Team II-Final Consulting Report (1)

FINAL CONSULTING REPORT:
SCHOLASTIC CORPORATION (SCHL)
Kayla Gray
Denielle Griffin
Caleb Mixen
Brittany Newman
Thomas Saguto
Marcus Williamson
Scholastic Corporation
Richard Robinson, Jr.
November 12, 2015
PROMETHEUS CONSULTING AGENCY-TEAM 2
CBAD 478-Q4-Q5-HQ4 Strategic Management Fall 2015

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Thomas Saguto, Strategic Analyst and Project Leader
394 Bridge Street, Enterprise, AL 36330
9219 Pine Street, Parsippany, NJ 07054
(207) 867-5309
tdsaguto@g.coastal.edu
Date: 12th
November, 2015
To: Richard Robinson, Jr.
Chief Executive Officer
Scholastic Corporation
Prometheus Consulting Agency was hired by Richard Robinson, Jr., CEO of Scholastic Corporation
to conduct a comprehensive analysis and develop strategic recommendations upon which the firm
can enhance its competitiveness around the world and withstand the effects of a rapid, and ever-
changing, technological landscape in the marketplace.
This report consists of a preliminary APPLE Analysis by which we have constructed an overview of
Scholastic’s current situational environment. The results of the APPLE Analysis have shown that
Scholastic performs strong in its retail markets, especially in the Children’s Book Publishing and
Distribution product segment, and is in a sound position to take advantage of a potential $112 billion
opportunity in the Asian-Pacific markets.
Following the APPLE Analysis is an External Analysis which encompasses the threats,
opportunities, scope, and scale of Scholastic’s primary industry: publishing. The External Analysis
includes an industry overview along with close-competitor studies, a Five Forces Analysis to
discover industry profitability threats, a PESTLE Analysis that explains the industry’s “rules of the
game”, and a summary section that highlights recommended strategies to pursue in the publishing
industry.
An Internal Analysis of Scholastic generates a detailed picture of the firm’s internal operations
including in-depth strategic analysis, resources and capabilities, as well as highlighting critical
strengths and weaknesses of the firm.
Lastly, a Strategic Recommendations section contains three plans of action that aim to increase
Scholastic’s profitability, reinforce its core products, and sustain its mission and vision.
Thank you for the opportunity to work with Scholastic. It is our pleasure to serve you and your
company’s needs. Please do not hesitate to contact us if you require any assistance from our agency.
Best Regards,
Thomas Saguto
Prometheus Consulting Agency

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Table of Contents
APPLE Analysis ..............................................................................................................................................9
Company Overview...............................................................................................................................9
Areas of Operation....................................................................................................................................9
Product Segment Analysis.........................................................................................................................9
Segment Overview................................................................................................................................9
Segment Profitability and Revenues...................................................................................................10
Corporate Subsidiaries............................................................................................................................13
Critical Value-Chain Activities .................................................................................................................14
Reliance on Product Segments ...............................................................................................................15
Local Industry Segments .....................................................................................................................15
Geographic Segments .........................................................................................................................15
Future Outlook....................................................................................................................................15
Complexity of Firm’s Activities................................................................................................................16
Activity Performance and Value Creation...............................................................................................16
Activity Performance ..........................................................................................................................16
Key Value Chain Activities and Vertical Integration................................................................................16
Benefits of Vertical Integration...........................................................................................................17
Challenges of Vertical Integration.......................................................................................................17
Corporate Milestones and Evolutionary Learning..................................................................................18
Educational Institution Involvement...................................................................................................18
Going Public- Reorganization..............................................................................................................18
Stock Buyback .....................................................................................................................................18
Harry Potter ........................................................................................................................................19
Profile of Present Strategic Posture............................................................................................................20
Corporate level Strategy .........................................................................................................................20
Results of Diversification Strategy ......................................................................................................20
International Strategy.............................................................................................................................20
Business-Level Strategy...........................................................................................................................21
Strategy Focus.....................................................................................................................................21
Red Ocean Strategy.............................................................................................................................21
Approach to the Marketplace.............................................................................................................21
Functional Strategy.............................................................................................................................22

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Performance Appraisal ...............................................................................................................................22
Quantitative Performance Analysis ........................................................................................................22
Horizontal Analysis..............................................................................................................................22
Vertical Analysis..................................................................................................................................23
Cash Flow Analysis ..............................................................................................................................23
Ratio Analysis......................................................................................................................................24
Qualitative Performance Analysis.......................................................................................................24
Market Share Analysis.........................................................................................................................25
Stock Price Analysis.............................................................................................................................25
Leadership and Governance .......................................................................................................................25
Upper-Level Management Team ............................................................................................................25
Outside investors ....................................................................................................................................26
Board of Directors...................................................................................................................................26
Mission and Vision Statements...........................................................................................................26
Essential Challenges....................................................................................................................................27
Product Segments...................................................................................................................................27
Strategic Posture.....................................................................................................................................27
Financial Performance ............................................................................................................................28
Leadership and Governance ...................................................................................................................28
External Analysis .........................................................................................................................................28
Current Industry Framework ..................................................................................................................28
Market Size, Stage and Life Cycle .......................................................................................................28
Profitability..........................................................................................................................................28
Scope of Competitive Rivalry ..............................................................................................................29
Customers and Distribution Channels ................................................................................................29
Vertical Integration.............................................................................................................................30
Economies of Scale .............................................................................................................................30
Number of Rivals.................................................................................................................................30
Degree of Product Differentiation ......................................................................................................30
Product Innovation .............................................................................................................................31
Factors Affecting Supply and Demand Conditions..............................................................................32
Seller’s Market ....................................................................................................................................33
Industry Technology............................................................................................................................33

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Industry Key Success Factors ..................................................................................................................34
Close Competitors...................................................................................................................................36
Close Competitor Analysis ......................................................................................................................36
John Wiley & Sons...............................................................................................................................36
Houghton Mifflin Harcourt .................................................................................................................37
Five Forces Analysis ................................................................................................................................38
Rivalry among Competing Sellers .......................................................................................................39
Threat of New Entrants.......................................................................................................................39
Firms in Other Industries Offering Substitute Products .....................................................................40
Supplier Bargaining Power..................................................................................................................40
Buyer Bargaining Power......................................................................................................................41
Five Forces Summary ..........................................................................................................................42
Five Forces Strategic Prescription.......................................................................................................42
PESTLE Analysis.......................................................................................................................................42
Political................................................................................................................................................42
Economic.............................................................................................................................................43
Sociocultural........................................................................................................................................43
Legal....................................................................................................................................................43
Environmental.....................................................................................................................................43
Economic Growth and Trends.................................................................................................................43
Critical Change Summary: Opportunities and Threats ...........................................................................44
Opportunity Identification and Ratings ..............................................................................................44
Threat Identification and Ratings........................................................................................................44
Opportunity Assessments...................................................................................................................44
Threat Assessments ............................................................................................................................44
Critical Issues to be addressed by Scholastic......................................................................................44
Internal Analysis..........................................................................................................................................45
Strategy Diamond ...................................................................................................................................45
Arenas .................................................................................................................................................45
Vehicles...............................................................................................................................................46
Differentiators.....................................................................................................................................47
Economic Logic....................................................................................................................................47
Staging.................................................................................................................................................47

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Balanced Scorecard.................................................................................................................................48
Shareholders and Educational Network .............................................................................................48
Employees...........................................................................................................................................49
Customers...........................................................................................................................................50
Learning and Growth ..........................................................................................................................51
Resources and Capabilities .....................................................................................................................51
Resources............................................................................................................................................52
Capabilities..........................................................................................................................................53
Creating Value.........................................................................................................................................56
Competitive Strength Assessment..........................................................................................................57
Summarizing Internal Analyses...............................................................................................................58
Access to Financial Capital..................................................................................................................58
Profit Margins .....................................................................................................................................58
Talented Staff......................................................................................................................................58
Single Market Reliance........................................................................................................................59
Executive Management: Pressure to Innovate...................................................................................59
Recommendations......................................................................................................................................59
SWOT/TOWS Analysis.............................................................................................................................59
Strengths.................................................................................................................................................60
Weaknesses ............................................................................................................................................60
Opportunities..........................................................................................................................................61
Threats ....................................................................................................................................................61
Most Important Critical Issues................................................................................................................61
Develop the Digital Publishing Market ...............................................................................................62
Access to Excess Capital to Facilitate Expansion.................................................................................62
Deepening/Expanding the Product Line in High Growth Markets......................................................63
Critical Issue Recommendations.............................................................................................................63
Access to Excess Capital to Facilitate Expansion.................................................................................64
Implementation and Execution...............................................................................................................65
Access to Financial Capital to Facilitate Growth.................................................................................67

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Assessing Stakeholder Impact.................................................................................................................71
Recommendation #1...........................................................................................................................71
Recommendation #2...........................................................................................................................71
Recommendation #3...........................................................................................................................72
References ..................................................................................................................................................72
Appendix 1.1 Operating Segment Sales and Profit.....................................................................................77
Appendix 1.2 Operating Segment Sales Graph.............................................................................................0
Appendix 1.3 Operating Sales Percentages ..................................................................................................1
Appendix 1.4 Operating Segment Profit Chart .............................................................................................2
Appendix 1.5 Operating Segment Profit Percentages ..................................................................................3
Appendix 1.6 Scholastic’s Value Chain..........................................................................................................4
Appendix 1.7 Company Timeline ..................................................................................................................5
Appendix 1.8 Scholastic’s Revenue over Time..............................................................................................6
Appendix 1.9 Scholastic’s Revenue versus Competitors over Time .............................................................7
Appendix 1.10 Competitor Revenue Chart...................................................................................................8
Appendix 1.11 Financial Ratios.....................................................................................................................9
Appendix 1.12 Cash Flow Statement..........................................................................................................11
Appendix 1.13 Balance Sheet (Including Vertical Analysis) ........................................................................14
Appendix 1.14 Income Statement ..............................................................................................................17
Appendix 1.15 Balance Sheet .....................................................................................................................18
Appendix 1.16 Competitor Stock Price Comparison...................................................................................23
Appendix 1.17 Company Profiles................................................................................................................24
Appendix 1.18 Market Share Chart.............................................................................................................27
Appendix 1.18 Board of Directors...............................................................................................................28
Appendix 1.19 Largest Institutional Holders...............................................................................................29
Appendix 1.20 Mission Statement Analysis................................................................................................30
Appendix 1.21 Vision Statement Analysis...................................................................................................31
Appendix 2.1 e-Book Projections................................................................................................................32
Appendix 2.2 Profit Potential......................................................................................................................33
Appendix 2.3 Top 20 Global Publishers ......................................................................................................34
Appendix 2.4 Publishing Industry Key Success Factors...............................................................................35
Appendix 2.5 Close Competitor Analysis: Houghton Mifflin Harcourt .......................................................37

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Appendix 2.6 Close Competitor Analysis: John Wiley & Sons ....................................................................41
Appendix 2.7 Five Forces: Rivalry among Competing Sellers .....................................................................45
Appendix 2.7 Five Forces: Rivalry among Competing Sellers .....................................................................46
Appendix 2.8 Five Forces: Threat of New Entrants.....................................................................................47
Appendix 2.8 Five Forces: Threat of New Entrants.....................................................................................48
Appendix 2.9 Five Forces: Firms in Other Industries Offering Substitute Products ...................................49
Appendix 2.10 Five Forces: Supplier Bargaining Power..............................................................................50
Appendix 2.11 Five Forces: Buyer Bargaining Power..................................................................................52
Appendix 2.12 Summary of Five Forces Analysis........................................................................................55
Appendix 2.13 Five Forces: Strategic Prescription......................................................................................56
Appendix 2.14 PESTLE Analysis...................................................................................................................57
Appendix 2.15 Economic Situation Table ...................................................................................................59
Appendix 2.16 Opportunity Identification and Ratings..............................................................................60
Appendix 2.17 Threat Identification and Ratings .......................................................................................61
Appendix 2.18 Opportunity Assessments...................................................................................................62
Appendix 2.19 Threat Assessments............................................................................................................63
Appendix 2.20 Critical Issues to be addressed by Scholastic......................................................................64
Appendix 3.1 Strategy Diamond .................................................................................................................65
Appendix 3.2 Balanced Scorecard...............................................................................................................66
Appendix 3.3 Resources..............................................................................................................................69
Appendix 3.4 Capabilities............................................................................................................................71
Appendix 3.5 Resources and Capabilities Map...........................................................................................73
Appendix 3.6 Key Value-Creating Activities................................................................................................74
Appendix 3.7 Scholastic Value-Creation.....................................................................................................75
Appendix 3.8 Competitive Strength Assessment........................................................................................76
Appendix 3.9 Critical Issues: Strengths and Weaknesses...........................................................................77
Figure 4.1 External Analysis Summary........................................................................................................79
Figure 4.2 Internal Analysis Summary.........................................................................................................80
Figure 4.3 SWOT Analysis............................................................................................................................81
Figure 4.4 Notable SWOT Scenarios ...........................................................................................................82
Figure 4.5 Most Important Critical Issues...................................................................................................90

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Appendix 4.6 Top Actions by Critical Issue .................................................................................................93
Appendix 4.7 Recommendation #1.............................................................................................................96
Appendix 4.8 Project Schedule for Recommendation #1...........................................................................98
Appendix 4.9 Costs and Future Value of Recommendation #1..................................................................99
Appendix 4.10 Recommendation #2.........................................................................................................100
Appendix 4.11 Project Schedule for Recommendation #2.......................................................................102
Appendix 4.12 Costs and Future Value of Recommendation #2..............................................................103
Appendix 4.13 Recommendation #3.........................................................................................................104
Appendix 4.14 Project Schedule for Recommendation #3.......................................................................107
Appendix 4.15 Costs and Future Value of Recommendation #3..............................................................108
Appendix 4.16 Pro Forma Balanced Scorecard for External Critical Issue #2...........................................109
Appendix 4.17 Pro Forma Balanced Scorecard for Internal Critical Issue #1 ...........................................110
Appendix 4.18 Pro Forma Balanced Scorecard for External Issue #1.......................................................112
Appendix 4.19 Stakeholder Impact Summary for Recommendation #1 ..................................................114

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APPLE Analysis
The APPLE Analysis represents a systematic approach to developing an in-depth overview of a
firm. Examining a firm’s area of operations, strategic profile, performance summary, essential
challenges, and their leadership and governance make the APPLE Analysis a useful tool for
determining Scholastic’s current market position, its past performance, and where it would like
to operate in the future (Keels, Domke-Damonte, & Black, 2014).
Company Overview
Founded in 1920, Scholastic Corporation (Scholastic, SCHL) is, “the world’s largest publisher
and distributor of children’s books, a leading provider of print and digital instructional materials
for pre-K to grade 12, and a producer of educational and entertaining children’s media”
(Scholastic Corporation, 2015). Scholastic produces products such as books, e-books,
educational materials and programs, classroom magazines, and other products (Scholastic
Corporation, 2015). They sell their products through a variety of physical and digital channels,
whether it be through a book fair or the internet (Scholastic Corporation, 2015). One of the
company’s goals is to offer schools, “customized and comprehensive solutions to support
children’s learning both at school and at home” (Scholastic Corporation, 2015). Their corporate
mission is, “To encourage intellectual growth of children, beginning with literacy” (About Us:
Scholastic, 2015).
Areas of Operation
Scholastic primarily operates in publishing but they also retail in the education, media, and book
industries (Scholastic Corp.: Gale Business Insights: Global). Scholastic’s Annual Report notes
that their product offerings are placed into three segments: Children’s Book Publishing and
Distribution, Education, and International.
Product Segment Analysis
Segment Overview
Scholastic, “is the world’s largest publisher and distributor of children’s books, a leading
provider of print and digital instructional materials for pre-K to grade 12, and a producer of
educational and entertaining children’s media” (Scholastic Corporation, 2015). These products
are organized into three segments: Children’s Book Publishing and Distribution, Education, and
International (Scholastic Corporation, 2015).
Children’s Book Publishing and Distribution
Children’s Book Publishing and Distribution products include the publication and distribution of
children’s books, e-books, media, audiobooks, and interactive products in the United States
through Scholastic’s book clubs and book fairs (Scholastic Corporation, 2015).
Educational
According to Scholastic’s 2015 Annual Report, Education segment products include children’s
books, classroom magazines, supplemental classroom materials, custom curriculum and teaching
guides, and print and on-line reference and non-fiction products for grades pre-K to 12 in the
United States. Additionally, MarketLine, a market research company, reports that this segment
includes a foundational reading intervention program, other reading intervention programs, and
research-based computer adaptive assessments for grades K-12. Classroom books, teaching

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resources, guided reading programs, classroom magazines, current events magazines, content
area-specific classroom magazines, and news nonfiction readings also represent other segment-
specific products.
International
According to Scholastic’s 2015 Annual Report, International products include the publication
and distribution of products and services outside the United States by Scholastic’s international
operations, and its export and foreign rights businesses. MarketLine notes that products in this
segment include: trade publishing, educational publishing, and distribution of children’s books,
software, and other materials.
Additionally, but not included in Scholastic’s main product lines, the company generates revenue
from consumer and professional magazines, as well as production and distribution of
programming and digital content (Scholastic Corporation, 2015).
Segment Profitability and Revenues1
For a visual representation of revenue and profitability data, click here. To view a graph showing
historical revenues, click here. To view percent revenue data, click here.
To view a graph showing historical profitability, click here. To view percent profitability charts, click here.
Children’s Book Publishing and Distribution
Children’s Book Publishing and Distribution revenues have grown steadily over the past three
years. This product segment experienced a 3.21% increase in revenues from 2013 to 2014, and a
7.36% increase in revenues from 2014 to 2015. Given that this product segment is the largest
and, therefore, most important revenue generator for Scholastic, small percent increases
represent tremendous gains for the company. Since 2013, Scholastic was able to increase
revenues by $93.5 million ($27.8 million in 2014 and $64.3 million in 2015) in this segment.
In the previous two years, revenues increased by $27.8 million to $893.0 million, compared to
$865.2 million in fiscal year 2013. Revenue increases during this period resulted from marketing
efforts to improve book clubs’ performance during the spring promotional period, which
included sponsor targeted promotions, more kid friendly offerings and better integration of on-
line and off-line ordering experiences (Scholastic Corporation, 2015).
Profitability
In terms of profitability, Scholastic saw a 14.7% decrease in profit from 2013 to 2014, and a
259.66% increase in profit from 2014 to 2015. The $65.7 million revenue increase in 2015 was a
result from successful marketing initiatives in fiscal year 2014 whereby the book clubs channel
increased by $44.6 million (Scholastic Corporation, 2015). It is important to note that Scholastic
achieved higher revenue per book club event and a 5% increase in the number of teacher
sponsors of its book clubs (Scholastic Corporation, 2015). Additionally, Scholastic’s book fair
revenues increased $25.1 million due to a 4% increase in revenue per book fair coupled with a
1% increase in book fairs held in 2015. Lower prepublication, amortization and technology costs
also aided Scholastic in increased profit margin for this segment (Scholastic Corporation, 2015).
1
Segment profitability, revenue and costing data are taken from (Scholastic Corporation, 2015).

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Factors Affecting Profitability
This segment’s cost of goods sold for the 2015 fiscal year were $409.1 million, or 43% of
revenues, compared to $384.5 million, or 43% of revenues, in the prior fiscal year. Because of
lower prepublication, amortization, and technology costs, Scholastic was able to raise their price
per book and achieve a higher profit margin (Scholastic Corporation, 2015).
Other operating expenses for this segment were $453.8 million in 2015 compared to $456.7
million in the prior fiscal year. Expense decreases were the result of an $11 million increased
promotional expense for the book clubs operation and a bad debt expense of $2.7 million that
were offset by lower technology costs (Scholastic Corporation, 2015).
Other operating expenses for this segment in fiscal year 2014 were $456.7 million compared to
$473.8 million in fiscal year 2013. Lower expenses of $19.7 million in the book club operations,
cost reduction efforts, and lower digital initiative costs were partially offset by higher salary and
book fair operations costs of $8.6 million (Scholastic Corporation, 2015).
Education
The Education segment saw consistent revenue increases from 2013 to 2015, including a 4.33%
increase in 2014 and an 8.15% increase in 2015 (Scholastic Corporation, 2015). Cumulatively,
Scholastic was able to increase revenues by $31.4 million in a three year period (Scholastic
Corporation, 2015).
2015 revenues were the result of the continued demand for independent classroom reading
materials, classroom books, and literacy initiatives, which included guided reading programs
(Scholastic Corporation, 2015). This demand increased sales by $14.4 million compared to the
prior fiscal year. In addition, classroom magazine revenues rose to $8.1 million because of
higher magazine circulation driven by an increased demand for Scholastic’s print and online
offerings (Scholastic Corporation, 2015). Revenues from sales of library publishing products
were relatively flat and supplemental teaching resource materials declined by $3.5 million due to
lower sales in retail channels (Scholastic Corporation, 2015).
Revenues for fiscal year 2014 increased by $10.6 million to $255.1 million, compared to $244.5
million in fiscal year 2013. This increase was the result of $6.6 million in classroom magazine
revenues, increased sales of digital and customized print packages of $4.1 million, including $2.5
million from summer reading programs and $1.2 million increases in sales of teaching resource
products (Scholastic Corporation, 2015). Sales of collections to classrooms were relatively flat in
fiscal year 2013 and, to combat this, Scholastic enhanced its online store for teachers, providing
teachers and schools greater access to the company’s offerings, resulting in improved e-
commerce activity from this source and also a streamlining of the segment’s distribution process
(Scholastic Corporation, 2015). The success of Scholastic’s classroom magazine business
reflected the increased classroom demand for current non-fiction content in print and digital
formats (Scholastic Corporation, 2015).
Profitability
This segment’s profitability for the fiscal year 2015 improved by $9.9 million. Higher sales in
classroom magazines contributed to a $4.1 million increase in profitability (Scholastic
Corporation, 2015). Classroom books and literacy initiatives added an additional $5.3 million

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through outside-of-the-classroom community-based literacy initiatives and summer reading
programs (Scholastic Corporation, 2015).
From 2013 to 2014 profitability increased by 23.4%, or from $31.2 to $38.5 million. These
increases are primarily the result of improvements in Scholastic’s e-commerce sites and
heightened demand for classroom magazines and books (Scholastic Corporation, 2015).
Factors Affecting Profitability
This segment’s cost of goods sold for fiscal year 2015 was $94.0 million, or 34% of revenue,
compared to $89.6 million, or 35% of revenue, in the prior fiscal year. The lower cost of goods
sold as a percentage of revenue resulted from economies of scale in producing classroom
magazines which carry relatively low variable costs. Other cost effective means included
improved postage, freight, and handling costs (Scholastic Corporation, 2015).
The cost of goods sold for the fiscal year 2014 were $89.6 million, or 35% of revenue, compared
to $89.9 million, or 37% of revenue, in fiscal 2013. Improvements were also the result of
economies of scale in classroom magazine production (Scholastic Corporation, 2015).
Other operating expenses increased by $6.5 million for the fiscal year 2015 because ofhigher
employee-related expenses and promotional costs (Scholastic Corporation, 2015). Other
operating expenses increased by $3.6 million for the fiscal year 2014 due to higher information
technology costs for digital magazines which were offset by cost savings in the teaching resource
business (Scholastic Corporation, 2015).
International
Contrary to the other product segments, the International segment saw steady decreases in
revenues. In 2013 to 2014, revenues decreased by 6.07% or $26.7 million, and, in 2014 to 2015,
revenues decreased by 2.95% or $12.2 million.
Revenues for the fiscal year 2015 decreased by $12.2 million to $401.2 million, compared to
$413.4 million in fiscal year 2014. Total local currency revenues across Scholastic’s foreign
operations increased by $7.5 million but were offset by foreign currency exchange declines of
$19.7 million because of a strengthened US Dollar (Scholastic Corporation, 2015). Revenues
from the Asian operations increased by $6.4 million due to improved sales across the region,
while subsidiaries in Canada, the United Kingdom, and Australia increased $0.2 million due to
trade and book fairs noting increased sales of media products in Australia (Scholastic
Corporation, 2015). Local currency revenues in Canada partially offset revenues for other
reasons due in part to decreased revenues from book club operations, including the impact of a
teachers' strike in British Columbia (Scholastic Corporation, 2015). Finally, revenues from
Scholastic’s export and foreign rights operations in the United States increased by $0.9 million
(Scholastic Corporation, 2015).
Revenues for the fiscal year 2014 decreased by $26.7 million to $413.4 million, compared to
$440.1 million in fiscal year 2013. Decreases resulted from the impact of foreign exchange rates
of $24.1 million and a decrease of $8.0 million in a subsidiary Australian low margin software
business, as well as lower trade sales in the United Kingdom of $4.3 million from a decline in the
sales of Hunger Games titles (Scholastic Corporation, 2015). $1.8 million in export and foreign
rights operations sales—lower than the previous year—contributed to the segment’s decline in

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revenues, however, a $10 million increase in revenues from Asian-Pacific subsidiaries helped to
offset revenue decreases for other operations (Scholastic Corporation, 2015). The $10 million
increase was due to more direct sales of English language reference products and Scholastic’s
growing educational business in the Asian regions, where the company established educational
publishing operations in Singapore to serve the region’s needs for English language materials
and educational programs (Scholastic Corporation, 2015). Scholastic’s operations in Canada and
the United Kingdom experienced higher revenues from book fairs at $1.4 million and $1.0
million, respectively, as well as higher education-related revenues in the United Kingdom of $1.5
million, compared to fiscal 2013 (Scholastic Corporation, 2015).
Profitability
Profitability decreased in proportion to the revenues for this segment. From 2013 to 2014, the
International segment experienced a 22.45%, or $8.8 million decrease, and, from 2014 to 2015,
saw a 32.24%, or $9.8 million decrease in profitability.
Factors Affecting Productivity
Cost of goods sold for the fiscal year 2015 was $201.7 million, or 50% of sales, compared to
$202.7 million, or 49% of sales, in 2014. The increase in cost of goods sold as a percentage of
sales was due to $1.5 million of increased costs for a warehouse optimization project in Canada
and the higher cost of United States dollar-denominated products (Scholastic Corporation, 2015).
Cost of goods sold for the fiscal year ended 2014 was $202.7 million, or 49% of sales, compared
to $213.4 million, or 48% of sales, in fiscal 2013. The decreases in both periods were attributable
to the effects of foreign currency exchange rates (Scholastic Corporation, 2015).
Other operating expenses decreased by $4.1 million when compared to 2014 (Scholastic
Corporation, 2015). This decrease was due to foreign currency exchange rate changing, lower
promotional and salary related costs, and a $3.7 million insurance settlement relating to a
warehouse fire in India (Scholastic Corporation, 2015). These costs were partially offset by $1.5
million in cost reduction and restructuring programs (Scholastic Corporation, 2015).
For the fiscal year 2014, other operating expenses declined by $7.2 million (Scholastic
Corporation, 2015). 3.5 million in increased costs of foreign subsidiaries and a bad debt expense
of 0.6 million were offset by currency exchange rates and various cost-saving initiatives
Corporate Subsidiaries
Overview
Scholastic Corporation has 71 subsidiaries stationed across the globe. Subsidiaries include
corporations such as: Grolier, Scholastic Entertainment, Scholastic Book Clubs, SB Distribution,
Lectorum Publications, The Electronic Bookshelf, and also limited liability corporations Red
House Book Clubs (UK), Scholastic Canada, Scholastic Publications (UK), Scholastic Australia,
Scholastic New Zealand, and Scholastic Mexico (Pederson, 2011).
Some of Scholastic’s international subsidiaries go by the following names Scholastic Canada,
Scholastic United Kingdom, Scholastic Australia, Scholastic Mexico, Scholastic India and

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Scholastic Hong Kong, using “Scholastic” as a prefix before the country/continent (Pederson,
2011).
Purpose and Benefits
Scholastic’s international operations have original trade and educational publishing programs
and distribute children’s books, software and other materials through school-based book clubs,
school-based book fairs and trade channels. They engage in direct sales in shopping malls and
door to door in Asia, produce and distribute magazines, and offer online services (Pederson,
2011).
Many of the Company’s international operations also have their own export and foreign rights
licensing programs and are book publishing licensees for major media properties. Scholastic
Asia publishes and distributes reference products and provides services under the Grolier name,
and engages in direct sales in shopping malls and door to door, and operates tutorial centers that
provide English language training to students (Pederson, 2011).
Scholastic operates subsidiaries, such as Groiler and Lectorum Publications, which specialize in
publishing and distribution for Scholastic’s operations (Pederson, 2011). Owning and controlling
pieces of their supply chain—like publishers and distributors—through subsidiaries enables
Scholastic to maximize efficiency and leanness of operation as well as benefit marketing facets
of their business through communicating a more effective value proposition to customers.
Critical Value-Chain Activities
Scholastic primarily distributes its products and services through book store and book fair
channels, as well as directly to schools and libraries, through retail stores, and through the
internet (Scholastic Corporation, 2015). Scholastic’s website offers a portal for teachers,
classrooms—including students—and parents (Scholastic Corporation, 2015). Scholastic has
operations in the United States, Canada, the United Kingdom, Australia, New Zealand, Ireland,
India, China, Singapore and other parts of Asia and, through its export business, sells products in
more than 160 countries (Scholastic Corporation, 2015).
Trade books, book fairs, and book clubs represent primary retail outlets for Scholastic, as they
have a presence in 130,000 schools in the United States and recognize them as a major sales
contributor (About Us: Scholastic, 2015). MarketLine reports that, in addition to arranging book
fairs and selling trade books, Scholastic offers educational products and supplemental materials
to educators for classroom use (MarketLine, 2015).
Scholastic’s retail operations exist in physical locations—through book fairs and book clubs—as
well as virtually through online services and sales. Internationally, Scholastic derives its main
sources of revenue from trade publishing, educational publishing, and distribution of children’s
books, software, and other materials (MarketLine, 2015). Subsidiaries with the “Scholastic”
prefix—i.e. Scholastic Asia—offer the slightly fewer products and services as their parent,
Scholastic Corporation does in the United States. The international product mix also incorporates
a blend on physical and virtual sales.
Scholastic obtains titles for sale through its distribution channels from three principal sources
(Scholastic Corporation, 2015). The first source for titles is Scholastic’s publication of books

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created under exclusive agreements with authors, illustrators, book packagers, or other media
companies (Scholastic Corporation, 2015). This form of distribution is referred to as “trade
publishing” whereby Scholastic releases 600 new titles per year that appeal to a variety of
reading levels (About Us: Scholastic, 2015). Scholastic’s second source of titles is obtaining
licenses to publish books exclusively in specified distribution channels (Scholastic Corporation,
2015). The third source of titles is the company’s purchase of finished books from other
publishers (Scholastic Corporation, 2015).
Reliance on Product Segments
Local Industry Segments
Scholastic relies heavily on its Children’s Book Publishing and Distribution segment for revenue
generation. Given that this segment supplies nearly 60% of the firm’s total revenue, and the fact
that their industry is very competitive, Scholastic works to maintain or increase its market share
to be profitable. This product segment is the largest, indicated by the 130,000 Scholastic book
fairs held throughout the United States each year, as well as its book clubs and vast number of
publications. Scholastic, in particular, depends on the education industry—both public, private
and higher education schools—for this segment’s revenue. As a result, political or economic
changes in the education industry strongly affect Scholastic’s ability to generate revenue.
The United States government is a main customer of Scholastic, and given that the outlook of
public education funding in the United States may result in public education budget cuts,
Scholastic is working to expand upon its other product segments to increase revenue generation
(MarketLine, 2015). In particular, Scholastic sees an opportunity within its Asian markets to
grow profitability. Though, in recent years, the Asian-Pacific market has experienced decelerated
growth, the market is expected to grow considerably over the next four years (Scholastic
Corporation, 2015). MarketLine reports that, in 2014, the Asian-Pacific publishing market grew
by 4.9% to reach a value of $92 billion while forecasts anticipate a compound annual growth rate
of 5% from 2014 to 2018 and expect the market growth to reach $111.9 billion by the end of
2018 (MarketLine, 2015).
Geographic Segments
Because of the future educational outlook in the United States, and the growth potential of the
Asian-Pacific markets, Scholastic is looking to invest heavily in the Asian-Pacific markets. Of
course, if the United States market continues to add revenues to Scholastic’s product segments, it
will continue to operate and find innovate ways to grow market share and better connect with its
customers in that region. Scholastic relies heavily upon the United States for its revenue
generation which is explained by statistics showing that, in 2014, the company generated 77.3%
of its total revenues from the United States, while international operations accounted for only
22.7% of the total revenues (MarketLine, 2015).
Future Outlook
Scholastic is likely to devote more resources to the Asian-Pacific market and remain highly
active in the United States while still being situationally aware of the political and economic
climate in its home market.

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Complexity of Firm’s Activities
Scholastic’s organizational structure with its product offerings is simple. Value-creating
activities are separated into three different product segments. Each product segment is driven by
the goals of their respectable departments. Scholastic operates on a consistent set of activities.
For example, the Children’s Book Publishing and Distribution segment handles three revenue
generating activities: book fairs, book clubs, and trade publishing (Scholastic Corporation,
2015). Book fairs and book clubs are consistent across the organization and other markets, that
is, they operate the same way for each activity (Scholastic Corporation, 2015). Trade publishing
represents a higher level of complexity due to the nature of contracting authors, coordinating
product distribution, and working with subsidiary publishers to create a final product (Scholastic
Corporation, 2015).
Activity Performance and Value Creation
Activity Performance
The breadth of Scholastic’s activities is appropriate from its ability to generate over $900 million
in revenues off of one product segment; its principal activity of selling books through book fairs,
book clubs, and virtual means. From a branding standpoint, the Scholastic name has firmly
entrenched itself in the minds of educators inside the United States and around the world.
Additionally, Scholastic has a significant market position in the United States, serving more than
90% of schools in the nation (Scholastic Corporation, 2015). The firm is the largest publisher
and distributor of children's books, and recognized as the leading provider of educational
technology products and related services and children's media. Since societies rely on
educational programs—including schools—to develop a skilled workforce and drive innovation,
and that they are searching for easier ways to convey teaching materials, Scholastic products will
remain in high demand because they are able to deliver products that meet societal education
needs.
Over the past few years, Scholastic has seen an increase in profit margin due to heightened
demand for products and a restructuring of their product segments. Formerly, Scholastic operated
five product segments (Scholastic Corporation, 2015). They have since simplified their offerings
into three main areas. Evidence of the firm’s successful performance over the past three years
can be seen by the increases in product segment profitability, explained by cost-saving measures
coupled with product demand increases. A comprehensive listing of firm performance over the
past few years can be found in the Segment Revenue and Profitability section of this report.
Key Value Chain Activities and Vertical Integration
Scholastic works with third-party companies to manufacture its books, magazines and other
materials (Scholastic Corporation, 2015). Most third parties enter into contracts through arms-
length negotiations or competitive bidding of which guarantee specified manufacturing volume
in exchange for favorable pricing terms (Scholastic Corporation, 2015). This figure shows the
extent of Scholastic’s value chain. Squares highlighted in blue represent areas they control within
the chain.

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Paper for Scholastic’s products is purchased directly from paper mills and other third-party
sources (Scholastic Corporation, 2015). Scholastic operations in the United States are focused
on processing and fulfilling orders for school-based book clubs, book fairs, trade, reference and
non-fiction products, educational products, and export orders from a warehouse and distribution
facility in Jefferson City, Missouri (Scholastic Corporation, 2015). The trade books products, in
connection with Scholastic’s trade businesses, are sometimes shipped directly from book printers
to customers (Scholastic Corporation, 2015). Scholastic processes magazine orders at the
Jefferson City warehouse and distribution facility, while magazine printers ship them directly
from their place of business (Scholastic Corporation, 2015). In relation to book fairs, orders are
fulfilled through a network of warehouses across the United States.
With regards to international operations, school-based book clubs, school-based book fairs,
trade, and educational operations , the company utilizes distribution systems similar to those
currently employed the United States (Scholastic Corporation, 2015).
Benefits of Vertical Integration
Scholastic derives cost-savings from its current degree of vertical integration. Since Scholastic
owns a majority of its value chain, it does not receive markup prices for the production,
manufacturing and distribution of products. Scholastic’s cost of goods sold is affected greatly by
the prices of paper and other production materials (Scholastic Corporation, 2015). Scholastic
notes that its major expense categories involve employee compensation and printing, paper, and
distribution costs (such as postage, shipping and fuel) (Scholastic Corporation, 2015).
Scholastic’s margin on products depends on the current levels of these costs.
In 2008, Scholastic employed third-party company, Appian Logistics, in an effort to improve the
efficiency of product distribution processes and book fairs (Calabrese, 2008). Prior to Appian
Logistics’ consulting, Scholastic handled distribution routes by, “having 50 individuals push pins
into maps” (Calabrese, 2008). As of 2008, Scholastic operates a fleet of 298 trucks, located at 65
locations, and delivers books to 230,000 stops annually (Calabrese, 2008). The challenges of
maneuvering book fairs and product efficiently include the fact that, “most schools are located in
residential neighborhoods, which require routing schemes to consider more than just highways
and main travel arteries. Another of Scholastic's challenges is that drivers not only deliver the
bookcases, but also pick them up and provide support for the book fair events, requiring multiple
visits to the destination” (Calabrese, 2008).
Appian Logistics integrated a system called, Direct Route, which optimizes routes based on
customer locations and types, volume and time requirements, road network distances, vehicle
costs and capabilities, customer time windows, work-time parameters, and dispatch parameters
(Calabrese, 2008). Introducing the Direct Route system had immediate effects, slashing the
number of Scholastic’s routing workers from 50 to 12, increasing the efficiency and utilization of
trucks, and adding growth to the bottom line (Calabrese, 2008).
Challenges of Vertical Integration
While Scholastic is saving money with logistical efficiency, they also have to pay for Appian
Logistics’ routing service. There may be possible conflicts of interest or misaligned goals
between companies working together to achieve a shared objective.

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Another possible challenge is interdepartmental stress between value chains. The political
elements inside a corporation can lead to poor decision making between value chain elements for
the benefit of one or more individuals. Management of value chains can be subject to political
pressure and also may have different goals from other sections of the value chain.
Corporate Milestones and Evolutionary Learning
Note: Timeline information was retrieved from (90th Anniversary: Scholastic, 2015) and
(Pederson, 2011). View Scholastic’s company timeline here.
Educational Institution Involvement
A turning point of Scholastic happened in 1923 when the first official Advisory Board meeting
occurred (90th Anniversary: Scholastic, 2015). This meeting brought together high school
principals as well as the President of the National Council of Teachers of English. This was a
transition that sparked the intense connection that Scholastic currently has in schools across the
world.
Scholastic has created opportunities from being involved with school systems. By setting up
sponsorships, creative writing awards, as well as selling shares of stock to raise funds that give
back to these institutions, Scholastic was able to nearly double their magazine circulation by the
end of the 1920s (90th Anniversary: Scholastic, 2015).
Scholastic had to make sacrifices to establish their existence with the education world. While
getting involved in many different institutions benefitted Scholastic, they took various risks in
doing so. Limiting the market to school based institutions eliminated many different expansion
opportunities for the company. Another threat was how socially involved the company was at the
beginning of their establishment. Taking the risk and investing money into the education system
prevented Scholastic from spending these funds on further expanding their company.
Going Public- Reorganization
In 1969 company stock was first offered to the public—investment funds began a period of
steady financial growth for Scholastic (90th Anniversary: Scholastic, 2015). The company
underwent numerous corporate reorganizations in the years after this change, and, Richard
Robinson, Jr., became the CEO and chairman of the company.
Scholastic gained a new leader with innovative ideas to deal with the company’s new influx of
funds. Richard Robinson’s understanding of the corporation’s book clubs and magazines as well
as many other operations of the company allowed him to transition seamlessly into his new role.
Stock Buyback
A major milestone in Scholastic’s history was when they reversed their publicly traded status
after attempts to diversify the company. During the 1980’s, educational cuts and declining school
enrollment rates represented a challenge for Scholastic. As the cost of publishing books and
periodicals continued to rise, Scholastic struggled to raise their prices at an equal rate.
Scholastic’s revenues took an impact and declined. As a countermeasure to their issue,
Scholastic invested five million dollars into the textbook market. Despite their hopes, within two
years the textbook market did not give the influx of revenues the company needed.

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Scholastic explored entering the market for computer related educational materials. This effort to
bring forth more revenue for the struggling company resulted in losses of $13.8 million as well
as a stock price that continued to plummet. Considering that company restructuring and new
management did not alleviate the financial problems, Scholastic decided to become private.
Richard Robinson Jr. then reestablished control over Scholastic by maintaining fifty-one percent
of the company’s shares and then repurchased the rest of the shares for $84 million.
Scholastic found value in this segment of their history. By experiencing hardship, Scholastic was
able to develop and launch innovative, leading revenue providers. In hopes to create revenue to
save the company, Scholastic expanded into areas of service and production that it may not have
taken advantage of if they were not at a desperate point in time. A major acquisition that, to this
day, continues to provide major profits to the company was the purchase of California School
Book Fairs. By gaining this distribution channel, Scholastic was able to expand to largest
children's book fair operation in the United States. They also launched The Magic School Bus
series as well as The Baby-Sitters Club series that ultimately provided them revenues through
various publications (books, movies, CDs, consumer products, etc.).
There were many benefits from the privatization of Scholastic, but there were also some
sacrifices that impacted the company. The potential for revenue gains from share sales was
completely absolved when Robinson became CEO. Considering the growth potential during this
time period—despite typical market fluctuations—Scholastic was unable to recover share gains
until it resumed life as a publicly traded company.
Harry Potter
The exclusive purchase of J.K. Rowling’s Harry Potter books for United States distribution was
a landmark event for Scholastic. Just as Scholastic planned on expanding their diversification,
they were able to obtain the publishing rights for $100,000 at an auction. The fad behind the
books allowed for rapid sales and revenue growth throughout all seven of the novel’s sales.
Scholastic received tremendous gains from utilizing Harry Potter’s publishing rights. The
popularity of the series allowed Scholastic to not only benefit monetarily through revenues and
stock prices, but also increase the public’s awareness of their brand. Harry Potter novels were
responsible for about 7% of Scholastics revenues. Because of this drastic revenue boom,
Scholastic was able to invest in their company’s expansion. In 2001, they revamped their
company website, containing features for a variety of customers, and they opened a 6,200
square-foot retail store in Lower Manhattan which offered various products for all age groups.
The publicity from the Harry Potter books carved a path for Scholastic to profit off of other best-
selling titles such as the Hunger Games series by Suzanne Collins and Shiver by Maggie
Stiefvater.
Despite the immense value Scholastic gained from the Harry Potter novels, they also were
disoriented by their success. By the end of the seven novels’ run, Scholastic had been relying
many of its departmental expansions on the success of the Harry Potter sales. Scholastic had
become so dependent on the revenues that when the series was completed they had to find ways
to compensate for lost sales.

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The history of a company is necessary to understand its future successes and failures. Scholastic
has been through many pivotal moments in its lifetime that position them to be a powerhouse in
their market segments. By hitting lows, such as having to buy back all of their publicly traded
stock, or the loss of revenues to do failed ventures, Scholastic has shown that it is a resilient
company that is poised to expand and exceed expectations. Through testing the waters of various
segments, they have an understanding of what works for the company and what does not.
Profile of Present Strategic Posture
Corporate level Strategy
Scholastic’s pursues a related diversification strategy because less than 70% of its sales come
from a single industry (Keels, Domke-Damonte, & Black, 2014). The industry segments of
Scholastic are targeted through the main three product lines of Children’s Book Publishing and
Distribution, Education, and International (Scholastic Corporation, 2015). In 2015, none of the 3
product segments accounted for more than 70% of revenue (Scholastic Corporation, 2015).
Children’s Book Publishing and Distribution had the highest percentage of sales, which was
58.61%, and profit, which was 55.37% (Scholastic Corporation, 2015).
Results of Diversification Strategy
Benefits of a diversification strategy include shared resources, shared knowledge and skills,
increased operational scope, and gained market power.
Since Scholastic operates in the United States and overseas, one major resource that the firm is
obligated to support is its foreign subsidiaries. For the firm to successfully operate
internationally, it is imperative that they research related “rules of the game”. Shared resources,
knowledge, and skills include Scholastic’s ability to utilize three product segments that pursue
similar, yet different goals. Each segment benefits the other through having specialization in
particular operational areas, such as Education for example. The Education segment may benefit
other product segments through the discovery of a new product that has value in other segments.
Since segments are utilizing the same resources, they have to rely upon one another to be
successful.
Scope and scale pertain to Scholastic’s ability to reach over 160 countries internationally.
Through the International product segment, and its foreign subsidiaries, Scholastic is able to
distribute and retail on a much larger scale than if it were to not have an International segment.
The International segment grants the companies opportunities that it might not have had it not
been in existence. The same rules apply for the other two segments. Through increased brand
recognition and sales, Scholastic is also able to realize increased market share through its three
segments.
International Strategy
Scholastic competes in international markets such as the United Kingdom, Canada, Australia,
New Zealand, Mexico, India and Asia (Scholastic Corporation, 2015).
The international strategy that Scholastic pursues is a multi-domestic strategy. A multi-domestic
strategy is where a, “firm views itself as a collective of relatively independent operating
subsidiaries, each of which focused on a specific domestic market” (Pederson, 2011). Scholastic

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Corporation has 71 subsidiaries stationed across the globe. These subsidiaries include Grolier,
Scholastic entertainment, Scholastic book clubs, SB distribution, Lectorum publications, the
Electronic Bookshelf and several LLC corporations (Pederson, 2011).
Business-Level Strategy
Strategy Focus
After Scholastic sold their educational technology business to competitor, Houghton Mifflin
Harcourt, Scholastic president and CEO, Dick Robinson, stated, “We are focusing on growing
our core businesses. Those core operations are all tied to the same mission— developing literacy
at school and encouraging independent reading at home” (Milliot, It's All About the Core for
Scholastic, 2015). Scholastic’s business takes the form of a focused-differentiation strategy.
Representing the focus aspect of strategy is revenue generation. Scholastic focused 58.2% of
revenues on the Children’s Book Publishing and Distribution segment alone in fiscal year 2015
Scholastic’s focus is also on their employees as shown by their dedication to maintaining a
talented and experienced creative staff that constantly seeks to attract, develop, and retain the
best children’s authors and illustrators (Scholastic Corporation, 2015).
The Children’s Book Publishing and Distribution segment brings in the most revenue and is what
makes their brand most recognizable to consumers. The brand recognition aspect applies the
differentiation of the business strategy. Scholastic believes that their company’s reputation along
with the trade publishing staff and the proprietary school distribution channels, they hold a
significant competitive advantage. This is proven from the numerous awards and bestsellers that
have come from the company.
They are the world’s largest publisher and distributor of children’s books. Scholastic leads the
way in school-based book clubs and book fairs in the United States. Through their trade channel,
Scholastic also leads the way in the publishing of children’s print books, e-books and
audiobooks. Scholastic has a wide variety of children’s books to offer, in which a lot of them
have been awarded for excellence in children’s literature. The children’s books have also
received the Caldecott and Newbery Medals. Best sellers from the trade division include the
Harry Potter series, the Minecraft handbooks, the Hunger Games trilogy, and multiple series,
including I Survived, Spirit Animals, Wings of Fire, Amulet, Whatever After and Captain
Underpants (Scholastic Corporation, 2015).
Red Ocean Strategy
Scholastic is focused on leading the way in the current markets that they operate in. The sale of
its technology department to Houghton Mifflin Harcourt is evidence of this “red ocean” type of
strategy. Scholastic restructured after the sale of the technology department in order to focus
more on the core mission of the company and its current customers.
Approach to the Marketplace
Scholastic entered into the education market in the 1960s and is still expanding within that
market. Scholastic has been named as the leading innovator in education. Within education, they
have entered into the virtual educational realm. In 2014, they released new technology to the
global markets to support educators around the world. This new technology allows teachers to

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educate students in English literacy and mathematics more effectively with the latest research
available (Scholastic Corporation, 2015)
According to (Keels, Domke-Damonte, & Black, 2014), Scholastic would exist in the
“Analyzers” category whereby organizations operate in multiple product markets, with some
markets being very stable (in which the firm maintains clear focus on existing processes) and
some markets still developing (in which the firm observes and adapts very quickly). The multiple
areas that Scholastic competes in are Children’s Book Publishing and Distribution, Education,
and International. They are stable in the Children’s Book Publishing and Distribution, and that is
their main focus because it yields the highest revenues. They are developing in the Education and
International areas, more specifically, there are opportunities in foreign markets to grow in these
areas.
Functional Strategy
Scholastic’s most critical functional activities are marketing and product development. This is
evidenced by the fact that Scholastic relies upon the Children’s Book Publishing and Distribution
segment for its revenues. Included within that segment is book fairs, book clubs, and online retail
operations. These types of retail operations incorporate a high level of personal interaction with
customers. In order to maintain a lead in these product areas, Scholastic has to constantly find
ways to build relationships with customers and maintain current ones. Successful marketing
strategies of the past few years have led to a reinvigoration of Scholastics product segments in
terms of sparking revenue creation. On a few separate occasions, as noted in Scholastic’s 2015
Annual Report, revenues for certain segments were directly tied to effective or ineffective
marketing strategies.
Product development is also critical to Scholastic’s strategy because of its brand perception as an
industry leader in producing educational materials. Scholastic benefits from being recognized as
the global leader in this area, but must continually innovate to prevent competitors from
exploiting their products and limiting their competitive advantage.
Performance Appraisal
Quantitative Performance Analysis
Click on the following to view: Financial Ratios, Cash Flow Statement, Balance Sheet, or Income
Statement.
Horizontal Analysis
The horizontal analysis of Scholastic shows the recent positive growth trend of the company.
Over the past three years, the company has experienced regression and progression financially.
The horizontal analysis of the income statement and balance sheet show the progression of
Scholastic in the past years.
The breakdown of their consolidated income statement shows the development of Scholastic
over the last three years. A major conclusion is that in the past year, the corporation has had
positive income growth compared to previous years. In 2013, there was a net income decrease of
about 70% from the previous year. Although it was a decrease, the company did not experience a
net loss. The following year, net income took a positive swing of about 43%. The most drastic
change of income occurred in 2015. Scholastic had a positive increase of 564% between their

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last fiscal years. This income jump was due to the $575 million sale of their Technology and
New Media department to a competing firm, Houghton Mifflin Harcourt.
Scholastic’s balance sheet shows details about the company as an entirety throughout the past
few years. In a horizontal comparison between May 2014 and May 2015, the largest impact can
be seen from the corporation’s major increase in cash and cash equivalents. This increase gives
Scholastic numerous opportunities. Cash and cash equivalents are the most liquid of assets. This
liquidity gives Scholastic the ability to be resilient to customer buying trends without fear of
complete corporate failure.
There are long-term implications that horizontal analysis projects about Scholastic. The major
trend of the corporation is positive growth. Over time, this company has had a strong
performance in their market. Every company fluctuates, Scholastic is no different. Despite some
decreases after 2012, the corporation has surpassed that point while continually growing and
expanding. By looking at Scholastic’s financial statements, there is a positive trend that shows
potential success. The corporation experienced consistent growth over the past three years, the
last year being their largest success. With this influx of capital as well as a better establishment
in their market, Scholastic has to opportunity to utilize this accomplishment to increase net
income even further and take the company to an elevated standpoint they have not been to
before.
Vertical Analysis
Vertical analysis allows important conclusions to be made about a company. Being able to
breakdown the different financial statements allows both inside and outside viewers to
understand the breakdown of each statement.
The vertical comparison of Scholastic’s income statement provides vital information about the
company’s success and failures. The consolidated statement makes the evaluation of the
company’s revenues and expenses a little more challenging. The majority of the information
discloses that comprehensive income is where most, if not all, of net income is derived from year
to year.
A vertical analysis of Scholastic’s balance sheet gives a better understanding of the company as a
whole. The breakdown of Scholastic’s total assets between 2014 and 2015 varies. In 2014,
43.38% of total assets were comprised of current assets, while 56.62% was noncurrent assets
(See Appendix). In contrast, 2015 had 60.94% of its total assets consist of current assets and
39.06% noncurrent assets. By having more available assets, the corporation has a higher
purchasing power in order to grow and expand. Scholastic has a majority of the percentage of
their total liabilities and stockholders’ equity tied up in their total stockholders’ equity,
approximately 66.12% in 2015.
Cash Flow Analysis
Analyzing the firm’s inflows and outflows of cash displays certain positive and negative
decisions a corporation makes. Scholastic’s cash flow statement shows a stable company who is
responsible with the way in which they spend their money.
Scholastic is financially able to handle their everyday expenses. In 2015, the company had a
spike in their net income do to earnings from discontinued operations. This has given the

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company a major influx in liquid capital, a resource that can be utilized to handle any of their
usual obligations.
Ratio Analysis
Scholastic Corporation is a financial sound company who has progressed over the last three years
in constructive ways. Financial ratios are useful in determining the health of a firm, as well as
raise possible inferences about future progress.
The profitability of the company has increased in these recent years. The return on assets ratios
(ROA) as well as the return on equity ratios (ROE) shows the corporation’s success. Scholastic’s
ROA increased from 2.99 in 2014 to 17.58 in 2015. This shows that the company is better at
converting their investments into profits. The higher the profit, the easier it is to grow and
expand the corporation in the future. Scholastic’s ROE jumped from 4.99 in 2014 to 27.29 in
2015. This increase in the company’s return on equity suggests the company was at a higher
growth rate than in the previous two years. Both of these profitability ratios demonstrate that
Scholastic is an investable company that is on the rise again.
In terms of liquidity, the current ratio of Scholastic over the past three years has continued to
waver. Over the past fiscal year, the current ratio just broke through to stand at 2.03 (See
Appendix). Although it is still not quite as high as they would like, Scholastic’s ability to cover
their current liabilities with their current assets has progressed. Scholastic’s quick ratio also
experienced a jump between 2014 and 2015 fiscal years. The ratio increased from 0.62 to 1.33.
This shows that the company’s ability to cover their current debt without having to liquidate their
inventory has increased.
Activity ratios tell exuberant amounts about a company’s ability to be efficient. Scholastic’s
inventory turnover ratio decreased slightly from the previous fiscal year compared to 2015. The
ratio went from 3.07 to 2.86. This decline is not major; as long as it does not become a trend the
company is still in solid financial shape.
Leverage ratios determine how well a company mixes their debt and their equity. The long-term
debt of Scholastic Corp was completely extinguished this past year. The long-term debt to equity
ratio dropped from 0.13 in 2014 to 0 this fiscal year. The company’s total debt to equity ratio
also dissolved from 0.15 to 0 in 2015. Scholastic completely paid off all of their long-term debt
in the past fiscal year, a result from the large influx of cash given to them in the sale of their
technology business.
Qualitative Performance Analysis
Rankings
In 2013, on a list of the largest United States’ publishing and printing companies, Scholastic was
ranked #5 base on their revenue of $1,792 million. #1 was Twenty-First Century Fox, Inc. with
$27,675 million. #2 was R. R. Donnelley & Sons Co. with $10,480 million. #3 was Gannett Co.
Inc. with $5,161 million. #4 was McGraw Hill Financial Inc. with $4,875 million (Largest U.S.
Publishing and Printing Companies, 2013).
This chart displays revenue trends of Scholastic as explained by the previous paragraph.
This chart shows the comparison of the five companies listed above.

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In the ranking of top book publishers worldwide, Scholastic was ranked #11. Below is the chart
of the rankings found on Business Insights: Global.
Global news indicates that there have been no instances of Scholastic failing or needing a
“turnaround.” Scholastic has acquired new authors, and in their quarterly report for 2015, their
growth was positive. The company seems to be making less revenue than other major publishers
in the same industry, but some of those industries are inconsistent and are also major competitors
in other industries such as media and entertainment—which may skew some of their revenue
figures as it relates primarily to book publishing.
Market Share Analysis
As indicated in this market share chart, Scholastic’s market share makes up about 3.57% of the
industry (Mergent Online, 2015). Scholastic only makes up a small portion of the industry, while
just three companies make up 43% of the industry. Their market share position has declined over
the years. In 2009, the market share was around 7.5% and in 2011 it was close to 4% (Mergent
Online, 2015). Potential growth points for Scholastic likely resulted from the publishing of the
Harry Potter and Hunger Games series. On a side note, Scholastic’s main competitors include
media companies Meredith Corp, CBS Corp., and publisher J. Wiley and Sons.
Stock Price Analysis
By May 31st
at the end of the fiscal year, Scholastic has an average share price (see chart)
compared to its competitors, around $42.62. At the beginning of the year, Scholastic hovered
around $34 a share and is now approximately $41.33 a share. Currently, the company seems to
be showing signs of steady growth, especially over the past six months. It is not one of the top
companies in the industry, but if they can remain up-to-date with new technologies and continue
to innovate products, problems should be minimal.
Leadership and Governance
Upper-Level Management Team
See Appendix 1.17 Company Profiles for a breakdown of Scholastic’s Top Management
Because of the different educational backgrounds that the members of the team have, they offer a
wide array of expertise that aid the company in adapting to situations quickly. Most of the team
has prior experience with other large companies, so the knowledge they received from those
positions can assist in the success of Scholastic.
A majority of the upper-level management team has been together for over 20 years, but two
have only held their position with the company for 6 and 7 years (Investor Relations: Scholastic,
2015). This means that by this point, the top management team is used to working together and
has developed a team dynamic that has contributed to Scholastic’s success.
Every member of the team holds a substantial amount of company stock, which is calculated into
how much they earn per year (Investor Relations: Scholastic, 2015). This results in every
member of the team having an obligation to the company and themselves, because if the
company does poorly, their salary is affected. As a result upper-level management has a vested
interest in creating effective corporate strategies.

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Outside investors
Scholastic’s current market cap is 32,151,025 shares of stock (Mergent Online, 2015).
Institutions and individuals hold approximately 85.55% of those shares. Because of this, the
stock is highly concentrated with outsiders whereas only 14.45% of shares are held internally by
Scholastic employees. This chart shows the top institutional holders of Scholastic stock, with the
top three institutions controlling approximately ten million shares. Price T Rowe Associates Inc.
holds the most stock with approximately 3,961,522 shares (Mergent Online, 2015).
In relation to making decisions in the company, those who hold Class A stock, have the most
power. Only 3 people have ownership of Class A stock, none of which are outside investors
(Scholastic Corporation, 2015). This means that the outside groups cannot fully impose any
influence on the strategic decision making of the firm. That being said, there are a few
institutions, as shown in the aforementioned figure, which hold a large amount of the company’s
shares, meaning that added pressure could be put on the company from these investors. These
investors could voice their concerns about the company’s strategic plans and also vote for the
upper-level leadership such as the board of directors. Since investors who hold Class A stock
hold the majority of the votes in regard to making decisions with the company, outside
ownership does not pose a large threat.
Board of Directors
As listed on Scholastic’s website, and shown in this chart, the board of directors consists of
eleven individuals, three of which are insiders: Richard Robinson, Andrew S. Hedden and
Richard M. Spaulding. The current group of insiders have served on Scholastic’s board of
directors together since the early 2000s. To further complement the group, their board of
directors consists of a diverse group of experienced individuals from a range of industries.
There are six committees under the board of directors’ responsibility: Audit, Corporate
Governance and Nomination, Executive, Retirement Plans, Stock Grant, and Strategic Planning
(Investor Relations: Scholastic, 2015). These committees are independent in operation with an
Independent Lead Director elected to work as the chair for each committee. Additionally, they
also enforce other governance documents such as a Code of Ethics for Corporate Governance
Guidelines and Code of Ethics for Senior Financial Officers (Investor Relations: Scholastic,
2015).
A majority of Scholastic’s internal stock is held by the board members. With that in mind,
decision making is very important. How well the company is doing, or the value of the company,
will determine the compensation of the board members. Each committee has their own charter
which discusses organization, policy, and responsibilities (Investor Relations: Scholastic, 2015).
Mission and Vision Statements
Mission Statement
According to Scholastic’s website, their current mission statement is:
“To encourage the intellectual and personal growth of all children, beginning with literacy.”
This statement is adequate for the firm. Scholastic is a publishing company with their primary
product segment being Children’s Books and Distribution. Their mission statement shows that

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they are not only a publishing company with the interest of generating profits, but also a
company that succeeds in targeting their audience. Children represent humankind’s future and
their educational successes are very important to this company. Access our mission statement
analysis here.
Improvements to the mission statement can be made by making it more specific. The mission is
short and direct but could require more explanation on how Scholastic encourages intellectual
and personal growth. This could be simply done by adding a statement to the end such as:
“To encourage the intellectual and personal growth of all children, beginning with literacy, and
bring quality products to students everywhere through efficient and effective educational and
instructional materials.”
Vision Statement
Scholastic does not currently have a vision statement therefore, Prometheus has created one for
the firm. This vision statement is adequate for Scholastic because it is based on its mission
statement, which states its general goals. Access the suggested vision statement and analysis
here. The suggested vision statement for Scholastic is:
“To sustain a dominant role in the intellectual empowerment of all children to always promote
personal growth through literacy.”
It is recommended that the firm creates a vision statement to represent their thoughts and ideas.
Prometheus suggests that Scholastic looks into their mission statement and expand upon it within
the vision statement.
Essential Challenges
The following section will briefly cover some of the challenges Scholastic currently faces or may
face in the future. Many of the company’s challenges have been noted in other sections in detail
throughout this report.
Product Segments
Scholastic’s reliance upon the United States market for revenue generation may present future
problems for its largest product segment, Children’s Book Publishing and Distribution. The
outlook of public and private educational spending is unfavorable in terms of schools being able
to purchase educational materials from Scholastic.
The loss of the Technology and New Media department may present future challenges for
Scholastic. In a time where technology is a required “tool of the trade,” Scholastic has chosen to
back out of technology and focus on books. It is unclear of the effect this may have on their
business, but other competitors may see this as an opportunity to develop a competitive
advantage over Scholastic in the educational software realm.
Strategic Posture
On the business-level of strategy, Scholastic’s sale of its technology business may contradict
with their strategic goal of becoming an industry leader. Though it insists on being a “red ocean”

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strategy pursuer—which entails that the company defend its current position in the market and
respective market segments by remaining innovative—the loss of the technology business puts
them at risk for a competitor to take advantage of the educational software market.
Financial Performance
Financial performance has shown steady growth over the past few years, however, Scholastic’s
expenses prevent it from taking advantage of a higher net profit at the end of the fiscal year.
Though grossing around $1.7 billion in sales sounds promising, Scholastic is only netting a
miniscule portion of that, receiving net incomes of under $100 million in two of the past three
years. Cost-saving initiatives have assisted Scholastic in mitigating some costs since then to
bring the 2015 profit up to $154 million, but there is large room for improvement.
Leadership and Governance
Scholastic’s upper-level management may experience difficulties in adapting strategies to newer
ideas such as technological advances because of their age. The average age of the upper-level
management team approximately 62 years old. In addition, the company has had only two CEO’s
since its creation in 1920. For fresher and modern ideas, management may need to consider
adding younger executives into their mix to keep Scholastic as current as possible with ideas.
External Analysis
Industry Codes: SIC 2731, NAICS 51130 (SICCode, 2015).
Current Industry Framework
Market Size, Stage and Life Cycle
The publishing industry is a large and expansive market. According to Tuna Amobi’s Industry
Surveys, “In the industry annual survey of the Association of American Publishers Inc. (AAP), a
book publishing trade group, total sales for the trade, higher education and professional/scholarly
publications markets for its members fell 0.4% in 2013 to $27.01 billion.” Although there has
been some decline in the last few years in terms of total sales, the publishing business still stands
strong as a multi-billion dollar industry.
The publishing industry has established a position of saturation and stagnation in the product life
cycle. This is because it has reached its maturity level where the demand for its products are
leveling off. Although the need for reading material has not declined, the way in which
consumers acquire these materials has changed. Despite the industry’s struggles with original
print publishing, e-books are on the rise. Ultimately technology will likely shift the position of
the industry.
Profitability
The publishing market is in fact a profitable industry as an entirety. As demonstrated in
Appendix 2.3, the top twenty global publishing companies have had substantial revenues.
According to S&P, “for book publishers, revenue from unit sales is the main source of income.”
Sales and profits depend on who is buying what type of material at what time.

Page | 29
S&P states, “Over the past 10 years, stocks of the major publishing companies have tended to
have P/E ratios below those of the broader stock market.” This explains a major risk that
investors have to be willing to take, as well as a possibility for a reduction of equity and
potentially profits in the industry.
Scope of Competitive Rivalry
Most companies competing in the publishing industry ultimately compete on a global scale.
According to Business Insights: Global, “The top territories generating revenue for print sales in
2012, according to the AAP, included Asia, Europe, the United Kingdom, and Ireland, while the
top countries in print sales, ranked in order, were the United Kingdom, Germany, Australia,
South Korea, the Philippines, and Singapore.” This demonstrates the enormous reach and
influence the publishing industry has all over the world.
A competitive, international existence is extremely important to long-term success in the
publishing industry. According to Business Insights: Global, “Asia, Japan and China made up
more than 70 percent of the book publishing industry, accounting for US$11.2 billion and
US$10.7 billion, respectively, in 2011. However, India represented the fastest-growing market”
(Gale Business Insights: Global, 2015). The publishing market is expanding rapidly on an
international level. Digital publishing has impeded on traditional print publishing revenues, new
markets and available expansion globally is a key factor in a company’s competitive long-term
success.
Customers and Distribution Channels
The publishing industry is divided into various segments. From book publishing to newspapers
and magazines, the publishing industry has many different outlets, which result in various types
of buyers. The MarketLine Industry Profile for Global Publishing breaks down the different
segments of publishing accordingly,
The book publishing segment includes publishers of academic, professional, general and
other (fictions, nonfiction etc.) books. The market value of this segment refers to the
domestic B2C sales of books only at the retail sales price (RSP). The newspaper segment
is valued as the sum total of all revenues gained from the sale of newspapers including
those gained through circulation, subscription (including online subscription), and
advertising revenue. The magazine segment value is calculated as the revenues generated
by publishers from B2C sales of copies of their products, and does not include
advertising revenues. (MarketLine, 2015)
The publishing industry is diverse in both its customers and segmentation of products. This gives
the industry the opportunity to flourish and expand since it represents a diverse market.
In the book publishing industry, distribution is most often contracted out to third parties (Amobi,
2014). According to S&P, “book distribution uses all classes of mail or bulk shipments by freight
carriers.” The breakdown of how the distribution of products in the publishing industry works is
as follows, according to S&P,
Retailers and other distributors buy books directly from publishers or from book
wholesalers. Retail outlets typically account for 35% or more of publishers’ domestic
sales of general consumer books. Direct sales to consumers, through mail order and book

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