Scholastic(US:SCHL)2024-07-19 20:04Part I Item 1. Business Scholastic is the world's largest children's book publisher and distributor, operating through publishing, education, and international segments, with a new Entertainment segment forming in fiscal 2025 Revenues by Reportable Segment (Millions USD) | Segment | FY 2024 (Millions USD) | FY 2023 (Millions USD) | FY 2022 (Millions USD) | | :--- | :--- | :--- | :--- | | Children’s Book Publishing and Distribution | $955.2 | $1,038.0 | $946.5 | | Education Solutions | $351.2 | $386.6 | $393.6 | | International | $273.6 | $279.4 | $302.8 | | Total | $1,580.0 | $1,704.0 | $1,642.9 | - The company's business is highly seasonal, with revenues in the first and third fiscal quarters generally being lower than in the other two quarters due to the school-year basis of its operations231 - On June 20, 2024, the company acquired 9 Story Media Group Inc. The operations of 9 Story, along with Scholastic Entertainment Inc. (SEI), will be reported in a new Entertainment segment beginning in fiscal 2025183190 - As of May 31, 2024, the company had approximately 6,660 employees, with 5,020 in the United States and 1,640 internationally, comprising about 72% full-time, 18% part-time, and 10% seasonal staff237238 Item 1A. Risk Factors The company faces operational, competitive, technological, and governance risks, including supply chain, market shifts, cybersecurity, and concentrated voting control - Business is affected by changes in customer purchasing patterns, educational funding, and policies, with content potentially becoming controversial in a politicized environment, impacting sales219 - The company is subject to inflationary pressures on printing, paper, transportation, and labor costs, where significant disruptions or cost increases beyond current management strategies could adversely affect results220248 - The company faces significant competition from larger entities in publishing, media, and distribution, where failure to meet competitive challenges could adversely affect revenues and profitability225 - The voting power of the corporation's capital stock is vested exclusively in the holders of Class A Stock, with the Estate of M. Richard Robinson, Jr. beneficially owning a majority, controlling the election of up to four-fifths of the Board269 Item 1C. Cybersecurity Scholastic manages cybersecurity risks via a NIST-CSF program overseen by the Board, employing defense-in-depth, with no material incidents reported to date - The company's cybersecurity program is based on the NIST-CSF framework, established in 2018, to guide processes for identifying, assessing, and managing cyber risks302 - The Board of Directors has delegated oversight of cybersecurity risks to the Technology, Data and Supply Chain Committee, which receives quarterly updates from the CIO and CISO328 - The company has not experienced any cybersecurity incidents that have materially affected or are reasonably likely to materially affect its business strategy, results of operations, or financial condition739 Item 2. Properties Scholastic owns its NYC headquarters and MO distribution facility, leases numerous warehouses, and reduced leased office space in fiscal 2024 - The company owns its headquarters in Soho, NYC, and its primary warehouse in Jefferson City, MO, and leases approximately 2.3 million square feet for book fair warehouses in various U.S. locations331 - In fiscal 2024, the company recognized $9.7 million in rental income from its headquarters building, with annualized straight-line rental income from current tenants expected to be approximately $11.1 million332 - During fiscal 2024, the company ceased use of certain leased office spaces in the U.S. and Canada as part of its efforts to rightsize its real estate footprint and reduce costs306 Item 3. Legal Proceedings The company is involved in routine legal proceedings, with management not expecting a material adverse effect on financial position or operations - The company does not expect that reasonably possible losses from pending claims and lawsuits would have a material adverse effect on its consolidated financial position or results of operations334 Part II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Scholastic's common stock trades on NASDAQ, with a declared dividend and significant share repurchases in fiscal 2024, with remaining authorization - On July 17, 2024, the Board declared a regular quarterly cash dividend of $0.20 per share for the first quarter of fiscal 2025, payable on September 16, 2024311 - During fiscal 2024, the company repurchased 3,993,576 common shares at an average price of $39.00 per share, for a total cost of approximately $156.8 million338 - As of May 31, 2024, approximately $86.6 million remains available for future share repurchases under the current Board authorizations33821 Issuer Purchases of Equity Securities (Q4 FY2024) | Period | Total Shares Purchased | Average Price Paid per Share (USD) | Remaining Authorization (Millions USD) | | :--- | :--- | :--- | :--- | | March 2024 | 15,156 | $39.57 | $100.0 | | April 2024 | 400,000 | $33.51 | $86.6 | | May 2024 | — | — | $86.6 | | Total | 415,156 | | $86.6 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2024 saw revenue and operating income decline due to business repositioning and segment weakness, offset by trade publishing, with strong operating cash flow but reduced cash balance post-acquisition funding Item 7A. Quantitative and Qualitative Disclosures about Market Risk The company faces market risks from interest rate fluctuations on variable-rate debt, heightened by recent borrowing, and foreign currency exposure, managed with forward contracts - The company is subject to risk from rising market interest rates, which would increase the cost of its variable-rate debt, a risk heightened by the $200.0 million borrowing in fiscal 2025436411 - The company's earnings and cash flows are subject to fluctuations from changes in foreign currency exchange rates due to its business in various foreign countries412 - The company uses short-term forward exchange contracts to manage foreign currency exposure, with the notional value of these contracts being $22.8 million as of May 31, 2024674 Item 8. Consolidated Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements, including notes, the independent auditor's unqualified opinion, and supplementary quarterly data Item 9A. Controls and Procedures Management, including CEO and CFO, concluded that disclosure controls and internal control over financial reporting were effective as of May 31, 2024 - The CEO and CFO concluded that the corporation's disclosure controls and procedures were effective as of May 31, 202439 - Management concluded that the corporation's internal control over financial reporting was effective as of May 31, 2024, based on the COSO 2013 framework67 Part III Items 10-14 Information for Items 10-14, covering governance, compensation, ownership, and related transactions, is incorporated by reference from the definitive proxy statement - Information required for Items 10, 11, 12, 13, and 14 is incorporated by reference from the registrant's definitive proxy statement for the upcoming Annual Meeting of Stockholders693694723 Part IV Item 15. Exhibits, Financial Statement Schedules This section details financial statements, schedules, and exhibits filed with the Form 10-K, including credit agreements, compensation plans, and CEO/CFO certifications - This section lists all financial statements and schedules included in the report, such as the Consolidated Financial Statements and Schedule II-Valuation and Qualifying Accounts and Reserves4445 - Numerous exhibits are filed with the report, including credit agreements, stock incentive plans, and executive employment agreements, many of which are incorporated by reference from previous filings467576 - Certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included as exhibits70077731