant to stock-based compensation plans (in millions) 0.1 0.1 0.5 0.7
12. TREASURY STOCK
The Board has authorized the Company to repurchase Common Stock, from time to time as conditions allow, on the open market or through privately negotiated transactions.
19
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
(Dollar amounts in millions, except per share data)
The table below represents the Board authorization at the dates indicated:
Authorization Amount
July 2023 $
100.0
December 2023 66.2
Total current Board authorizations $ 166.2
Less repurchases made under these authorizations $ ( 120.2 )
Remaining Board authorization at February 29, 2024 $ 46.0
Remaining Board authorization at February 29, 2024 represents the amount remaining under the current $ 66.2 Board authorization for Common share repurchases announced on December 13, 2023, which is available for further repurchases, from time to time as conditions allow, on the open market or through privately negotiated transactions. See Note 18, "Subsequent Events", for additional Board authorization for Common share repurchases.
Repurchases of the Company's Common Stock were $ 54.2 and $ 142.7 , including excise tax on share repurchases of $ 0.2 and $ 0.9 , during the three and nine months ended February 29, 2024, respectively. The Company's repurchase program may be suspended at any time without prior notice.
13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables summarize the activity in Accumulated other comprehensive income (loss), net of tax, by component, for the periods indicated:
Three months ended February 29, 2024
Foreign currency translation adjustments Retirement benefit plans Total
Beginning balance at December 1, 2023 $ ( 48.0 ) $ ( 5.5 ) $ ( 53.5 )
Other comprehensive income (loss) before reclassifications ( 0.4 ) — ( 0.4 )
Less amount reclassified from Accumulated other comprehensive income (loss):
Amortization of net actuarial loss (net of tax of $ 0.0 )
— 0.4 0.4
Amortization of prior service (credit) cost (net of tax of $ 0.1 )
— ( 0.2 ) ( 0.2 )
Other comprehensive income (loss) ( 0.4 ) 0.2 ( 0.2 )
Ending balance at February 29, 2024 $ ( 48.4 ) $ ( 5.3 ) $ ( 53.7 )
Three months ended February 28, 2023
Foreign currency translation adjustments Retirement benefit plans Total
Beginning balance at December 1, 2022 $ ( 51.2 ) $ ( 0.9 ) $ ( 52.1 )
Other comprehensive income (loss) before reclassifications ( 1.0 ) — ( 1.0 )
Less amount reclassified from Accumulated other comprehensive income (loss):
Amortization of net actuarial loss (net of tax of $ 0.0 )
— 0.2 0.2
Amortization of prior service (credit) cost (net of tax of $ 0.1 )
— ( 0.2 ) ( 0.2 )
Other comprehensive income (loss) ( 1.0 ) 0.0 ( 1.0 )
Ending balance at February 28, 2023 $ ( 52.2 ) $ ( 0.9 ) $ ( 53.1 )
20
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
(Dollar amounts in millions, except per share data)
Nine months ended February 29, 2024
Foreign currency translation adjustments Retirement benefit plans Total
Beginning balance at June 1, 2023 $ ( 50.0 ) $ ( 5.8 ) $ ( 55.8 )
Other comprehensive income (loss) before reclassifications 1.6 — 1.6
Less amount reclassified from Accumulated other comprehensive income (loss):
Amortization of net actuarial (gain) loss (net of tax of $ 0.0 )
— 1.0 1.0
Amortization of prior service (credit) cost (net of tax of $ 0.2 )
— ( 0.5 ) ( 0.5 )
Other comprehensive income (loss) 1.6 0.5 2.1
Ending balance at February 29, 2024 $ ( 48.4 ) $ ( 5.3 ) $ ( 53.7 )
Nine months ended February 28, 2023
Foreign currency translation adjustments Retirement benefit plans Total
Beginning balance at June 1, 2022 $ ( 44.6 ) $ ( 0.8 ) $ ( 45.4 )
Other comprehensive income (loss) before reclassifications ( 7.6 ) — ( 7.6 )
Less amount reclassified from Accumulated other comprehensive income (loss):
Amortization of net actuarial (gain) loss (net of tax of $ 0.0 )
— 0.4 0.4
Amortization of prior service (credit) cost (net of tax of $ 0.2 )
— ( 0.5 ) ( 0.5 )
Other comprehensive income (loss) ( 7.6 ) ( 0.1 ) ( 7.7 )
Ending balance at February 28, 2023 $ ( 52.2 ) $ ( 0.9 ) $ ( 53.1 )
The following table presents the impact on earnings of reclassifications out of Accumulated other comprehensive income (loss) for the periods indicated:
Three months ended Nine months ended Condensed Consolidated Statements of Operations line item
February 29, February 28, February 29, February 28,
2024 2023 2024 2023
Employee benefit plans:
Amortization of net actuarial loss $ 0.4 $ 0.2 $ 1.0 $ 0.4 Other components of net periodic benefit (cost)
Amortization of prior service (credit) loss ( 0.3 ) ( 0.3 ) ( 0.7 ) ( 0.7 ) Other components of net periodic benefit (cost)
Less: Tax effect 0.1 0.1 0.2 0.2 Provision (benefit) for income taxes
Total cost, net of tax $ 0.2 $ 0.0 $ 0.5 $ ( 0.1 )
14. 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 quoted prices included in Level 1, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs derived principally from or corroborated by observable market data.
21
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
(Dollar amounts in millions, except per share data)
• 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, are based on quotations from financial institutions, a Level 2 fair value measure.
Non-financial assets for which the Company employs fair value measures on a non-recurring basis include:
• Long-lived assets, including held for sale
• Operating lease right-of-use (ROU) assets
• Investments
• Assets acquired in a business combination
• Impairment assessment of goodwill and intangible assets
Level 2 and Level 3 inputs are employed by the Company in the fair value measurement of these assets. For the fair value measurements employed by the Company for certain property, plant and equipment, investments and prepublication assets, the Company assessed future expected cash flows attributable to these assets. See Note 9, Investments, for a more complete description of the fair value measurements employed. For the fair value measurements employed by the Company for certain acquired intangible assets, the Company utilized internally-developed discounted cash flow forecasts. See Note 7, Acquisitions, for further details regarding the acquired assets and fair value measurements employed.
15. 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 currently known facts and circumstances 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 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 interim effective tax rate, inclusive of discrete items, for the three and nine month periods ended February 29, 2024 was 23.4 % and 23.5 %, respectively, compared to 26.3 % and 36.3 %, respectively, for the prior fiscal year period. The interim effective tax rate for the nine months ended February 29, 2024 varies from the statutory rate primarily due to state & local income tax.
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 fiscal 2023 with no impact to the financial results. During the third quarter of fiscal 2023, the Company received a federal tax refund of $ 9.8 , inclusive of interest, which was released due to the completion of the IRS examination. The fiscal 2021 and fiscal 2022 tax years remain subject to audit.
22
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
(Dollar amounts in millions, except per share data)
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 with 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 Condensed Consolidated Financial Statements. These amounts are included in Selling, general and administrative expenses. Future developments relating to the foregoing could result in adjustments being made to these accruals.
16. 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 February 29, 2024 and February 28, 2023 were $ 22.8 and $ 22.8 , respectively. A net unrealized gain of $ 0.2 and $ 0.6 was recognized for the nine months ended February 29, 2024 and February 28, 2023, respectively.
17. OTHER ACCRUED EXPENSES
Other accrued expenses consisted of the following as of the dates indicated:
February 29, 2024 May 31, 2023 February 28, 2023
Accrued payroll, payroll taxes and benefits $ 32.7 $ 29.2 $ 31.6
Accrued bonus and commissions 18.1 31.2 21.8
Returns liability 38.3 34.9 44.8
Accrued other taxes 19.9 24.8 20.5
Accrued advertising and promotions 7.9 7.3 8.8
Other accrued expenses 39.8 41.5 36.4
Total accrued expenses $ 156.7 $ 168.9 $ 163.9
18. SUBSEQUENT EVENTS
On March 11, 2024, the Company signed a definitive agreement to invest in 9 Story Media Group ("9 Story"), a leading creator, producer and distributor of premium animated and live-action children's content. Under the terms of the definitive agreement with 9 Story, Scholastic will acquire 100 % of the economic interests and a minority of voting rights in 9 Story for approximately $ 186 million, subject to customary purchase price adjustments. The investment has been approved by both companies' boards of directors and the shareholders of 9 Story. Subject to receipt of a satisfactory opinion by the Minister of Canadian Heritage and other customary closing conditions, the transaction is expected to close in the first quarter of fiscal 2025.
On March 20, 2024, the Board declared a quarterly cash dividend of $ 0.20 per share on the Company’s Class A and Common Stock for the fourth quarter of fiscal 2024. The dividend is payable on June 17, 2024 to shareholders of record as of the close of business on April 30, 2024. The Board also authorized an increase of $ 54.6 for Common share repurchases under the Company's share buy-back program, resulting in a current Board authorization of $ 100.0 , which includes $ 46.0 remaining from the previous Board authorization less share repurchases of $ 0.6 subsequent to February 29, 2024.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
Overview and Outlook
Revenues for the third quarter ended February 29, 2024 were $323.7 million, compared to $324.9 million in the prior fiscal year quarter, a decrease of $1.2 million. The Company reported net loss per diluted share of Class A and Common Stock of $0.91 in the third quarter of fiscal 2024, compared to net loss per diluted share of $0.57 in the prior fiscal year quarter.
During the third fiscal quarter, trade channel revenues benefited from multiple new releases, which expanded the Company's presence on bestseller lists, including Heroes: A Novel of Pearl Harbor by Alan Gratz and the latest titles in our popular graphic novel series Heartstopper TM by Alice Oseman, Wings of Fire TM by Tui Sutherland, Amulet by Kazi Kibuishi and The Baby-Sitters Club ® by Ann Martin. Looking ahead, the next title in Dav Pilkey’s Dog Man ® series went on sale on March 19th. Following the success of the Goosebumps ® TV series which debuted last fall, Disney announced it has greenlit a second season of the hit series for Disney+ ® . On March 11th, the Company signed a definitive agreement to invest in 9 Story Media Group ("9 Story"). This strategic combination with a leading creator, producer and distributor of premium animated and live-action children’s content will significantly grow the Company's footprint in children’s media as well as opportunities to build and monetize Scholastic’s trusted global brand, best-selling publishing and unique distribution channels, reaching kids where they are and creating more value for our shareholders.
On a consolidated basis, the Company experienced modest revenue declines and higher expected losses in the seasonally small third quarter, in-line with expectations, reflecting the continued impact of the currently complex environment in U.S. schools on the School Reading Events and Education divisions. The Company remains committed to executing on a long-term strategy, investing in content and capabilities to drive growth, maintaining a strong and efficient balance sheet, and returning capital to shareholders.
Results of Operations
Consolidated
Revenues for the quarter ended February 29, 2024 decreased by $1.2 million to $323.7 million, compared to $324.9 million in the prior fiscal year quarter. The Children's Book Publishing and Distribution segment revenues decreased by $10.4 million, primarily driven by lower book clubs channel sales, reflecting a planned reduction in unprofitable offers, as the business implements new customer-centric strategies and is integrated into the school reading events business, as well as lower media revenues compared to the the prior year which benefited from the release of the " Eva the Owlet" TM TV series, based on the Owl Diaries TM book series. These decreases were offset by increased trade publishing revenues driven by higher sales in both backlist and frontlist titles from book series, including Heartstopper , Wings of Fire , Amulet , and The Baby-Sitters Club . In the Education Solutions segment, revenues were relatively consistent with the prior period, down $1.5 million, as the third fiscal quarter is a lower volume period due to the seasonality of the school markets. In local currency, International segment revenues increased by $8.2 million, primarily reflecting higher trade channel sales in the UK and Canada as well as higher book fairs revenues in Canada. The net foreign exchange impact on the International segment revenues was not significant in the quarter ended February 29, 2024.
Revenues for the nine months ended February 29, 2024 decreased by $60.9 million to $1,114.8 million, compared to $1,175.7 million in the prior fiscal year period. The Children's Book Publishing and Distribution segment revenues decreased by $57.8 million, primarily driven by lower book clubs channel revenues reflecting a planned reduction in unprofitable offers, coupled with lower trade channel revenues resulting from the softness in the retail book market in the first half of the fiscal year and lower media revenues due to the prior period release of the " Eva the Owlet" TV series, based on the Owl Diaries book series. In the Education Solutions segment, revenues decreased by $7.7 million primarily due to the timing of revenues from summer learning product offerings as the Company continues to experience a shift in sales from the first fiscal quarter into the fourth fiscal quarter, coupled with sales declines in supplemental instructional materials, largely related to shifting approaches to literacy instruction. In local currency, the International segment revenues decreased by $2.0 million, primarily due to lower sales in Australia, primarily from the trade channel which continued to be impacted by the softness in the retail markets, partially offset by higher revenues in Canada driven by improved book fair performance and increased revenues in the U.K. primarily driven by the trade channel. International segment revenues were also impacted by unfavorable foreign exchange of $0.7 million in the period ended February 29, 2024.
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