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, ~~2018~~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,
~~557 Broadway,~~ New York,	New York	10012
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (212) 343-6100



Title of Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	SCHL	The 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.

Yesx☒Noo☐

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).

Yesx☒Noo☐

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 filerx	☒	Accelerated filero	☐	Non-accelerated filero	☐	Smaller reporting companyo	☐	Emerging growth companyo	☐

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).

Yeso☐Nox☒

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable ~~date.~~

date:



Title of each class		Number of shares outstanding
~~of each class~~		as of November 30, ~~2018~~
		2019
Common Stock, $.01 par value		~~33,576,240~~32,950,239
Class A Stock, $.01 par value		1,656,200

SCHOLASTIC CORPORATION

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED ~~November~~NOVEMBER 30, ~~2018~~2019

INDEX




Part I - Financial Information		Page

Item 1.	Financial Statements

	Condensed Consolidated Statements of Operations (Unaudited)	3

	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	4

	Condensed Consolidated Balance Sheets (Unaudited)	5

	Condensed Consolidated Statements of ~~Cash Flows~~Changes in Stockholders' Equity (Unaudited)	6

	~~Notes to~~ Condensed Consolidated ~~Financial~~ Statements of Cash Flows (Unaudited)	8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35

Item 4.	Controls and Procedures	36

Part II - Other Information

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 4.6.	~~Controls and Procedures~~Exhibits	38

~~Part II – Other Information~~

~~Item 6.~~	~~Exhibits~~	39

Signatures		4140

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						Six months ended						Three months ended		Six months ended
	November 30,						November 30,						November 30,		November 30,
	2018			2017			2018			2017			2019	2018	2019		2018
Revenues	$	604.7		$	598.3		$	823.1		$	787.5		$597.2	$604.7	$829.8		$823.1
Operating costs and expenses:
Cost of goods sold	262.4			253.6			387.7			369.2			264.3	262.4	401.4		387.7
Selling, general and administrative expenses	229.7			227.7			393.4			387.2			212.4	229.7	379.9		393.4
Depreciation and amortization	14.4			9.8			27.6			19.0			15.4	14.4	30.8		27.6
Asset impairments	—			—			—			6.7
Total operating costs and expenses	506.5			491.1			808.7			782.1			492.1	506.5	812.1		808.7
Operating income (loss)	98.2			107.2			14.4			5.4			105.1	98.2	17.7		14.4
Interest income (expense), net	0.5			0.0			1.3			0.3			0.0	0.5	0.7		1.3
Other components of net periodic benefit (cost)	(0.3		)	(15.5		)	(0.7		)	(15.6		)	(0.2)	(0.3)	(0.6	)	(0.7)
Earnings (loss) before income taxes	98.4			91.7			15.0			(9.9		)	104.9	98.4	17.8		15.0
Provision (benefit) for income taxes	26.8			34.6			4.7			(3.3		)	33.8	26.8	5.2		4.7
Net income (loss)	$	71.6		$	57.1		$	10.3		$	(6.6	)	71.1	71.6	12.6		10.3
Less: Net income attributable to noncontrolling interests													0.1	—	0.1		—
Net income (loss) attributable to Scholastic Corporation													$71.0	$71.6	$12.5		$10.3
Basic and diluted earnings (loss) per Share of Class A and Common Stock
Basic	$	2.03		$	1.63		$	0.29		$	(0.19	)	$2.04	$2.03	$0.36		$0.29
Diluted	$	1.99		$	1.60		$	0.29		$	(0.19	)	$2.02	$1.99	$0.35		$0.29
Dividends declared per Class A and Common Share	$	0.15		$	0.15		$	0.30		$	0.30

See accompanying notes

SCHOLASTIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - UNAUDITED

(Dollar amounts in millions)


	Three months ended					Six months ended						Three months ended		Six months ended
	November 30,					November 30,						November 30,		November 30,
	2018			2017		2018			2017			2019	2018	2019	2018
Net income (loss)	$	71.6		$	57.1	$	10.3		$	(6.6	)	$71.1	$71.6	$12.6	$10.3
Other comprehensive income (loss), net:
Foreign currency translation adjustments	(0.6		)	0.1		(3.7		)	3.8			3.9	(0.6)	1.9	(3.7)
Pension and postretirement adjustments (net of tax)	2.7			9.0		2.9			9.5			0.2	2.7	0.4	2.9
Total other comprehensive income (loss), net	$	2.1		$	9.1	$	(0.8	)	$	13.3		4.1	2.1	2.3	(0.8)
Comprehensive income (loss)	$	73.7		$	66.2	$	9.5		$	6.7		75.2	73.7	14.9	9.5
Less: Net income attributable to noncontrolling interests												0.1	—	0.1	—
Comprehensive income (loss) attributable to Scholastic Corporation												$75.1	$73.7	$14.8	$9.5

See accompanying notes

SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(Dollar amounts in millions, except per share data)



	November 30, 2019 (unaudited)	May 31, 2019 (audited)	November 30, 2018 (unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$277.8	$334.1	$358.1
Accounts receivable, net	325.1	250.1	377.3
Inventories, net	357.8	323.7	365.6
Prepaid expenses and other current assets	61.9	52.7	71.3
Total current assets	1,022.6	960.6	1,172.3
Noncurrent Assets:
Property, plant and equipment, net	578.5	577.7	571.3
Prepublication costs, net	71.3	70.2	62.1
Operating lease right-of-use assets, net	76.4	—	—
Royalty advances, net	52.3	47.5	48.9
Goodwill	125.4	125.2	119.1
Noncurrent deferred income taxes	37.3	37.0	41.4
Other assets and deferred charges	67.9	60.3	66.8
Total noncurrent assets	1,009.1	917.9	909.6
Total assets	$2,031.7	$1,878.5	$2,081.9

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Lines of credit and current portion of long-term debt	$13.5	$7.3	$13.5
Accounts payable	188.9	195.3	250.3
Accrued royalties	54.7	41.9	58.5
Deferred revenue	190.5	130.8	187.2
Other accrued expenses	178.2	164.8	227.8
Accrued income taxes	1.4	1.4	2.1
Operating lease liabilities	23.5	—	—
Total current liabilities	650.7	541.5	739.4
Noncurrent Liabilities:
Long-term debt	2.6	—	—
Operating lease liabilities	56.0	—	—
Other noncurrent liabilities	61.1	64.2	57.9
Total noncurrent liabilities	119.7	64.2	57.9
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, 33.0, 33.4 and 33.6 shares, respectively	0.4	0.4	0.4
Additional paid-in capital	621.3	620.8	617.9
Accumulated other comprehensive income (loss)	(57.4)	(59.7)	(56.5)
Retained earnings	1,014.7	1,012.6	1,018.4
Treasury stock, at cost: 9.9, 9.5 and 9.3 shares, respectively	(319.0)	(302.6)	(295.6)
Total stockholders’ equity of Scholastic Corporation	1,260.0	1,271.5	1,284.6
Noncontrolling interest	1.3	1.3	—
Total stockholders’ equity	1,261.3	1,272.8	1,284.6
Total liabilities and stockholders’ equity	$2,031.7	$1,878.5	$2,081.9

See accompanying notes

SCHOLASTIC CORPORATION

CONDENSED CONSOLIDATED ~~BALANCE SHEETS~~STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - UNAUDITED

(Dollar amounts in millions, except per share data)

November 30,
2018 May 31,
2018 November 30,
2017
(Unaudited) (Unaudited)
ASSETS

Current Assets:

Cash and cash equivalents $ 358.1
$ 391.9
$ 387.8
Accounts receivable, net 377.3
204.9
262.4
Inventories, net 365.6
294.9
355.7
Prepaid expenses and other current assets 71.3
66.6
69.2
Total current assets 1,172.3
958.3
1,075.1
Noncurrent Assets:
Property, plant and equipment, net 571.3
555.6
514.0
Prepublication costs, net 62.1
55.3
46.5
Royalty advances, net 48.9
44.8
46.5
Goodwill 119.1
119.2
119.1
Noncurrent deferred income taxes 41.4
25.2
47.6
Other assets and deferred charges 66.8
67.0
59.5
Total noncurrent assets 909.6
867.1
833.2
Total assets $ 2,081.9
$ 1,825.4
$ 1,908.3

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

Lines of credit and current portion of long-term debt $ 13.5
$ 7.9
$ 11.3
Accounts payable 250.3
198.9
222.1
Accrued royalties 58.5
34.6
46.9
Deferred revenue 187.2
24.7
82.0
Other accrued expenses 227.8
177.9
173.7
Accrued income taxes 2.1
1.8
2.5
Total current liabilities 739.4
445.8
538.5
Noncurrent Liabilities:

Long-term debt —
—
—
Other noncurrent liabilities 57.9
58.8
67.1
Total noncurrent liabilities 57.9
58.8
67.1

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 33.2 shares, respectively 0.4
0.4
0.4
Additional paid-in capital 617.9
614.4
612.3
Accumulated other comprehensive income (loss) (56.5 ) (55.7 ) (80.9 )
Retained earnings 1,018.4
1,065.2
1,074.1
Treasury stock, at cost: 9.3, 9.6 and 9.7 shares, respectively (295.6 ) (303.5 ) (303.2 )
Total stockholders’ equity 1,284.6
1,320.8
1,302.7
Total liabilities and stockholders’ equity $ 2,081.9
$ 1,825.4
$ 1,908.3



	Class A Stock		Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Treasury Stock At Cost		Total Stockholders' Equity of Scholastic Corporation			Noncontrolling Interest	Total Stockholders' Equity
	Shares	Amount	Shares	Amount	Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Treasury Stock At Cost		Total Stockholders' Equity of Scholastic Corporation			Noncontrolling Interest	Total Stockholders' Equity
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		$0.0	$1,320.8
Net Income (loss)	—	—	—	—		—			—		(61.3	)		—		(61.3	)	—	(61.3	)
Adoption of ASC 606 ( net of tax of $16.0)	—	—	—	—		—			—		(46.5	)		—		(46.5	)	—	(46.5	)
Foreign currency translation adjustment	—	—	—	—		—			(3.1	)	—			—		(3.1	)	—	(3.1	)
Pension and post-retirement adjustments (net of tax of $0.0)	—	—	—	—		—			0.2		—			—		0.2		—	0.2
Stock-based compensation	—	—	—	—		1.5			—		—			—		1.5		—	1.5
Proceeds pursuant to stock-based compensation plans	—	—	—	—		2.8			—		—			—		2.8		—	2.8
Treasury stock issued pursuant to equity-based plans	—	—	0.1	—		(3.2	)		—		—			3.5		0.3		—	0.3
Dividends ($0.15 per share)	—	—	—	—		—			—		(5.3	)		—		(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		$0.0	$1,209.4
Net Income (loss)	—	—	—	—		—			—		71.6			—		71.6		—	71.6
Foreign currency translation adjustment	—	—	—	—		—			(0.6	)	—			—		(0.6	)	—	(0.6	)
Pension and post-retirement adjustments (net of tax of $0.8)	—	—	—	—		—			2.7		—			—		2.7		—	2.7
Stock-based compensation	—	—	—	—		3.7			—		—			—		3.7		—	3.7
Proceeds pursuant to stock-based compensation plans	—	—	—	—		2.5			—		—			—		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		—	0.6
Dividends ($0.15 per share)	—	—	—	—		—			—		(5.3	)		—		(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		$0.0	$1,284.6

See accompanying notes



	Class A Stock		Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Treasury Stock At Cost			Total Stockholders' Equity of Scholastic Corporation			Noncontrolling interest		Total Stockholders' Equity
	Shares	Amount	Shares		Amount	Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Treasury Stock At Cost			Total Stockholders' Equity of Scholastic Corporation			Noncontrolling interest		Total Stockholders' Equity
Balance at June 1, 2019	1.7	$0.0	33.4		$0.4		$620.8			$(59.7)		$1,012.6			$(302.6)			$1,271.5		$1.3		$1,272.8
Net Income (loss)	—	—	—		—		—			—		(58.5	)		—			(58.5	)	—		(58.5	)
Foreign currency translation adjustment	—	—	—		—		—			(2.0	)	—			—			(2.0	)	—		(2.0	)
Pension and post-retirement adjustments (net of tax of $0.0)	—	—	—		—		—			0.2		—			—			0.2		—		0.2
Stock-based compensation	—	—	—		—		1.5			—		—			—			1.5		—		1.5
Purchases of treasury stock at cost	—	—	(0.3	)	—		—			—		—			(12.6	)		(12.6	)	—		(12.6	)
Treasury stock issued pursuant to equity-based plans	—	—	0.0		—		(0.1	)		—		—			0.6			0.5		—		0.5
Dividends ($0.15 per share)	—	—	—		—		—			—		(5.2	)		—			(5.2	)	—		(5.2	)
Noncontrolling interest in Make Believe Ideas	—	—	—		—		—			—		—			—			—		(0.0	)	—
Balance at August 31, 2019	1.7	$0.0	33.1		$0.4		$622.2			$(61.5)		$948.9			$(314.6)			$1,195.4		$1.3		$1,196.7
Net Income (loss)	—	—	—		—		—			—		71.0			—			71.0		—		71.0
Foreign currency translation adjustment	—	—	—		—		—			3.9		—			—			3.9		—		3.9
Pension and post-retirement adjustments (net of tax of $0.0)	—	—	—		—		—			0.2		—			—			0.2		—		0.2
Stock-based compensation plans	—	—	—		—		0.9			—		—			—			0.9		—		0.9
Proceeds pursuant to stock-based compensation plans	—	—	—		—		0.3			—		—			—			0.3		—		0.3
Purchases of treasury stock at cost	—	—	(0.1	)	—		—			—		—			(7.1	)		(7.1	)	—		(7.1	)
Treasury stock issued pursuant to equity-based plans	—	—	—		—		(2.1	)		—		—			2.7			0.6		—		0.6
Dividends ($0.15 per share)	—	—	—		—		—			—		(5.2	)		—			(5.2	)	—		(5.2	)
Noncontrolling interest in Make Believe Ideas	—	—	—		—		—			—		—			—			—		0.0		—
Balance at November 30, 2019	1.7	$0.0	33.0		$0.4		$621.3			$(57.4)		$1,014.7			$(319.0)			$1,260.0		$1.3		$1,261.3

See accompanying notes

SCHOLASTIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED

(Dollar amounts in millions)


	Six months ended				Six months ended
	November 30,				November 30,
	2018		2017		2019	2018
Cash flows - operating activities:
Net income (loss)	10.3		(6.6	)
Net income (loss) attributable to Scholastic Corporation					$12.5	$10.3
Adjustments to reconcile Net income (loss) to net cash provided by (used in) operating activities:
Provision for losses on accounts receivable	4.1		6.2		4.3	4.1
Provision for losses on inventory	7.7		7.2		7.9	7.7
Provision for losses on royalty advances	2.0		2.2		2.4	2.0
Amortization of prepublication and production costs	10.7		10.9		13.0	10.7
Depreciation and amortization	29.1		20.5		32.1	29.1
Pension settlement	—		15.4
Amortization of pension and postretirement actuarial gains and losses	0.4		1.2		0.4	0.4
Deferred income taxes	(0.3	)	6.2		(0.3)	(0.3)
Stock-based compensation	5.2		7.5		2.4	5.2
Income from equity investments	(4.5	)	(2.7	)	(3.0)	(4.5)
Write off related to asset impairments	—		6.7
Changes in assets and liabilities:
Changes in assets and liabilities, net of amounts acquired:
Accounts receivable	(147.5	)	(67.9	)	(78.3)	(147.5)
Inventories	(82.8	)	(78.3	)	(41.5)	(82.8)
Prepaid expenses and other current assets	(16.8	)	(16.5	)	(11.1)	(16.8)
Income tax receivable	7.1		(7.7	)	1.9	7.1
Royalty advances	(6.3	)	(6.7	)	(7.3)	(6.3)
Accounts payable	62.7		71.2		(4.6)	62.7
Other accrued expenses	(0.9	)	(4.4	)
Returns liability	50.4		—
Accrued income taxes	0.3		(0.4	)	(0.1)	0.3
Accrued royalties	24.2		12.0		12.7	24.2
Deferred revenue	76.8		57.5		59.6	76.8
Pension and postretirement obligations	(1.4	)	(8.7	)
Other noncurrent liabilities	0.9		1.9
Other, net	8.1		1.7
Total adjustments	29.2		35.0
Other assets and liabilities					11.3	57.1
Net cash provided by (used in) operating activities	39.5		28.4		14.3	39.5

Cash flows - investing activities:
Prepublication and production expenditures	(20.6	)	(14.7	)	(14.4)	(20.6)
Additions to property, plant and equipment (including capitalized software)	(51.3	)	(54.0	)
Other investment and acquisition related payments	(0.6	)	(0.2	)
Additions to property, plant and equipment					(30.7)	(51.3)
Acquisition of land					(3.3)	—
Other investment and acquisition-related payments					—	(0.6)
Net cash provided by (used in) investing activities	(72.5	)	(68.9	)	(48.4)	(72.5)

Cash flows - financing activities:
Proceeds from long-term debt					2.5	—
Repayments of long-term debt					—	—
Borrowings under lines of credit					20.3	29.3
Repayments of lines of credit					(14.2)	(23.2)
Repayment of capital lease obligations					(0.9)	(0.7)
Reacquisition of common stock					(19.6)	—
Proceeds pursuant to stock-based compensation plans					0.3	5.2
Payment of dividends					(10.5)	(10.6)
Net cash provided by (used in) financing activities					(22.1)	0.0
Effect of exchange rate changes on cash and cash equivalents					(0.1)	(0.8)

Net increase (decrease) in cash and cash equivalents					(56.3)	(33.8)
Cash and cash equivalents at beginning of period					334.1	391.9
Cash and cash equivalents at end of period					$277.8	$358.1

See accompanying notes

~~SCHOLASTIC CORPORATION~~
~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED~~

~~(Dollar amounts in millions)~~

Six months ended
November 30, November 30,
2018 2017
Cash flows - financing activities:

Borrowings under lines of credit 29.3
38.5
Repayments of lines of credit (23.2 ) (32.4 )
Repayment of capital lease obligations (0.7 ) (0.6 )
Reacquisition of common stock —
(13.3 )
Proceeds pursuant to stock-based compensation plans 5.2
3.4
Payment of dividends (10.6 ) (10.6 )
Other —
(0.9 )
Net cash provided by (used in) financing activities 0.0
(15.9 )
Effect of exchange rate changes on cash and cash equivalents (0.8 ) 0.1
Net increase (decrease) in cash and cash equivalents (33.8 ) (56.3 )
Cash and cash equivalents at beginning of period 391.9
444.1
Cash and cash equivalents at end of period $ 358.1
$ 387.8

~~See accompanying notes~~

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 ~~2019~~2020 relate to the twelve-month period ending May 31, ~~2019.~~

2020. 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)~~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, ~~2018~~2019. 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 athe fair presentation of the ~~results~~Financial Statements for the ~~interim~~ periods presented.

Seasonality

The Company’s Children’s Book Publishing and Distributionschool-based book ~~fairs~~club and book ~~club~~fair channels and most of its Educationbusinesses 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 ~~generally~~ lower than its revenues in the other two fiscal quarters. Typically, school-based ~~channel~~channels and ~~classroom~~ magazine revenues are minimal in the first quarter of the fiscal year as schools are not in session. Trade sales can vary ~~through~~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~~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, ~~intangibles~~intangible and other long-lived assets and investments

Assets and liabilities acquired in business combinations

~~Revenues for book fairs which have not reported final results~~Variable consideration related to anticipated returns

Allocation of transaction price to performance obligations

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

New Accounting Pronouncements

There are no new accounting pronouncements in the second fiscal quarter of 2020 which would impact the

Company. Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2019 for more

information on current applicable authoritative guidance and its impact on the Company's financial statements.

Current Fiscal Year Adoptions:

Topic ~~606, Revenue from Contracts with Customers~~842, Leases

Refer to Note ~~2, Revenues,~~10, Leases, for a discussion of the Company's ~~revenue recognition~~lease accounting following the adoption of Accounting Standards Update ("ASU") No. ~~2014-09, Revenue from Contracts with Customers~~2016-02, Leases (Topic ~~606), and related amendments,~~842) in the first quarter of fiscal ~~2019.~~2020.

~~Forthcoming Adoptions:~~

ASU No. ~~2016-02. ASU No. 2018-10 and ASU No. 2018-11~~2018-15

In ~~February 2016,~~August 2018, the Financial Accounting Standards Board (the "FASB") issued ASU No. ~~2016-02, Leases (Topic 842)~~2018-15, Intangibles- Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. The Company adopted ASU No. 2018-15 as of the beginning of the first quarter of fiscal 2020 using the prospective approach. In the second fiscal quarter, the Company capitalized approximately $6.2 of cloud computing costs 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 requires all leases to be recorded on the balance sheet, through the recognition of right-of-usehave not yet been placed into service. This amount is included within Other assets and ~~corresponding lease liabilities. The lease liability should be measured at~~deferred charges within the ~~present value~~Company's Condensed Consolidated Balance Sheets and within the operating section 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.Company's Condensed Consolidated Statement of Cash Flows.

ASU No. 2018-02

In ~~July~~February 2018, the FASB issued ASU No. ~~2018-10, Codification Improvements to Topic 842, Leases and~~2018-02, Income Statement-Reporting Comprehensive Income (Topic 220)-Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The Company adopted ASU No. ~~2018-11, Leases (Topic 842): Targeted Improvements, which provides an additional (and optional) transition method whereby~~2018-02 as of the ~~new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings.~~

~~ASU No. 2016-02, ASU No. 2018-10 and ASU No. 2018-11 are effective for the Company in~~beginning of the first quarter of fiscal 2020 ~~and are required~~which resulted in no impact to ~~be applied using~~ the modified retrospective approach for all leases existing as of the effective date. Early adoption is permitted; however, the Company currently does not plan to adopt this standard early and it is evaluating the impact of this standard on its consolidatedCompany's financial ~~position, results of operations and cash flows. The Company expects that the adoption will result in the recognition of right-of-use assets and lease liabilities related to its operating leases.~~statements.

2. REVENUES

~~Adoption of Topic 606,~~Disaggregated Revenue ~~from Contracts with Customers~~Data

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, which provides a single model for use in accounting 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~~following table presents the Company’s disaggregated revenues by region and elected to apply Topic 606 using the modified 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 (reflecteddomestic channel:



	Three months ended		Six months ended
	November 30,		November 30,
	2019	2018	2019	2018
U.S. Book Clubs	$85.9	$101.3	$93.9	$110.4
U.S. Book Fairs	224.1	220.7	251.6	245.9
U.S. Trade	93.5	95.9	161.2	157.3
U.S. Education	69.8	71.4	118.2	119.3
Non-U.S. Major Markets⁽¹⁾	94.6	88.0	150.9	138.3
Non-U.S. Other Markets⁽²⁾	29.3	27.4	54.0	51.9
Total Revenues	$597.2	$604.7	$829.8	$823.1

(1) - Includes Canada, UK, Australia and New Zealand.

(2) - Primarily includes markets 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.Asia.

~~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

~~SCHOLASTIC CORPORATION~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED~~

~~(Dollar amounts in millions, except per share data)~~

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 and 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 in 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~~A liability for expected returns of ~~return, which primarily include the trade~~$42.4, $34.5, 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 reduction to Revenues and Cost of goods sold. In addition, a refund liability$78.7 is recorded within Other accrued expenses ~~for the consideration to which the Company believes it will not ultimately be entitled~~as of November 30, 2019, May 31, 2019, and November 30, 2018, respectively. In addition, a return asset of $2.6, $1.6, and $9.4 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:~~

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:

~~SCHOLASTIC CORPORATION~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED~~

~~(Dollar amounts in millions, except per share data)~~

As reported Adjustments Without adoption of Topic 606
Three months ended November 30, 2018
Revenues $ 604.7
$ 10.8
⁽¹⁾
$ 615.5
Cost of goods sold 262.4
2.6
⁽¹⁾
265.0
Selling, general and administrative expenses 229.7
2.6
⁽³⁾
232.3
Depreciation and amortization 14.4
—
14.4
Operating income (loss) 98.2
5.6
103.8
Interest income (expense), net 0.5
—
0.5
Other components of net periodic benefit (cost) (0.3 ) —
(0.3 )
Provision (benefit) for income taxes 26.8
1.5
⁽⁴⁾
28.3
Net income (loss) $ 71.6
$ 4.1
$ 75.7
Basic earnings (loss) per share: $ 2.03
$ 0.12
$ 2.15
Diluted earnings (loss) per share: $ 1.99
$ 0.11
$ 2.10

Six months ended November 30, 2018
Revenues $ 823.1
$ (1.7 )
⁽²⁾
$ 821.4
Cost of goods sold 387.7
(1.5 )
⁽²⁾
386.2
Selling, general and administrative expenses 393.4
(0.6 )
⁽³⁾
392.8
Depreciation and amortization 27.6
—
27.6
Operating income (loss) 14.4
0.4
14.8
Interest income (expense), net 1.3
—
1.3
Other components of net periodic benefit (cost) (0.7 ) —
(0.7 )
Provision (benefit) for income taxes 4.7
0.1
⁽⁴⁾
4.8
Net income (loss) $ 10.3
$ 0.3
$ 10.6
Basic earnings (loss) per share: $ 0.29
$ 0.01
$ 0.30
Diluted earnings (loss) per share: $ 0.29
$ 0.01
$ 0.30

(1) - Represents additional deferred revenue and cost of goods sold on incentive credits awarded during the period, partially offset by incremental revenue and cost of goods sold related to the redemption of book fairs incentive credits.

(2) - 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.

~~(3) - Represents direct response advertising costs being expensed as incurred.~~

~~(4) - Represents the income tax impact of Topic 606 adjustments.~~

~~Estimated Returns~~

~~As of November 30, 2018, a liability for expected returns of $78.7 is recorded within Other accrued expenses on the Company's condensed consolidated balance sheets. In addition,~~ as of November 30, 2019, May 31, 2019, and November 30, 2018, ~~a return asset of $9.4 is recorded within Prepaid expenses and other current assets~~respectively, 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

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

recorded within Deferred revenue on the Company's ~~condensed consolidated balance sheets~~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 Company recognized revenue which was included in the opening deferred revenue balance in the amount of ~~revenue recognized in~~$46.9 and $30.8 for the three months ended November 30, 2019 and 2018, respectively, and $74.0 and $62.7 for the six months ended November 30, ~~2018 included within the opening deferred revenue balance was $30.8~~2019 and ~~$62.7,~~2018, respectively.

3. SEGMENT INFORMATION

The Company categorizes its businesses into 3 reportable segments: Children’s Book Publishing and Distribution, Education 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 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 3 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 3 operating segments.


•	Internationalincludes 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 3 operating segments.

The following table sets forth information for the Company's segments for the fiscal quarters ended November 30, 2019 and 2018:



	Children’s Book Publishing & Distribution	Education	Overhead ⁽¹⁾	Total Domestic	International	Total
Three months ended November 30, 2019
Revenues	$413.6	$69.9	$0.0	$483.5	$113.7	$597.2
Bad debt expense	1.1	0.8	—	1.9	0.8	2.7
Depreciation and amortization ⁽²⁾	6.5	3.4	10.9	20.8	1.8	22.6
Segment operating income (loss)	109.6	6.2	(22.4)	93.4	11.7	105.1
Expenditures for other noncurrent assets⁽³⁾	14.7	5.0	10.6	30.3	5.8	36.1
Three months ended November 30, 2018
Revenues	$417.9	$71.5	$0.0	$489.4	$115.3	$604.7
Bad debt expense	1.6	0.7	—	2.3	0.4	2.7
Depreciation and amortization ⁽²⁾	5.9	2.1	10.8	18.8	1.8	20.6
Segment operating income (loss)	106.3	8.3	(29.4)	85.2	13.0	98.2
Expenditures for other noncurrent assets ⁽³⁾	20.2	5.0	15.1	40.3	3.1	43.4

The following table sets forth information for the Company's segments for the fiscal periods ended November 30, 2019 and 2018:

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

~~Disaggregated Revenue Data~~

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

Three months ended November 30, 2018 2017
  Book Clubs $ 101.3
$ 99.9
  Book Fairs 220.7
231.0
  Trade 95.9
82.8
Total Children's Book Publishing & Distribution 417.9
413.7

Education 71.5
69.0

   Major Markets⁽¹⁾
87.9
88.6
   Other Markets⁽²⁾
27.4
27.0
Total International 115.3
115.6
Total Revenues $ 604.7
$ 598.3

Six months ended November 30, 2018 2017
  Book Clubs $ 110.4
$ 107.9
  Book Fairs 245.9
243.1
  Trade 157.3
131.6
Total Children's Book Publishing & Distribution 513.6
482.6

Education 119.4
111.9

   Major Markets⁽¹⁾
138.2
140.3
   Other Markets⁽²⁾
51.9
52.7
Total International 190.1
193.0
Total Revenues $ 823.1
$ 787.5



	Children’s Book Publishing & Distribution	Education		Overhead ⁽¹⁾		Total Domestic	International	Total
Six months ended November 30, 2019
Revenues	$523.2	$118.3		$0.0		$641.5	$188.3	$829.8
Bad debt expense	1.6	0.8		—		2.4	1.9	4.3
Depreciation and amortization ⁽²⁾	13.2	6.5		21.9		41.6	3.5	45.1
Segment operating income (loss)	67.9	(7.2	)	(51.0	)	9.7	8.0	17.7
Segment assets at November 30, 2019	674.6	196.1		846.8		1,717.5	314.2	2,031.7
Goodwill at November 30, 2019	47.2	68.2		—		115.4	10.0	125.4
Expenditures for other noncurrent assets⁽³⁾	28.7	9.6		18.2		56.5	12.7	69.2
Other noncurrent assets at November 30, 2019 ⁽³⁾	$219.6	$122.4		$514.3		$856.3	$98.6	$954.9

Six months ended November 30, 2018
Revenues	$513.6	$119.4		$0.0		$633.0	$190.1	$823.1
Bad debt expense	2.4	0.7		—		3.1	1.0	4.1
Depreciation and amortization ⁽²⁾	11.6	4.1		20.7		36.4	3.4	39.8
Segment operating income (loss)	60.3	(6.6	)	(50.3	)	3.4	11.0	14.4
Segment assets at November 30, 2018	622.4	175.9		990.6		1,788.9	293.0	2,081.9
Goodwill at November 30, 2018	40.9	68.2		—		109.1	10.0	119.1
Expenditures for other noncurrent assets ⁽³⁾	31.0	10.1		40.6		81.7	7.4	89.1
Other noncurrent assets at November 30, 2018 ⁽³⁾	$164.1	$109.6		$499.8		$773.5	$78.0	$851.5

~~(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,~~ ~~whichcomprise the Company's domestic operations~~; ~~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 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.~~

~~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
Three months ended
November 30, 2018

Revenues $ 417.9
$ 71.5
$ —
$ 489.4
$ 115.3
$ 604.7
Bad debt expense 1.6
0.7
—
2.3
0.4
2.7
Depreciation and amortization ⁽²⁾
5.9
2.1
10.8
18.8
1.8
20.6
Segment operating income (loss) 106.3
8.3
(29.4 ) 85.2
13.0
98.2
Expenditures for other noncurrent assets⁽⁴⁾

20.2
5.0
15.1
40.3
3.1
43.4
Three months ended
November 30, 2017

Revenues $ 413.7
$ 69.0
$ —
$ 482.7
$ 115.6
$ 598.3
Bad debt expense 2.2
1.1
—
3.3
1.0
4.3
Depreciation and amortization ⁽²⁾
5.6
1.7
6.9
14.2
1.7
15.9
Segment operating income (loss) 115.0
3.9
(26.4 ) 92.5
14.7
107.2
Expenditures for other noncurrent assets ⁽⁴⁾
18.2
4.6
17.9
40.7
2.9
43.6

Children’s
Book
Publishing &
Distribution Education
Overhead ⁽¹⁾
Total
Domestic International Total
Six months ended
November 30, 2018

Revenues $ 513.6
$ 119.4
$ —
$ 633.0
$ 190.1
$ 823.1
Bad debt expense 2.4
0.7
—
3.1
1.0
4.1
Depreciation and amortization ⁽²⁾
11.6
4.1
20.7
36.4
3.4
39.8
Segment operating income (loss) 60.3
(6.6 ) (50.3 ) 3.4
11.0
14.4
Segment assets at November 30, 2018 622.4
175.9
990.6
1,788.9
293.0
2,081.9
Goodwill at November 30, 2018 40.9
68.2
—
109.1
10.0
119.1
Expenditures for other noncurrent assets⁽⁴⁾

31.0
10.1
40.6
81.7
7.4
89.1
Other noncurrent assets at
November 30, 2018 ⁽⁴⁾
164.1
109.6
499.8
773.5
78.0
851.5
Six months ended
November 30, 2017

Revenues $ 482.6
$ 111.9
$ —
$ 594.5
$ 193.0
$ 787.5
Bad debt expense 2.7
1.0
—
3.7
2.5
6.2
Depreciation and amortization ⁽²⁾
11.2
3.5
13.3
28.0
3.4
31.4
Asset impairments ⁽³⁾
—
—
6.7
6.7
—
6.7
Segment operating income (loss) 56.1
(8.6 ) (54.0 ) (6.5 ) 11.9
5.4
Segment assets at November 30, 2017 553.4
174.2
906.9
1,634.5
273.8
1,908.3
Goodwill at November 30, 2017 40.9
68.2
—
109.1
10.0
119.1
Expenditures for other noncurrent assets ⁽⁴⁾
28.2
7.0
48.7
83.9
5.0
88.9
Other noncurrent assets at
November 30, 2017 ⁽⁴⁾
148.3
93.8
456.2
698.3
70.4
768.7

(1)

Overhead includes all domestic corporate amounts not allocated to segments, including expenses and costs related to the management of corporate assets. Unallocated assets are principally comprised of deferred income taxes and property, plant and equipment related to the Company’s headquarters in the metropolitan New York area, its fulfillment and distribution facilities located in Missouri, ~~and~~ its facility located in ~~Connecticut.~~Connecticut and certain technology assets.


(2)	Includes depreciation of property, plant and equipment and amortization of intangible assets and prepublication and production costs.

~~SCHOLASTIC CORPORATION~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED~~

~~(Dollar amounts in millions, except per share data)~~


(3)	~~Impairment charges of $6.7 relate to the prior fiscal year abandonment of legacy building improvements in connection with the Company's renovation of its headquarters in New York City.~~

~~(4)~~

Other noncurrent assets include property, plant and equipment, prepublication assets, production assets, royalty advances, goodwill, intangible assets and investments. Expenditures for other noncurrent assets for the International ~~reportable~~ segment include expenditures for long-lived assets of ~~$1.6~~$4.2 and ~~$1.7~~$1.6 for the three months ended November 30, ~~2018~~2019 and ~~November 30, 2017,~~2018, respectively, and ~~$4.4~~$9.9 and ~~$3.0~~$4.4 for the six months ended November 30, ~~2018~~2019 and ~~November 30, 2017,~~2018, respectively. Other noncurrent assets for the International ~~reportable~~ segment include long-lived assets of ~~$36.5~~$66.8 and ~~$33.4~~$36.5 as of November 30, ~~2018~~2019 and ~~November 30, 2017,~~2018, respectively.

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

4. DEBT

The following table summarizes the carrying value of the Company's debt as of the dates indicated:



	November 30, 2019		May 31, 2019		November 30, 2018
Revolving Loan	—		—		—
Unsecured lines of credit (weighted average interest rates of 3.8%, 4.1% and 3.8%, respectively)	$13.5		$7.3		$13.5
UK long-term debt (average interest rate of 2.5%, n/a and n/a, respectively)	2.6		—		—
Total debt	$16.1		$7.3		$13.5
Less lines of credit, short-term debt and current portion of long-term debt	(13.5	)	(7.3	)	(13.5	)
Total long-term debt	$2.6		$0.0		$0.0

November 30, 2018 May 31, 2018 November 30, 2017
Revolving Loan $ —
$ —
$ —
Unsecured lines of credit (weighted average interest rates of 3.8%, 2.9% and 3.8%, respectively) 13.5
7.9
11.3
Total debt $ 13.5
$ 7.9
$ 11.3

UK Loan Agreement

On September 23, 2019, Scholastic Limited UK entered into a term loan agreement to borrow £2.0 to fund a land purchase in connection with the construction of a new UK facility. The ~~fair value~~loan has a maturity date of July 31, 2021. Under the agreement, the principal balance is due in full in a single payment on the last day of the ~~Company's debt approximates~~term and interest on the ~~carrying value for all periods presented.~~amount borrowed is due and payable quarterly. The ~~Company's debt obligations have maturities~~interest is charged at 1.77% per annum over the Base Rate. The Base Rate is currently equal to 0.75% per annum and is subject to change. As of ~~one year or less.~~November 30, 2019, the Company had $2.6 outstanding on the loan.

US Loan Agreement

On January 5, 2017, Scholastic Corporation and Scholastic Inc. (each, a “Borrower” and together, the “Borrowers”) ~~are parties to~~entered into a ~~$375.0~~5-year credit facility with certain banks (the “Loan Agreement”),. The Loan Agreement replaced the Company's then existing loan agreement and has substantially similar terms, except that:


•	the borrowing limit was reduced to $375.0 from $425.0;

•the “starter” basket for permitted payments of dividends and other payments in respect of capital stock

was increased to $275.0 from $75.0; and

•the maturity date was extended to January 5, 2022.

The prior loan agreement, which was originally entered into in 2007 and had a maturity date of December 5, 2017, was terminated on January 5, 2017 in connection with the entry into the new Loan Agreement and was treated as a debt modification.

The Loan Agreement allows the Company to borrow, repay or prepay and reborrow at any time prior to the January 5, 2022 maturity date. Under the Loan 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 Loan 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 for a one month interest period plus~~ 1% ~~plus, in each case, an applicable spread ranging from~~ ~~0.175%~~ to ~~0.60%, as determined by the Company’s prevailing consolidated debt to total capital ratio.~~


•	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 for a one month interest period plus 1% plus, in each case, an applicable spread ranging from 0.175% to 0.60%, as determined by the Company’s prevailing consolidated debt to total capital ratio.

- or -


•	A Eurodollar Rate equal to the London interbank offered rate (LIBOR) plus an applicable spread ranging from 1.175% to 1.60%, as determined by the Company’s prevailing consolidated debt to total capital ratio.

~~A Eurodollar Rate equal to the London interbank offered rate (LIBOR) plus an applicable spread ranging from~~ ~~1.175%~~ to ~~1.60%, as determined by the Company’s prevailing consolidated debt to total capital ratio.~~

As of November 30, ~~2018,~~2019, the indicated spread on Base Rate Advances was 0.175% and the indicated spread on Eurodollar Advances was 1.175%, both based on the Company’s prevailing consolidated debt to total capital ratio.

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

The Loan Agreement also provides for the payment of a facility fee in respect of the aggregate amount of revolving credit commitments ranging from 0.20% to 0.40% per annum based upon the Company’s prevailing consolidated debt to total capital ratio. At November 30, ~~2018,~~2019, the facility 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 Loan 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, ~~2018,~~2019, the Company had no outstanding borrowings under the Loan Agreement. At November 30, ~~2018,~~2019, the Company had open standby letters of credit totaling $5.3 issued under certain credit lines, including $0.4 under the Loan Agreement and $4.9 under the domestic credit lines discussed below.

~~SCHOLASTIC CORPORATION~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED~~

~~(Dollar amounts in millions, except per share data)~~

The Loan Agreement contains certain covenants, including interest coverage and leverage ratio tests and certain limitations on the amount of dividends and other ~~distributions. The~~distributions and the Company was in compliance with these covenants for all periods presented.

Lines of Credit

As of November 30, ~~2018,~~2019, the Company’s domestic credit lines available under unsecured money market bid rate credit lines totaled $25.0. There were no outstanding borrowings under these credit lines as of November 30, ~~2018,~~2019, May 31, ~~2018~~2019 or November 30, ~~2017.~~2018. As of November 30, ~~2018,~~2019, availability under these unsecured money market bid rate credit lines totaled $20.1.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, ~~2018,~~2019, the Company had various local currency credit lines totaling ~~$30.0~~$31.1 underwritten by banks primarily in the United States, Canada and the United Kingdom. Outstanding borrowings under these facilities were $13.5 at November 30, ~~2018~~2019 at a weighted average interest rate of 3.8%, ~~$7.9~~$7.3 at May 31, ~~2018~~2019 at a weighted average interest rate of ~~2.9%~~4.1%, and ~~$11.3~~$13.5 at November 30, ~~2017~~2018 at a weighted average interest rate of 3.8%. As of November 30, ~~2018,~~2019, the amounts available under these facilities totaled ~~$16.5.~~$17.6. 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

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 exists and the amount of such liability can be reasonably estimated. When only a range can be estimated, the most probable amount in the range is accrued unless no amount within the range is a better estimate than any other amount, in which case the minimum amount in the range is accrued. Legal costs associated with litigation ~~loss contingencies~~ are expensed in the period in which they are incurred. The Company does not expect, in the case of those various claims and lawsuits arising in the normal course of business where a loss is considered probable or reasonably possible, that the reasonably possible losses from such claims and lawsuits (either individually or in the aggregate) would have a material adverse effect on the Company’s consolidated financial position or results of operations.

In the current fiscal year, based on the status of negotiations, an alleged patent infringement claim settlement became probable and estimable. As such, an accrual of $1.5 was recognized in the Financial Statements in the first quarter of fiscal 2020. The settlement was subsequently concluded in the second quarter.

On June 21, 2018, the U.S. Supreme Court issued its opinion in South Dakota v. Wayfair, Inc. et. al., reversing prior precedent, in particular Quill Corp. v. North Dakota (1992), which held that states could not constitutionally require retailers to collect and remit sales or use taxes in respect to mail order or internet sales made to residents of a state in the absence of the retailer having a physical presence in the taxing state. As a result, the Company ~~will~~ now ~~have~~has an obligation, at least on a go forward basis, based on each state's enforcement date, to collect and remit sales and use taxes, primarily in respect to sales made through its school book club channel, as well as certain sales made through its ecommerce internet sites, to residents in states that the Company ~~has~~had not previously remitted sales or use taxes based on having no physical presence in such states. In the majority opinion, several factors were discussed in support of the Court’s reasoning that the collection of sales and use taxes from out-of-state retailers did not constitute an undue burden on interstate commerce, including the fact

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

that South Dakota did not require retroactive application of its statute. However, the question of retroactive application, as well as certain other factors noted in the opinion, ~~will be~~are subject to how the states, on a state-by-state basis, interpret and apply the Court’s decision in their implementation of their respective state laws or regulations addressing the collection of sales and use taxes from out-of-state retailers. As a result, ~~how~~the effect of the decision ~~will affect~~on the Company ~~will depend~~depends on the positions taken by the states, on a state-by-state basis, relating to the retroactive application of the obligation to collect such taxes, as well as other factors noted in the opinion.

The Company ~~has taken steps towards~~continues to monitor its compliance based on anticipated enforcement dates and an assumption as to each state's likely interpretation and application of the Court's decision. As the Company continues to monitor each state, the staggered enforcement dates, and the progress towards compliance, expenses will be incurred by the Company.

~~SCHOLASTIC CORPORATION~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED~~

~~(Dollar amounts in millions, except per share data)~~

As of November 30, ~~2018,~~2019, the Company’s school book club channel ~~now~~ remits sales taxes in ~~thirteen~~44 states and the District of Columbia compared to ~~nine~~13 states in the prior fiscal year ~~and, as a result, the Company has incurred additional costs for the three and six months ending~~quarter ended November 30, ~~2018 related to sales tax on the associated revenue.~~2018. Any on-going or future litigation with states relating to sales and use taxes could be impacted favorably or unfavorably by legislative action in future fiscal periods.

6. EARNINGS (LOSS) PER SHARE

The following table summarizes the reconciliation of the numerators and denominators for the basic and diluted earnings (loss) per share computation for the periods indicated:



	Three months ended November 30,		Six months ended November 30,
	2019	2018	2019	2018
Net income (loss) attributable to Class A and Common Stockholders	$70.9	$71.4	$12.5	$10.3
Weighted average Shares of Class A Stock and Common Stock outstanding for basic earnings (loss) per share (in millions)	34.8	35.2	34.8	35.2
Dilutive effect of Class A Stock and Common Stock potentially issuable pursuant to stock-based compensation plans (in millions)	0.3	0.7	0.4	0.6
Adjusted weighted average Shares of Class A Stock and Common Stock outstanding for diluted earnings (loss) per share (in millions)	35.1	35.9	35.2	35.8
Earnings (loss) per share of Class A Stock and Common Stock:
Basic	$2.04	$2.03	$0.36	$0.29
Diluted	$2.02	$1.99	$0.35	$0.29

Three months ended November 30, Six months ended November 30,
2018 2017 2018 2017
Net income (loss) attributable to Class A and Common Shares $ 71.4
$ 57.0
$ 10.3
$ (6.6 )
Weighted average Shares of Class A Stock and Common Stock outstanding for basic earnings (loss) per share (in millions) 35.2
35.0
35.2
35.1
Dilutive effect of Class A Stock and Common Stock potentially issuable pursuant to stock-based compensation plans (in millions) * 0.7
0.6
0.6
—
Adjusted weighted average Shares of Class A Stock and Common Stock outstanding for diluted earnings (loss) per share (in millions) 35.9
35.6
35.8
35.1
Earnings (loss) per share of Class A Stock and Common Stock:

Basic $ 2.03
$ 1.63
$ 0.29
$ (0.19 )
Diluted $ 1.99
$ 1.60
$ 0.29
$ (0.19 )

* In the six month period ended November 30, 2017, the Company experienced a Net loss and therefore did not report any dilutive share impact.

The following table sets forth options outstanding pursuant to stock-based compensation plans as of the dates indicated:



	November 30, 2019	November 30, 2018
Options outstanding pursuant to stock-based compensation plans (in millions)	3.0	2.9

November 30, 2018 November 30, 2017
Options outstanding pursuant to stock-based compensation plans (in millions) 2.9
3.2

Net income attributable to Class A and Common Stockholders excludes earnings attributable to participating Restricted Stock Units of $0.1 and $0.2 for the three months ended November 30, 2019 and 2018, respectively, and less than $0.1 for the six months ended November 30, 2019 and 2018, respectively.

There were ~~less than 0.1~~1.8 million of potentially anti-dilutive shares pursuant to stock-based compensation plans as of November 30, ~~2018.~~2019.

A portion of the Company’s Restricted Stock Units ("RSUs") which are granted to employees participate in earnings through cumulative dividends which are payable and non-forfeitable to the employees upon vesting of the RSUs. Accordingly, the Company measures earnings per share based upon the lower of the Two-class method or the Treasury Stock method.

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

Net income attributable to Class A and Common Shares excludes earnings of $0.2 and $0.1 for the three months ended November 30, 2018 and 2017, respectively, and earnings of less than $0.1 for the six months ended November 30, 2018, attributable to participating RSUs. In the six month period ended November 30, 2017, the Company experienced a Net loss and did not allocate any losses to the participating RSUs.

As of November 30, ~~2018, $61.4~~2019, $33.2 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 ~~11,~~12, Treasury Stock, for a more complete description of the Company’s share buy-back program.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

7. GOODWILL AND OTHER INTANGIBLES

The Company assesses goodwill and other intangible assets with indefinite lives for impairment annually or more frequently if ~~impairment~~ indicators ~~are such that the goodwill is more likely than not impaired.~~arise. The Company ~~continues to monitor~~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, 2019		May 31, 2019		November 30, 2018
Gross beginning balance	$164.8		$158.8		$158.8
Accumulated impairment	(39.6	)	(39.6	)	(39.6	)
Beginning balance	$125.2		$119.2		$119.2
Additions	—		6.3		—
Foreign currency translation	0.2		(0.3	)	(0.1	)
Ending balance	$125.4		$125.2		$119.1

Six months ended November 30, Twelve months ended May 31, Six months ended November 30,
2018 2018 2017
Gross beginning balance $ 158.8
$ 158.5
$ 158.5
Accumulated impairment (39.6 ) (39.6 ) (39.6 )
Beginning balance $ 119.2
$ 118.9
$ 118.9
Foreign currency translation (0.1 ) 0.2
0.2
Other —
0.1
—
Ending balance $ 119.1
$ 119.2
$ 119.1

In the fourth quarter of fiscal 2019, the Company completed the purchase of a majority-ownership position in Make Believe Ideas Limited, a UK-based children's book publishing business, resulting in the recognition of $6.3 of Goodwill in the Children’s Book Publishing and Distribution segment.

~~Accumulated goodwill impairment losses totaled $39.6 as of November 30, 2018, May 31, 2018 and November 30, 2017.~~

There were no ~~goodwill~~ impairment ~~losses during~~charges related to Goodwill in any of the ~~six months ended~~ ~~November 30, 2018 and November 30, 2017.~~periods presented.

The following table summarizes the activity in other intangibles included in Other assets and deferred charges on the Company’s ~~condensed consolidated balance sheets~~Financial Statements for the periods indicated:



	November 30, 2019		May 31, 2019		November 30, 2018
Beginning balance other intangibles subject to amortization	$12.2		$10.1		$10.1
Additions	—		4.5		0.6
Amortization expense	(1.5	)	(2.8	)	(1.3	)
Foreign currency translation	0.0		(0.2	)	(0.1	)
Other	—		0.6		—
Total other intangibles subject to amortization, net of accumulated amortization of $28.4, $26.9 and $25.4, respectively	10.7		12.2		9.3
Total other intangibles not subject to amortization	2.1		2.1		2.1
Total other intangibles	$12.8		$14.3		$11.4

Six months ended November 30, Twelve months ended May 31, Six months ended November 30,
2018 2018 2017
Beginning balance other intangibles subject to amortization $ 10.1
$ 9.0
$ 9.0
Additions 0.6
3.3
0.1
Amortization expense (1.3 ) (2.1 ) (1.0 )
Foreign currency translation (0.1 ) (0.1 ) 0.1
Total other intangibles subject to amortization, net of accumulated amortization of $25.4, $24.1 and $22.9, respectively $ 9.3
$ 10.1
$ 8.2
Total other intangibles not subject to amortization $ 2.1
$ 2.1
$ 2.1
Total other intangibles $ 11.4
$ 12.2
$ 10.3

In the fourth quarter of fiscal 2019, the Company completed the purchase of a majority interest in Make Believe Ideas Limited, included within the Children's Book Publishing and Distribution segment, which resulted in $3.9 of amortizable intangible assets. In the first quarter of fiscal 2019, the Company also purchased a UK-based book club business and a U.S.-based book fair business resulting in the recognition of $0.6 of definite-lived intangible assets. The results of operations of these businesses are included within the International and Children's Book Publishing &and Distribution segments, respectively.

Intangible assets with definite lives consist principally of customer lists and intellectual property rights. Intangible assets with definite lives are amortized over their estimated useful lives. The weighted-average remaining useful life of all definite-lived intangible assets is approximately ~~3.7~~5.4 years. Intangible assets with indefinite lives consist principally of ~~trademark and trademark rights.~~trademarks.

There were no impairment charges related to Intangible assets in any of the periods presented.

~~8. INVESTMENTS~~

Included in Other assets and deferred charges on the Company’s condensed consolidated balance sheets were investments of $34.3, $31.1 and $31.6 at November 30, 2018, May 31, 2018 and November 30, 2017, respectively.

The Company's 48.5% equity interest in Make Believe Ideas Limited ("MBI"), a UK-based children's book publishing company, is accounted for using the equity method of accounting. Under the purchase agreement,

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

8. INVESTMENTS

Investments are included in Other assets and ~~subject to its provisions,~~deferred charges on the ~~Company will likely purchase~~Company’s Financial Statements. The following table summarizes the ~~remaining outstanding shares in MBI following the completion of MBI's accounts for the calendar year 2018 and subject to the provisions~~Company’s investments as of the purchase agreement. The net carrying value of this investment was $12.3, $10.6 and $10.6 at November 30, 2018, May 31, 2018 and November 30, 2017, respectively. Equity method income from this investment is reported in the ~~International~~ ~~segment.~~dates indicated:



	November 30, 2019	May 31, 2019	November 30, 2018	Segment
Equity method investments	$26.0	$23.4	$34.3	International
Other equity investments	6.0	6.0	0.0	Children's Book Publishing & Distribution
Total Investments	$32.0	$29.4	$34.3

The Company’s 26.2% non-controlling interest in a separate children’s book publishing business located in the UK is accounted for using the equity method of accounting. The net carrying value of this investment was $22.0, $20.5 and $21.0 at November 30, 2018, May 31, 2018 and November 30, 2017, respectively. Equity method income from this investment is reported in the ~~International~~ ~~segment.~~

~~The Company has other equity and cost method investments that had a net carrying value of less than $0.1 for all periods presented.~~

Income from equity investments is reported in Selling, general and administrative expenses in the ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~operations~~Operations and totaled ~~$2.5~~$2.0 and ~~$1.5~~$2.5 for the three months ended November 30, ~~2018~~2019 and ~~November 30, 2017,~~2018, respectively, and ~~$4.5~~$3.0 and ~~$2.7~~$4.5 for the six months ended November 30, ~~2018~~2019 and ~~November 30, 2017,~~2018, respectively.

Equity method investments

Make Believe Ideas Limited

On March 27, 2019, the Company completed the purchase of a majority-ownership position in Make Believe Ideas Limited ("MBI"), a UK-based children's book publishing business, by acquiring an additional 46.5% equity interest in MBI to bring the Company's total ownership interest to 95.0%. Prior to March 27, 2019, the Company accounted for its 48.5% equity interest under the equity method of accounting and income from this investment was reported in the International segment.

Other equity investments

In the fourth quarter of fiscal 2019, the Company acquired a 4.6% ownership interest in a financing and production company that makes film, television, and digital programming designed for the youth market. This equity investment does not have a readily determinable fair value and the Company has elected to apply the measurement alternative, and report this investment at cost, less impairment. In the current fiscal quarter there have been no impairments or adjustments to the carrying value of this investment.

9. EMPLOYEE BENEFIT PLANS

The following table sets forth the components of ~~the~~ net periodic benefit (cost) for the periods indicated under the Company’s ~~cash balance retirement plan for its United States employees meeting certain eligibility requirements (the “U.S. Pension Plan”) and the~~ defined benefit pension plan of Scholastic Ltd., an indirect subsidiary of Scholastic Corporation located in the United Kingdom (the “UK Pension Plan”) and ~~together with~~ the ~~U.S. Pension Plan, the “Pension Plans”). Also included are~~ postretirement benefits plan, consisting of certain healthcare and life insurance benefits provided by the Company to its eligible retired United States-based employees (the “Postretirement Benefits”)., for the periods indicated:



	UK Pension Plan				Postretirement Benefits
	Three months ended November 30,				Three months ended November 30,
	2019		2018		2019		2018
Components of net periodic (benefit) cost:
Service cost	$0.0		$0.0		$0.0		$0.0
Interest cost	0.2		0.3		0.1		0.2
Expected return on assets	(0.3	)	(0.3	)	—		—
Net amortization of prior service credit	0.0		—		(0.1	)	(0.1	)
Amortization of (gains) losses	0.3		0.2		0.0		—
Net periodic (benefit) cost	$0.2		$0.2		$0.0		$0.1

U.S. Pension Plan UK Pension Plan Postretirement Benefits
Three months ended November 30, Three months ended November 30, Three months ended November 30,
2018 2017 2018 2017 2018 2017
Components of net periodic (benefit) cost:
Service cost $ —
$ —
$ —
$ —
$ 0.0
$ 0.0
Interest cost —
0.8
0.3
0.2
0.2
0.2
Expected return on assets —
(1.5 ) (0.3 ) (0.2 ) —
—
Net amortization of prior service credit —
—
—
—
(0.1 ) —
Benefit cost of settlement event —
15.4
—
—
—
—
Amortization of (gains) losses —
0.3
0.2
0.3
—
0.0
Net periodic (benefit) cost $ —
$ 15.0
$ 0.2
$ 0.3
$ 0.1
$ 0.2

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


	U.S. Pension Plan					UK Pension Plan						Postretirement Benefits					UK Pension Plan		Postretirement Benefits
	Six months ended November 30,					Six months ended November 30,						Six months ended November 30,					Six months ended November 30,		Six months ended November 30,
	2018		2017			2018			2017			2018			2017		2019	2018	2019	2018
Components of net periodic (benefit) cost:
Service cost	$	—	$	—		$	—		$	—		$	0.0		$	0.0	$0.0	$0.0	$0.0	$0.0
Interest cost	—		1.5			0.5			0.5			0.4			0.5		0.4	0.5	0.3	0.4
Expected return on assets	—		(3.0		)	(0.5		)	(0.5		)	—			—		(0.5)	(0.5)	—	—
Net amortization of prior service credit	—		—			—			—			(0.1		)	—		0.0	—	(0.1)	(0.1)
Benefit cost of settlement event	—		15.4			—			—			—			—
Amortization of (gains) losses	—		0.6			0.4			0.6			—			0.0		0.5	0.4	—	—
Net periodic (benefit) cost	$	—	$	14.5		$	0.4		$	0.6		$	0.3		$	0.5	$0.4	$0.4	$0.2	$0.3

On July 20, 2016, the Board approved the termination of the U.S. Pension Plan, in which all benefit accruals were previously frozen as of June 1, 2009. Based on the U.S. Pension Plan’s funded status and the frozen benefit, it was determined that the on-going costs of maintaining the U.S. Pension Plan were growing at a greater rate than the benefit delivered to the Company’s employees and former employees, and the U.S. Pension Plan was terminated in fiscal 2018. During fiscal 2018, the U.S. Pension Plan made $37.8 of lump sum benefit payments to vested plan participants and purchased group annuity contracts for the remaining U.S. Pension Plan vested participants for a total cost of $86.3, paid to the respective insurers. As a result of the termination, pretax plan settlement charges of $57.3 were recognized in fiscal 2018.

The Company’s funding practice with respect to the UK Pension Plan is to contribute on an annual basis at least the minimum amounts required by applicable law. For the six months ended November 30, ~~2018,~~2019, the Company contributed $0.6 to the UK Pension Plan. The Company expects, based on actuarial calculations, to contribute cash of approximately $1.1 to the UK Pension Plan for the fiscal year ending May 31, ~~2019.~~2020.

In the second quarter of fiscal 2019, the Company announced a change in benefits for certain postretirement benefit plan participants. Beginning January 1, 2019, the plan ~~will establish~~established Health Reimbursement Accounts (HRAs) to provide these participants with additional flexibility to choose healthcare options based on individual needs. ~~As a result of this change, the~~The Company remeasured its Postretirement ~~Benefit~~benefits obligation as of November 30, 2018, and recognized a reduction of $2.7 to its benefit obligation and a reduction to its accumulated comprehensive loss of $2.7 in the second quarter of fiscal 2019. The related prior service credit will be amortized as a ~~Component~~component of ~~net~~Net periodic benefit (cost) over the average ~~remaining life expectancy~~lifetime of plan participants of approximately ~~13 years.~~13.0 years.

The Company's lease arrangements primarily relate to corporate offices and warehouse facilities, and to a lesser extent, certain equipment and other assets. The Company's leases generally have initial terms ranging from 3 to 10 years and certain leases include renewal or early-termination options, rent escalation clauses, and/or lease incentives. Lease renewal rent payment terms generally reflect adjustments for market rates prevailing at the time of renewal. The Company's leases require fixed minimum rent payments and also often require the payment of certain other costs that do not relate specifically to its right to use an underlying leased asset, but are associated with the asset such as real estate taxes, insurance, common area maintenance fees and/or certain other costs (referred to collectively herein as "non-lease components"), which may be fixed or variable in amount depending on the terms of the respective lease agreement. The Company's leases do not contain significant residual value guarantees or restrictive covenants.

The Company determines whether an arrangement contains a lease at the inception of the arrangement. If a lease is determined to exist, it's related term is assessed based on the date in which the underlying asset is made available for the Company's use by the lessor. The Company's assessment of the lease term reflects the non-cancelable term of the lease, inclusive of any rent-free periods and/or periods covered by early-termination options which the Company is reasonably certain of not exercising, as well as periods covered by renewal options which the Company is reasonably certain of exercising. The Company also determines lease classification as either operating or finance at lease commencement, which governs the pattern of expense recognition and the presentation reflected in the Condensed Consolidated Statements of Operations over the lease term.

For leases with a term exceeding 12 months, a lease liability is recorded on the Company's Condensed Consolidated Balance Sheet at lease commencement reflecting the present value of its fixed minimum payment obligations over the lease term. A corresponding right-of-use ("ROU") asset equal to the initial lease liability is also recorded, adjusted for any prepaid rent and/or initial direct costs incurred in connection with execution of the lease and reduced by any lease incentives received. The Company includes fixed payment obligations related to non-lease components in the measurement of ROU assets and lease liabilities, as it elects to account for lease and non-lease components together as a single lease component. ROU assets associated with finance leases are presented separate from operating leases ROU assets and are included within Property, plant and

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

equipment, net on the Company's Condensed Consolidated Balance Sheet. For purposes of measuring the present value of its fixed payment obligations for a given lease, the Company uses its incremental borrowing rate, determined based on information available at lease commencement, as rates implicit in its leasing arrangements are typically not readily determinable. The Company's incremental borrowing rate reflects the rate it would pay to borrow on a secured basis, and incorporates the term and economic environment of the associated lease.

For operating leases, fixed lease payments are recognized as lease expense on a straight-line basis over the lease term. For finance leases, the initial ROU asset is depreciated on a straight-line basis over the lease term, along with recognition of interest expense associated with accretion of the lease liability, which is ultimately reduced by the related fixed payments. For leases with a term of 12 months or less (referred to as a "short-term lease"), any fixed lease payments are recognized on a straight-line basis over the lease term, and are not recognized on the Condensed Consolidated balance sheet. Variable lease costs for both operating and finance leases, if any, are recognized as incurred.

The following table summarizes right-of-use assets and lease liabilities recorded on the Company's Condensed Consolidated Balance Sheet as of November 30, 2019:



	November 30, 2019	Location within Condensed Consolidated Balance Sheet
Operating leases	$76.4	Operating lease right-of-use assets, net
Finance leases	11.1	Property, plant and equipment, net
Total lease assets	$87.5

Operating leases :
Current portion	23.5	Current portion of operating lease liabilities
Non-current portion	56.0	Long-term operating lease liabilities
Total operating lease liabilities	$79.5

Finance leases :
Current portion	2.0	Other accrued expenses
Non-current portion	9.8	Other noncurrent liabilities
Total finance lease liabilities	$11.8
Total lease liabilities	$91.3

The following table summarizes the activity as a result of the adoption of ASC 842 for the three and six months ended November 30, 2019:

Selling, general and administrative expenses

The following table summarizes certain cash flows information related to the Company's leases for the six months ended November 30, 2019:



	Six Months Ended November 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$3.2
Operating cash flows from finance leases	0.2
Financing cash flows from finance leases	0.9

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

The following table provides a maturity analysis summary of the Company's lease liabilities recorded on the Company's Condensed Consolidated Balance Sheet as of November 30, 2019:



	Operating	Finance
	Leases	Leases
Remainder of Fiscal 2020 ⁽¹⁾	$14.0	$1.2
Fiscal 2021	23.0	2.4
Fiscal 2022	18.6	2.3
Fiscal 2023	12.8	2.1
Fiscal 2024	7.3	2.0
Fiscal 2025 and thereafter	11.4	3.3
Total lease payments	87.1	13.3
Less: interest	(7.6)	(1.5)
Total lease liabilities	$79.5	$11.8

(1) Fiscal 2020 includes the remaining six months of the current fiscal year ending May 31, 2020.

The following table summarizes the weighted-average remaining lease terms and weighted-average discount rates related to the Company's leases recorded on the Company's Condensed Consolidated Balance Sheet as of November 30, 2019:



	Operating	Finance
	Leases	Leases
Weighted-average remaining lease term (years)	4.3	6.2
Weighted-average discount rate	3.9%	3.8%

11. STOCK-BASED COMPENSATION

The following table summarizes stock-based compensation expense included in Selling, general and administrative expenses for the periods indicated:



	Three months ended November 30,		Six months ended November 30,
	2019	2018	2019	2018
Stock option expense	$0.4	$2.8	$1.0	$3.6
Restricted stock unit expense	0.4	0.7	1.2	1.3
Management stock purchase plan	0.0	0.2	0.0	0.2
Employee stock purchase plan	0.1	0.0	0.2	0.1
Total stock-based compensation expense	$0.9	$3.7	$2.4	$5.2

Three months ended November 30, Six months ended November 30,
2018 2017 2018 2017
Stock option expense $ 2.8
$ 4.6
$ 3.6
$ 5.4
Restricted stock unit expense 0.7
0.8
1.3
1.4
Management stock purchase plan 0.2
0.6
0.2
0.6
Employee stock purchase plan 0.0
0.0
0.1
0.1
Total stock-based compensation expense $ 3.7
$ 6.0
$ 5.2
$ 7.5

The following table sets forth Common Stock issued pursuant to stock-based compensation plans for the periods indicated:

~~SCHOLASTIC CORPORATION~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED~~

~~(Dollar amounts in millions, except per share data)~~



	Three months ended November 30,		Six months ended November 30,
	2019	2018	2019	2018
Common Stock issued pursuant to stock-based compensation plans (in millions)	0.1	0.2	0.1	0.3

Three months ended November 30, Six months ended November 30,
2018 2017 2018 2017
Common Stock issued pursuant to stock-based compensation plans (in millions) 0.2
0.1
0.3
0.2

~~11.~~12. TREASURY STOCK

The Board has authorized the Company to repurchase Common Stock, from time to time as conditions allow, on the open market or through negotiated private transactions.

The table below represents the Board authorizations at the dates indicated:

~~There were no repurchases of the Company's Common Stock for the three and six months ended November 30, 2018. The Company’s repurchase program may be suspended at any time without prior notice.~~

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

~~12.~~



Authorizations	Amount
July 2015	$50.0
March 2018	50.0
Total current Board authorizations at June 1, 2019	$100.0
Less repurchases made under these authorizations	(66.8)
Remaining Board authorization at November 30, 2019	$33.2

Repurchases of Common Stock were $7.1 and $19.6 during the three and six months ended November 30, 2019. The Company’s repurchase program may be suspended at any time without prior notice.

13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following tables summarize the activity in Accumulated other comprehensive income (loss), net of tax, by component, for the periods indicated:



	Three months ended November 30, 2019
	Foreign currency translation adjustments		Retirement benefit plans		Total
Beginning balance at September 1, 2019	$(49.1)		$(12.4)		$(61.5)
Other comprehensive income (loss) before reclassifications	3.9		—		3.9
Less amount reclassified from Accumulated other comprehensive income (loss):
Amortization of gains and losses (net of tax of $0.0)	—		0.3		0.3
Amortization of prior service credit (net of tax of $0.0)	—		(0.1	)	(0.1	)
Other comprehensive income (loss)	3.9		0.2		4.1
Ending balance at November 30, 2019	$(45.2)		$(12.2)		$(57.4)

	Three months ended November 30, 2018
	Foreign currency translation adjustments		Retirement benefit plans		Total
Beginning balance at September 1, 2018	$(45.0)		$(13.6)		$(58.6)
Other comprehensive income (loss) before reclassifications	(0.6	)	—		(0.6	)
Less amount reclassified from Accumulated other comprehensive income (loss):
Amortization of gains and losses (net of tax of $0.0)	—		0.2		0.2
Postretirement benefit plan remeasurement (net of tax of $0.7)	—		2.0		2.0
Amortization of prior service credit (net of tax of $0.0)	—		(0.1	)	(0.1	)
Other reclassifications (net of tax of $0.2)	—		0.6		0.6
Other comprehensive income (loss)	(0.6	)	2.7		2.1
Ending balance at November 30, 2018	$(45.6)		$(10.9)		$(56.5)

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)



	Six months ended November 30, 2019
	Foreign currency translation adjustments	Retirement benefit plans	Total
Beginning balance at June 1, 2019	$(47.1)	$(12.6)	$(59.7)
Other comprehensive income (loss) before reclassifications	1.9	—	1.9
Less amount reclassified from Accumulated other comprehensive income (loss):
Amortization of gains and losses (net of tax of $0.0)	—	0.5	0.5
Amortization of prior service credit (net of tax of $0.0)	—	(0.1)	(0.1)
Other comprehensive income (loss)	1.9	0.4	2.3
Ending balance at November 30, 2019	$(45.2)	$(12.2)	$(57.4)

	Six months ended November 30, 2018
	Foreign currency translation adjustments	Retirement benefit plans	Total
Beginning balance at June 1, 2018	$(41.9)	$(13.8)	$(55.7)
Other comprehensive income (loss) before reclassifications	(3.7)	—	(3.7)
Less amount reclassified from Accumulated other comprehensive income (loss):
Amortization of gains and losses (net of tax of $0.0)	—	0.4	0.4
Postretirement benefit plan remeasurement (net of tax of $0.7)	—	2.0	2.0
Amortization of prior service credit (net of tax of $0.0)	—	(0.1)	(0.1)
Other reclassifications (net of tax of $0.2)	—	0.6	0.6
Other comprehensive income (loss)	(3.7)	2.9	(0.8)
Ending balance at November 30, 2018	$(45.6)	$(10.9)	$(56.5)

Six months ended November 30, 2018
Foreign currency translation adjustments Retirement benefit plans Total
Beginning balance at June 1, 2018 $ (41.9 ) $ (13.8 ) $ (55.7 )
  Other comprehensive income (loss) before reclassifications (3.7 ) —
(3.7 )
  Less amount reclassified from Accumulated other comprehensive income (loss):
   Amortization of gains and losses (net of tax of $0.0) —
0.4
0.4
  Postretirement benefit plan remeasurement (net of tax of $0.7) —
2.0
2.0
  Amortization of prior service credit (net of tax of $0.0) —
(0.1 ) (0.1 )
Other reclassifications (net of tax of $0.2) —
0.6
0.6
  Other comprehensive income (loss) (3.7 ) 2.9
(0.8 )
Ending balance at November 30, 2018 $ (45.6 ) $ (10.9 ) $ (56.5 )

Six months ended November 30, 2017
Foreign currency translation adjustments Retirement benefit plans Total
Beginning balance at June 1, 2017 $ (45.3 ) $ (48.9 ) $ (94.2 )
  Other comprehensive income (loss) before reclassifications 3.8
—
3.8
  Less amount reclassified from Accumulated other comprehensive income (loss):

   Benefit from settlement (net of tax of $6.2) —
9.2
9.2
   Amortization of gains and losses (net of tax of $0.2) —
0.9
0.9
   Other reclassifications (net of tax of $0.5) —
(0.6 ) (0.6 )
  Other comprehensive income (loss) 3.8
9.5
13.3
Ending balance at November 31, 2017 $ (41.5 ) $ (39.4 ) $ (80.9 )

The following table presents the impact on earnings of reclassifications out of Accumulated other comprehensive income (loss) for the periods indicated:



	Three months ended November 30,		Six months ended November 30,		Condensed Consolidated Statements of Operations line item
	2019	2018	2019	2018	Condensed Consolidated Statements of Operations line item
Employee benefit plans:
Amortization of unrecognized (gain) loss	$0.3	$0.2	$0.5	$0.4	Other components of net periodic benefit (cost)
Amortization of prior service credit	(0.1)	(0.1)	(0.1)	(0.1)	Other components of net periodic benefit (cost)
Less: Tax effect	0.0	0.0	0.0	0.0	Provision (benefit) for income taxes
Total cost, net of tax	$0.2	$0.1	$0.4	$0.3

Three months ended November 30, Six months ended November 30, Condensed consolidated statements of operations line item

2018
2017
2018
2017
Employee benefit plans:

Amortization of unrecognized (gain) loss $ 0.2
$ 0.6
0.4
1.2
Other components of net periodic benefit (cost)
Settlement charge —
15.4
—
15.4
Other components of net periodic benefit (cost)
Amortization of prior service credit (0.1 ) —
(0.1 ) —
Other components of net periodic benefit (cost)
Less: Tax effect 0.0
(6.3 ) 0.0
(6.4 ) (Provision) benefit for income taxes
Total cost, net of tax $ 0.1
$ 9.7
$ 0.3
$ 10.2

~~13.~~14. FAIR VALUE MEASUREMENTS

The Company determines the appropriate level in the fair value hierarchy for each fair value measurement of assets and liabilities carried at fair value on a recurring basis in the Company’s financial statements. The fair value hierarchy prioritizes the inputs, which refer to assumptions that market participants would use in pricing an asset or liability, based upon the highest and best use, into three levels as follows:

Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.

~~Level 1~~ ~~Unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.~~


•	Level 2Observable inputs other than quoted prices included in Level 1, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in inactive markets,

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

~~Level 2~~Observable inputs other than quoted prices included in Level 1, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs derived principally from or corroborated by observable market data.


•	Level 3 Unobservable inputs in which there is little or no market data available, which are significant to the fair value measurement and require the Company to develop its own assumptions.

~~Level 3~~ ~~Unobservable inputs in which there is little or no market data available, which are significant to the fair value measurement and require the Company to develop its own assumptions.~~

The Company’s financial assets and liabilities measured at fair value consisted of cash and cash equivalents, debt and foreign currency forward contracts. Cash and cash equivalents are comprised of bank deposits and short-term investments, such as money market funds, the fair value of which is based on quoted market prices, a Level 1 fair value measure. The Company employs Level 2 fair value measurements for the disclosure of the fair value of its various lines of ~~credit.~~credit and long term debt. The fair value of the Company's debt approximates the carrying value for all periods presented. The fair values of foreign currency forward contracts, used by the Company to manage the impact of foreign exchange rate changes, are based on quotations from financial institutions, a Level 2 fair value measure. See Note ~~15,~~16, Derivatives and Hedging, for a more complete description of the fair value measurements employed.

Non-financial assets ~~and liabilities~~ for which the Company employs fair value measures on a non-recurring basis include:

Long-lived assets

Investments

Assets ~~and liabilities~~ acquired in a business combination

Impairment assessment of Goodwill and ~~definite and indefinite-lived~~ intangible assets

Long-lived assets held for sale

Level 2 and level 3 inputs are employed by the Company in the fair value measurement of these ~~assets and liabilities. For the fair value measurements employed by the Company for goodwill and other intangible assets see Note 7, Goodwill and Other Intangibles.~~assets. For the fair value measurements employed by the Company for certain property, plant and equipment, production assets, investments and prepublication assets, the Company ~~assesses~~assessed future expected cash flows attributable to these assets.

~~14.~~15. INCOME TAXES AND OTHER TAXES

Income Taxes

In calculating the provision for income taxes on an interim basis, the Company uses an estimate of the annual effective tax rate based upon ~~the~~currently known facts and circumstances ~~known~~ and applies that rate to its year-to-date earnings or losses. The Company’s effective tax rate is based on expected income and statutory tax rates and takes into consideration permanent differences between financial statement and tax return income applicable to the Company in the various jurisdictions in which the Company operates. The effect of discrete items, such as changes in estimates, changes in enacted tax laws or rates or tax status, and unusual or infrequently occurring events, is recognized in the interim period in which the discrete item occurs. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the result of new judicial interpretations or regulatory or tax law changes.

The Company’s annual effective tax rate, exclusive of discrete items, is expected to be approximately ~~29.1%~~32.4%. The interim effective tax rate, inclusive of discrete items, was ~~27.2%~~32.2% for the three month period ended November 30, ~~2018~~2019 and ~~31.3%~~29.2% for the six month period ended November 30, ~~2018.~~

On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was signed into law resulting in a significant change in the framework for U.S. corporate taxes. The Act reduced the U.S. federal corporate tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and created new taxes on certain foreign sourced earnings. The re-measurement of the Company's U.S. deferred tax balances, any transition tax and interpretation of the new law is provisional, subject to clarifications of the new legislation and final calculations.

~~The Act also subjects a U.S. shareholder to tax on global intangible low-taxed income ("GILTI") earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740,~~ ~~No. 5, Accounting for Global Intangible Low-Taxed Income~~,

~~SCHOLASTIC CORPORATION~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED~~

~~(Dollar amounts in millions, except per share data)~~

states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred.

Any future changes to the Company’s provisional estimates, related to the Act, will be reflected as a change in estimate in the period in which the change in estimate is made in accordance with ASU 2018-05 Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 118. ASU 2018-05 allows for a measurement period of up to one year after the enactment date of the Act to finalize the recording of the related tax impacts.

The Company performed a preliminary assessment of the impact of GILTI and does not believe there will be a significant impact as a result of this provision and has elected to recognize the tax on GILTI as a period expense as incurred. In addition, due to the fact that the Company's international operating results do not exceed certain thresholds defined by the Act, the Company is not expecting the remaining provisions of the Act, including the foreign derived intangible income (FDII) and the base erosion and anti-abuse tax (BEAT), to be applicable. The Company does not expect to incur a one-time transition tax on earnings of foreign subsidiaries. The Company will finalize the accounting related to the Act in the third quarter of fiscal 2019.

The Company, including its domestic subsidiaries, files a consolidated U.S. income tax return, and also files tax returns in various states and other local jurisdictions. Also, certain subsidiaries of the Company file income tax returns in foreign jurisdictions. The Company is routinely audited by various tax authorities.

Non-income Taxes

The Company is subject to tax examinations for sales-based taxes. A number of these examinations are ongoing and, in certain cases, have resulted in assessments from taxing authorities. The Company assesses sales tax contingencies for each jurisdiction in which it operates, considering all relevant ~~factors~~facts including statutes, regulations, case law and experience. Where a sales tax liability inwith respect to a jurisdiction is probable and can be ~~reasonably~~reliably estimated for such jurisdiction, the Company has made accruals for these matters which are reflected in the Company’s Condensed Consolidated Financial Statements. These amounts are included in the Financial

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

Statements in Selling, general and administrative expenses. Future developments relating to the foregoing could result in adjustments being made to these accruals.

~~The State~~On June 21, 2018, the U.S. Supreme Court issued its opinion in South Dakota v. Wayfair, Inc. et. al., reversing prior precedent, in particular Quill Corp. v. North Dakota (1992), which held that states could not constitutionally require retailers to collect and remit sales or use taxes in respect to mail order or internet sales made to residents of ~~Wisconsin has assessed Scholastic Book Fairs, Inc. (“SBF”),~~ a ~~wholly owned subsidiary~~state in the absence of the ~~Company, $5.4, exclusive of penalties and interest, for sales tax in fiscal years 2003 through 2014. Based upon the facts and circumstances and the relevant laws~~retailer having a physical presence in the ~~State of Wisconsin,~~taxing state. As a result, the Company ~~does not believe these assessments are merited~~now has an obligation, at least on a going forward basis, to collect and ~~believes it could prevail~~remit sales and use taxes, primarily in ~~litigating this matter. However,~~respect to sales made through its school book club channel, as well as certain sales made through its ecommerce internet sites, to residents in states that the Company has ~~engaged~~not previously remitted sales or use taxes based on its having no physical presence in ~~discussions~~such states. As of November 30, 2019, the Company’s school book club channel was remitting sales taxes in 44 states and the District of Columbia. Any on-going or future litigation with states relating to sales and use taxes could be impacted favorably or unfavorably by the ~~state to resolve this matter and has recorded a charge related to a proposed settlement of this assessment.~~Court’s decision in future fiscal periods.

~~15.~~16. DERIVATIVES AND HEDGING

The Company enters into foreign currency derivative contracts to economically hedge the exposure to foreign currency fluctuations associated with the forecasted purchase of inventory, ~~and~~ the foreign exchange risk associated with certain receivables denominated in foreign currencies and certain future commitments for foreign expenditures. These derivative contracts are economic hedges and are not designated as cash flow hedges.

The Company marks-to-market these instruments and records the changes in the fair value of these items in Selling, general and administrative expenses ~~in the Condensed consolidated statement of operations,~~ and it recognizes the unrealized gain or loss in other current assets or other current liabilities. The notional values of the ~~open~~ contracts as of November 30, ~~2018~~2019 and November 30, ~~2017~~2018 were ~~$30.0~~$26.0 and ~~$36.5,~~$30.0, respectively. Unrealized gains of ~~$0.9~~$0.3 and ~~$0.3~~$0.9 were recognized for the six ~~month periods~~months ended November 30, ~~2018~~2019 and November 30, ~~2017,~~2018, respectively.

~~SCHOLASTIC CORPORATION~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED~~

~~(Dollar amounts in millions, except per share data)~~

~~16.~~17. OTHER ACCRUED EXPENSES

Other accrued expenses ~~consist~~consisted of the following as of the dates indicated:



	November 30, 2019	May 31, 2019	November 30, 2018
Accrued payroll, payroll taxes and benefits	$41.7	$41.2	$42.3
Accrued bonus and commissions	13.3	13.7	16.8
Returns liability	42.4	34.5	78.7
Accrued other taxes	30.2	29.3	31.3
Accrued advertising and promotions	12.3	9.6	9.2
Other accrued expenses	38.3	36.5	49.5
Total accrued expenses	$178.2	$164.8	$227.8

November 30, 2018 May 31, 2018 November 30, 2017
Accrued payroll, payroll taxes and benefits $ 42.3
$ 47.1
$ 49.1
Accrued bonus and commissions 16.8
22.4
18.4
Returns liability⁽¹⁾
78.7
—
—
Accrued other taxes 31.3
25.7
28.8
Accrued advertising and promotions 9.2
35.8
37.4
Accrued insurance 8.1
7.8
8.0
Other accrued expenses 41.4
39.1
32.0
Total accrued expenses $ 227.8
$ 177.9
$ 173.7

⁽¹⁾ - ~~Refer to Note 2, Revenues, for additional details regarding the impact of ASC 606 on Returns liability.~~

~~17.~~18. SUBSEQUENT EVENTS

The Board declared a quarterly cash dividend of $0.15 per share on the Company’s Class A and Common Stock for the third quarter of fiscal ~~2019.~~2020. The dividend is payable on March ~~15, 2019~~16, 2020 to shareholders of record as of the close of business on January 31, ~~2019.~~2020.

SCHOLASTIC CORPORATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

Overview and Outlook

Revenues for the quarter ended November 30, ~~2018~~2019 were ~~$604.7~~$597.2 million, compared to ~~$598.3~~$604.7 million in the prior fiscal year quarter, ~~an increase~~a decrease of ~~$6.4~~$7.5 million. The Company reported net earnings per diluted share of ~~Class A and Common Stock of $1.99~~$2.02 in the second quarter of fiscal ~~2019,~~2020, compared to net earnings per diluted share of ~~$1.60~~$1.99 in the prior fiscal year quarter.

InDuring the ~~second~~ fiscal quarter ended November 30, 2019, the ~~Company's~~ ~~Children's Book Publishing and Distribution~~ ~~revenues~~Company experienced increased ~~on strong performance~~sales in the trade ~~channel while~~and book fair channels as well as in Asia with lower revenues in the book ~~clubs and book fairs channels remained comparable with the prior fiscal year.~~club channel. The Company's trade ~~publishing in~~channel revenues increased 8% when compared to prior fiscal period results which included the ~~U.S. and across the globe remained at the top~~release of ~~bestseller lists with strong frontlist titles including Dav Pilkey's~~ ~~Dog Man~~, ~~Harry Potter~~ 20^th~~Anniversary editions and~~ Fantastic ~~Beasts~~^TMBeasts™: The Crimes of Grindelwald. The increase in trade channel revenues was due to the completion of the acquisition of a majority interest in Make Believe Ideas, Ltd. (MBI), which had been treated as an equity method investment in the ~~new original screenplay~~prior fiscal year, and the continued revenue from the Company's best selling titles and series. In respect to the book fair channel, actions taken by ~~J.K. Rowling, as well as backlist titles, notably~~ ~~The Wonky Donkey~~ as the Company ~~responded~~to improve fair quality and selection and the introduction of an e-Wallet digital payment option at more fairs resulted in an increased number of transactions per fair and steps taken to contain costs resulted in an increase in fair profitability. Local currency revenues increased in Asia, especially China where the Company is expanding as a leading provider of educational books for English language learning. Although book club channel revenues declined due to a ~~read-aloud video~~lower number of teacher sponsors and the effect of sales tax collection, cost reductions mitigated the impact on ~~social media. In~~ ~~Education~~, revenues were in line with expectations with momentum in classroom magazines, classroom libraries and professional learning in advance of the Company's launch of a new K-6 curriculum reading program, ~~Scholastic Literacy, in the second half of~~profitability during the fiscal year. The Company's technology transformation remained on schedule with the successful introduction of three new digital subscription programs and platforms in the fiscal quarter, as well as the continued implementation of a new ERP platform.quarter.

Results of Operations – Consolidated

Revenues for the quarter ended November 30, 2019 decreased to $597.2 million, compared to $604.7 million in the prior fiscal year. The Children's Book Publishing and Distribution segment revenues decreased by $4.3 million, due to the release of Fantastic Beasts™: The Crimes of Grindelwald in the prior fiscal year period, as well as lower revenues of $15.4 million in the book club channel primarily due to lower sponsorship and the higher all in cost to consumers from the collection of state and local sales tax, partially offset by increased trade channel revenue, driven by the completion of the acquisition of a majority interest in MBI and its full consolidation in the financial statements and by sales of the Company's best-selling titles and series, and higher revenues in the book fairs channel. In the ~~current~~Education segment, revenues decreased by $1.6 million, primarily driven by lower revenues from custom publishing programs. In local currency, the International segment revenues increased by $0.3 million, primarily driven by higher revenues in Australia and New Zealand due to local trade publishing, as well as in Asia due to sales in China of educational books for English language learning, partially offset by lower revenues in Canada. International segment revenues were impacted by unfavorable foreign exchange of $1.9 million.

Revenues for the six months ended November 30, 2019 increased to $829.8 million, compared to $823.1 million in the prior fiscal year period. The Children's Book Publishing and Distribution segment revenue increased $9.6 million, driven by higher trade revenue of $20.4 million resulting from the ~~Company adopted a new accounting pronouncement,~~ ~~Topic 606 - Revenue from Contracts with Customers~~ (~~Topic 606). See Note 2 of Notes to condensed consolidated financial statements - "unaudited" in Item 1, “Financial Statements" for further details. The Company applied~~ ~~Topic 606~~ ~~on a modified retrospective basis, therefore prior fiscal quarter results are not comparable. The table below provides a summary~~completion of the ~~impact~~acquisition of a majority interest in MBI and the ~~adoption had on~~continued success of the ~~current fiscal periods~~Company's best-selling titles and ~~an adjusted total~~series, as well as higher revenues in the book fairs channel of $5.7 million, partially offset by lower book clubs revenues of $16.5 million. In the Education segment, revenues decreased $1.1 million due to lower revenues from custom publishing programs. In local currency, the International segment revenues increased by $2.7 million, primarily driven by higher revenues in Australia and New Zealand due to local trade publishing, as well as in Asia due to sales in China of educational books for ~~comparison to prior periods:~~English language learning, partially offset by lower revenues in Canada. International segment revenues were impacted by unfavorable foreign exchange of $4.5 million.

Accounting Adoption ⁽¹⁾

Adjusted 2018 ⁽²⁾

Components of Cost of goods sold for the three and six months ended November 30, 2019 and November 30, 2018 are as follows:

SCHOLASTIC CORPORATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

Accounting Adoption ⁽¹⁾

Adjusted 2018 ⁽²⁾

~~Management's Discussion and Analysis of Financial Condition and Results of Operations excludes the impact of Topic 606, unless otherwise specifically stated.~~

~~Components of Cost of goods sold for the three and six months ended November 30, 2018 and November 30, 2017 are as follows:~~

Three months ended November 30, Six months ended November 30,

Adjusted 2018 ⁽¹⁾
2017
Adjusted 2018 ⁽¹⁾
2017
($ amounts in millions) $ % of Revenue $ % of Revenue $ % of Revenue $ % of Revenue
Product, service and production costs $ 151.4
24.6 % $ 145.6
24.3 % $ 207.1
25.2 % $ 197.1
25.0 %
Royalty costs 42.3
6.9 % 37.1
6.2 % 63.2
7.7 % 55.2
7.0 %
Prepublication and production amortization 5.6
0.9 % 5.3
0.9 % 11.0
1.3 % 10.8
1.4 %
Postage, freight, shipping, fulfillment and other 65.7
10.7 % 65.6
11.0 % 104.9
12.8 % 106.1
13.5 %
Total $ 265.0
43.1 % $ 253.6
42.4 % $ 386.2
47.0 % $ 369.2
46.9 %

Cost of goods sold for the quarter ended November 30, ~~2018~~2019 was ~~$265.0~~$264.3 million, or ~~43.1%~~44.3% of ~~adjusted~~ revenues, compared to ~~$253.6~~$262.4 million, or ~~42.4%~~43.4% of revenues, in the prior fiscal year quarter. The increase in Cost of goods sold as a percentage of revenues was primarily due to ~~higher royalty costs~~the completion of the acquisition of a majority interest in MBI and its full consolidation in the ~~trade channel~~financial statements. MBI manufacturing costs associated with specialty products represented a portion of the increase in Cost of goods sold as ~~certain bestselling book series command higher royalty rates.~~a percentage of revenues.

Cost of goods sold for the six months ended November 30, ~~2018~~2019 was ~~$386.2~~$401.4 million, or ~~47.0%~~48.4% of ~~adjusted~~ revenues, compared ~~$369.2~~$387.7 million, or ~~46.9%~~47.1% of revenues, in the prior fiscal year period. The increase in Cost of goods sold as a percentage of revenues was primarily due to ~~higher royalty costs~~the completion of the acquisition of a majority interest in MBI and its full consolidation in the ~~trade channel~~financial statements. MBI manufacturing costs associated with specialty products represented a portion of the increase in Cost of goods sold as ~~certain bestselling book series command~~a percentage of revenues. The Company continues to monitor and employ strategies to offset increased costs associated with higher ~~royalty rates, partially offset by~~tariffs. The impact of tariffs will likely impact the ~~favorable impact higher revenues had on fixed costs.~~cost of goods sold in the remaining fiscal year, especially in the domestic school-based channels.

~~There were no asset impairments for the three and six months~~quarter ended November 30, ~~2018. There were no asset impairments for~~2019 was less than $0.1 million compared to Net interest income of $0.5 million in the ~~three months ended November 30, 2017. Asset impairments for the six months ended November 30, 2017 were $6.7 million related~~prior fiscal year quarter. The decrease in Net interest income is primarily due to ~~the abandonment of legacy building improvements~~lower U.S. interest rates and lower short-term investment balances driven, in ~~connection with the Company's renovation of its headquarters in New York City.~~part, by higher common stock repurchases.

SCHOLASTIC CORPORATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

Net interest income in the quarter ended November 30, 2018 was $0.5 million, compared to net interest income of less than $0.1 million in the prior fiscal year quarter. The $0.5 million increase was primarily driven by higher interest income associated with the Company's cash and cash equivalents balances, while interest expense remained relatively flat due to the absence of long-term debt and comparable short-term debt balances.

decrease in Net interest income ~~associated with the Company's cash and cash equivalents balances, while interest expense remained relatively flat~~is primarily due to ~~the absence of long-term debt~~lower U.S. interest rates and ~~comparable short term debt balances.~~lower short-term investment balances driven, in part, by higher common stock repurchases. The Company expects a continued decrease in Net interest income in future periods.

Results of Operations

Children’s Book Publishing and Distribution

Accounting Adoption ⁽¹⁾

Adjusted 2018 ⁽²⁾

Other operating expenses ⁽³⁾⁽¹⁾

(1) Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization.

Six months ended November 30,
($ amounts in millions) 2018
Accounting Adoption ⁽¹⁾
Adjusted 2018 ⁽²⁾
2017
$
change

%
change
Revenues $ 513.6 (3.5 ) $ 510.1 $ 482.6 $ 27.5
5.7 %
Cost of goods sold 224.2 (1.7 ) 222.5 204.7 17.8
8.7 %
Other operating expenses ⁽³⁾
229.1 —
229.1 221.8 7.3
3.3 %
Operating income (loss) $ 60.3 $ (1.8 ) $ 58.5 $ 56.1 $ 2.4
4.3 %
Operating margin 11.7 % 11.5 % 11.6 %

Revenues for the six months ended November 30, 2019 increased by $9.6 million to $523.2 million, compared to $513.6 million in the ~~second~~prior fiscal ~~quarter~~year period, primarily related to higher trade channel revenues of ~~fiscal 2019. See Note 2~~$20.4 million, driven by the additional revenues from the completion of ~~Notes to condensed consolidated~~the acquisition of a majority interest in MBI and its full consolidation in the financial statements, ~~- unaudited in Item 1, “Financial Statements" for further details.~~as well as with strong sales of core titles, including Dav Pilkey's Dog Man: For Whom the Ball Rolls, Guts by Raina Telgemeier and The Wonky Donkey and The Dinky Donkey titles,

SCHOLASTIC CORPORATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

~~(3) Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization.~~

Cost of goods sold for the quarter ended November 30, ~~2018~~2019 was ~~$170.4~~$171.5 million, or ~~40.0%~~41.5% of ~~adjusted~~ revenues, compared to ~~$160.3~~$168.4 million, or ~~38.7%~~40.3% of revenues, in the prior fiscal year quarter. The increase in Cost of goods sold as a ~~percent~~percentage of revenues was primarily due to ~~higher royalty~~the completion of the acquisition of a majority interest in MBI and its full consolidation in the financial statements. MBI manufacturing costs associated with specialty products represented a portion of the increase in Cost of goods sold as ~~certain bestselling book series command higher royalty rates and higher fulfillment costs.~~a percentage of revenues.

Cost of goods sold for the six months ended November 30, ~~2018~~2019 was ~~$222.5~~$237.0 million, or ~~43.6%~~45.3% of ~~adjusted~~ revenues, compared to ~~$204.7~~$224.2 million, or ~~42.4%~~43.7% of revenues, in the prior fiscal year period. The increase in Cost of goods sold as a percent of revenues was primarily due to the completion of the acquisition of a majority interest in MBI and its full consolidation in the financial statements. MBI manufacturing costs associated with specialty products represented a portion of the increase in Cost of goods sold as a percentage of revenues. The Company continues to monitor and employ strategies to offset increased costs associated with higher ~~royalty costs as certain bestselling book series command higher royalty rates, partially offset by~~tariffs. The impact of tariffs may impact the ~~favorable impact higher revenues had on fixed costs.~~cost of goods sold in the remaining fiscal year, especially in the domestic school-based channels.

Other operating expenses for the quarter ended November 30, ~~2018 increased~~2019 decreased to ~~$143.2~~$132.5 million compared to ~~$138.4~~$143.2 million in the prior fiscal year quarter. The ~~increase~~decrease was ~~primarily~~ driven by ~~higher operating~~lower marketing expenses and net sales tax expense in the book club channel as well as lower labor related and distribution expenses in the book ~~fairs channel, increased employee-related expenses, sales tax accruals and additional costs being incurred in book clubs to achieve compliance with new state sales tax collection rules.~~fair channel.

Other operating expenses for the six months ended November 30, ~~2018 increased~~2019 decreased to ~~$229.1~~$218.3 million, compared to ~~$221.8~~$229.1 million in the prior fiscal year period. The ~~increase~~decrease was ~~primarily~~ driven by ~~higher operating~~lower marketing expenses ~~in the book fairs channel, as well as increased employee-related expenses,~~and net sales tax ~~accruals and additional costs being incurred in book clubs to achieve compliance with new state sales tax collection rules, partially offset by lower marketing~~ expense in the book club ~~channel.~~

~~Other operating~~channel as well as lower labor related and distribution expenses will be impacted as the Company implements changes to systems, processes, procedures, communications, and marketing to its customers in anticipation of collection and remittance of sales taxes commencing in the third quarter of fiscal 2019. The timing, efficacy and customer response to these changes could also cause revenues, profits and cash flows to vary from historical results. These changes predominantly impact the book ~~club~~fair channel.

Segment operating income for the quarter ended November 30, ~~2018~~2019 was ~~$112.8~~$109.6 million, compared to ~~$115.0~~operating income of $106.3 million in the prior fiscal year quarter. ~~The $2.2~~Despite the lower sales in the book club channel, the segment operating income increased by $3.3 million ~~decrease~~as a result of cost reduction strategies adopted in the book club and book fair channels, coupled with lower labor related and distribution expenses in the book fair channel and higher revenues in the trade channel.

Segment operating income for the six months ended November 30, 2019 was ~~primarily driven~~$67.9 million, compared to $60.3 million in the prior fiscal year period. Despite the lower sales in the book club channel, the segment operating income increased by ~~higher employee-related~~$7.6 million as a result of cost reduction strategies adopted in the book club and book fair channels, coupled with lower labor related and distribution expenses ~~sales tax accruals~~in the book fair channel and continued growth in the ~~costs being incurred in book clubs related to achieving compliance with the new state sales tax collection rules, partially offset by higher~~ trade ~~channel revenues.~~channel.

SCHOLASTIC CORPORATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

Segment operating income for the six months ended November 30, 2018 was $58.5 million, compared to $56.1 million in the prior fiscal year period. The $2.4 million favorable impact was primarily driven by the higher trade channel revenues, partially offset by the costs being incurred in book clubs related to achieving compliance with the new state sales tax collection rules.

Accounting Adoption ⁽¹⁾

Adjusted 2018 ⁽²⁾

Other operating expenses ⁽³⁾⁽¹⁾

Accounting Adoption ⁽¹⁾

Adjusted 2018 ⁽²⁾

Other operating expenses ⁽³⁾

~~(3)~~ Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization.

Revenues for the quarter ended November 30, ~~2018 increased~~2019 decreased to ~~$71.5~~$69.9 million, compared to ~~$69.0~~$71.5 million in the prior fiscal year quarter. The ~~$2.5~~$1.6 million ~~increase~~decrease was primarily driven by ~~higher sales of classroom libraries, professional services and~~lower revenues from custom publishing ~~programs.~~programs, partially offset by an increase in revenues from classroom book collection products and professional learning consulting services.

Revenues for the six months ended November 30, ~~2018 increased~~2019 decreased to ~~$119.4~~$118.3 million, compared to ~~$111.9~~$119.4 million in the prior fiscal year period. The ~~$7.5~~$1.1 million ~~increase~~decrease was primarily driven by ~~higher sales of~~lower revenues from custom publishing programs, partially offset by an increase in revenues from classroom ~~collections~~book collection products and professional learning ~~guided reading, leveled book room and teaching resources products in addition to higher sales of custom publishing programs.~~consulting services.

Cost of goods sold for the quarter ended November 30, ~~2018~~2019 was $23.2 million, or 33.2% of revenues, compared to $22.0 million, or 30.8% ~~of revenues, compared to $21.9 million, or 31.7%~~ of revenues, in the prior fiscal year quarter. The ~~decrease~~increase in ~~cost~~Cost of goods sold as a ~~percent~~percentage of revenues was primarily due to ~~favorable product mix.~~an increase in the amortization of prepublication costs related to digital subscription components of the recently launched Scholastic Literacy product.

Cost of goods sold for the six months ended November 30, ~~2018~~2019 was $44.1 million, or 37.3% of revenues, compared to $41.9 million, or 35.1% ~~of revenues, which was relatively flat when compared to $39.7 million, or 35.5%~~ of revenues, in the prior fiscal year period. The increase in Cost of goods sold as a percentage of revenues was primarily due to an increase in the amortization of prepublication costs related to digital subscription components of the recently launched Scholastic Literacy product.

Other operating expenses ~~increased to $43.8 million~~ for the quarter ended November 30, ~~2018,~~2019 decreased to $40.5 million, compared to ~~$43.2~~$41.2 million in the prior fiscal year quarter. The ~~$0.6~~$0.7 million ~~increase~~decrease was primarily related to ~~higher employee-~~lower employee-related costs.

Other operating expenses decreased to $81.4 million for the six months ended November 30, 2019, compared to $84.1 million in the prior fiscal year period. The $2.7 million decrease was primarily related to lower marketing expenses ~~associated with~~and decreased employee-related costs.

Segment operating income for the ~~increased sales staff.~~quarter ended November 30, 2019 was $6.2 million, compared to operating income of $8.3 million in the prior fiscal year quarter. The decrease was primarily driven by modestly lower revenues and an increase in the amortization of prepublication costs related to digital subscription components of the recently launched Scholastic Literacy product.

Segment operating loss for the six months ended November 30, 2019 was $7.2 million, compared to an operating loss of $6.6 million in the prior fiscal year period. The increase in operating loss was primarily driven by modestly lower revenues and an increase in the amortization of prepublication costs related to digital subscription components of the recently launched Scholastic Literacy product.

SCHOLASTIC CORPORATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

Other operating expenses increased to $83.5 million for the six months ended November 30, 2018, compared to $80.8 million in the prior fiscal year period. The $2.7 million increase was primarily related to higher employee- related expenses associated with the increased sales staff.

Segment operating income increased to $5.7 million for the quarter ended November 30, 2018, compared to $3.9 million in the prior fiscal year quarter. This was primarily driven by an increase in revenues with a more favorable product mix, partially offset by an increase in employee-related expenses associated with the increased sales staff.

Segment operating loss decreased to $6.0 million for the six months ended November 30, 2018, compared to $8.6 million in the prior fiscal year period. This was primarily driven by the increase in revenues, partially offset by an increase in employee-related expenses associated with the increased sales staff.

Three months ended November 30,
($ amounts in millions) 2018
Accounting Adoption ⁽¹⁾
Adjusted 2018 ⁽²⁾
2017
$
change

%
change
Revenues $ 115.3 $ 2.3
$ 117.6 $ 115.6 $ 2.0
1.7 %
Cost of goods sold 60.4 0.6
61.0 57.9 3.1
5.4 %
Other operating expenses ⁽³⁾
41.9 —
41.9 43.0 (1.1 ) (2.6 )%
Operating income (loss) $ 13.0 $ 1.7
$ 14.7 $ 14.7 $ 0.0
0 %
Operating margin 11.3 % 12.5 % 12.7 %

Six months ended November 30,
($ amounts in millions) 2018
Accounting Adoption ⁽¹⁾
Adjusted 2018 ⁽²⁾
2017
$
change

%
change
Revenues $ 190.1 $ 1.8
$ 191.9 $ 193.0 $ (1.1 ) (0.6 )%
Cost of goods sold 98.7 0.2
98.9 98.2 0.7
0.7 %
Other operating expenses ⁽³⁾
80.4 —
80.4 82.9 (2.5 ) (3.0 )%
Operating income (loss) $ 11.0 $ 1.6
$ 12.6 $ 11.9 $ 0.7
5.9 %
Operating margin 5.8 % 6.6 % 6.2 %



	Three months ended November 30,									Six months ended November 30,
($ amounts in millions)	2019			2018			$ change	% change		2019		2018		$ change	% change
Revenues	$113.7			$115.3			$(1.6)	(1.4	)%	$188.3		$190.1		$(1.8)	(0.9	)%
Cost of goods sold	59.3			60.4			(1.1)	(1.8	)%	98.0		98.7		(0.7)	(0.7	)%
Other operating expenses ⁽¹⁾	42.7			41.9			0.8	1.9	%	82.3		80.4		1.9	2.4	%
Operating income (loss)	$11.7			$13.0			$(1.3)	(10.0	)%	$8.0		$11.0		$(3.0)	(27.3	)%
Operating margin		10.3	%		11.3	%				4.2	%	5.8	%

(1) ~~In the first quarter of fiscal 2019, the Company adopted~~ ~~Topic 606, Revenue from Contracts with Customers~~. This resulted in the deferral of certain revenue associated with an incentive program within the Company’s international book fairs channels. In the Company's first fiscal quarter, revenues recognized for incentive programs exceeded revenues deferred for fairs held, resulting in the temporary higher revenues. The impact of Topic 606 from the first fiscal quarter has partially reversed in the second fiscal quarter. See Note 2 of Notes to condensed consolidated financial statements - unaudited in Item 1, “Financial Statements" for further details.

~~(3)~~ Other operating expenses include selling, general and administrative expenses, bad debt expenses, severance and depreciation and amortization.

Revenues for the quarter ended November 30, ~~2018 increased~~2019 decreased to ~~$117.6~~$113.7 million, compared to ~~$115.6~~$115.3 million in the prior fiscal year quarter. Local currency revenues across the Company's foreign operations increased by ~~$6.7~~$0.3 million, ~~partially~~which were more than offset by ~~the~~an adverse ~~impact in~~ foreign exchange impact of ~~$4.7~~$1.9 million. Local currency revenues in Australia and New Zealand increased ~~primarily due to increased revenue~~$2.9 million on higher trade, book club and book fair channel revenues, local currency revenues in the ~~trade channel in the major markets~~export and foreign rights businesses increased ~~trade~~$0.9 million and ~~education~~local currency revenues in Asia ~~especially China. In addition,~~increased $0.7 million primarily related to sales of educational books for English language learning. Local currency revenues decreased in Canada by $3.8 million, primarily driven by lower book club channel sales, and in the UK ~~education business benefited from an acquisition which~~by $0.4 million. The international trade channel sales increase was ~~not in~~primarily driven by the ~~prior fiscal year results as it did not occur until the third fiscal quarter~~global success of ~~the prior period.~~Dav Pilkey's Dog Man series and locally published trade channel titles.

Revenues for the six months ended November 30, ~~2018~~2019 decreased to ~~$191.9~~$188.3 million, compared to ~~$193.0~~$190.1 million in the prior fiscal year period. Local currency revenues across the Company's foreign operations increased by ~~$5.2~~$2.7 million, which was more than offset by the adverse impact in foreign exchange of ~~$6.3~~$4.5 million. The increase was primarily driven by higher revenues in Australia and New Zealand, Asia, UK and the export and foreign rights businesses, which is a result of the Company's continued success with popular global titles as well as local trade publishing, partially offset by lower revenues in Canada. Local currency revenues in Australia and New Zealand increased ~~due~~$4.0 million on higher trade, book club and book fair channel revenues, local currency revenues in Asia increased $1.1 million primarily related to sales of educational books for English language learning, local currency revenues in export and foreign rights increased ~~trade channel~~$0.6 million and local currency revenues in the ~~major markets~~UK increased $0.5 million primarily driven by trade channel sales partially offset by lower book fair channel revenues. Local currency revenues in Canada decreased $3.5 million driven by lower book club channel revenues. The Company will also be monitoring the status of the recently commenced Ontario teachers' union work-to-rule campaign which could further affect the Canadian business in the remaining fiscal period.

Cost of goods sold for the quarter ended November 30, 2019 was $59.3 million, or 52.2% of revenues, compared to $60.4 million, or 52.4% of revenues, in the prior fiscal year quarter. Cost of goods sold as a percentage of revenues was relatively flat primarily due to favorable product mix in Australia, offset by an increase in cost of goods sold as a percentage of revenues in Canada driven by lower sales volumes.

Cost of goods sold for the six months ended November 30, 2019 was $98.0 million, or 52.0% of revenues, compared to $98.7 million, or 51.9% of revenues, in the prior fiscal year period. Cost of goods sold as a percentage of revenues was relatively flat with increases in Canada and Asia ~~especially~~being offset by favorable product mix in the UK.

Other operating expenses for the quarter ended November 30, 2019 were $42.7 million, compared to $41.9 million in the prior fiscal year quarter. In local currencies, Other operating expenses increased $1.3 million primarily related to lower equity method investment income resulting from the completion of the acquisition of a majority interest in MBI and its full consolidation in the financial statements, an increase in employee related expenses and increased bad debt expense in the direct sales channel.

Other operating expenses for the six months ended November 30, 2019 were $82.3 million, compared to $80.4 million in the prior fiscal year period. In local currencies, Other operating expenses increased by $3.4 million primarily related to lower equity method investment income resulting from the completion of the acquisition of

SCHOLASTIC CORPORATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

~~China~~a majority interest in MBI and ~~improved results~~its full consolidation in the ~~UK education business, which benefited from an acquisition. This increase was partially offset by lower revenues in the Australia book club and book fairs channels and Canada book club channel.~~

Cost of goods sold for the quarter ended November 30, 2018 was $61.0 million, or 51.9% of adjusted revenues, compared to $57.9 million, or 50.1% of revenues, in the prior fiscal year quarter. Cost of goods sold as a percentage of revenues increased primarily due to higher royalty costs as a result of increased trade revenue across the major markets.

Cost of goods sold for the six months ended November 30, 2018 was $98.9 million, or 51.5% of adjusted revenues, compared to $98.2 million, or 50.9% of revenues, in the prior fiscal year period. Cost of goods sold as a percentage of revenues increased primarily due to higher royalty costs as a result of increased trade revenue across the major markets.

Other operating expenses for the quarter ended November 30, 2018 were $41.9 million, compared to $43.0 million in the prior fiscal year quarter. In local currencies, Other operating expenses were comparable year-over-year withfinancial statements, an increase in ~~employee-related~~employee related expenses ~~across most geographies, offset by lower bad debt expense, primarily in Malaysia, Thailand~~ and ~~within the export channel.~~

Other operating expenses for the six months ended November 30, 2018 were $80.4 million, compared to $82.9 million in the prior fiscal year period. In local currencies, Other operating expenses decreased by $1.1 million primarily related to higher income from equity investments and lowerincreased bad debt expense in the ~~Philippines, Malaysia and Thailand, partially offset by an increase in employee-related expenses.~~Asia direct sales channel.

Segment operating income for the quarter ended November 30, ~~2018~~2019 was ~~$14.7~~$11.7 million, compared to ~~$14.7~~$13.0 million in the prior fiscal year quarter. ~~During~~The decrease was due to the ~~fiscal quarter segment~~higher Other operating ~~income was impacted~~expenses primarily driven by ~~increased trade channel revenues in most major markets, favorable product mix in~~ the ~~UK and lower bad debt expense in certain Asian markets offset by higher employee-related expenses.~~full consolidation of MBI.

Segment operating income for the six months ended November 30, ~~2018~~2019 was ~~$12.6~~$8.0 million, compared to ~~$11.9~~$11.0 million in the prior fiscal year period. The ~~increase~~decrease was due to the higher Other operating expenses primarily driven by ~~increased trade channel revenues in most major markets, favorable product mix in~~ the UKfull consolidation of MBI and ~~lower~~increased bad debt expense in ~~certain Asian markets, partially offset by higher employee-related expenses.~~the Asia direct sales channel.

Unallocated overhead expense for the quarter ended November 30, ~~2018 increased~~2019 decreased by ~~$3.0~~$7.0 million to ~~$29.4~~$22.4 million, from ~~$26.4~~$29.4 million in the prior fiscal year quarter. The ~~increase~~decrease was primarily driven by ~~an increase in depreciation and amortization expense of $3.9~~lower contracted services within technology operations as well as a prior period $4.3 million ~~primarily attributable to capitalized strategic technology investments and assets~~pretax charge related to ~~the redesign and upgrade of the Company's headquarters in New York City, which is now substantially completed, and an additional charge for~~ a legacy sales tax assessment, ~~related to historical periods. This increase was~~ partially offset by ~~decreases~~a $1.0 million pretax charge relating to a settlement arising from an intellectual property producing agreement and a $0.5 million increase in ~~stock based compensation expense of $2.3 million and~~ severance expense ~~of $2.6 million.~~related to cost saving initiatives.

Unallocated overhead expense for the six months ended November 30, ~~2018 decreased~~2019 increased by ~~$3.7~~$0.7 million to ~~$50.3~~$51.0 million, from ~~$54.0~~$50.3 million in the prior fiscal year period. The ~~decrease~~increase was primarily ~~driven~~related to a $2.8 million increase in severance expense related to cost saving initiatives, a $1.5 million settlement, without admission of liability, for alleged patent infringement, a $1.0 million pretax charge relating to a settlement arising from an intellectual property producing agreement and higher depreciation expense related to recent system upgrades which are now in service, partially offset by ~~lower impairment charges of $6.7~~a $4.3 million ~~due to~~pretax charge in the prior fiscal ~~period charge~~year related to ~~the abandonment of~~a legacy building improvements in connection with the headquarter renovation, decreases in stock compensation expense of $2.3 million and severance expense of $3.7 million. These decreases were partially offset by an increase in depreciation and amortization expense of $7.4 million, primarily attributable to capitalized strategic technology investments and assets related to the redesign and upgrade of the Company's headquarters in New York City, which is now substantially completed, and an increase related to the sales tax assessment.

SCHOLASTIC CORPORATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

Liquidity and Capital Resources

~~Cash~~ used in investing activities was $72.5 million for the six months ended November 30, 2018, compared to cash used in investing activities of $68.9 million in the prior fiscal year period, representing higher cash used in investing activities of $3.6 million. Prepublication spending in the current fiscal year period was higher, primarily due to new print and digital core instruction products, in the ~~Education~~ ~~segment, forming part of the~~ ~~Scholastic Literacy~~ program expected to be launched later in fiscal 2019. This was partially offset by lower capital spending in the current fiscal year period due to lower fixed asset additions primarily related to the substantial completion of the headquarters building modernization. During the remainder of the fiscal year, the Company will continue to spend on technology transformation projects.

Cash provided by financing activities was less than $0.1 million for the six months ended November 30, 2018, compared to cash used in financing activities of $15.9 million for the prior fiscal year period, representing an increase in cash provided by financing activities of $15.9 million. The increase in cash provided was primarily driven by ~~the absence of~~ common stock repurchases by the Company, which were ~~$13.3~~$19.6 million in the current fiscal year period with no such repurchases in the prior fiscal year period and higher net proceeds ~~in the current fiscal year~~ pursuant to stock option ~~exercises.~~exercises last fiscal year of $4.9 million.

SCHOLASTIC CORPORATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

Reference is made to Note 1 of Notes to ~~condensed consolidated financial statements~~Financial Statements - unaudited in Item 1, “Financial Statements,” for information concerning recent accounting pronouncements since the filing of the Company’s Annual Report on Form ~~10-Q~~10-K for the ~~quarter~~fiscal year ended ~~August~~May 31, ~~2018.~~2019.

Forward Looking Statements

SCHOLASTIC CORPORATION

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company conducts its business in various foreign countries, and as such, its cash flows and earnings are subject to fluctuations from changes in foreign currency exchange rates. The Company sells products from its domestic operations to its foreign subsidiaries, creating additional currency risk. The Company manages its exposures to this market risk through internally established procedures and, when deemed appropriate, through the use of short-term forward exchange contracts, which were not significant as of November 30, ~~2018.~~2019. The Company does not enter into derivative transactions or use other financial instruments for trading or speculative purposes.

Market risks relating to the Company’s operations result primarily from changes in interest rates in its variable-rate borrowings. The Company is subject to the risk that market interest rates and its cost of borrowing will increase and thereby increase the interest charged under its variable-rate debt.

Additional information relating to the Company’s outstanding financial instruments is included in Note 4 of Notes to ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements - unaudited in Item 1, “Financial Statements.”

The following table sets forth information about the Company’s debt instruments as of November 30, ~~2018:~~2019:


($ amounts in millions)	Fiscal Year Maturity																	Fiscal Year Maturity
	2019 ⁽¹⁾			2020		2021		2022		2023		Thereafter		Total		Fair Value @ 11/30/2018		2020⁽¹⁾		2021	2022		2023	2024	Thereafter	Total	Fair Value @ 11/30/2019
Debt Obligations
Lines of Credit and current portion of long-term debt	$	13.5		$	—	$	—	$	—	$	—	$	—	$	13.5	$	13.5	$13.5		$0.0	$0.0		$0.0	$0.0	$0.0	$13.5	$13.5
Average interest rate	3.8		%	—		—		—		—		—		—				3.8	%	—	—		—	—	—
Long-term debt																		$0.0		$0.0	$2.6		$0.0	$0.0	$0.0	$2.6	$2.6
Average interest rate																		—		—	2.5	%	—	—	—

⁽¹⁾ Fiscal ~~2019~~2020 includes the remaining six months of the current fiscal year ending May 31, ~~2019.~~2020.

SCHOLASTIC CORPORATION

Item 4. Controls and Procedures

The Chief Executive Officer and the Chief Financial Officer of the Corporation, after conducting an evaluation, together with other members of the Company’s management, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as of November 30, ~~2018,~~2019, have concluded that the Corporation’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Corporation in its reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and accumulated and communicated to members of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. There was no change in the Corporation’s internal control over financial reporting that occurred during the quarter ended November 30, ~~2018~~2019 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II – OTHER INFORMATION

SCHOLASTIC CORPORATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information with respect to repurchases of shares of Common Stock by the Corporation during the three months ended November 30, 2019:

Issuer Purchases of Equity Securities

(Dollars in millions, except per share amounts)



Period	Total number of shares purchased	Average price paid per share	Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares (or approximate dollar value) that may yet be purchased under the plans or programs ⁽ⁱ⁾
September 1 through September 30, 2019	4,555	37.27	4,555	$40.0
October 1 through October 31, 2019	85,054	36.65	85,054	36.9
November 1 through November 30, 2019	103,849	36.68	103,849	33.2
Total	193,458		193,458	$33.2

(i) Represents the amount remaining at November 30, 2019 under the $50.0 Board authorization for Common share repurchases announced on March 21, 2018, which is available for further repurchases, from time to time as conditions allow, on the open market or through negotiated private transactions. See Note 12 of Notes to Condensed Consolidated Financial Statements - unaudited in Item 1, “Financial Statements,” for a description of the Company’s share buy-back program and share repurchase authorizations.

SCHOLASTIC CORPORATION

Item 6. Exhibits

Exhibits:



10.1	Offer of employment letter, effective November 18, 2019, between Scholastic Corporation and Sasha Quinton.

31.1	Certification of the Chief Executive Officer of Scholastic Corporation filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of the Chief Financial Officer of Scholastic Corporation filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32	Certifications of the Chief Executive Officer and Chief Financial Officer of Scholastic Corporation furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~10.17~~101	~~Amendment Number 3~~Financial Statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended November 30, 2019, formatted in Inline Extensible Business Reporting Language: (i) Condensed Consolidated Statements of Operations; (ii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Changes in Stockholders' Equity; (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to ~~the Scholastic Corporation 2011 Stock Incentive Plan~~ Condensed Consolidated Financial Statements.

~~101.INS~~104	~~XBRL Instance Document~~

~~101.SCH~~	~~XBRL Taxonomy Extension Schema Document~~

~~101.CAL~~	~~XBRL Taxonomy Extension Calculation Document~~

~~101.DEF~~	~~XBRL Taxonomy Extension Definitions Document~~

~~101.LAB~~	~~XBRL Taxonomy Extension Labels Document~~

~~101.PRE~~	~~XBRL Taxonomy Extension Presentation Document~~




	Cover Page, formatted Inline Extensible Business Reporting Language and contained in Exhibit 101.

SCHOLASTIC CORPORATION

QUARTERLY REPORT ON FORM 10-Q, DATED November 30, ~~2018~~2019

Exhibits Index




Exhibit Number	Description of Document
10.1 *	Offer of employment letter, effective November 18, 2019, between Scholastic Corporation and Sasha Quinton.

31.1	Certification of the Chief Executive Officer of Scholastic Corporation filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of the Chief Financial Officer of Scholastic Corporation filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32	Certifications of the Chief Executive Officer and Chief Financial Officer of Scholastic Corporation furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~10.17~~101	~~Amendment Number 3~~Financial Statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended November 30, 2019, formatted in Inline Extensible Business Reporting Language: (i) Condensed Consolidated Statements of Operations; (ii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Changes in Stockholders' Equity; (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to the Scholastic Corporation 2011 Stock Incentive Plan *Condensed Consolidated Financial Statements.

~~101.INS~~104	XBRL Instance Document **

~~101.SCH~~	XBRL Taxonomy Extension Schema Document **

~~101.CAL~~	XBRL Taxonomy Extension Calculation Document **

~~101.DEF~~	XBRL Taxonomy Extension Definitions Document **

~~101.LAB~~	XBRL Taxonomy Extension Labels Document **

~~101.PRE~~	XBRL Taxonomy Extension Presentation Document **
	Cover Page, formatted Inline Extensible Business Reporting Language and contained in Exhibit 101.

* The referenced exhibit is a management contract or compensation plan or arrangement described in Item

601(b) (10) (iii) of Regulation S-K.

** In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed.”

SCHOLASTIC CORPORATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		SCHOLASTIC CORPORATION
		(Registrant)

Date: December 20, ~~2018~~2019	By:	/s/ Richard Robinson


		Richard Robinson
		Chairman of the Board, President and Chief Executive Officer

Date: December 20, ~~2018~~2019	By:	/s/ Kenneth J. Cleary


		Kenneth J. Cleary
		Chief Financial Officer (Principal Financial Officer)

4140



	Three Months Ended November 30, 2019	Six Months Ended November 30, 2019	Location within Condensed Consolidated Statement of Operations
	Three Months Ended November 30, 2019	Six Months Ended November 30, 2019
Operating lease expense	$7.1	$14.2	Selling, general and administrative expenses
Finance lease costs :
Depreciation of leased assets	0.5	0.9	Selling, general and administrative expenses
Accretion of lease liabilities	0.1	0.2	Interest income (expense), net
Total lease expense	$7.7	$15.3



	November 30, 2018			May 31, 2018			November 30, 2017
	(Unaudited)						(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	358.1		$	391.9		$	387.8
Accounts receivable, net	377.3			204.9			262.4
Inventories, net	365.6			294.9			355.7
Prepaid expenses and other current assets	71.3			66.6			69.2
Total current assets	1,172.3			958.3			1,075.1
Noncurrent Assets:
Property, plant and equipment, net	571.3			555.6			514.0
Prepublication costs, net	62.1			55.3			46.5
Royalty advances, net	48.9			44.8			46.5
Goodwill	119.1			119.2			119.1
Noncurrent deferred income taxes	41.4			25.2			47.6
Other assets and deferred charges	66.8			67.0			59.5
Total noncurrent assets	909.6			867.1			833.2
Total assets	$	2,081.9		$	1,825.4		$	1,908.3

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Lines of credit and current portion of long-term debt	$	13.5		$	7.9		$	11.3
Accounts payable	250.3			198.9			222.1
Accrued royalties	58.5			34.6			46.9
Deferred revenue	187.2			24.7			82.0
Other accrued expenses	227.8			177.9			173.7
Accrued income taxes	2.1			1.8			2.5
Total current liabilities	739.4			445.8			538.5
Noncurrent Liabilities:
Long-term debt	—			—			—
Other noncurrent liabilities	57.9			58.8			67.1
Total noncurrent liabilities	57.9			58.8			67.1

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 33.2 shares, respectively	0.4			0.4			0.4
Additional paid-in capital	617.9			614.4			612.3
Accumulated other comprehensive income (loss)	(56.5		)	(55.7		)	(80.9		)
Retained earnings	1,018.4			1,065.2			1,074.1
Treasury stock, at cost: 9.3, 9.6 and 9.7 shares, respectively	(295.6		)	(303.5		)	(303.2		)
Total stockholders’ equity	1,284.6			1,320.8			1,302.7
Total liabilities and stockholders’ equity	$	2,081.9		$	1,825.4		$	1,908.3



	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



	As reported			Adjustments				Without adoption of Topic 606
Three months ended November 30, 2018
Revenues	$	604.7		$	10.8		⁽¹⁾	$	615.5
Cost of goods sold	262.4			2.6			⁽¹⁾	265.0
Selling, general and administrative expenses	229.7			2.6			⁽³⁾	232.3
Depreciation and amortization	14.4			—				14.4
Operating income (loss)	98.2			5.6				103.8
Interest income (expense), net	0.5			—				0.5
Other components of net periodic benefit (cost)	(0.3		)	—				(0.3		)
Provision (benefit) for income taxes	26.8			1.5			⁽⁴⁾	28.3
Net income (loss)	$	71.6		$	4.1			$	75.7
Basic earnings (loss) per share:	$	2.03		$	0.12			$	2.15
Diluted earnings (loss) per share:	$	1.99		$	0.11			$	2.10

Six months ended November 30, 2018
Revenues	$	823.1		$	(1.7	)	⁽²⁾	$	821.4
Cost of goods sold	387.7			(1.5		)	⁽²⁾	386.2
Selling, general and administrative expenses	393.4			(0.6		)	⁽³⁾	392.8
Depreciation and amortization	27.6			—				27.6
Operating income (loss)	14.4			0.4				14.8
Interest income (expense), net	1.3			—				1.3
Other components of net periodic benefit (cost)	(0.7		)	—				(0.7		)
Provision (benefit) for income taxes	4.7			0.1			⁽⁴⁾	4.8
Net income (loss)	$	10.3		$	0.3			$	10.6
Basic earnings (loss) per share:	$	0.29		$	0.01			$	0.30
Diluted earnings (loss) per share:	$	0.29		$	0.01			$	0.30



	November 30, 2018		May 31, 2018		November 30, 2017
Revolving Loan	$	—	$	—	$	—
Unsecured lines of credit (weighted average interest rates of 3.8%, 2.9% and 3.8%, respectively)	13.5		7.9		11.3
Total debt	$	13.5	$	7.9	$	11.3



	Six months ended November 30,			Twelve months ended May 31,			Six months ended November 30,
	2018			2018			2017
Gross beginning balance	$	158.8		$	158.5		$	158.5
Accumulated impairment	(39.6		)	(39.6		)	(39.6		)
Beginning balance	$	119.2		$	118.9		$	118.9
Foreign currency translation	(0.1		)	0.2			0.2
Other	—			0.1			—
Ending balance	$	119.1		$	119.2		$	119.1



	Three months ended November 30,								Six months ended November 30,
	Adjusted 2018 ⁽¹⁾				2017				Adjusted 2018 ⁽¹⁾				2017
($ amounts in millions)	$		% of Revenue		$		% of Revenue		$		% of Revenue		$		% of Revenue
Product, service and production costs	$	151.4	24.6	%	$	145.6	24.3	%	$	207.1	25.2	%	$	197.1	25.0	%
Royalty costs	42.3		6.9	%	37.1		6.2	%	63.2		7.7	%	55.2		7.0	%
Prepublication and production amortization	5.6		0.9	%	5.3		0.9	%	11.0		1.3	%	10.8		1.4	%
Postage, freight, shipping, fulfillment and other	65.7		10.7	%	65.6		11.0	%	104.9		12.8	%	106.1		13.5	%
Total	$	265.0	43.1	%	$	253.6	42.4	%	$	386.2	47.0	%	$	369.2	46.9	%