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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
Quarterly Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended
November 30, 2022
Commission File No. 000-19860
 
SCHOLASTIC CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware13-3385513
(State or other jurisdiction of
incorporation or organization)
(IRS Employer Identification No.)
557 Broadway,
New York,New York10012
(Address of principal executive offices)(Zip Code)
 
Registrant’s telephone number, including area code (212) 343-6100
Title of ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, $0.01 par valueSCHLThe NASDAQ Stock Market LLC
 
    Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

    Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes No
 
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date:
Title of each class Number of shares outstanding as of November 30, 2022
Common Stock, $0.01 par value 32,354,790
Class A Stock, $0.01 par value 1,656,200
https://cdn.kscope.io/d174a71b15c12c24486d7c5d2448510a-schl-20221130_g1.jpg
1


SCHOLASTIC CORPORATION
 
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED November 30, 2022

INDEX
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2


PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements
SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(Dollar amounts in millions, except per share data)
 
 Three months endedSix months ended
November 30,November 30,
 2022202120222021
Revenues$587.9 $524.2 $850.8 $784.0 
Operating costs and expenses:    
  Cost of goods sold 260.4 238.0 404.9 371.3 
  Selling, general and administrative expenses213.6 188.3 376.4 331.9 
  Depreciation and amortization13.8 14.5 27.5 29.4 
Total operating costs and expenses487.8 440.8 808.8 732.6 
Operating income (loss)100.1 83.4 42.0 51.4 
Interest income (expense), net0.7 (0.5)0.9 (1.8)
Other components of net periodic benefit (cost) 0.1 0.0 0.1 0.0 
Gain (loss) on sale of assets and other  6.2  6.2 
Earnings (loss) before income taxes100.9 89.1 43.0 55.8 
Provision (benefit) for income taxes25.5 20.7 13.0 11.8 
Net income (loss)75.4 68.4 30.0 44.0 
Less: Net income (loss) attributable to noncontrolling interest0.1 0.10.2 (0.1)
Net income (loss) attributable to Scholastic Corporation$75.3 $68.3 $29.8 $44.1 
Basic and diluted earnings (loss) per share of Class A and Common Stock    
Basic $2.17 $1.97 $0.86 $1.27 
Diluted $2.12 $1.91 $0.84 $1.24 
See accompanying notes    


3


SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - UNAUDITED
(Dollar amounts in millions)
 
 Three months endedSix months ended
November 30,November 30,
 2022202120222021
Net income (loss)$75.4 $68.4 $30.0 $44.0 
Other comprehensive income (loss), net:   
   Foreign currency translation adjustments 3.0 (4.4)(6.6)(10.2)
   Pension and postretirement adjustments (net of tax)(0.1)0.5 (0.1)0.6 
Total other comprehensive income (loss), net$2.9 $(3.9)$(6.7)$(9.6)
Comprehensive income (loss)$78.3 $64.5 $23.3 $34.4 
Less: Net income (loss) attributable to noncontrolling interest0.1 0.1 0.2 (0.1)
Comprehensive income (loss) attributable to Scholastic Corporation$78.2 $64.4 $23.1 $34.5 
See accompanying notes

4


SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(Dollar amounts in millions, except per share data)
November 30, 2022May 31, 2022November 30, 2021
 (unaudited)(audited)(unaudited)
ASSETS   
Current Assets:   
Cash and cash equivalents$261.1 $316.6 $300.7 
Accounts receivable, net345.9 299.4 370.5 
Inventories, net380.4 281.4 279.3 
Income tax receivable 17.4 26.8 12.6 
Prepaid expenses and other current assets77.5 68.1 64.4 
Assets held for sale 3.7  
Total current assets1,082.3 996.0 1,027.5 
Noncurrent Assets:
Property, plant and equipment, net511.7 517.0 535.8 
Prepublication costs, net53.4 55.5 60.6 
Operating lease right-of-use assets, net75.1 81.9 67.3 
Royalty advances, net57.9 49.2 52.1 
Goodwill132.0 125.3 125.7 
Noncurrent deferred income taxes21.5 21.5 25.3 
Other assets and deferred charges100.1 94.4 86.4 
Total noncurrent assets951.7 944.8 953.2 
Total assets$2,034.0 $1,940.8 $1,980.7 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current Liabilities:   
Lines of credit and current portion of long-term debt$4.8 $6.5 $14.3 
Accounts payable212.4 162.3 180.5 
Accrued royalties69.4 61.3 63.6 
Deferred revenue232.7 172.8 192.3 
Other accrued expenses180.4 193.3 193.6 
Accrued income taxes2.1 2.7 4.6 
Operating lease liabilities22.9 20.8 22.8 
Total current liabilities724.7 619.7 671.7 
Noncurrent Liabilities:   
Long-term debt   
Operating lease liabilities61.9 69.8 55.4 
Other noncurrent liabilities29.3 32.9 43.6 
Total noncurrent liabilities91.2 102.7 99.0 
Commitments and Contingencies (see Note 6)   
Stockholders’ Equity:   
Preferred Stock, $1.00 par value: Authorized, 2.0 shares; Issued and Outstanding, none
$ $ $ 
Class A Stock, $0.01 par value: Authorized, 4.0 shares; Issued and Outstanding, 1.7 shares
0.0 0.0 0.0 
Common Stock, $0.01 par value: Authorized, 70.0 shares; Issued, 42.9 shares; Outstanding, 32.4, 32.5, and 32.9 shares, respectively
0.4 0.4 0.4 
Additional paid-in capital629.0 627.0 625.1 
Accumulated other comprehensive income (loss)(52.1)(45.4)(44.3)
Retained earnings992.4 976.5 950.1 
Treasury stock, at cost: 10.6, 10.4 and 10.0 shares, respectively
(353.2)(341.5)(322.5)
Total stockholders’ equity of Scholastic Corporation1,216.5 1,217.0 1,208.8 
  Noncontrolling interest1.6 1.4 1.2 
Total stockholders’ equity1,218.1 1,218.4 1,210.0 
Total liabilities and stockholders’ equity$2,034.0 $1,940.8 $1,980.7 
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 StockCommon StockAdditional Paid-in CapitalAccumulated
Other Comprehensive
Income (Loss)
Retained
Earnings
Treasury Stock
At Cost
Total
Stockholders'
Equity of Scholastic Corporation
Noncontrolling InterestTotal
Stockholders'
Equity
 SharesAmountSharesAmount
Balance at June 1, 20211.7$0.0 32.7$0.4 $626.5 $(34.7)$916.4 $(327.8)$1,180.8 $1.5 $1,182.3 
Net Income (loss)— — — — — — (24.2)— (24.2)(0.2)(24.4)
Foreign currency translation adjustment— — — — — (5.8)— — (5.8)— (5.8)
Pension and post-retirement adjustments (net of tax of $0.1)
— — — — — 0.1 — — 0.1 — 0.1 
Stock-based compensation— — — — 1.5 — — — 1.5 — 1.5 
Proceeds pursuant to stock-based compensation plans— — — — 0.5 — — — 0.5 — 0.5 
Treasury stock issued pursuant to equity-based plans— — 0.1 — (0.9)— — 1.5 0.6 — 0.6 
Dividends ($0.15 per share)
— — — — — — (5.2)— (5.2)— (5.2)
Balance at August 31, 20211.7 $0.0 32.8 $0.4 $627.6 $(40.4)$887.0 $(326.3)$1,148.3 $1.3 $1,149.6 
Net Income (loss)— — — — — — 68.3 — 68.3 0.1 68.4 
Foreign currency translation adjustment— — — — — (4.4)— — (4.4)— (4.4)
Pension and post-retirement adjustments (net of tax of $(0.1))
— — — — — 0.5 — — 0.5 — 0.5 
Stock-based compensation— — — — 3.0 — — — 3.0 — 3.0 
Proceeds pursuant to stock-based compensation plans— — — — 2.5 — — — 2.5 — 2.5 
Purchases of treasury stock at cost— — (0.1)— — — — (4.2)(4.2)— (4.2)
Treasury stock issued pursuant to equity-based plans— — 0.2 — (8.0)— — 8.0  —  
Dividends ($0.15 per share)
— — — — — — (5.2)— (5.2)— (5.2)
Other (noncontrolling interest)— — — — — — — — — (0.2)(0.2)
Balance at November 30, 20211.7 $0.0 32.9 $0.4 $625.1 $(44.3)$950.1 $(322.5)$1,208.8 $1.2 $1,210.0 

6


 Class A StockCommon StockAdditional Paid-in CapitalAccumulated
Other Comprehensive
Income (Loss)
Retained
Earnings
Treasury Stock
At Cost
Total
Stockholders'
Equity of Scholastic Corporation
Noncontrolling InterestTotal
Stockholders'
Equity
 SharesAmountSharesAmount
Balance at June 1, 20221.7 $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, 20221.7 $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, 20221.7 $0.0 32.4 $0.4 $629.0 $(52.1)$992.4 $(353.2)$1,216.5 $1.6 $1,218.1 
See accompanying notes
7


SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
(Dollar amounts in millions)
 
 Six months ended
November 30,November 30,
 20222021
Cash flows - operating activities:  
Net income (loss) attributable to Scholastic Corporation$29.8 $44.1 
Adjustments to reconcile Net income (loss) to net cash provided by (used in) operating activities:  
   Provision for losses on accounts receivable1.3 5.8 
   Provision for losses on inventory9.6 9.0 
   Provision for losses on royalty advances1.8 1.7 
   Amortization of prepublication costs12.4 13.5 
   Depreciation and amortization32.2 32.9 
   Amortization of pension and postretirement plans(0.2)(0.0)
   Deferred income taxes(0.4)(0.5)
   Stock-based compensation5.9 4.5 
   Income from equity-method investments(1.3)(1.6)
   (Gain) loss on sale of assets (6.2)
Changes in assets and liabilities, net of amounts acquired:  
   Accounts receivable(50.4)(124.6)
   Inventories(112.0)(23.0)
   Prepaid expenses and other current assets(8.9)(17.9)
   Income tax receivable 9.3 76.2 
   Royalty advances(10.8)(10.6)
   Accounts payable51.0 44.7 
   Accrued income taxes(0.4)1.8 
   Accrued royalties8.9 19.1 
   Deferred revenue60.6 94.0 
   Other accrued expenses (13.3)(12.1)
   Other, net (3.8)(9.2)
Net cash provided by (used in) operating activities21.3 141.6 
Cash flows - investing activities:  
Prepublication expenditures(11.0)(8.7)
Additions to property, plant and equipment (24.1)(18.8)
Net proceeds from sale of assets  10.4 
Other investment and acquisition-related payments(10.7)(0.1)
Net cash provided by (used in) investing activities(45.8)(17.2)
Cash flows - financing activities:  
Borrowings under lines of credit, credit agreement and revolving loan 2.0 1.8 
Repayments of lines of credit, credit agreement and revolving loan (3.5)(177.0)
Repayment of capital lease obligations(1.1)(1.1)
Reacquisition of common stock(29.7)(4.2)
Proceeds pursuant to stock-based compensation plans15.3 3.0 
Payment of dividends(12.0)(10.3)
Other (0.1)
Net cash provided by (used in) financing activities (29.0)(187.9)
Effect of exchange rate changes on cash and cash equivalents(2.0)(2.3)
Net increase (decrease) in cash and cash equivalents(55.5)(65.8)
Cash and cash equivalents at beginning of period316.6 366.5 
Cash and cash equivalents at end of period$261.1 $300.7 
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 2023 relate to the twelve-month period ending May 31, 2023.

Noncontrolling Interest

The Company owns a 95.0% majority ownership interest in Make Believe Ideas Limited ("MBI"), a UK-based children's book publishing company. The founder and chief executive officer of MBI retains a 5.0% noncontrolling ownership interest in MBI. The Company fully consolidated MBI as of the acquisition date, and the 5.0% noncontrolling interest is classified within stockholder's equity.

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, 2022. 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
Royalty advance reserves and royalty expense accruals
Impairment testing for goodwill, intangible and other long-lived assets and investments
9