Company Quick10K Filing
Quick10K
Scholastic
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$40.51 35 $1,430
10-Q 2019-02-28 Quarter: 2019-02-28
10-Q 2018-11-30 Quarter: 2018-11-30
10-Q 2018-08-31 Quarter: 2018-08-31
10-K 2018-05-31 Annual: 2018-05-31
10-Q 2018-02-28 Quarter: 2018-02-28
10-Q 2017-11-30 Quarter: 2017-11-30
10-Q 2017-08-31 Quarter: 2017-08-31
10-K 2017-05-31 Annual: 2017-05-31
10-Q 2017-02-28 Quarter: 2017-02-28
10-Q 2016-11-30 Quarter: 2016-11-30
10-Q 2016-08-31 Quarter: 2016-08-31
10-K 2016-05-31 Annual: 2016-05-31
10-Q 2016-02-29 Quarter: 2016-02-29
10-Q 2015-11-30 Quarter: 2015-11-30
10-Q 2015-08-31 Quarter: 2015-08-31
10-K 2015-05-31 Annual: 2015-05-31
10-Q 2015-02-28 Quarter: 2015-02-28
10-Q 2014-11-30 Quarter: 2014-11-30
10-Q 2014-08-31 Quarter: 2014-08-31
10-K 2014-05-31 Annual: 2014-05-31
10-Q 2014-02-28 Quarter: 2014-02-28
10-Q 2013-11-30 Quarter: 2013-11-30
8-K 2019-03-21 Earnings, Exhibits
8-K 2018-09-27 Earnings, Exhibits
8-K 2018-09-26 Officers, Shareholder Vote
8-K 2018-07-19 Earnings, Exhibits
8-K 2018-03-21 Earnings, Exhibits
MIDD Middleby 7,560
IIVI II-VI 2,630
AMBA Ambarella 1,610
THOR Synthorx 591
OSTK Overstock.com 502
GHL Greenhill 484
TK Teekay 459
NEN New England Realty Associates Limited Partnership 238
SUSG SusGlobal Energy 0
MTGA Mohegan Tribal Gaming Authority 0
SCHL 2019-02-28
Part I - Financial Information
Item 1. Financial Statements
Part II - Other Information
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 schl-ex311_20190228xq3.htm
EX-31.2 schl-ex312_20190228xq3.htm
EX-32 schl-ex32_20190228xq3.htm

Scholastic Earnings 2019-02-28

SCHL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 schl20190228-q3.htm 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
Quarterly Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended February 28, 2019
 
Commission File No. 000-19860
 
SCHOLASTIC CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware
 
13-3385513
(State or other jurisdiction of
incorporation or organization)
(IRS Employer Identification No.)
 
 
 
557 Broadway, New York, New York
10012
(Address of principal executive offices)
(Zip Code)
 
Registrant’s telephone number, including area code (212) 343-6100
 
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 x No o
 
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 x No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes o No x
 
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.
 
Title
 
Number of shares outstanding
of each class
 
as of February 28, 2019
 
 
 
Common Stock, $.01 par value
 
33,556,817
Class A Stock, $.01 par value
 
1,656,200


schlredbarlogoblackproa07.jpg

1



SCHOLASTIC CORPORATION
 
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2019

INDEX
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2



PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements

SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(Dollar amounts in millions, except per share data)
 

 
Three months ended
 
Nine months ended
 
February 28,
 
February 28,
 
2019
 
2018
 
2019
 
2018
Revenues
$
360.1

 
$
344.7

 
$
1,183.2

 
$
1,132.2

  Operating costs and expenses:
 

 
 

 
 

 
 

  Cost of goods sold
176.9

 
166.4

 
564.6

 
535.6

  Selling, general and administrative expenses
190.9

 
186.7

 
584.3

 
573.9

  Depreciation and amortization
13.7

 
11.0

 
41.3

 
30.0

  Asset impairments

 
4.3

 

 
11.0

Total operating costs and expenses
381.5

 
368.4

 
1,190.2

 
1,150.5

Operating income (loss)
(21.4
)
 
(23.7
)
 
(7.0
)
 
(18.3
)
Interest income (expense), net
1.0

 
0.2

 
2.3

 
0.5

Other components of net periodic benefit (cost)
(0.4
)
 
(39.8
)
 
(1.1
)
 
(55.4
)
Earnings (loss) before income taxes
(20.8
)
 
(63.3
)
 
(5.8
)
 
(73.2
)
Provision (benefit) for income taxes
(8.2
)
 
(14.1
)
 
(3.5
)
 
(17.4
)
Net income (loss)
$
(12.6
)
 
$
(49.2
)
 
$
(2.3
)
 
$
(55.8
)
Basic and diluted earnings (loss) per Share of Class A
  and Common Stock
 

 
 

 
 

 
 

Basic
$
(0.36
)
 
$
(1.41
)
 
$
(0.07
)
 
$
(1.59
)
Diluted
$
(0.36
)
 
$
(1.41
)
 
$
(0.07
)
 
$
(1.59
)

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 28,
 
February 28,
 
2019
 
2018
 
2019
 
2018
Net income (loss)
$
(12.6
)
 
$
(49.2
)
 
$
(2.3
)
 
$
(55.8
)
Other comprehensive income (loss), net:
 

 
 

 
 

 
 

   Foreign currency translation adjustments
1.7

 
2.2

 
(2.0
)
 
6.0

   Pension and postretirement adjustments (net of tax)
0.2

 
22.2

 
3.1

 
31.7

   Total other comprehensive income (loss), net
$
1.9

 
$
24.4

 
$
1.1

 
$
37.7

Comprehensive income (loss)
$
(10.7
)
 
$
(24.8
)
 
$
(1.2
)
 
$
(18.1
)
 
See accompanying notes


4



SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(Dollar amounts in millions, except per share data)
 
February 28,
2019
 
May 31,
2018
 
February 28,
2018
 
(Unaudited)
 
 
 
(Unaudited)
ASSETS
 

 
 

 
 

Current Assets:
 

 
 

 
 

Cash and cash equivalents
$
338.1

 
$
391.9

 
$
362.6

Accounts receivable, net
317.3

 
204.9

 
186.0

Inventories, net
356.8

 
294.9

 
356.9

Prepaid expenses and other current assets
84.8

 
66.6

 
100.1

Total current assets
1,097.0

 
958.3

 
1,005.6

Noncurrent Assets:
 
 
 
 
 
Property, plant and equipment, net
574.9

 
555.6

 
530.6

Prepublication costs, net
65.3

 
55.3

 
48.8

Royalty advances, net
52.3

 
44.8

 
50.3

Goodwill
119.1

 
119.2

 
119.1

Noncurrent deferred income taxes
43.6

 
25.2

 
17.8

Other assets and deferred charges
70.9

 
67.0

 
61.5

Total noncurrent assets
926.1

 
867.1

 
828.1

Total assets
$
2,023.1

 
$
1,825.4

 
$
1,833.7

 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

 
 

Current Liabilities:
 

 
 

 
 

Lines of credit and current portion of long-term debt
$
11.0

 
$
7.9

 
$
7.7

Accounts payable
215.3

 
198.9

 
208.4

Accrued royalties
76.8

 
34.6

 
63.2

Deferred revenue
154.7

 
24.7

 
56.5

Other accrued expenses
236.2

 
177.9

 
162.6

Accrued income taxes
2.1

 
1.8

 
1.2

Total current liabilities
696.1

 
445.8

 
499.6

Noncurrent Liabilities:
 

 
 

 
 

Long-term debt

 

 

Other noncurrent liabilities
57.9

 
58.8

 
66.5

Total noncurrent liabilities
57.9

 
58.8

 
66.5

 
 
 
 
 
 
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, 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, 33.6, 33.3 and 33.1 shares, respectively
0.4

 
0.4

 
0.4

Additional paid-in capital
619.4

 
614.4

 
614.6

Accumulated other comprehensive income (loss)
(54.6
)
 
(55.7
)
 
(56.5
)
Retained earnings
1,000.5

 
1,065.2

 
1,019.6

Treasury stock, at cost: 9.3, 9.6 and 9.8 shares, respectively
(296.6
)
 
(303.5
)
 
(310.5
)
Total stockholders’ equity
1,269.1

 
1,320.8

 
1,267.6

Total liabilities and stockholders’ equity
$
2,023.1

 
$
1,825.4

 
$
1,833.7

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 Stock
Common Stock
 
Additional Paid-in Capital
 
Accumulated
Other Comprehensive
Income (Loss)
 
Retained
Earnings
 
Treasury Stock
At Cost
 
Total
Stockholders'
Equity
 
Shares
 
Amount
Shares
 
Amount
 
 
 
 
 
Balance at June 1, 2018
1.7

 
$
0.0

33.3

 
$
0.4

 
$
614.4

 
$
(55.7
)
 
$
1,065.2

 
$
(303.5
)
 
$
1,320.8

Net Income (loss)

 


 

 

 

 
(61.3
)
 

 
(61.3
)
Adoption of ASC 606 (net of tax $16.0)
 
 
 
 
 
 
 
 
 
 
 
(46.5
)
 
 
 
(46.5
)
Foreign currency translation adjustment

 


 

 

 
(3.1
)
 

 

 
(3.1
)
Pension and post-retirement adjustments (net of tax of $0.0)

 


 

 

 
0.2

 

 

 
0.2

Stock-based compensation

 


 

 
1.5

 

 

 

 
1.5

Proceeds pursuant to stock-based compensation plans

 


 

 
2.8

 

 

 

 
2.8

Purchases of treasury stock at cost

 


 

 

 

 

 

 

Treasury stock issued pursuant to equity-based plans

 

0.1

 

 
(3.2
)
 

 

 
3.5

 
0.3

Dividends ($0.15 per share)

 


 

 

 

 
(5.3
)
 

 
(5.3
)
Balance at August 31, 2018
1.7

 
$
0.0

33.4

 
$
0.4

 
$
615.5

 
$
(58.6
)
 
$
952.1

 
$
(300.0
)
 
$
1,209.4

Net Income (loss)

 


 

 

 

 
71.6

 

 
71.6

Foreign currency translation adjustment

 


 

 

 
(0.6
)
 

 

 
(0.6
)
Pension and post-retirement adjustments (net of tax of $0.8)

 


 

 

 
2.7

 

 

 
2.7

Stock-based compensation plans

 


 

 
3.7

 

 

 

 
3.7

Proceeds pursuant to stock-based compensation plans

 


 

 
2.5

 

 

 

 
2.5

Purchases of treasury stock at cost

 


 

 

 

 

 

 

Treasury stock issued pursuant to equity-based plans

 

0.2

 

 
(3.8
)
 

 

 
4.4

 
0.6

Dividends ($0.15 per share)

 


 

 

 

 
(5.3
)
 

 
(5.3
)
Balance at November 30, 2018
1.7

 
$
0.0

33.6

 
$
0.4

 
$
617.9

 
$
(56.5
)
 
$
1,018.4

 
$
(295.6
)
 
$
1,284.6

Net Income (loss)

 


 
 
 

 

 
(12.6
)
 

 
(12.6
)
Foreign currency translation adjustment

 


 

 

 
1.7

 

 

 
1.7

Pension and post-retirement adjustments (net of tax of $0.0)

 


 

 

 
0.2

 

 

 
0.2

Stock-based compensation plans

 


 

 
1.6

 

 

 

 
1.6

Proceeds pursuant to stock-based compensation plans

 


 

 
0.5

 

 

 

 
0.5

Purchases of treasury stock at cost

 

(0.1
)
 

 

 

 

 
(2.0
)
 
(2.0
)
Treasury stock issued pursuant to equity-based plans

 

0.1

 

 
(0.6
)
 

 

 
1.0

 
0.4

Dividends ($0.15 per share)

 


 

 

 

 
(5.3
)
 

 
(5.3
)
Balance at February 28, 2019
1.7

 
$
0.0

33.6

 
$
0.4

 
$
619.4

 
$
(54.6
)
 
$
1,000.5

 
$
(296.6
)
 
$
1,269.1

See accompanying notes






6



SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - UNAUDITED
(Dollar amounts in millions, except per share data)
 
Class A Stock
Common Stock
 
Additional Paid-in Capital
 
Accumulated
Other Comprehensive
Income (Loss)
 
Retained
Earnings
 
Treasury Stock
At Cost
 
Total
Stockholders'
Equity
 
Shares
 
Amount
Shares
 
Amount
 
 
 
 
 
Balance at June 1, 2017
1.7

 
$
0.0

33.4

 
$
0.4

 
$
606.8

 
$
(94.2
)
 
$
1,091.2

 
$
(296.3
)
 
$
1,307.9

Net Income (loss)

 


 

 

 

 
(63.7
)
 

 
(63.7
)
Foreign currency translation adjustment

 


 

 

 
3.7

 

 

 
3.7

Pension and post-retirement adjustments (net of tax of $0.1)

 


 

 

 
0.5

 

 

 
0.5

Stock-based compensation

 


 

 
1.5

 

 

 

 
1.5

Proceeds pursuant to stock-based compensation plans

 


 

 
2.8

 

 

 

 
2.8

Purchases of treasury stock at cost

 

(0.1
)
 

 

 

 

 
(4.7
)
 
(4.7
)
Treasury stock issued pursuant to equity-based plans

 

0.1

 

 
(2.6
)
 

 

 
2.9

 
0.3

Dividends ($0.15 per share)

 


 

 

 

 
(5.3
)
 

 
(5.3
)
Balance at August 31, 2017
1.7

 
$
0.0

33.4

 
$
0.4

 
$
608.5

 
$
(90.0
)
 
$
1,022.2

 
$
(298.1
)
 
$
1,243.0

Net Income (loss)

 


 

 



 
57.1

 

 
57.1

Foreign currency translation adjustment

 


 

 

 
0.1

 

 

 
0.1

Pension and post-retirement adjustments (net of tax of $6.3)

 


 

 

 
9.0

 

 

 
9.0

Stock-based compensation

 


 

 
6.0

 

 

 

 
6.0

Proceeds pursuant to stock-based compensation plans

 


 

 
1.1

 

 

 

 
1.1

Purchases of treasury stock at cost

 

(0.3
)
 

 

 

 

 
(8.6
)
 
(8.6
)
Treasury stock issued pursuant to equity-based plans

 

0.1

 

 
(3.3
)
 

 

 
3.5

 
0.2

Dividends ($0.15 per share)

 


 

 

 

 
(5.2
)
 

 
(5.2
)
Balance at November 30, 2017
1.7

 
$
0.0

33.2

 
$
0.4

 
$
612.3

 
$
(80.9
)
 
$
1,074.1

 
$
(303.2
)
 
$
1,302.7

Net Income (loss)

 


 

 



 
(49.2
)
 

 
(49.2
)
Foreign currency translation adjustment

 


 

 

 
2.2

 

 

 
2.2

Pension and post-retirement adjustments (net of tax of $14.5)

 


 

 

 
22.2

 

 

 
22.2

Stock-based compensation

 


 

 
1.6

 

 

 

 
1.6

Proceeds pursuant to stock-based compensation plans

 


 

 
5.0

 

 

 

 
5.0

Purchases of treasury stock at cost

 

(0.3
)
 

 

 

 

 
(11.9
)
 
(11.9
)
Treasury stock issued pursuant to equity-based plans

 

0.2

 

 
(4.3
)
 

 

 
4.6

 
0.3

Dividends ($0.15 per share)

 


 

 

 

 
(5.3
)
 

 
(5.3
)
Balance at February 28, 2018
1.7

 
$
0.0

33.1

 
$
0.4

 
$
614.6

 
$
(56.5
)
 
$
1,019.6

 
$
(310.5
)
 
$
1,267.6

See accompanying notes

7



SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
(Dollar amounts in millions)
 
 
Nine months ended
 
February 28,
 
2019
 
2018
Cash flows - operating activities:
 

 
 

Net income (loss)
$
(2.3
)
 
$
(55.8
)
Adjustments to reconcile Net income (loss) to net cash provided by (used in) operating activities:
 

 
 

   Provision for losses on accounts receivable
5.7

 
7.9

   Provision for losses on inventory
12.2

 
11.5

   Provision for losses on royalty advances
3.0

 
3.3

   Amortization of prepublication and production costs
16.6

 
16.4

   Depreciation and amortization
43.7

 
32.2

   Pension settlement

 
55.0

   Amortization of pension and postretirement actuarial gains and losses
0.5

 
1.8

   Deferred income taxes
(2.6
)
 
15.5

   Stock-based compensation
6.8

 
9.1

   Income from equity investments
(5.7
)
 
(3.7
)
   Write off related to asset impairments

 
11.0

Changes in assets and liabilities:
 

 
 

   Accounts receivable
(87.9
)
 
8.6

   Inventories
(77.9
)
 
(82.0
)
   Prepaid expenses and other current assets
(24.7
)
 
(57.8
)
   Royalty advances
(10.7
)
 
(11.5
)
   Accounts payable
29.4

 
63.4

   Other accrued expenses
(9.6
)
 
(15.8
)
   Returns liability
69.0

 

   Accrued income taxes
0.4

 
(1.8
)
   Accrued royalties
42.5

 
28.1

   Deferred revenue
43.9

 
31.8

   Pension and postretirement obligations
(2.0
)
 
(3.9
)
   Other noncurrent liabilities
1.1

 
1.6

   Other, net
9.1

 
0.0

Total adjustments
62.8

 
120.7

Net cash provided by (used in) operating activities
60.5

 
64.9

 
 
 
 
Cash flows - investing activities:
 

 
 

Prepublication and production expenditures
(32.3
)
 
(22.4
)
Additions to property, plant and equipment (including capitalized software)
(71.0
)
 
(92.4
)
Other investment and acquisition related payments
(0.5
)
 
(2.0
)
Net cash provided by (used in) investing activities
(103.8
)
 
(116.8
)

See accompanying notes

8



SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
(Dollar amounts in millions)
 
Nine months ended
 
February 28,
 
February 28,
 
2019
 
2018
Cash flows - financing activities:
 

 
 

Borrowings under lines of credit
48.5

 
40.4

Repayments of lines of credit
(46.6
)
 
(37.8
)
Repayment of capital lease obligations
(1.1
)
 
(0.9
)
Reacquisition of common stock
(2.0
)
 
(23.8
)
Proceeds pursuant to stock-based compensation plans
5.8

 
8.9

Payment of dividends
(15.8
)
 
(15.8
)
Other
1.3

 
(1.2
)
Net cash provided by (used in) financing activities
(9.9
)
 
(30.2
)
Effect of exchange rate changes on cash and cash equivalents
(0.6
)
 
0.6

Net increase (decrease) in cash and cash equivalents
(53.8
)
 
(81.5
)
Cash and cash equivalents at beginning of period
391.9

 
444.1

Cash and cash equivalents at end of period
$
338.1

 
$
362.6

 
See accompanying notes


9

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 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.
 
The Company’s fiscal year is not a calendar year. Accordingly, references in this document to fiscal 2019 relate to the twelve-month period ending May 31, 2019.

Certain reclassifications have been made to conform to the current year presentation.

Interim Financial Statements

The accompanying unaudited condensed consolidated interim financial statements (referred to as the “Financial Statements” herein) 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, 2018. 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. 

On August 17, 2018, the SEC issued a final rule, Release No. 33-10532, Disclosure Update and Simplification, which amends certain of its disclosure requirements and became effective for the Company for the fiscal quarter ended February 28, 2019 and the Company has updated its Financial Statements accordingly.

Seasonality
 
The Company’s Children’s Book Publishing and Distribution school-based book fairs and book club channels and most of its Education 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 are generally lower than its revenues in the other two fiscal quarters. Typically, school-based channel and classroom magazine revenues are minimal in the first quarter of the fiscal year as schools are not in session. Trade sales can vary throughout the year due to varying release dates of published titles. The Company generally experiences a loss from operations in the first and third quarters of each fiscal year.
 
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:
Variable consideration related to anticipated returns
Accounts receivable allowance for doubtful accounts
Pension and other postretirement obligations
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

10

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
(Dollar amounts in millions, except per share data)



Impairment testing for goodwill, intangibles and other long-lived assets and investments
Assets and liabilities acquired in business combinations
Revenues for book fairs which have not reported final results
Allocation of transaction price to performance obligations

New Accounting Pronouncements

Topic 606, Revenue from Contracts with Customers
Refer to Note 2, Revenues, for a discussion of the Company's revenue recognition accounting following the adoption of Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), and related amendments, in the first quarter of fiscal 2019.

Forthcoming Adoptions:

ASU No. 2016-02, ASU No. 2018-10 and ASU No. 2018-11
In February 2016, the Financial Accounting Standards Board (the "FASB") issued ASU No. 2016-02, Leases (Topic 842) which supersedes existing guidance on accounting for leases in ASC Topic 840, Leases. The amendments in this ASU, among other things, require lessees to account for leases as either finance leases or operating leases and generally require all leases to be recorded on the balance sheet, through the recognition of right-of-use assets and corresponding lease liabilities. The lease liability should be measured at the present value of the lease payments over the lease term. The right-of-use asset should be measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and lessee's initial direct costs (e.g., commissions). The guidance also requires specific qualitative and quantitative disclosures about leasing activities.

In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provide an additional (and optional) transition method whereby the new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings.

The Company's assessment efforts to date have included reviewing the standard's provisions and gathering information to evaluate the landscape of its real estate, personal property, and other arrangements that may meet the definition of a lease. Based on these efforts, the Company currently anticipates that the adoption of ASU 2016-02 will result in a significant increase to its long-term assets and liabilities as most of its current operating lease commitments will be subject to balance sheet recognition. Recognition of lease expense in the condensed consolidated statement of operations is not anticipated to significantly change. The Company anticipates it will apply certain practical expedients permitted by the standard and intended to ease transition to the standard, which include allowing the Company to carryforward its original lease classification conclusions (i.e., finance or operating) without reassessment. The Company is also evaluating which, if any, other expedients it will elect upon adoption, including the use of hindsight in assessing factors that impact determination of the lease term, such as the likelihood that any renewal or purchase options are exercised.

ASU No. 2016-02, ASU No. 2018-10 and ASU No. 2018-11 are effective for the Company in the first quarter of fiscal 2020 and are required to be applied using the modified retrospective approach for all leases existing as of the effective date.

2. REVENUES

Adoption of Topic 606, Revenue from Contracts with Customers

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("Topic 606"). ASU No. 2014-09, along with various amendments that comprise Topic 606, provide a single accounting model for revenue from contracts with customers and supersedes the previous revenue recognition guidance, including certain industry-specific and transaction-specific guidance. The core principle of Topic 606 is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.

The Company adopted Topic 606 on June 1, 2018 and elected to apply Topic 606 using the modified

11

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
(Dollar amounts in millions, except per share data)



retrospective method. The Company determined that the adoption of Topic 606 had the following impact: (i) a deferral of certain revenue associated with the Company's book fairs incentive program (reflected in Deferred revenue), (ii) recognition of a refund liability (recorded as an increase to Other accrued expenses) and a return asset (recorded as an increase to Prepaid expenses and other current assets) for the right to recover products from customers upon settling the refund liability based on expected returns and (iii) recognition of previously capitalized direct response advertising costs as incurred, primarily related to the magazines business.

Updates to Significant Accounting Policies

The Company updated its significant accounting policies as a result of the adoption of Topic 606 as follows:
Revenue Recognition - School-Based Book Fairs
Revenues associated with school-based book fairs relate to the sale of children's books and other products to book fair sponsors. In addition, the Company employs an incentive program to encourage the sponsorship of book fairs and increase the number of fairs held each school year. The Company identifies two performance obligations within its school-based book fair contracts which include the fulfillment of book fairs product and the fulfillment of product upon the redemption of incentive program credits by customers. The Company allocates the transaction price to each performance obligation and recognizes revenue at a point in time. The Company utilizes certain estimates based on historical experience and future expectations related to the participation in the incentive program as well as redemption patterns to determine the relative fair value of each performance obligation when allocating the transaction price. Changes in these estimates could impact the timing of the recognition of revenue. Revenues allocated to the book fair product will be recognized at the point at which product is delivered to the customer and control is transferred. The revenue allocated to the incentive program credits is recognized upon redemption of incentive credits and the transfer of control of the redeemed product. Incentive credits are generally redeemed within 12 months of issuance. Payment for school-based book fairs product is due at the completion of a customer's fair. The sale of school-based book fair product contains a right of return.
Estimated Returns
For sales that include a right of return, which primarily include the trade and school-based book fair channels, the Company will estimate the transaction price and record revenues as variable consideration based on the amounts the Company expects to ultimately be entitled. In order to determine estimated returns, the Company utilizes historical return rates, sales patterns, types of products and expectations and recognizes a corresponding reduction to Revenues and Cost of goods sold. In addition, a refund liability is recorded within Other accrued expenses for the consideration to which the Company believes it will not ultimately be entitled and a return asset is recorded within Prepaid expenses and other current assets for the expected inventory to be returned.

The Company has elected to present sales and other related taxes on a net basis, excluded from revenues, and as such, these are included within Other accrued expenses until remitted to taxing authorities. Shipping and handling costs that are billed to customers are included in Revenues, with costs recorded in Cost of goods sold.

Transition

The Company applied Topic 606 to all contracts as of the date of initial adoption, June 1, 2018. The cumulative effect of adopting Topic 606 was a $46.5 decrease to the opening balance of Retained earnings as of June 1, 2018.

The cumulative effect of the changes made to the Company’s condensed consolidated balance sheet at June 1, 2018 are as follows:

12

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
(Dollar amounts in millions, except per share data)



 
As reported - May 31, 2018
Adjustments due to adoption
 
June 1, 2018
Accounts receivable, net
$
204.9

$
31.1

(1) 
$
236.0

Inventories, net
294.9

(1.9
)
(2) 
293.0

Prepaid expenses and other current assets
66.6

(4.3
)
(2)(3) 
62.3

Noncurrent deferred income taxes
25.2

16.0

(4) 
41.2

Deferred revenue
24.7

86.3

(5) 
111.0

Other accrued expenses
177.9

1.1

(6) 
179.0

Retained earnings
1,065.2

(46.5
)
 
1,018.7

(1) - Primarily represents the reclassification of the Company’s accounting for estimated returns from a reduction to Accounts receivable, net, to a current liability within Other accrued expenses.
(2) - Represents the reclassification of a return asset from Inventory to Prepaid expenses and other current assets.
(3) - Primarily represents the adjustment for previously capitalized direct response advertising costs.
(4) - Represents the income tax impact of Topic 606 adjustments.
(5) - Represents the deferred revenue related to outstanding book fairs incentive credits as of June 1, 2018.
(6) - Represents a reduction to Other accrued expenses of $27.2 for outstanding book fair incentive credits as of June 1, 2018. This decrease was offset by a $28.3 increase for estimated returns recorded to Other accrued expenses.

Application of Topic 606 to the Current Fiscal Year

The comparative prior fiscal period information continues to be reported under the accounting standards in effect during those fiscal periods. The following table illustrates the amounts by which each summarized income statement line item was affected by the adoption of Topic 606:
 
 
As reported
Adjustments
 
Without adoption of Topic 606
Three months ended February 28, 2019
 
 
 
 
 
Revenues
 
$
360.1

$
(9.4
)
(1) 
$
350.7

Cost of goods sold
 
176.9

(2.0
)
(1) 
174.9

Selling, general and administrative expenses
 
190.9

0.1

(2) 
191.0

Depreciation and amortization
 
13.7


 
13.7

Operating income (loss)
 
(21.4
)
(7.5
)
 
(28.9
)
Interest income (expense), net
 
1.0


 
1.0

Other components of net periodic benefit (cost)
 
(0.4
)

 
(0.4
)
Provision (benefit) for income taxes
 
(8.2
)
(2.0
)
(3) 
(10.2
)
Net income (loss)
 
$
(12.6
)
$
(5.5
)
 
$
(18.1
)
Basic earnings (loss) per share:
 
$
(0.36
)
$
(0.16
)
 
$
(0.52
)
Diluted earnings (loss) per share:
 
$
(0.36
)
$
(0.16
)
 
$
(0.52
)
 
 
 
 
 
 
Nine months ended February 28, 2019
 
 
Revenues
 
$
1,183.2

$
(11.1
)
(1) 
$
1,172.1

Cost of goods sold
 
564.6

(3.5
)
(1) 
561.1

Selling, general and administrative expenses
 
584.3

(0.5
)
(2) 
583.8

Depreciation and amortization
 
41.3


 
41.3

Operating income (loss)
 
(7.0
)
(7.1
)
 
(14.1
)
Interest income (expense), net
 
2.3


 
2.3

Other components of net periodic benefit (cost)
 
(1.1
)

 
(1.1
)
Provision (benefit) for income taxes
 
(3.5
)
(1.9
)
(3) 
(5.4
)
Net income (loss)
 
$
(2.3
)
$
(5.2
)
 
$
(7.5
)
Basic earnings (loss) per share:
 
$
(0.07
)
$
(0.15
)
 
$
(0.22
)
Diluted earnings (loss) per share:
 
$
(0.07
)
$
(0.15
)
 
$
(0.22
)
(1) - Represents incremental revenue and cost of goods sold related to the redemption of book fairs incentive program credits, partially offset by additional deferred revenue on incentive credits awarded during the period.
(2) - Represents direct response advertising costs being expensed as incurred.
(3) - Represents the income tax impact of Topic 606 adjustments.

13

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
(Dollar amounts in millions, except per share data)




Estimated Returns
As of February 28, 2019, a liability for expected returns of $97.3 is recorded within Other accrued expenses on the Company's condensed consolidated balance sheets. In addition, as of February 28, 2019, a return asset of $13.2 is recorded within Prepaid expenses and other current assets for the recoverable cost of product estimated to be returned by customers.

Deferred Revenue
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. These liabilities are recorded within Deferred revenue on the Company's condensed consolidated balance sheets and are classified as short term, as substantially all of the associated performance obligations are expected to be satisfied, and related revenue recognized, within one year. The amount of revenue recognized in the three and nine months ended February 28, 2019 included within the opening Deferred revenue balance was $28.3 and $91.0, respectively.

Disaggregated Revenue Data

The following table presents the Company’s revenues disaggregated by region and channel:
Three months ended February 28,
2019
2018
  Book Clubs
$
55.0

$
57.7

  Book Fairs
97.4

91.5

  Trade
65.6

52.4

Total Children's Book Publishing & Distribution
218.0

201.6

 
 
 
Education
60.3

59.5

 
 
 
   Major Markets(1)
54.5

55.3

   Other Markets(2)
27.3

28.3

Total International
81.8

83.6

Total Revenues
$
360.1

$
344.7

 
 
 
Nine months ended February 28,
2019
2018
  Book Clubs
$
165.4

$
165.6

  Book Fairs
343.3

334.6

  Trade
222.9

184.0

Total Children's Book Publishing & Distribution
731.6

684.2

 
 
 
Education
179.7

171.4

 
 
 
   Major Markets(1)
192.7

195.6

   Other Markets(2)
79.2

81.0

Total International
271.9

276.6

Total Revenues
$
1,183.2

$
1,132.2

(1) - Includes Canada, UK, Australia and New Zealand.
(2) - Primarily includes markets in Asia.

3. SEGMENT INFORMATION

The Company categorizes its businesses into three reportable segments: Children’s Book Publishing and Distribution and Education, which comprise the Company's domestic operations; and International.
 

14

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
(Dollar amounts in millions, except per share data)



Children’s Book Publishing and Distribution operates as an integrated business which includes the publication and distribution of children’s books, ebooks, media and interactive products in the United States through its book clubs and book fairs in its school channels and through the trade channel. This segment is comprised of three operating segments.

Education 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 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.

International includes the publication and distribution of products and services outside the United States by the Company’s international operations, and its export and foreign rights businesses. This segment is comprised of three operating segments.
 
Children’s
Book
Publishing &
Distribution
 
Education
 
Overhead (1)
 
Total
Domestic
 
International
 
Total
Three months ended 
 February 28, 2019
 

 
 

 
 

 
 

 
 

 
 

Revenues
$
218.0

 
$
60.3

 
$

 
$
278.3

 
$
81.8

 
$
360.1

Bad debt expense
0.8

 
0.5

 

 
1.3

 
0.3

 
1.6

Depreciation and amortization (2)
5.9

 
2.6

 
10.4

 
18.9

 
1.6

 
20.5

Asset impairments

 

 

 

 

 

Segment operating income (loss)
4.4

 
0.3

 
(23.1
)
 
(18.4
)
 
(3.0
)
 
(21.4
)
Expenditures for other noncurrent assets (4)

17.3

 
5.5

 
15.3

 
38.1

 
2.7

 
40.8

Three months ended 
 February 28, 2018
 

 
 

 
 

 
 

 
 

 
 

Revenues
$
201.6

 
$
59.5

 
$

 
$
261.1

 
$
83.6

 
$
344.7

Bad debt expense
0.7

 
0.4

 

 
1.1

 
0.6

 
1.7

Depreciation and amortization (2)
5.8

 
1.9

 
7.5

 
15.2

 
1.8

 
17.0

Asset impairments (3)

 

 
4.3

 
4.3

 

 
4.3

Segment operating income (loss)
(1.0
)
 
(0.1
)
 
(23.3
)
 
(24.4
)
 
0.7

 
(23.7
)
Expenditures for other noncurrent assets (4)
17.7

 
4.5

 
29.7

 
51.9

 
5.7

 
57.6


15

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
(Dollar amounts in millions, except per share data)



 
Children’s
Book
Publishing &
Distribution
 
Education
 
Overhead (1)
 
Total
Domestic
 
International
 
Total
Nine months ended 
 February 28, 2019
 

 
 

 
 

 
 

 
 

 
 

Revenues
$
731.6

 
$
179.7

 
$

 
$
911.3

 
$
271.9

 
$
1,183.2

Bad debt expense
3.2

 
1.2

 

 
4.4

 
1.3

 
5.7

Depreciation and amortization (2)
17.5

 
6.7

 
31.1

 
55.3

 
5.0

 
60.3

Asset impairments

 

 

 

 

 

Segment operating income (loss)
64.7

 
(6.3
)
 
(73.4
)
 
(15.0
)
 
8.0

 
(7.0
)
Segment assets at February 28, 2019
585.2

 
173.6

 
977.9

 
1,736.7

 
286.4

 
2,023.1

Goodwill at February 28, 2019
40.9

 
68.2

 

 
109.1

 
10.0

 
119.1

Expenditures for other noncurrent assets (4)

48.3

 
15.6

 
55.9

 
119.8

 
10.1

 
129.9

Other noncurrent assets at
February 28, 2019
(4)
170.4

 
112.3

 
502.8

 
785.5

 
80.3

 
865.8

Nine months ended 
 February 28, 2018
 

 
 

 
 

 
 

 
 

 
 

Revenues
$
684.2

 
$
171.4

 
$

 
$
855.6

 
$
276.6

 
$
1,132.2

Bad debt expense
3.4

 
1.4

 

 
4.8

 
3.1

 
7.9

Depreciation and amortization (2)
17.0

 
5.4

 
20.7

 
43.1

 
5.2

 
48.3

Asset impairments (3)

 

 
11.0

 
11.0

 

 
11.0

Segment operating income (loss)
55.1