10-Q 1 schl-20231130.htm 10-Q schl-20231130
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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, 2023
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, 2023
Common Stock, $0.01 par value 28,222,041
Class A Stock, $0.01 par value 1,656,200
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1


SCHOLASTIC CORPORATION
 
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED November 30, 2023

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 endedSix months ended
November 30,November 30,
 2023202220232022
Revenues$562.6 $587.9 $791.1 $850.8 
Operating costs and expenses:    
  Cost of goods sold 234.1 260.4 364.1 404.9 
  Selling, general and administrative expenses213.1 213.6 397.3 376.4 
  Depreciation and amortization14.1 13.8 27.5 27.5 
Total operating costs and expenses461.3 487.8 788.9 808.8 
Operating income (loss)101.3 100.1 2.2 42.0 
Interest income (expense), net0.4 0.7 1.8 0.9 
Other components of net periodic benefit (cost) (0.2)0.1 (0.5)0.1 
Earnings (loss) before income taxes101.5 100.9 3.5 43.0 
Provision (benefit) for income taxes24.6 25.5 0.8 13.0 
Net income (loss)76.9 75.4 2.7 30.0 
Less: Net income (loss) attributable to noncontrolling interest 0.1 0.2 
Net income (loss) attributable to Scholastic Corporation$76.9 $75.3 $2.7 $29.8 
Basic and diluted earnings (loss) per share of Class A and Common Stock    
Basic $2.51 $2.17 $0.09 $0.86 
Diluted $2.45 $2.12 $0.09 $0.84 
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,
 2023202220232022
Net income (loss)$76.9 $75.4 $2.7 $30.0 
Other comprehensive income (loss), net:   
   Foreign currency translation adjustments 0.2 3.0 2.0 (6.6)
   Pension and postretirement adjustments (net of tax)0.1 (0.1)0.3 (0.1)
Total other comprehensive income (loss), net$0.3 $2.9 $2.3 $(6.7)
Comprehensive income (loss)$77.2 $78.3 $5.0 $23.3 
Less: Net income (loss) attributable to noncontrolling interest 0.1  0.2 
Comprehensive income (loss) attributable to Scholastic Corporation$77.2 $78.2 $5.0 $23.1 
See accompanying notes

4


SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(Dollar amounts in millions, except per share data)
November 30, 2023May 31, 2023November 30, 2022
 (unaudited)(audited)(unaudited)
ASSETS   
Current Assets:   
Cash and cash equivalents$149.5 $224.5 $261.1 
Accounts receivable, net311.8 278.0 345.9 
Inventories, net302.3 334.5 380.4 
Income tax receivable 11.6 8.9 17.4 
Prepaid expenses and other current assets65.4 47.0 77.5 
Total current assets840.6 892.9 1,082.3 
Noncurrent Assets:
Property, plant and equipment, net523.6 521.4 511.7 
Prepublication costs, net55.2 56.4 53.4 
Operating lease right-of-use assets, net97.3 85.7 75.1 
Royalty advances, net55.4 56.8 57.9 
Goodwill132.8 132.7 132.0 
Noncurrent deferred income taxes20.9 21.0 21.5 
Other assets and deferred charges107.7 99.8 100.1 
Total noncurrent assets992.9 973.8 951.7 
Total assets$1,833.5 $1,866.7 $2,034.0 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current Liabilities:   
Lines of credit and current portion of long-term debt$6.3 $6.0 $4.8 
Accounts payable159.5 170.9 212.4 
Accrued royalties57.5 52.8 69.4 
Deferred revenue225.0 169.1 232.7 
Other accrued expenses162.5 168.9 180.4 
Accrued income taxes2.5 13.4 2.1 
Operating lease liabilities23.4 21.2 22.9 
Total current liabilities636.7 602.3 724.7 
Noncurrent Liabilities:   
Long-term debt   
Operating lease liabilities84.1 73.8 61.9 
Other noncurrent liabilities33.6 26.1 29.3 
Total noncurrent liabilities117.7 99.9 91.2 
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, 28.2, 30.0, and 32.4 shares, respectively
0.4 0.4 0.4 
Additional paid-in capital630.8 632.2 629.0 
Accumulated other comprehensive income (loss)(53.5)(55.8)(52.1)
Retained earnings1,026.0 1,035.6 992.4 
Treasury stock, at cost: 14.7, 12.9 and 10.6 shares, respectively
(524.6)(449.5)(353.2)
Total stockholders’ equity of Scholastic Corporation1,079.1 1,162.9 1,216.5 
  Noncontrolling interest 1.6 1.6 
Total stockholders’ equity1,079.1 1,164.5 1,218.1 
Total liabilities and stockholders’ equity$1,833.5 $1,866.7 $2,034.0 
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, 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 

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, 20231.7 $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, 20231.7 $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, 20231.7 $0.0 28.2 $0.4 $630.8 $(53.5)$1,026.0 $(524.6)$1,079.1 $ $1,079.1 
See accompanying notes
7


SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
(Dollar amounts in millions)
 
 Six months ended
November 30,November 30,
 20232022
Cash flows - operating activities:  
Net income (loss) attributable to Scholastic Corporation$2.7 $29.8 
Adjustments to reconcile Net income (loss) to net cash provided by (used in) operating activities:  
   Provision for losses on accounts receivable3.1 1.3 
   Provision for losses on inventory11.8 9.6 
   Provision for losses on royalty advances1.5 1.8 
   Amortization of prepublication costs13.3 12.4 
   Depreciation and amortization32.1 32.2 
   Amortization of pension and postretirement plans0.2 (0.2)
   Deferred income taxes0.3 (0.4)
   Stock-based compensation6.4 5.9 
   Income from equity-method investments(0.3)(1.3)
Changes in assets and liabilities, net of amounts acquired:  
   Accounts receivable(36.3)(50.4)
   Inventories21.2 (112.0)
   Prepaid expenses and other current assets(18.3)(8.9)
   Income tax receivable (2.7)9.3 
   Royalty advances0.0 (10.8)
   Accounts payable(11.3)51.0 
   Accrued income taxes(10.8)(0.4)
   Accrued royalties4.6 8.9 
   Deferred revenue55.8 60.6 
   Other accrued expenses (9.3)(13.3)
   Other, net 7.6 (3.8)
Net cash provided by (used in) operating activities71.6 21.3 
Cash flows - investing activities:  
Prepublication expenditures(11.7)(11.0)
Additions to property, plant and equipment (29.1)(24.1)
Other investment and acquisition-related payments(8.3)(10.7)
Net cash provided by (used in) investing activities(49.1)(45.8)
Cash flows - financing activities:  
Borrowings under lines of credit, credit agreement and revolving loan 27.1 2.0 
Repayments of lines of credit, credit agreement and revolving loan (26.8)(3.5)
Repayment of capital lease obligations(1.2)(1.1)
Reacquisition of common stock(90.2)(29.7)
Proceeds pursuant to stock-based compensation plans6.1 15.3 
Payment of dividends(12.8)(12.0)
Net cash provided by (used in) financing activities (97.8)(29.0)
Effect of exchange rate changes on cash and cash equivalents0.3 (2.0)
Net increase (decrease) in cash and cash equivalents(75.0)(55.5)
Cash and cash equivalents at beginning of period224.5 316.6 
Cash and cash equivalents at end of period$149.5 $261.1 
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. 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.

2. REVENUES

Disaggregated Revenue Data

The following table presents the Company’s segment revenues disaggregated by region and domestic channel:

Three months endedSix months ended
November 30,November 30,
2023202220232022
Book Clubs - U.S.$32.4 $57.6 $35.0 $63.9 
Book Fairs - U.S.242.1 240.8 269.4 269.1 
Trade - U.S.101.0 107.9 163.5 184.1 
Trade - International (1)
17.3 12.0 27.7 25.9 
Total Children's Book Publishing and Distribution$392.8 $418.3 $495.6 $543.0 
Education Solutions - U.S.$81.0 $80.0 $147.0 $153.2 
Total Education Solutions$81.0 $80.0 $147.0 $153.2 
International - Major Markets (2)
$75.4 $77.1 $123.2 $130.5 
International - Other Markets (3)
11.1 12.5 20.5 24.1 
Total International$86.5 $89.6 $143.7 $154.6 
Total (4)
$560.3 $587.9 $786.3 $850.8 
(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 $562.6 and $791.1 for the three and six months ended November 30, 2023, respectively, included rental income of $2.3 and $4.8, respectively, related to leased space in the Company's headquarters which was not allocated to a segment. Rental income of $1.6 and $3.1 for the three and six months ended November 30, 2022, respectively, was recognized as a reduction to Selling, general and administrative expenses.

Estimated Returns

A liability for expected returns of $37.7, $34.9, and $43.9 is recorded within Other accrued expenses as of November 30, 2023, May 31, 2023, and November 30, 2022, respectively. In addition, a return asset of $5.4, $4.7, and $6.1 is recorded within Prepaid expenses and other current assets as of November 30, 2023, May 31, 2023, and November 30, 2022, respectively, for the recoverable cost of product estimated to be returned by customers.

10

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

The following table presents further detail regarding the Company's contract liabilities as of the dates indicated:

November 30, 2023May 31, 2023November 30, 2022
Book fairs incentive credits$114.1 $110.8 $107.6 
Magazines+ subscriptions53.3 5.0 55.5 
U.S. digital subscriptions24.6 22.8 22.3 
U.S. education-related (1)
10.6 9.8 13.4 
Media-related0.2 0.0 10.6 
Stored value programs
24.1 12.4 13.8 
Other (2)
7.6 8.3 9.5 
Total contract liabilities$234.5 $169.1 $232.7 
(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 November 30, 2023, contract liabilities of $225.0 are recorded within Deferred revenue on the Company's Condensed 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 $9.5 of contract liabilities as of November 30, 2023 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 $232.7 as of May 31, 2023 and November 30, 2022, 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 $48.4 and $80.7 for the three and six months ended November 30, 2023, respectively, and $49.5 and $80.3 for the three and six months ended November 30, 2022, 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 


11

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 endedSix months ended
November 30,November 30,
 2023202220232022
Revenues
Children's Book Publishing and Distribution$392.8 $418.3 $495.6 $543.0 
Education Solutions81.0 80.0 147.0 153.2 
International86.5 89.6 143.7 154.6 
Total (1)
$560.3 $587.9 $786.3 $850.8 
Operating income (loss)
Children's Book Publishing and Distribution$110.8 $113.2 $69.3 $83.1 
Education Solutions5.8 7.0 (12.9)2.7 
International8.0 6.7 (0.2)3.2 
Overhead (2)
(23.3)(26.8)(54.0)(47.0)
Total$101.3 $100.1 $2.2 $42.0 
(1) Total revenues of $562.6 and $791.1 for the three and six months ended November 30, 2023, respectively, included rental income of $2.3 and $4.8, respectively, related to leased space in the Company's headquarters which was not allocated to a segment. Rental income of $1.6 and $3.1 for the three and six months ended November 30, 2022, 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:
 November 30, 2023May 31, 2023November 30, 2022
US Revolving Credit Agreement$ $ $ 
Unsecured lines of credit6.3 6.0 4.8 
Total debt$6.3 $6.0 $4.8 
Less lines of credit, short-term debt and current portion of long-term debt(6.3)(6.0)(4.8)
Total long-term debt$ $ $ 

The Company's debt obligations as of November 30, 2023 have maturities of one year or less.

12

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 (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 with the lenders from time to time party thereto, Truist Bank and Wells Fargo Bank, National Association, as co-syndication agents and Bank of America, N.A., as administrative agent (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 Eurodollar 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 Eurodollar Rate equal to SOFR (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 November 30, 2023, the applicable margin on Base Rate Advances was 0.35% and the applicable margin on Eurodollar 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 November 30, 2023, 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 November 30, 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 November 30, 2023, 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.

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

As of November 30, 2023, 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 November 30, 2023, May 31, 2023 and November 30, 2022. As of November 30, 2023, 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 November 30, 2023, the Company had various local currency international credit lines totaling $30.9 underwritten by banks primarily in the United States, Canada and the United Kingdom. Outstanding borrowings under these facilities were $6.3 at November 30, 2023 at a weighted average interest rate of 3.9%, compared to outstanding borrowings of $6.0 at May 31, 2023 at a weighted average interest rate of 4.9%, and $4.8 at November 30, 2022 at a weighted average interest rate of 5.8%. As of November 30, 2023, the amounts available under these facilities totaled $24.6. 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.

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.

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 endedSix months ended
 November 30,November 30,
2023202220232022
Net income (loss) attributable to Class A and Common Stockholders$76.9 $74.8 $2.7 $29.6
Weighted average Shares of Class A Stock and Common Stock outstanding for basic earnings (loss) per share (in millions)30.7 34.5 31.234.4
Dilutive effect of Class A Stock and Common Stock potentially issuable pursuant to stock-based compensation plans (in millions)0.7 0.9 0.8 1.0 
Adjusted weighted average Shares of Class A Stock and Common Stock outstanding for diluted earnings (loss) per share (in millions)31.4 35.4 32.035.4
Earnings (loss) per share of Class A Stock and Common Stock:    
Basic$2.51 $2.17 $0.09 $0.86
Diluted $2.45 $2.12 $0.09 $0.84
Anti-dilutive shares pursuant to stock-based compensation plans
1.1 1.3 0.7 0.8 
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SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
(Dollar amounts in millions, except per share data)

The following table sets forth options outstanding pursuant to stock-based compensation plans as of the dates indicated: 
 November 30, 2023November 30, 2022
Options outstanding pursuant to stock-based compensation plans (in millions)3.13.4

As of November 30, 2023, $33.8 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 have been collected as of November 30, 2023. 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 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: 
November 30, 2023May 31, 2023November 30, 2022
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 translation0.1 (0.2)(0.3)
Ending balance $132.8 $132.7 $132.0