What changed in this filing

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Item 1. Financial Statements

2020-09-25 compared with 2020-03-20 · 351 added, 507 removed, 420 unchanged (67% of the section changed)

4 unchanged sentences

Three months ended

Nine months ended

August 31, August 31,

Revenues $ 215.2 $ 232.6

Operating costs and expenses:

2 unchanged sentences

Depreciation and amortization 15.5 15.4

Asset impairments and write downs

Severance 12.0 4.4

Total operating costs and expenses 272.2 320.0

2 unchanged sentences

Other components of net periodic benefit (cost) ( 0.2 ) ( 0.4 )

Gain (loss) on sale of assets and other 6.6 —

Earnings (loss) before income taxes ( 51.8 ) ( 87.1 )

1 unchanged sentence

Net income (loss) ( 39.8 ) ( 58.5 )

Net income attributable to noncontrolling interest

Net income (loss) attributable to noncontrolling interest 0.0 0.0

Net income (loss) attributable to Scholastic Corporation $ ( 39.8 ) $ ( 58.5 )

1 unchanged sentence

and Common Stock

Basic $ ( 1.16 ) $ ( 1.68 )

Diluted $ ( 1.16 ) $ ( 1.68 )

See accompanying notes

3 unchanged sentences

Three months ended

Nine months ended

August 31, August 31,

Net income (loss) $ ( 39.8 ) $ ( 58.5 )

4 unchanged sentences

Comprehensive income (loss) $ ( 29.0 ) $ ( 60.3 )

Net income attributable to noncontrolling interest

Net income (loss) attributable to noncontrolling interest 0.0 0.0

Comprehensive income (loss) attributable to Scholastic Corporation $ ( 29.0 ) $ ( 60.3 )

3 unchanged sentences

(Dollar amounts in millions, except per share data)

February 29, 2020 (unaudited)

May 31, 2019 (audited)

February 28, 2019 (unaudited)

August 31, 2020 (unaudited) May 31, 2020 (audited) August 31, 2019 (unaudited)

Current Assets:

2 unchanged sentences

Inventories, net 323.2 270.6 403.6

Income tax receivable 103.2 90.0 39.4

Prepaid expenses and other current assets 53.7 41.1 70.3

5 unchanged sentences

Royalty advances, net 42.0 39.9 50.0

Goodwill 125.6 124.9 125.0

Noncurrent deferred income taxes 19.1 18.6 36.8

1 unchanged sentence

Total noncurrent assets 1,001.1 998.3 1,005.8

Total assets $ 2,056.3 $ 2,033.6 $ 1,944.6

LIABILITIES AND STOCKHOLDERS’ EQUITY

30 unchanged sentences

10.4 , 10.4 and 9.8 shares, respectively

( 332.8 ) ( 333.3 ) ( 314.6 )

Total stockholders’ equity of Scholastic Corporation 1,146.0 1,179.2 1,195.4

6 unchanged sentences

(Dollar amounts in millions, except per share data)

Class A Stock

Additional Paid-in Capital

Class A Stock Common Stock Additional Paid-in Capital Accumulated

Other Comprehensive

Income (Loss)

Treasury Stock

Income (Loss) Retained

Earnings Treasury Stock

At Cost Total

Stockholders'

Equity of Scholastic Corporation

Noncontrolling interest

Equity of Scholastic Corporation Noncontrolling Interest Total

Stockholders'

Shares Amount Shares Amount

Balance at June 1, 2019 1.7 $ 0.0 33.4 $ 0.4 $ 620.8 $ ( 59.7 ) $ 1,012.6 $ ( 302.6 ) $ 1,271.5 $ 1.3 $ 1,272.8

Net Income (loss) — — — — — — ( 58.5 ) — ( 58.5 ) 0.0 ( 58.5 )

Adoption of ASC 606 ( net of tax of $16.0)

Foreign currency translation adjustment — — — — — ( 2.0 ) — — ( 2.0 ) — ( 2.0 )

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

Stock-based compensation

Proceeds pursuant to stock-based compensation plans

Treasury stock issued pursuant to equity-based plans

Dividends ($0.15 per share)

Balance at August 31, 2018

Net Income (loss)

Foreign currency translation adjustment

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

Stock-based compensation

Proceeds pursuant to stock-based compensation plans

Purchases of treasury stock at cost

Treasury stock issued pursuant to equity-based plans

Dividends ($0.15 per share)

Balance at November 30, 2018

Net Income (loss)

Foreign currency translation adjustment

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

— — — — — 0.2 — — 0.2 — 0.2

Stock-based compensation — — — — 1.5 — — — 1.5 — 1.5

Proceeds pursuant to stock-based compensation plans

Purchases of treasury stock at cost — — ( 0.3 ) — — — — ( 12.6 ) ( 12.6 ) — ( 12.6 )

1 unchanged sentence

Dividends ($ 0.15 per share)

Balance at February 28, 2019

See accompanying notes

SCHOLASTIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - UNAUDITED

(Dollar amounts in millions, except per share data)

Class A Stock

Additional Paid-in Capital

— — — — — — ( 5.2 ) — ( 5.2 ) — ( 5.2 )

Balance at August 31, 2019 1.7 $ 0.0 33.1 $ 0.4 $ 622.2 $ ( 61.5 ) $ 948.9 $ ( 314.6 ) $ 1,195.4 $ 1.3 $ 1,196.7

Class A Stock Common Stock Additional Paid-in Capital Accumulated

Other Comprehensive

Income (Loss)

Treasury Stock

Income (Loss) Retained

Earnings Treasury Stock

At Cost Total

Stockholders'

Equity of Scholastic Corporation

Noncontrolling interest

Equity of Scholastic Corporation Noncontrolling Interest Total

Stockholders'

Shares Amount Shares Amount

Balance at June 1, 2020 1.7 $ 0.0 32.5 $ 0.4 $ 622.4 $ ( 58.3 ) $ 948.0 $ ( 333.3 ) $ 1,179.2 $ 1.4 $ 1,180.6

2 unchanged sentences

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

— — — — — 0.1 — — 0.1 — 0.1

Stock-based compensation — — — — 0.6 — — — 0.6 — 0.6

2 unchanged sentences

Dividends ($ 0.15 per share)

Noncontrolling interest in Make Believe Ideas

— — — — — — ( 5.1 ) — ( 5.1 ) — ( 5.1 )

Balance at August 31, 2020 1.7 $ 0.0 32.5 $ 0.4 $ 622.8 $ ( 47.5 ) $ 903.1 $ ( 332.8 ) $ 1,146.0 $ 1.4 $ 1,147.4

Net Income (loss)

Foreign currency translation adjustment

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

Stock-based compensation

Proceeds pursuant to stock-based compensation plans

Purchases of treasury stock at cost

Treasury stock issued pursuant to equity-based plans

Dividends ($0.15 per share)

Noncontrolling interest in Make Believe Ideas

Balance at November 30, 2019

Net Income (loss)

Foreign currency translation adjustment

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

Stock-based compensation

Proceeds pursuant to stock-based compensation plans

Purchases of treasury stock at cost

Treasury stock issued pursuant to equity-based plans

Dividends ($0.15 per share)

Noncontrolling interest in Make Believe Ideas

Balance at February 29, 2020

See accompanying notes

2 unchanged sentences

(Dollar amounts in millions)

Nine months ended

Three months ended

August 31, August 31,

Cash flows - operating activities:

4 unchanged sentences

Provision for losses on royalty advances 1.3 1.1

Amortization of prepublication and production costs

Amortization of prepublication costs 6.3 6.4

Depreciation and amortization 16.4 16.1

2 unchanged sentences

Stock-based compensation 0.6 1.5

Income from equity investments

Non cash write off related to asset impairments and write downs

Income from equity-method investments ( 0.8 ) ( 1.0 )

(Gain) loss on sale of assets ( 6.6 ) —

Changes in assets and liabilities, net of amounts acquired:

Accounts receivable 23.3 21.5

Inventories ( 50.0 ) ( 85.3 )

Prepaid expenses and other current assets ( 12.0 ) ( 28.1 )

Income tax receivable ( 13.0 ) ( 29.1 )

Royalty advances ( 2.8 ) ( 3.8 )

6 unchanged sentences

Cash flows - investing activities:

Prepublication and production expenditures

Prepublication expenditures ( 5.2 ) ( 7.4 )

Additions to property, plant and equipment ( 16.0 ) ( 13.5 )

Net proceeds from sale of assets 12.3 —

Acquisition of land — ( 3.3 )

2 unchanged sentences

Cash flows - financing activities:

Proceeds from long-term debt

Repayments of long-term debt

Borrowings under lines of credit

Repayments of lines of credit

Borrowings under lines of credit, credit agreement and revolving loan 2.2 8.1

Repayments of lines of credit, credit agreement and revolving loan ( 3.8 ) ( 1.9 )

Repayment of capital lease obligations ( 0.5 ) ( 0.4 )

Reacquisition of common stock — ( 12.6 )

Proceeds pursuant to stock-based compensation plans

Payment of dividends ( 5.1 ) ( 5.3 )

Other 1.9 ( 0.2 )

Net cash provided by (used in) financing activities ( 5.3 ) ( 12.3 )

13 unchanged sentences

Accordingly, references in this document to fiscal 2021 relate to the twelve-month period ending May 31, 2021.

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

Certain prior period amounts have been reclassified to conform with the current year presentation.

Interim Financial Statements

10 unchanged sentences

Trade sales can vary throughout the year due to varying release dates of published titles.

The Company generally experiences a loss from operations in the first and third quarters of each fiscal year.

While the Company generally experiences a loss from operations in the first and third quarters of each fiscal year, the second quarter of fiscal 2021, ending November 30, 2020, which is traditionally an income quarter, is expected to be negatively impacted by the COVID-19 pandemic.

Presently, there are many uncertainties concerning the timing of, and any patterns which may emerge from, school re-openings for the new school year, and the nature and continuing magnitude of the negative impact of COVID-19 into and beyond the second quarter of fiscal 2021 will depend on the actual timing and emerging patterns of such re-openings throughout the United States.

Use of estimates

12 unchanged sentences

• Impairment testing for goodwill, intangible and other long-lived assets and investments

Assets and liabilities acquired in business combinations

Variable consideration related to anticipated returns

Allocation of transaction price to performance obligations

SCHOLASTIC CORPORATION

1 unchanged sentence

(Dollar amounts in millions, except per share data)

• Assets and liabilities acquired in business combinations

• Variable consideration related to anticipated returns

• Allocation of transaction price to performance obligations

Sale of Long-lived Assets

During the first quarter of fiscal 2021, the Company sold the company-owned facility located in Danbury, Connecticut and relocated the book fairs warehousing and distribution operations conducted in Danbury to a warehouse in Allentown, Pennsylvania.

The long-lived assets related to the Danbury facility, which consisted of land, building, and building improvements, were included in the Overhead segment.

These assets had a carrying value of $ 5.7 and were classified as held for sale for the fiscal year ended May 31, 2020.

The net proceeds from the sale were $ 12.3 and the Company recognized a gain on sale of $ 6.6 .

This amount is included within Gain (loss) on sale of assets and other within the Company's Condensed Consolidated Statements of Operations.

Assets Held For Sale

The Company committed to a plan to sell the company-owned facility located in Danbury, Connecticut to relocate the book fairs warehousing and distribution operations conducted in Danbury to a warehouse in Allentown, Pennsylvania.

This asset is included in the Overhead segment.

The Company also committed to a plan to sell the UK distribution centers located in Witney and Southam to consolidate the operations into a new facility in Warwickshire which is currently under construction.

The Company committed to a plan to sell the UK distribution centers located in Witney and Southam to consolidate the operations into a new facility in Warwickshire which is currently under construction.

These assets are included in the International segment.

2 unchanged sentences

These assets are carried at the lower of carrying value or fair value less costs to sell and no additional depreciation is being recognized.

As of February 29, 2020, the carrying amounts totaled $ 8.8 .

As of August 31, 2020, the carrying amounts totaled $ 3.3 which are included in Property, plant and equipment, net within the Company's Condensed Consolidated Balance Sheets.

New Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No.

2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes.

The updates in this guidance remove the following exceptions:

Exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income);

Exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment;

Exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary;

Exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

The guidance also simplifies the accounting for income taxes by:

Requiring an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax;

Requiring an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction;

Specifying an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements;

Requiring an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date.

The guidance further provides a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and provides guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination or a separate transaction.

The ASU will be effective for the Company in the first quarter of fiscal 2022.

Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued.

An entity that elects to early adopt in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period and an entity that elects early adoption must adopt all the amendments in the same period.

The Company is evaluating the impact of this ASU on its consolidated Financial Statements.

Current Fiscal Year Adoptions

Topic 842, Leases

Refer to Note 11, Leases , for a discussion of the Company's lease accounting following the adoption of ASU No.

2016-02, Leases (Topic 842) in the first quarter of fiscal 2020.

In August 2018, the FASB issued ASU No.

2018-15, Intangibles- Goodwill and Other-Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.

The Company adopted ASU No.

2018-15 as of the beginning of the first quarter of fiscal 2020 using the prospective approach.

In the third fiscal quarter, the Company capitalized approximately $ 9.5 of cloud computing costs which have not yet been placed into service.

This amount is included within Other assets and deferred charges within the Company's Condensed Consolidated Balance Sheets and within the operating activities section of the Company's Condensed Consolidated Statement of Cash Flows.

Current Fiscal Quarter Adoptions:

In June 2016, the FASB issued ASU No.

2016-13, "Measurement of Credit Losses on Financial Instruments" (ASU 2016-13).

ASU 2016-13, which was further updated and clarified by the FASB through the issuance of additional related ASUs, amends the guidance surrounding measurement and recognition of credit losses on financial assets measured at amortized cost, including trade receivables and debt securities, by requiring recognition of an allowance for credit losses expected to be incurred over an asset's lifetime based on relevant information about past events, current conditions, and supportable forecasts impacting its ultimate collectability.

This "expected loss" model may result in earlier recognition of credit losses than the current "as incurred" model, under which losses were recognized only upon an occurrence of an event that gave rise to the incurrence of a probable loss.

The Company adopted ASU 2016-13 as of the beginning of the first quarter of fiscal 2021 which did not have a material impact on the Company’s Consolidated Financial Statements.

Refer to Note 2, Revenues, for further discussion of the Company's accounting policy and disclosures related to the allowance for credit losses.

In January 2017, the FASB issued ASU No.

2017-04, Intangibles—Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment, which removes step two from the goodwill impairment test (comparison of implied fair value of goodwill with the carrying amount of that goodwill for a reporting unit).

Instead, an entity will measure its goodwill impairment by the amount the carrying value exceeds the fair value of a reporting unit.

The Company adopted ASU 2017-04 as of the beginning of the first quarter of fiscal 2021 which resulted in no impact to the Company's Consolidated Financial Statements.

SCHOLASTIC CORPORATION

1 unchanged sentence

(Dollar amounts in millions, except per share data)

In February 2018, the FASB issued ASU No.

2018-02, Income Statement-Reporting Comprehensive Income (Topic 220)-Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.

The Company adopted ASU No.

2018-02 as of the beginning of the first quarter of fiscal 2020 which resulted in no impact to the Company's financial statements.

Disaggregated Revenue Data

1 unchanged sentence

Three months ended

Nine months ended

August 31, August 31,

Book Clubs $ 5.8 $ 8.0

Book Fairs 13.2 27.5

Trade 65.8 67.7

Education 53.5 48.4

Major Markets (1)

4 unchanged sentences

Estimated Returns

A liability for expected returns of $ 40.6 , $ 34.5 , and $ 97.3 is recorded within Other accrued expenses as of February 29, 2020 , May 31, 2019 , and February 28, 2019 , respectively.

In addition, a return asset of $ 2.5 , $ 1.6 , and $ 13.2 is recorded within Prepaid expenses and other current assets as of February 29, 2020 , May 31, 2019 , and February 28, 2019 , respectively, for the recoverable cost of product estimated to be returned by customers.

A liability for expected returns of $ 43.1 , $ 43.5 , and $ 35.5 is recorded within Other accrued expenses as of August 31, 2020, May 31, 2020, and August 31, 2019, respectively.

In addition, a return asset of $ 4.1 , $ 2.7 , and $ 1.8 is recorded within Prepaid expenses and other current assets as of August 31, 2020, May 31, 2020, and August 31, 2019, respectively, for the recoverable cost of product estimated to be returned by customers.

Deferred Revenue

1 unchanged sentence

These liabilities are recorded within Deferred revenue on the Company's Condensed Consolidated Balance Sheets and are classified as short term, as substantially all of the associated performance obligations are expected to be satisfied, and related revenue recognized, within one year.

The Company recognized revenue which was included in the opening deferred revenue balance in the amount of $ 33.0 and $ 28.3 for the three months ended February 29, 2020 and February 28, 2019 , respectively, and $ 107.0 and $ 91.0 for the nine months ended February 29, 2020 and February 28, 2019 , respectively.

The Company recognized revenue which was included in the opening deferred revenue balance in the amount of $ 16.9 and $ 18.8 for the three months ended August 31, 2020 and August 31, 2019, respectively.

Allowance for Credit Losses

The Company recognizes an allowance for credit losses on trade receivables that are expected to be incurred over the lifetime of the receivable.

Reserves for estimated credit losses are established at the time of sale and are based on relevant information about past events, current conditions, and supportable forecasts impacting its ultimate collectability, including specific reserves on a customer-by-customer basis, creditworthiness of the Company’s customers and prior collection experience.

At the time the Company determines that a receivable balance, or any portion thereof, is deemed to be permanently uncollectible, the balance is then written off.

The following table presents the change in the allowance for credit losses, which is presented net in Accounts Receivable on the Condensed Consolidated Balance Sheets:

Allowance for Credit Losses

Balance as of June 1, 2020 $ 19.9

Current period provision 1.4

Write-offs and other ( 0.4 )

Balance as of August 31, 2020 $ 20.9

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

SEGMENT INFORMATION

5 unchanged sentences

This segment is comprised of three operating segments.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

• International includes the publication and distribution of products and services outside the United States by the Company’s international operations, and its export and foreign rights businesses.

This segment is comprised of three operating segments.

The following table sets forth information for the Company's segments for the fiscal quarters ended February 29, 2020 and February 28, 2019 :

International

Three months ended

February 29, 2020

Bad debt expense

Depreciation and amortization (2)

Asset impairments and write downs

Segment operating income (loss)

Expenditures for other noncurrent assets (3)

Three months ended

February 28, 2019

Bad debt expense

Depreciation and amortization (2)

Asset impairments and write downs

Segment operating income (loss)

Expenditures for other noncurrent assets (3)

The following table sets forth information for the Company's segments for the fiscal periods ended February 29, 2020 and February 28, 2019 :

SCHOLASTIC CORPORATION

1 unchanged sentence

(Dollar amounts in millions, except per share data)

International

Nine months ended

February 29, 2020

The following table sets forth information for the Company's segments for the fiscal quarters ended August 31, 2020 and August 31, 2019:

Distribution Education Overhead (1)

Domestic International Total

Three months ended

August 31, 2020

Revenues $ 90.9 $ 53.6 $ — $ 144.5 $ 70.7 $ 215.2

Bad debt expense 0.2 0.1 — 0.3 1.1 1.4

Depreciation and amortization (2)

Asset impairments and write downs

6.6 3.1 11.5 21.2 1.5 22.7

Segment operating income (loss) ( 29.2 ) ( 2.2 ) ( 30.8 ) ( 62.2 ) 5.2 ( 57.0 )

Segment assets at February 29, 2020

Goodwill at February 29, 2020

Segment assets at August 31, 2020 555.4 215.6 985.8 1,756.8 299.5 2,056.3

Goodwill at August 31, 2020 47.4 68.2 — 115.6 10.0 125.6

Expenditures for other noncurrent assets (3)

Other noncurrent assets at

February 29, 2020 (3)

Nine months ended

February 28, 2019

12.1 3.1 10.8 26.0 3.5 29.5

Other non-current assets at August 31, 2020 (3)

172.6 123.9 491.1 787.6 81.5 869.1

Three months ended

August 31, 2019

Revenues $ 109.6 $ 48.4 $ — $ 158.0 $ 74.6 $ 232.6

Bad debt expense 0.5 0.0 — 0.5 1.1 1.6

Depreciation and amortization (2)

Asset impairments and write downs

6.7 3.1 11.0 20.8 1.7 22.5

Segment operating income (loss) ( 41.7 ) ( 13.4 ) ( 28.6 ) ( 83.7 ) ( 3.7 ) ( 87.4 )

Segment assets at February 28, 2019

Goodwill at February 28, 2019

Segment assets at August 31, 2019 651.9 198.7 808.4 1,659.0 285.6 1,944.6

Goodwill at August 31, 2019 46.8 68.2 — 115.0 10.0 125.0

Expenditures for other noncurrent assets (3)

Other noncurrent assets at

February 28, 2019 (3)

14.0 4.6 7.6 26.2 6.9 33.1

Other non-current assets at August 31, 2019 (3)

219.2 120.0 520.0 859.2 93.0 952.2

(1) Overhead includes all domestic corporate amounts not allocated to segments, including expenses and costs related to the management of corporate assets.

Unallocated assets are principally comprised of deferred income taxes and property, plant and equipment related to the Company’s headquarters in the metropolitan New York area, its fulfillment and distribution facilities located in Missouri, its facility located in Connecticut and certain technology assets.

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

Other noncurrent assets include property, plant and equipment, prepublication assets, production assets, cloud computing costs, royalty advances, goodwill, intangible assets and investments.

Expenditures for other noncurrent assets for the International segment include expenditures for long-lived assets of $ 4.3 and $ 1.5 for the three months ended February 29, 2020 and February 28, 2019 , respectively, and $ 14.2 and $ 5.9 for the nine months ended February 29, 2020 and February 28, 2019 , respectively.

Other noncurrent assets for the International segment include long-lived assets of $ 44.1 and $ 36.3 as of February 29, 2020 and February 28, 2019 , respectively.

ASSET WRITE DOWN

During the third quarter, the Company implemented new systems, processes and a centralized management structure to better coordinate demand planning and procurement activity across North America, and to optimize inventory utilization and management.

As a result of the foregoing, the Company determined that substantial quantities of inventory will not be required to meet future profitable demand, and will be donated, liquidated or disposed.

Accordingly, a $ 40.0 non cash write down was recognized in the current period for this excess inventory and associated costs.

The inventory cost, net of reserves, was $ 37.6 .

In addition, $ 1.6 and $ 0.8 of author advances and prepublication costs, respectively, were written down as they were directly related to the inventory.

The related impact was a loss per basic and diluted share of Class A and Common Stock of $ 0.84 in the three and nine month periods ended February 29, 2020 .

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

(3) Other noncurrent assets include property, plant and equipment, prepublication assets, cloud computing costs, royalty advances, goodwill, intangible assets and investments.

Expenditures for other noncurrent assets for the International segment include expenditures for long-lived assets of $ 2.0 and $ 5.7 for the three months ended August 31, 2020 and August 31, 2019, respectively.

Other noncurrent assets for the International segment include long-lived assets of $ 46.7 and $ 64.5 as of August 31, 2020 and August 31, 2019, respectively.

SCHOLASTIC CORPORATION

2 unchanged sentences

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

February 29, 2020

February 28, 2019

Revolving Loan

August 31, 2020 May 31, 2020 August 31, 2019

US Revolving Loan $ 200.0 $ 200.0 $ —

Unsecured lines of credit (weighted average interest rates of 4.2 %, 4.6 % and 4.1 %, respectively)

UK long-term debt (average interest rate of 2.5%, n/a and n/a, respectively)

Less lines of credit, short-term debt and current

portion of long-term debt

UK Loan 11.4 10.6 —

Total debt $ 219.9 $ 218.5 $ 13.0

Less lines of credit, short-term debt and current portion of long-term debt ( 19.9 ) ( 7.9 ) ( 13.0 )

Total long-term debt $ 200.0 $ 210.6 $ —

UK Loan Agreement

On September 23, 2019, Scholastic Limited UK entered into a term loan agreement to borrow £ 2.0 to fund a land purchase in connection with the construction of a new UK facility.

The loan has a maturity date of July 31, 2021.

Under the agreement, the principal balance is due in full in a single payment on the last day of the term and interest on the amount borrowed is due and payable quarterly.

The interest is charged at 1.77 % per annum over the Base Rate.

The Base Rate is currently equal to 0.75 % per annum and is subject to change.

As of February 29, 2020 , the Company had $ 2.6 outstanding on the loan.

On January 24, 2020, Scholastic Limited UK entered into a term loan facility with a borrowing limit of £ 6.6 to fund the construction of the new UK facility.

The loan has a maturity date of July 31, 2021.

Under the agreement, the principal balance is due in full in a single payment on the last day of the term and interest on the amount borrowed is due and payable quarterly.

The interest is charged at 1.77 % per annum over the Base Rate.

The Base Rate is currently equal to 0.75 % per annum and is subject to change.

As of February 29, 2020, the Company had $ 3.8 outstanding on the loan and the remaining available credit under this facility is $ 4.6 .

The following table sets forth the maturities of the carrying values of the Company’s debt obligations as of August 31, 2020 for the twelve-month periods ended August 31:

Total debt $ 219.9

US Loan Agreement

11 unchanged sentences

• A Base Rate equal to the higher of (i) the prime rate, (ii) the prevailing Federal Funds rate plus 0.50 % or (iii) the Eurodollar Rate for a one month interest period plus 1.00 % plus, in each case, an applicable spread ranging from 0.175 % to 0.60 %, as determined by the Company’s prevailing consolidated debt to total capital ratio.

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

SCHOLASTIC CORPORATION

1 unchanged sentence

(Dollar amounts in millions, except per share data)

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

As of February 29, 2020 , the indicated spread on Base Rate Advances was 0.175 % and the indicated spread on Eurodollar Advances was 1.175 % , both based on the Company’s prevailing consolidated debt to total capital ratio.

As of August 31, 2020, the indicated spread on Base Rate Advances was 0.175 % and the indicated spread on Eurodollar Advances was 1.175 %, both based on the Company’s prevailing consolidated debt to total capital ratio.

The Loan Agreement also provides for the payment of a facility fee in respect of the aggregate amount of revolving credit commitments ranging from 0.20 % to 0.40 % per annum based upon the Company’s prevailing consolidated debt to total capital ratio.

At February 29, 2020 , the facility fee rate was 0.20 % .

At August 31, 2020, the facility fee rate was 0.20 %.

A portion of the revolving credit facility, up to a maximum of $ 50.0 , is available for the issuance of letters of credit.

1 unchanged sentence

The Loan Agreement has an accordion feature which permits the Company, provided certain conditions are satisfied, to increase the facility by up to an additional $ 150.0 .

As of February 29, 2020 , the Company had no outstanding borrowings under the Loan Agreement.

At February 29, 2020 , the Company had open standby letters of credit totaling $ 5.3 issued under certain credit lines, including $ 0.4 under the Loan Agreement and $ 4.9 under the domestic credit lines discussed below.

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

As of August 31, 2020, the Company had outstanding borrowings of $ 200.0 under the Loan Agreement.

The Company incurred this obligation in the fourth quarter of fiscal 2020 as a precautionary measure due to the uncertainty resulting from the COVID-19 pandemic.

While this obligation is not due until the January 5, 2022 maturity date, the Company may, from time to time, make payments to reduce this obligation when cash from operations becomes available for this purpose.

No borrowings were outstanding under the Loan Agreement as of August 31, 2019.

At August 31, 2020, the Company had open standby letters of credit totaling $ 4.3 issued under certain credit lines, including $ 0.4 under the Loan Agreement and $ 3.9 under the domestic credit lines discussed below.

The Loan Agreement contains certain covenants, including interest coverage and leverage ratio tests, and certain limitations on the amount of dividends and other distributions and at August 31, 2020, the Company was in compliance with these covenants.

UK Loan Agreement

On September 23, 2019, Scholastic Limited UK entered into a term loan agreement to borrow £ 2.0 to fund a land purchase in connection with the construction of a new UK facility.

The loan has a maturity date of July 31, 2021.

Under the agreement, the principal balance is due in full in a single payment on the last day of the term and interest on the amount borrowed is due and payable quarterly.

The interest is charged at 1.77 % per annum over the Base Rate.

The Base Rate is currently equal to 0.10 % per annum and is subject to change.

As of August 31, 2020, the Company had $ 2.7 outstanding on the loan.

On January 24, 2020, Scholastic Limited UK entered into a term loan facility with a borrowing limit of £ 6.6 to fund the construction of the new UK facility.

The loan has a maturity date of July 31, 2021.

Under the agreement, the principal balance is due in full in a single payment on the last day of the term and interest on the amount borrowed is due and payable quarterly.

The interest is charged at 1.77 % per annum over the Base Rate.

The Base Rate is currently equal to 0.10 % per annum and is subject to change.

As of August 31, 2020, the Company had $ 8.7 outstanding on the loan and no remaining available credit under this facility.

Lines of Credit

As of February 29, 2020 , the Company’s domestic credit lines available under unsecured money market bid rate credit lines totaled $ 25.0 .

There were no outstanding borrowings under these credit lines as of February 29, 2020 , May 31, 2019 and February 28, 2019 .

As of February 29, 2020 , availability under these unsecured money market bid rate credit lines totaled $ 20.1 .

As of August 31, 2020, the Company’s domestic credit lines available under unsecured money market bid rate credit lines totaled $ 25.0 .

There were no outstanding borrowings under these credit lines as of August 31, 2020, May 31, 2020 and August 31, 2019.

As of August 31, 2020, availability under these unsecured money market bid rate credit lines totaled $ 21.1 .

All loans made under these credit lines are at the sole discretion of the lender and at an interest rate and term agreed to at the time each loan is made, but not to exceed 365 days.

These credit lines may be renewed, if requested by the Company, at the option of the lender.

As of February 29, 2020 , the Company had various local currency credit lines totaling $ 25.5 underwritten by banks primarily in the United States, Canada and the United Kingdom.

Outstanding borrowings under these facilities were $ 9.7 at February 29, 2020 at a weighted average interest rate of 4.6 % , $ 7.3 at May 31, 2019 at a weighted average interest rate of 4.1 % , and $ 11.0 at February 28, 2019 at a weighted average interest rate of 4.3 % .

As of February 29, 2020 , the amounts available under these facilities totaled $ 15.8 .

As of August 31, 2020, the Company had various local currency credit lines totaling $ 30.2 underwritten by banks primarily in the United States, Canada and the United Kingdom.

Outstanding borrowings under these facilities were $ 8.5 at August 31, 2020 at a weighted average interest rate of 4.2 %, $ 7.9 at May 31, 2020 at a weighted average interest rate of 4.6 %, and $ 13.0 at August 31, 2019 at a weighted average interest rate of 4.1 %.

As of August 31, 2020, the amounts available under these facilities totaled $ 21.7 .

These credit lines are typically available for overdraft borrowings or loans up to 364 days and may be renewed, if requested by the Company, at the sole option of the lender.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

COMMITMENTS AND CONTINGENCIES

The COVID-19 pandemic and actions taken, or which may be taken in the future following any easing of current restrictions based on the future course of the pandemic, by governments, businesses and individuals to limit the spread of the virus may continue to have an adverse effect on the Company’s results of operations and financial condition.

The Company is not currently aware of any loss contingencies related to the foregoing that would require recognition in the first quarter of fiscal 2021.

Legal Matters

Various claims and lawsuits arising in the normal course of business are pending against the Company.

The Company accrues a liability for such matters when it is probable that a liability exists and the amount of such liability can be reasonably estimated.

The Company accrues a liability for such matters when it is probable that a liability has occurred and the amount of such liability can be reasonably estimated.

When only a range can be estimated, the most probable amount in the range is accrued unless no amount within the range is a better estimate than any other amount, in which case the minimum amount in the range is accrued.

1 unchanged sentence

The Company does not expect, in the case of those various claims and lawsuits arising in the normal course of business where a loss is considered probable or reasonably possible, that the reasonably possible losses from such claims and lawsuits (either individually or in the aggregate) would have a material adverse effect on the Company’s consolidated financial position or results of operations.

In the third quarter, the Company entered into settlement agreements related to photo copyright infringement cases.

The Company recognized $ 2.4 in total, of which $ 1.4 remained accrued as of February 29, 2020.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

In the first quarter, based on the status of negotiations, an alleged patent infringement claim settlement became probable and estimable.

As such, an accrual of $ 1.5 was recognized in the Financial Statements in the first quarter of fiscal 2020.

The settlement was subsequently concluded in the second quarter of fiscal 2020.

Sales Tax Matters

On June 21, 2018, the U.S.

Supreme Court issued its opinion in South Dakota v.

Wayfair, Inc.

al., reversing prior precedent, in particular Quill Corp.

North Dakota (1992), which held that states could not constitutionally require retailers to collect and remit sales or use taxes in respect to mail order or internet sales made to residents of a state in the absence of the retailer having a physical presence in the taxing state.

As a result, the Company now has an obligation, at least on a go forward basis, based on each state's enforcement date, to collect and remit sales and use taxes, primarily in respect to sales made through its school book club channel, as well as certain sales made through its ecommerce internet sites, to residents in states that the Company had not previously remitted sales or use taxes based on having no physical presence in such states.

In the majority opinion, several factors were discussed in support of the Court’s reasoning that the collection of sales and use taxes from out-of-state retailers did not constitute an undue burden on interstate commerce, including the fact that South Dakota did not require retroactive application of its statute.

However, the question of retroactive application, as well as certain other factors noted in the opinion, are subject to how the states, on a state-by-state basis, interpret and apply the Court’s decision in their implementation of their respective state laws or regulations addressing the collection of sales and use taxes from out-of-state retailers.

As a result, the effect of the decision on the Company depends on the positions taken by the states, on a state-by-state basis, relating to the retroactive application of the obligation to collect such taxes, as well as other factors noted in the opinion.

The Company continues to monitor its compliance based on anticipated enforcement dates and an assumption as to each state's likely interpretation and application of the Court's decision.

As the Company continues to monitor each state, the staggered enforcement dates, and the progress towards compliance, expenses will be incurred by the Company.

As of February 29, 2020 , the Company’s school book club channel remits sales taxes in 44 states and the District of Columbia compared to 38 states and the District of Columbia in the prior fiscal year quarter ended February 28, 2019 .

The Company remits sales tax to all required states.

Any on-going or future litigation with states relating to sales and use taxes could be impacted favorably or unfavorably by legislative action in future fiscal periods.

During and subsequent to the third quarter of the current fiscal year, the novel coronavirus strain, known as COVID-19, continues to spread across the globe at an increasing rate.

Measures taken by governmental authorities and private actors to limit the spread of this virus may interfere with the ability of the Company's employees, suppliers, and other business providers to carry out their assigned tasks or supply materials at ordinary levels of performance relative to the conduct of the business which may cause a material curtailment to certain business operations.

Moreover, as a large part of the Company's business involves sales of books and other products in schools and school facilities, as well as through school districts, if COVID-19 related measures result in widespread and lengthy school closings, the Company's consolidated results of operations and financial condition will be adversely impacted.

In particular, in the context of the book fair channel, such closings may lead to cancellation of a significant number of book fairs which are not rebooked or cannot be held during the current school year and, in the context of the book clubs channel, such closings could result in a significant decrease in the participation by teacher sponsors in scheduled book club offerings.

In the case of the Education segment, the last quarter of the fiscal year, currently ending May 31, 2020, is normally a significant quarter as school administrators and other educational personnel, prior to breaking for the summer, order products for immediate shipment in preparation for the following academic school year.

These orders could be significantly impacted by the absence from the schools of such administrators and other educational personnel resulting from school closings.

The International segment is also subject to the same risks, due to the temporary closing of English language learning centers in China, as well as disruption in the direct sales business in other parts of Southeast Asia, resulting from measures imposed to combat the spread of COVID-19.

The Company is not currently aware of any loss contingencies related to this matter that would require recognition in the third quarter of fiscal 2020.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

EARNINGS (LOSS) PER SHARE

1 unchanged sentence

Three months ended

Nine months ended

August 31, August 31,

Net income (loss) attributable to Class A and Common Stockholders $ ( 39.8 ) $ ( 58.5 )

3 unchanged sentences

Earnings (loss) per share of Class A Stock and Common Stock:

Basic $ ( 1.16 ) $ ( 1.68 )

Diluted $ ( 1.16 ) $ ( 1.68 )

* The Company experienced a net loss for all periods presented and therefore did not report any dilutive share impact.

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

February 29, 2020

February 28, 2019

August 31, 2020 August 31, 2019

Options outstanding pursuant to stock-based compensation plans (in millions) 3.0 3.0

There were 3.0 million of potentially anti-dilutive shares pursuant to stock-based compensation plans as of August 31, 2020.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

A portion of the Company’s Restricted Stock Units ("RSUs") which are granted to employees participate in earnings through cumulative dividends which are payable and non-forfeitable to the employees upon vesting of the RSUs.

Accordingly, the Company measures earnings per share based upon the lower of the Two-class method or the Treasury Stock method.

For the three and nine months ended February 29, 2020 and February 28, 2019, respectively, the Company experienced a net loss for all periods presented and did not allocate any losses to the participating securities.

There were 2.2 million of potentially anti-dilutive shares pursuant to stock-based compensation plans as of February 29, 2020 .

As of February 29, 2020 , $ 20.1 remained available for future purchases of common shares under the repurchase authorization of the Board of Directors (the "Board") in effect on that date.

For the three month periods ended August 31, 2020 and August 31, 2019, the Company experienced a Net loss and did not allocate any losses to the participating securities.

As of August 31, 2020, $ 67.3 remained available for future purchases of common shares under the repurchase authorization of the Board of Directors (the "Board") in effect on that date.

See Note 11, Treasury Stock, for a more complete description of the Company’s share buy-back program.

3 unchanged sentences

The following table summarizes the activity in Goodwill for the periods indicated:

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

February 29, 2020

February 28, 2019

August 31, 2020 May 31, 2020 August 31, 2019

Gross beginning balance $ 164.5 $ 164.8 $ 164.8

1 unchanged sentence

Beginning balance $ 124.9 $ 125.2 $ 125.2

Additions — — —

Foreign currency translation 0.7 ( 0.3 ) ( 0.2 )

Ending balance $ 125.6 $ 124.9 $ 125.0

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

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

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

February 29, 2020

February 28, 2019

August 31, 2020 May 31, 2020 August 31, 2019

Beginning balance other intangibles subject to amortization $ 10.5 $ 12.2 $ 12.2

Additions — 1.6 —

Amortization expense ( 0.6 ) ( 3.2 ) ( 0.8 )

1 unchanged sentence

Total other intangibles subject to amortization, net of accumulated amortization of $ 30.7 , $ 30.1 and $ 27.7 , respectively

$ 10.2 $ 10.5 $ 11.2

Total other intangibles not subject to amortization $ 2.1 $ 2.1 $ 2.1

Total other intangibles $ 12.3 $ 12.6 $ 13.3

In the third quarter of fiscal 2020, the Company acquired a U.S.-based book fair business resulting in the recognition of $ 1.6 of amortizable intangible assets.

In the fourth quarter of fiscal 2019, the Company completed the purchase of a majority interest in Make Believe Ideas Limited, included within the Children's Book Publishing and Distribution segment, which resulted in $ 3.9 of amortizable intangible assets.

In the first quarter of fiscal 2019, the Company also purchased a UK-based book club business and a U.S.-based book fair business resulting in the recognition of $ 0.6 of amortizable intangible assets.

Intangible assets with definite lives consist principally of customer lists and intellectual property rights.

In the first quarter of fiscal 2021, there were no additions to intangible assets.

In fiscal 2020, the Company purchased a U.S.-based book fair business resulting in $ 1.6 of amortizable intangible assets.

Intangible assets with indefinite lives consist principally of trademark and tradename rights.

Intangible assets with definite lives consist principally of customer lists, intellectual property, tradenames and other agreements.

Intangible assets with definite lives are amortized over their estimated useful lives.

The weighted-average remaining useful life of all definite-lived intangible assets is approximately 5.2 years .

Intangible assets with indefinite lives consist principally of trademarks.

The weighted-average remaining useful lives of all amortizable intangible assets is approximately 5.8 years.

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

Investments are included in Other assets and deferred charges on the Condensed Consolidated Balance Sheets.

The following table summarizes the Company’s investments as of the dates indicated:

SCHOLASTIC CORPORATION

1 unchanged sentence

(Dollar amounts in millions, except per share data)

February 29, 2020

February 28, 2019

Equity method investments

International

Other equity investments

Children's Book Publishing & Distribution

Investments are included in Other assets and deferred charges on the Condensed Consolidated Balance Sheets.

The following table summarizes the Company’s investments as of the dates indicated:

August 31, 2020 May 31, 2020 August 31, 2019 Segment

Equity method investments $ 27.9 $ 25.0 $ 22.5 International

Other equity investments 6.0 6.0 6.0 Children's Book Publishing & Distribution

Total Investments $ 33.9 $ 31.0 $ 28.5

Income from equity investments is reported in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and totaled $ 0.6 and $ 1.2 for the three months ended February 29, 2020 and February 28, 2019 , respectively , and $ 3.6 and $ 5.7 for the nine months ended February 29, 2020 and February 28, 2019 , respectively.

Equity method investments

Make Believe Ideas Limited

On March 27, 2019, the Company completed the purchase of a majority-ownership position in Make Believe Ideas Limited ("MBI"), a UK-based children's book publishing business, by acquiring an additional 46.5 % equity interest in MBI to bring the Company's total ownership interest to 95.0 % .

Prior to March 27, 2019, the Company accounted for its 48.5 % equity interest under the equity method of accounting and income from this investment was reported in the International segment.

Other equity investments

In the fourth quarter of fiscal 2019, the Company acquired a 4.6 % ownership interest in a financing and production company that makes film, television, and digital programming designed for the youth market.

This equity investment does not have a readily determinable fair value and the Company has elected to apply the measurement alternative, and report this investment at cost, less impairment.

In the current fiscal quarter there have been no impairments or adjustments to the carrying value of this investment.

The Company’s 26.2 % equity interest in a children’s book publishing business located in the UK is accounted for using the equity method of accounting.

Equity method income from this investment is reported in the International segment.

The Company has a 4.6 % ownership interest in a financing and production company that makes film, television, and digital programming designed for the youth market.

This equity investment does not have a readily determinable fair value and the Company has elected to apply the measurement alternative and report this investment at cost, less impairment on the Company's Consolidated Balance Sheets.

There have been no impairments or adjustments to the carrying value of this investment.

Income from equity investments is reported in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and totaled $ 0.8 and $ 1.0 for the three months ended August 31, 2020 and August 31, 2019, respectively.

EMPLOYEE BENEFIT PLANS

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

UK Pension Plan

Postretirement Benefits

Three months ended

Components of net periodic benefit cost:

Interest cost

Expected return on assets

Net amortization of prior service (credit) cost

Amortization of (gains) losses

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

UK Pension Plan

Postretirement Benefits

Nine months ended

The following table sets forth the components of net periodic benefit cost for the periods indicated under the Company’s defined benefit pension plan of Scholastic Ltd., an indirect subsidiary of Scholastic Corporation located in the United Kingdom (the “UK Pension Plan”) and the postretirement benefits plan, consisting of certain healthcare and life insurance benefits provided by the Company to its eligible retired United States-based employees (the “US Postretirement Benefits”), for the periods indicated:

UK Pension Plan US Postretirement Benefits

Three months ended Three months ended

August 31, August 31, August 31, August 31,

2020 2019 2020 2019

Components of net periodic benefit cost:

3 unchanged sentences

Amortization of (gains) losses 0.1 0.2 — —

Total $ 0.1 $ 0.2 $ 0.1 $ 0.2

The Company’s funding practice with respect to the UK Pension Plan is to contribute on an annual basis at least the minimum amounts required by applicable law.

For the nine months ended February 29, 2020 , the Company contributed $ 0.9 to the UK Pension Plan.

For the three months ended August 31, 2020, the Company contributed $ 0.3 to the UK Pension Plan.

The Company expects, based on actuarial calculations, to contribute cash of approximately $ 1.0 to the UK Pension Plan for the fiscal year ending May 31, 2021.

In the second quarter of fiscal 2019, the Company announced a change in benefits for certain postretirement benefit plan participants.

Beginning January 1, 2019, the plan established Health Reimbursement Accounts (HRAs) to provide these participants with additional flexibility to choose healthcare options based on individual needs.

The Company remeasured its Postretirement benefits obligation as of November 30, 2018, and recognized a reduction of $ 2.7 to its benefit obligation and a reduction to its accumulated comprehensive loss of $ 2.7 in the second quarter of fiscal 2019.

The related prior service credit will be amortized as a component of Net periodic benefit cost over the average lifetime of plan participants of approximately 13.0 years .

The Company's lease arrangements primarily relate to corporate offices and warehouse facilities, and to a lesser extent, certain equipment and other assets.

The Company's leases generally have initial terms ranging from 3 to 10 years and certain leases include renewal or early-termination options, rent escalation clauses, and/or lease incentives.

Lease renewal rent payment terms generally reflect adjustments for market rates prevailing at the time of renewal.

The Company's leases require fixed minimum rent payments and also often require the payment of certain other costs that do not relate specifically to its right to use an underlying leased asset, but are associated with the asset, such as real estate taxes, insurance, common area maintenance fees and/or certain other costs (referred to collectively herein as "non-lease components"), which may be fixed or variable in amount depending on the terms of the respective lease agreement.

The Company's leases do not contain significant residual value guarantees or restrictive covenants.

The Company determines whether an arrangement contains a lease at the inception of the arrangement.

If a lease is determined to exist, the term of such lease is assessed based on the date on which the underlying asset is made available for the Company's use by the lessor.

The Company's assessment of the lease term reflects the non-cancelable term of the lease, inclusive of any rent-free periods and/or periods covered by early-termination options which the Company is reasonably certain of not exercising, as well as periods covered by renewal options which the Company is reasonably certain of exercising.

The Company also determines lease classification as either operating or finance at lease commencement, which governs the pattern of expense recognition and the presentation reflected in the Condensed Consolidated Statements of Operations over the lease term.

For leases with a term exceeding 12 months, a lease liability is recorded on the Company's Condensed Consolidated Balance Sheet at lease commencement reflecting the present value of its fixed minimum payment obligations over the lease term.

A corresponding right-of-use ("ROU") asset equal to the initial lease liability is also recorded, adjusted for any prepaid rent and/or initial direct costs incurred in connection with execution of the lease and reduced by any lease incentives received.

The Company includes fixed payment obligations related to non-lease components in the measurement of ROU assets and lease liabilities, as it elects to account for lease and non-lease components together as a single lease component.

ROU assets associated with finance leases are presented separate from ROU assets associated with operating leases and are included within

SCHOLASTIC CORPORATION

1 unchanged sentence

(Dollar amounts in millions, except per share data)

Property, plant and equipment, net on the Company's Condensed Consolidated Balance Sheet.

For purposes of measuring the present value of its fixed payment obligations for a given lease, the Company uses its incremental borrowing rate, determined based on information available at lease commencement, as rates implicit in its leasing arrangements are typically not readily determinable.

The Company's incremental borrowing rate reflects the rate it would pay to borrow on a secured basis, and incorporates the term and economic environment of the associated lease.

For operating leases, fixed lease payments are recognized as lease expense on a straight-line basis over the lease term.

For finance leases, the initial ROU asset is depreciated on a straight-line basis over the lease term, along with recognition of interest expense associated with accretion of the lease liability, which is ultimately reduced by the related fixed payments.

For leases with a term of 12 months or less (referred to as a "short-term lease"), any fixed lease payments are recognized on a straight-line basis over the lease term, and are not recognized on the Condensed Consolidated Balance Sheet.

Variable lease costs for both operating and finance leases, if any, are recognized as incurred.

The following table summarizes right-of-use assets and lease liabilities recorded on the Company's Condensed Consolidated Balance Sheet as of February 29, 2020 :

February 29, 2020

Location within Condensed Consolidated Balance Sheet

Operating leases

Operating lease right-of-use assets, net

Finance leases

Property, plant and equipment, net

Total lease assets

Operating leases :

Current portion

Current portion of operating lease liabilities

Non-current portion

Long-term operating lease liabilities

Total operating lease liabilities

Finance leases :

Current portion

Other accrued expenses

Non-current portion

Other noncurrent liabilities

Total finance lease liabilities

Total lease liabilities

The following table summarizes the activity as a result of the adoption of ASC 842 for the three and nine months ended February 29, 2020:

Three Months Ended February 29, 2020

Nine Months Ended February 29, 2020

Location within Condensed Consolidated Statements of Operations

Operating lease expense

Selling, general and administrative expenses

Finance lease costs :

Depreciation of leased assets

Selling, general and administrative expenses

Accretion of lease liabilities

Interest income (expense), net

Total lease expense

The following table summarizes certain cash flows information related to the Company's leases for the nine months ended February 29, 2020:

Nine Months Ended February 29, 2020

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

Operating cash flows from finance leases

Financing cash flows from finance leases

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

The following table provides a maturity analysis summary of the Company's lease liabilities recorded on the Company's Condensed Consolidated Balance Sheet as of February 29, 2020 :

Remainder of Fiscal 2020 (1)

Fiscal 2025 and thereafter

Total lease payments

Total lease liabilities

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

The following table summarizes the weighted-average remaining lease terms and weighted-average discount rates related to the Company's leases recorded on the Company's Condensed Consolidated Balance Sheet as of February 29, 2020 :

Weighted-average remaining lease term (years)

Weighted-average discount rate

STOCK-BASED COMPENSATION

1 unchanged sentence

Three months ended

Nine months ended

August 31, August 31,

Stock option expense $ 0.3 $ 0.6

5 unchanged sentences

Three months ended

Nine months ended

August 31, August 31,

Common Stock issued pursuant to stock-based compensation plans (in millions) 0.0 0.0

1 unchanged sentence

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

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

Authorizations

Authorizations Amount

March 2018 $ 50.0

March 2020 50.0

Total current Board authorizations at June 1, 2020 $ 100.0

Less repurchases made under these authorizations $ ( 32.7 )

Remaining Board authorization at February 29, 2020

Repurchases of Common Stock were $ 13.0 and $ 32.7 , respectively, during the three and nine months ended February 29, 2020 .

The Company’s repurchase program may be suspended at any time without prior notice.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

Three months ended February 29, 2020

Foreign currency translation adjustments

Retirement benefit plans

Beginning balance at December 1, 2019

Other comprehensive income (loss) before reclassifications

Less amount reclassified from Accumulated other comprehensive income (loss):

Amortization of gains and losses (net of tax of $0.0)

Amortization of prior service credit (net of tax of $0.0)

Other comprehensive income (loss)

Ending balance at February 29, 2020

Three months ended February 28, 2019

Foreign currency translation adjustments

Retirement benefit plans

Beginning balance at December 1, 2018

Other comprehensive income (loss) before reclassifications

Less amount reclassified from Accumulated other comprehensive income (loss):

Amortization of gains and losses (net of tax of $0.0)

Amortization of prior service credit (net of tax of $0.0)

Other comprehensive income (loss)

Ending balance at February 28, 2019

Remaining Board authorization at August 31, 2020 $ 67.3

Remaining Board authorization at August 31, 2020 represents the amount remaining under the Board authorization for Common share repurchases on March 21, 2018 and the current $ 50.0 Board authorization for Common share repurchases announced on March 18, 2020, which is available for further repurchases, from time to time as conditions allow, on the open market or through negotiated private transactions.

There were no repurchases of the Company's Common Stock for the three months ended August 31, 2020.

The Company’s repurchase program is suspended at this time due to COVID-19 uncertainties.

SCHOLASTIC CORPORATION

1 unchanged sentence

(Dollar amounts in millions, except per share data)

Nine months ended February 29, 2020

Foreign currency translation adjustments

Retirement benefit plans

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

Three months ended August 31, 2020

Foreign currency translation adjustments Retirement benefit plans Total

Beginning balance at June 1, 2020 $ ( 50.0 ) $ ( 8.3 ) $ ( 58.3 )

4 unchanged sentences

Other comprehensive income (loss) 10.7 0.1 10.8

Ending balance at February 29, 2020

Nine months ended February 28, 2019

Foreign currency translation adjustments

Retirement benefit plans

Ending balance at August 31, 2020 $ ( 39.3 ) $ ( 8.2 ) $ ( 47.5 )

Three months ended August 31, 2019

Foreign currency translation adjustments Retirement benefit plans Total

Beginning balance at June 1, 2019 $ ( 47.1 ) $ ( 12.6 ) $ ( 59.7 )

2 unchanged sentences

Amortization of gains and losses (net of tax of $ 0.0 )

Postretirement benefit plan remeasurement (net of tax of $0.8)

Amortization of prior service credit (net of tax of $ 0.0 )

Other reclassifications (net of tax of $0.0)

Other comprehensive income (loss) ( 2.0 ) 0.2 ( 1.8 )

Ending balance at February 28, 2019

Ending balance at August 31, 2019 $ ( 49.1 ) $ ( 12.4 ) $ ( 61.5 )

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

Three months ended

Nine months ended

Condensed Consolidated Statements of Operations line item

Three months ended Condensed Consolidated Statements of Operations line item

August 31, August 31,

Employee benefit plans:

Amortization of unrecognized (gain) loss

Other components of net periodic benefit (cost)

Amortization of prior service credit

Other components of net periodic benefit (cost)

Provision (benefit) for income taxes

Amortization of unrecognized (gain) loss $ 0.1 $ 0.2 Other components of net periodic benefit (cost)

Amortization of prior service credit 0.0 0.0 Other components of net periodic benefit (cost)

Tax effect 0.0 0.0 Provision (benefit) for income taxes

Total cost, net of tax $ 0.1 $ 0.2

12 unchanged sentences

The fair value of the Company's debt approximates the carrying value for all periods presented.

For a more complete description of fair value measurements employed, see Note 4, Debt.

The fair values of foreign currency forward contracts, used by the Company to manage the impact of foreign exchange rate changes, are based on quotations from financial institutions, a Level 2 fair value measure.

2 unchanged sentences

• Long-lived assets

• Investments

• Assets acquired in a business combination

2 unchanged sentences

Level 2 and level 3 inputs are employed by the Company in the fair value measurement of these assets.

For the fair value measurements employed by the Company for certain property, plant and equipment, production assets, investments and prepublication assets, the Company assessed future expected cash flows attributable to these assets.

For the fair value measurements employed by the Company for certain property, plant and equipment, investments and prepublication assets, the Company assessed future expected cash flows attributable to these assets.

See Note 8, Investments, for a more complete description of the fair value measurements employed.

INCOME TAXES AND OTHER TAXES

Tax Legislation Updates

In response to the COVID-19 pandemic, many governments have enacted or are contemplating measures to provide aid and economic stimulus.

These measures may include deferring the due dates of tax payments or other changes to their income and non-income-based tax laws as well as providing direct government assistance through grants and forgivable loans.

On March 27, 2020, the U.S.

government enacted the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).

The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer-side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

The Company expects to benefit from certain provisions in the CARES Act, including the provision to carry back net operating losses generated in the U.S.

to previous periods which were taxed at the higher 35% federal corporate tax rate.

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law.

The Tax Cuts and Jobs Act, among other things, reduced the U.S.

federal corporate tax rate from 35% to 21% and imposed a new minimum tax on Global Intangible Low-Taxed Income ("GILTI") earned by foreign subsidiaries.

On July 20, 2020, final regulations were issued for GILTI which include a high-tax exception for income earned by foreign subsidiaries if the foreign tax rate is in excess of 90% of the U.S.

tax rate of 21%.

The Company is evaluating the potential impact of these regulations.

While the Company does not anticipate a material impact on the overall income tax provision, the regulations may reduce taxable income.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

In calculating the provision for income taxes on an interim basis, the Company uses an estimate of the annual effective tax rate based upon currently known facts and circumstances and applies that rate to its year-to-date earnings or losses.

2 unchanged sentences

The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the result of new judicial interpretations or regulatory or tax law changes.

The Company's interim effective tax rate, inclusive of discrete items, was 28.0 % for the three month period ended February 29, 2020 and 27.4 % for the nine month period ended February 29, 2020 .

The Company's interim effective tax rate, inclusive of discrete items, was 23.2 % for the three month period ended August 31, 2020.

The Company, including its domestic subsidiaries, files a consolidated U.S.

1 unchanged sentence

Also, certain subsidiaries of the Company file income tax returns in foreign jurisdictions.

The Company is routinely audited by various tax authorities.

The Company is routinely audited by various tax authorities and the fiscal 2015 through fiscal 2019 tax years remain open.

The Company has been notified by the IRS that there will be an examination of the income tax return for fiscal 2015, however the audit had not yet started as of August 31, 2020.

Non-income Taxes

2 unchanged sentences

The Company assesses sales tax contingencies for each jurisdiction in which it operates, considering all relevant facts including statutes, regulations, case law and experience.

Where a sales tax liability with respect to a jurisdiction is probable and can

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

be reliably estimated for such jurisdiction, the Company has made accruals for these matters which are reflected in the Company’s Condensed Consolidated Financial Statements.

Where a sales tax liability with respect to a jurisdiction is probable and can be reliably estimated for such jurisdiction, the Company has made accruals for these matters which are reflected in the Company’s Condensed Consolidated Financial Statements.

These amounts are included in the Financial Statements in Selling, general and administrative expenses.

Future developments relating to the foregoing could result in adjustments being made to these accruals.

On June 21, 2018, the U.S.

Supreme Court issued its opinion in South Dakota v.

Wayfair, Inc.

al., reversing prior precedent, in particular Quill Corp.

As a result, the Company now has an obligation, at least on a going forward basis, to collect and remit sales and use taxes, primarily in respect to sales made through its school book club channel, as well as certain sales made through its ecommerce internet sites, to residents in states that the Company has not previously remitted sales or use taxes based on its having no physical presence in such states.

As of February 29, 2020 , the Company’s school book club channel was remitting sales taxes in 44 states and the District of Columbia.

Any on-going or future litigation with states relating to sales and use taxes could be impacted favorably or unfavorably by the Court’s decision in future fiscal periods.

DERIVATIVES AND HEDGING

2 unchanged sentences

The Company marks-to-market these instruments and records the changes in the fair value of these items in Selling, general and administrative expenses and it recognizes the unrealized gain or loss in Other current assets or Other current liabilities.

The notional values of the contracts as of February 29, 2020 and February 28, 2019 were $ 26.0 and $ 30.0 , respectively.

Unrealized gains of $ 0.7 and $ 0.3 were recognized for the nine months ended February 29, 2020 and February 28, 2019 , respectively.

The notional values of the contracts as of August 31, 2020 and August 31, 2019 were $ 25.5 and $ 28.0 , respectively.

A net unrealized loss of $ 1.0 and a net unrealized gain $ 0.5 were recognized for the three months ended August 31, 2020 and August 31, 2019, respectively.

OTHER ACCRUED EXPENSES

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

February 29, 2020

February 28, 2019

August 31, 2020 May 31, 2020 August 31, 2019

Accrued payroll, payroll taxes and benefits $ 41.4 $ 38.8 $ 43.6

5 unchanged sentences

Total accrued expenses $ 166.6 $ 161.5 $ 155.6

SUBSEQUENT EVENTS

The Board declared a quarterly cash dividend of $ 0.15 per share on the Company’s Class A and Common Stock for the fourth quarter of fiscal 2020.

The dividend is payable on June 15, 2020 to shareholders of record as of the close of business on April 30, 2020.

On March 18, 2020, the Board authorized an additional $ 50.0 for repurchases of common stock under the Company’s stock repurchase program.

Under this program, which will continue to be funded with available cash, the Company may purchase shares, from time to time as conditions allow, on the open market or in negotiated private transactions.

This authorization increases the aggregate amount of shares, in dollar terms, which may be repurchased to $ 67.3 as of March 18, 2020, after giving effect to the remaining amounts available for share repurchases under previous authorizations.

SCHOLASTIC CORPORATION

1 unchanged sentence

(Dollar amounts in millions, except per share data)

During and subsequent to the third quarter of the current fiscal year, the novel coronavirus strain, known as COVID-19, continues to spread across the globe at an increasing rate.

The Company has been, and will continue to be, affected by coronavirus-related school closings mandated by states and districts, which impact all school related businesses and more directly the book clubs and book fairs channels.

See Note 6, Commitments and Contingencies, and Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A), specifically the Overview and Outlook and Liquidity sections, for further discussion.

SUBSEQUENT EVENTS

The Board declared a quarterly cash dividend of $ 0.15 per share on the Company’s Class A and Common Stock for the second quarter of fiscal 2021.

The dividend is payable on December 15, 2020 to shareholders of record as of the close of business on October 30, 2020.

SCHOLASTIC CORPORATION

1 unchanged sentence

Overview and Outlook

Revenues for the quarter ended February 29, 2020 were $373.3 million , compared to $360.1 million in the prior fiscal year quarter, an increase of $13.2 million .

The Company reported a net loss per diluted share of Class A and Common Stock of $1.25 in the third quarter of fiscal 2020, compared to a net loss per diluted share of $0.36 in the prior fiscal year quarter.

During the fiscal quarter ended February 29, 2020 , revenues increased 3.7% primarily driven by sales from the trade channel which continued to have titles at the top of bestsellers lists.

In addition, revenues increased in the Education operating segment driven by growth in classroom books, professional learning, core instruction and classroom magazines.

In the book fairs channel, data-informed right-sizing and the scheduling of fairs continued to improve revenue per fair.

Operating costs were adversely impacted by an inventory related write down of $40.0 million recognized in the fiscal quarter as changes were made to the Company's North American purchasing protocols, product offerings and inventory retention policies reducing the anticipated inventory requirements in the Company's school channels.

This excess inventory write down will result in more efficient asset utilization, lower obsolescence expense and reduced warehouse labor costs in future periods.

The Company will be affected, in the fourth fiscal quarter, by coronavirus-related school closings mandated by states and districts, which will impact school-based businesses directly.

Revenues will therefore be materially lower in the seasonally important fourth fiscal quarter.

As a result, the Company is taking certain actions that are intended to reduce the adverse impact of the loss of revenues on profitability and cash flow, such as a freeze on travel and entertainment and other discretionary expenditures, reduced inventory purchasing, the curtailment of non-essential business activities, staffing cost reductions, and temporary branch closures in highly impacted regions.

Revenues for the first quarter ended August 31, 2020 were $215.2 million, compared to $232.6 million in the prior fiscal year quarter, a decrease of $17.4 million.

The Company reported a net loss per diluted share of Class A and Common Stock of $1.16 in the first quarter of fiscal 2021, compared to a net loss per diluted share of $1.68 in the prior fiscal year quarter.

The Company has executed on its cost-saving programs implemented to help mitigate the impact of COVID-19, which improved the Company's quarterly operating loss and cash used in operating activities year-over-year and preserved the Company's capital position.

Globally, best-selling titles within the trade channel continued to perform well in the fiscal quarter ended August 31, 2020, including The Ballad of Songbirds and Snakes , which was released in the fourth quarter of fiscal 2020.

In addition, the Company benefited from improved results across a number of education business lines, including digital product subscriptions, teaching resources, summer literacy camps and summer reading packs.

There is still uncertainty surrounding the duration and continued severity of the COVID-19 pandemic and its forward impact on schools, and the Company has implemented cost-saving programs targeted to improve its operations which are expected to help mitigate lower revenue expectations for the book fairs and book clubs channels as schools adapt to COVID-19 disruptions and delays.

A substantial portion of these cost-saving programs are also expected to bring permanent improvements to the Company's cost structure and provide opportunities for profitability as normal sales levels return.

The trade channel is expected to benefit from new titles such as Dav Pilkey's Dog Man:

Grime and Punishment , which was released in September, and J.K.

Rowling's new title, The Ickabog ® , which is targeted for release in November, as well as recently announced development deals for live-action feature films of book series, including Caster ™ , Goosebumps ® , Animorphs ® , and The Magic School Bus ® .

Results of Operations – Consolidated

Revenues for the quarter ended February 29, 2020 increased to $373.3 million , compared to $360.1 million in the prior fiscal year.

The Children's Book Publishing and Distribution segment revenues increased by $2.2 million , primarily due to increased trade channel revenue, driven by the completion of the acquisition of a majority interest in MBI and its full consolidation in the financial statements and by sales of the Company's best-selling titles and series, coupled with higher revenues in the book fairs channel, partially offset by lower revenues in the book club channel due to a lower number of events and lower revenue per event.

In the Education segment, revenues increased by $14.0 million , primarily driven by classroom book collections and core instruction products due to a large school district sale.

In local currency, the International segment revenues decreased by $2.5 million , primarily driven by lower revenues in Canada's school-based channels, due to a decline in sponsorship and an on-going teacher labor action in Ontario, and in the Asia markets which are being impacted by the local actions taken to curtail the spread of the coronavirus, partially offset by higher revenues in the Company's international trade channel in all major markets.

International segment revenues were impacted by unfavorable foreign exchange of $0.5 million .

Revenues for the nine months ended February 29, 2020 increased to $1,203.1 million , compared to $1,183.2 million in the prior fiscal year period.

The Children's Book Publishing and Distribution segment revenue increased $11.8 million , driven by higher trade revenue of $31.5 million resulting from the completion of the acquisition of the majority interest in MBI and the continued success of the Company's best-selling titles and series, as well as higher revenues in the book fairs channel of $8.4 million , partially offset by a decrease in book clubs revenues of $28.1 million .

In the Education segment, revenues increased $12.9 million primarily driven by classroom book collections and core instruction products due to a large school district sale.

In local currency, the International segment revenues increased by $0.2 million , primarily driven by higher revenues in the Company's international trade channel in all major markets, partially offset by lower revenues in Canada and the direct sales channel in Asia.

International segment revenues were impacted by unfavorable foreign exchange of $5.0 million .

SCHOLASTIC CORPORATION

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

Components of Cost of goods sold for the three and nine months ended February 29, 2020 and February 28, 2019 are as follows:

Revenues for the quarter ended August 31, 2020 decreased to $215.2 million, compared to $232.6 million in the prior fiscal year.

The Children's Book Publishing and Distribution segment revenues decreased by $18.7 million, primarily driven by lower school-based channel revenues resulting from COVID-impacted delays in school re-openings.

In the Education segment, revenues increased by $5.2 million, primarily due to higher sales of digital products in literacy programs and magazines and sales of take-home Grab and Go reading packs.

In local currency, International segment revenues decreased by $4.3 million, primarily driven by lower revenues in the school-based channels in Canada and the direct sales channel in Asia due to the impact of COVID-19, partially offset by increased revenues in the trade channel across all international markets.

International segment revenues were impacted by favorable foreign exchange of $0.4 million.

Components of Cost of goods sold for the three months ended August 31, 2020 and August 31, 2019 are as follows:

Three months ended

Nine months ended

($ amounts in millions)

August 31, August 31,

($ amounts in millions) $ % of Revenue $ % of Revenue

Product, service and production costs $ 60.9 28.3 % $ 68.2 29.3 %

Royalty costs 23.4 10.9 % 22.3 9.6 %

Prepublication and production amortization

Prepublication amortization 6.5 3.0 % 6.6 2.8 %

Postage, freight, shipping, fulfillment and other 32.4 15.0 % 40.0 17.2 %

Cost of goods sold for the quarter ended February 29, 2020 was $183.0 million , or 49.0% of revenues, compared to $176.9 million , or 49.1% of revenues, in the prior fiscal year quarter.

Cost of goods sold as a percentage of revenues remained primarily flat due to the increase in education channel revenues which carried a lower cost of product, and product mix in the book club channel resulting in favorable postage, freight and shipping costs, offset by higher tariffs and the completion of the acquisition of a majority interest in MBI and its full consolidation in the financial statements.

MBI specialty products have a higher cost of product as a percentage of revenue due to higher manufacturing costs.

Cost of goods sold for the nine months ended February 29, 2020 was $584.4 million , or 48.6% of revenues, compared $564.6 million , or 47.7% of revenues, in the prior fiscal year period.

The increase in Cost of goods sold as a percentage of revenues was primarily due to the completion of the acquisition of the majority interest in MBI and its full consolidation in the financial statements.

MBI manufacturing costs associated with specialty products represented a portion of the increase in Cost of goods sold as a percentage of revenues.

In addition, the Company recognized higher costs relating to tariffs and higher prepublication amortization costs, partially offset by the increase in education channel revenues which carried a lower cost of product.

The Company continues to monitor and employ strategies to offset increased costs associated with higher tariffs.

Tariffs will impact the cost of goods sold in the remaining fiscal year, especially in the domestic school-based channels.

Selling, general and administrative expenses in the quarter ended February 29, 2020 increased to $194.9 million , compared to $190.9 million in the prior fiscal year quarter.

The increase was primarily related to higher employee related expenses which included increased severance expense of $1.3 million and lower equity method investment income due to the consolidation of MBI, partially offset by lower marketing expenses and a decrease in net sales tax expense in the book club channel.

Selling, general and administrative expenses in the nine months ended February 29, 2020 decreased to $574.8 million , compared to $584.3 million in the prior fiscal year period.

The decrease was primarily related to lower marketing expenses in the book club and education channels, lower labor related expenses and a decrease in net sales tax expense in the book club channel and lower operating expenses in the book fair channel as a result of business process improvements, coupled with the absence of a prior period pretax charge related to a legacy sales tax assessment, partially offset by increased severance expense of $3.8 million and lower equity method investment income due to the consolidation of MBI.

The Company may potentially experience increases in bad debt expenses in the fourth fiscal quarter as a result of measures, including mandated requirements, taken to limit the spread of coronavirus.

Depreciation and amortization expenses in the quarter ended February 29, 2020 increased to $15.4 million , compared to $13.7 million in the prior fiscal year quarter.

The increase was primarily attributable to upgraded point-of-sale machines placed into service in the book fair channel and assets placed in service for capitalized strategic technology investments.

Total $ 123.2 57.2 % $ 137.1 58.9 %

Cost of goods sold for the quarter ended August 31, 2020 was $123.2 million, or 57.2% of revenues, compared to $137.1 million, or 58.9% of revenues, in the prior fiscal year quarter.

The decrease in Cost of goods sold as a percentage of revenue was primarily driven by favorable product cost due to the sales mix within the education business, partially offset by higher royalty costs due to the product mix of titles sold within the trade channel in the quarter ended August 31, 2020.

SCHOLASTIC CORPORATION

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

Depreciation and amortization expenses in the nine months ended February 29, 2020 increased to $46.2 million , compared to $41.3 million in the prior fiscal year period.

The increase was primarily attributable to upgraded point-of-sale machines placed into service in the book fair channel and assets placed in service for capitalized strategic technology investments.

Asset impairments and write downs in the three and nine months ended February 29, 2020 were $40.0 million .

In the fiscal quarter ended February 29, 2020, changes were made to the Company's North American purchasing protocols, product offerings and inventory retention policies reducing the anticipated inventory requirements in the Company's school channels.

The changes will result in lower inventory requirements, more efficient asset utilization, lower obsolescence expense and reduced warehouse labor costs in future periods.

As a result of the foregoing, the Company recorded a write down of inventory of $37.6 million.

Capitalized prepublication and author advances costs, related to the inventory, of $0.8 million and $1.6 million, respectively, were written down as well.

Net interest income in the quarter ended February 29, 2020 was $0.3 million compared to Net interest income of $1.0 million in the prior fiscal year quarter.

The decrease in Net interest income is primarily due to lower U.S.

interest rates and lower short-term investment balances driven, in part, by higher common stock repurchases.

Net interest income in the nine months ended February 29, 2020 was $1.0 million , compared to Net interest income of $2.3 million in the prior fiscal year period.

The decrease in Net interest income is primarily due to lower U.S.

interest rates and lower short-term investment balances driven, in part, by higher common stock repurchases.

The Company expects a continued decrease in Net interest income in future periods.

The Company’s effective tax rate for the quarter ended February 29, 2020 was 28.0% , compared to 39.4% in the prior fiscal year quarter.

The Company’s effective tax rate for the nine month period ended February 29, 2020 was 27.4% , compared to 60.3% in the prior fiscal year period.

Net loss for the quarter ended February 29, 2020 increased by $30.7 million to $43.3 million , compared to Net loss of $12.6 million in the prior fiscal year quarter.

Loss per basic and diluted share of Class A and Common Stock was $1.25 and $1.25 , respectively, for the fiscal quarter ended February 29, 2020 , compared to a net loss per basic and diluted share of Class A and Common Stock of $0.36 and $0.36 , respectively, in the prior fiscal year quarter.

Net loss for the nine months ended February 29, 2020 increased by $28.4 million to $30.7 million , compared to Net loss of $2.3 million in the prior fiscal year period.

Loss per basic and diluted share of Class A and Common Stock was $0.89 and $0.89 , respectively, in the nine month period ended February 29, 2020 , compared to a net loss per basic and diluted share of Class A Stock and Common Stock of $0.07 and $0.07 , respectively, in the prior fiscal year period.

Selling, general and administrative expenses in the quarter ended August 31, 2020 decreased to $121.5 million, compared to $163.1 million in the prior fiscal year quarter.

The $41.6 million decrease was due to the Company's COVID-related cost-saving initiatives, which included employee furlough and reduced work week programs and restructuring resulting in lower employee-related expenses, reduced technology-related spending, improvements in operating and financial processes, and other efforts to lower the Company's overall cost base.

A substantial portion of these cost-saving programs are expected to bring permanent improvements to the Company's cost structure to meet the current economic environment and provide opportunities for profitability as normal sales levels return.

The employee short-term furlough and reduced work week programs have been discontinued as of the second quarter of fiscal 2021.

Depreciation and amortization expenses in the quarter ended August 31, 2020 were $15.5 million, which is comparable to $15.4 million in the prior fiscal year quarter.

Severance expense in the quarter ended August 31, 2020 was $12.0 million, compared to $4.4 million in the prior fiscal year quarter, which included charges of $12.0 million and $2.8 million for the three months ended August 31, 2020 and August 31, 2019, respectively, related to cost-reduction and restructuring programs.

Net interest expense in the quarter ended August 31, 2020 was $1.2 million compared to Net interest income of $0.7 million in the prior fiscal year quarter.

The increase in Net interest expense is primarily due to interest expense on long-term debt borrowings.

The Company’s effective tax rate for the quarter ended August 31, 2020 was 23.2%, compared to 32.8% in the prior fiscal year quarter.

Net loss for the quarter ended August 31, 2020 decreased by $18.7 million to $39.8 million, compared to Net loss of $58.5 million in the prior fiscal year quarter.

Net loss per basic and diluted share of Class A and Common Stock was $1.16 and $1.16, respectively, for the fiscal quarter ended August 31, 2020, compared to a net loss per basic and diluted share of Class A and Common Stock of $1.68 and $1.68, respectively, in the prior fiscal year quarter.

Results of Operations

1 unchanged sentence

Three months ended

Nine months ended

August 31, August 31, $ %

($ amounts in millions)

2020 2019 change change

Revenues $ 90.9 $ 109.6 $ (18.7) (17.1) %

Cost of goods sold 54.6 65.5 (10.9) (16.6) %

Other operating expenses (1)

65.5 85.8 (20.3) (23.7) %

Operating income (loss) $ (29.2) $ (41.7) $ 12.5 30.0 %

1 unchanged sentence

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

Revenues for the quarter ended February 29, 2020 increased by $2.2 million to $220.2 million , compared to $218.0 million in the prior fiscal year quarter.

Trade channel revenues increased by $11.1 million , primarily driven by the completion of the acquisition of a majority interest in MBI and its full consolidation in the financial

Revenues for the quarter ended August 31, 2020 decreased by $18.7 million to $90.9 million, compared to $109.6 million in the prior fiscal year quarter.

Book fairs channel revenues decreased $14.3 million, primarily driven by lower fair count, and book clubs channel revenues decreased $2.2 million due to declines in sponsor engagement, both largely attributable to COVID-impacted school re-openings.

Trade channel revenues decreased by $2.2 million, primarily due to a shift in the timing of the release of a new title in the popular Dog Man ® book series to the second quarter of fiscal 2021 compared to a first quarter release in the prior fiscal year quarter.

SCHOLASTIC CORPORATION

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

This decrease was partially offset by sales of frontlist titles including The Ballad of Songbirds and Snakes (A Hunger Games Novel), Logan Likes Mary Anne!

(The Baby-Sitters Club ® Graphix #8) , Captain Underpants and the Revolting Revenge of the Radioactive Robo-Boxers (Color Edition), The Bad Guys in the Dawn of the Underlord (The Bad Guys ® #11), Karen's Roller Skates (Baby-Sitters Little Sister ® Graphic Novel #2);

Forget Me Nat (Nat Enough #2), and You Should See Me in a Crown by best-selling author Leah Johnson, as well as increased sales of workbooks within the Company's Scholastic Early Learners TM and BOB Books ® lines and higher audio book sales.

Cost of goods sold for the quarter ended August 31, 2020 was $54.6 million, or 60.1% of revenues, compared to $65.5 million, or 59.8% of revenues, in the prior fiscal year quarter.

The increase in Cost of goods sold as a percentage of revenues was primarily driven by higher royalty costs associated with the product mix within the trade channel.

Other operating expenses for the quarter ended August 31, 2020 decreased to $65.5 million, compared to $85.8 million in the prior fiscal year quarter.

The decrease was attributable to cost-saving measures, which primarily resulted in a reduction in employee-related costs across all channels in the segment, as well as the temporary closure of book fair distribution facilities.

Segment operating loss for the quarter ended August 31, 2020 was $29.2 million, compared to an operating loss of $41.7 million in the prior fiscal year quarter.

The $12.5 million improvement was primarily driven by cost-saving measures, which resulted in a decrease in employee-related costs and warehouse and distribution center costs.

The Company expects continued impact from COVID-19 and related school re-opening issues, and continues to monitor costs in the school channels, while simultaneously preparing itself to be in a position to respond to varied customer requirements which may emerge as a result of the pandemic.

Three months ended

August 31, August 31, $ %

($ amounts in millions) 2020 2019 change change

Revenues $ 53.6 $ 48.4 $ 5.2 10.7 %

Cost of goods sold 22.6 20.9 1.7 8.1 %

Other operating expenses (1)

33.2 40.9 (7.7) (18.8) %

Operating income (loss) $ (2.2) $ (13.4) $ 11.2 83.6 %

Operating margin — % — %

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

Revenues for the quarter ended August 31, 2020 increased to $53.6 million, compared to $48.4 million in the prior fiscal year quarter.

The $5.2 million increase was primarily due to higher sales of instructional programs, including programs provided through the Company's Summer LitCamp ® partnership with BellXcell ® Summer , as well as the Company’s line of Grab and Go summer reading packs.

Digital revenues also increased in the quarter ended August 31, 2020, which included a large school district sale of Scholastic Literacy Pro ® and F.I.R.S.T.

® , digital programs for independent reading and foundational reading skills, respectively.

The Company's teaching resources business revenues increased from sales of products such as First Little Readers ™ packs and teaching guides and Jumbo and Summer Express activity books.

Cost of goods sold for the quarter ended August 31, 2020 was $22.6 million, or 42.2% of revenues, compared to $20.9 million, or 43.2% of revenues, in the prior fiscal year quarter.

The decrease in Cost of goods sold as a percentage of revenues was primarily due to favorable product mix from higher digital sales and take-home packs, partially offset by higher postage costs.

Other operating expenses for the quarter ended August 31, 2020 decreased to $33.2 million, compared to $40.9 million in the prior fiscal year quarter.

The $7.7 million decrease was primarily related to a decrease in employee-related costs as a result of cost-saving measures implemented to mitigate the impact of COVID-19.

SCHOLASTIC CORPORATION

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

Segment operating loss for the quarter ended August 31, 2020 was $2.2 million, compared to an operating loss of $13.4 million in the prior fiscal year quarter.

The $11.2 million improvement was primarily driven by revenue increases in a number of education business lines, including digital product subscriptions, teaching resources, summer literacy camps and summer reading programs, coupled with cost-saving measures taken to mitigate the impact of COVID-19.

International

Three months ended

August 31, August 31, $ %

($ amounts in millions) 2020 2019 change change

Revenues $ 70.7 $ 74.6 $ (3.9) (5.2) %

Cost of goods sold 37.6 38.7 (1.1) (2.8) %

Other operating expenses (1)

27.9 39.6 (11.7) (29.5) %

Operating income (loss) $ 5.2 $ (3.7) $ 8.9 240.5 %

Operating margin 7.4 % — %

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

Revenues for the quarter ended August 31, 2020 decreased to $70.7 million, compared to $74.6 million in the prior fiscal year quarter.

Local currency revenues across the Company's foreign operations decreased by $4.3 million partially offset by favorable foreign exchange of $0.4 million.

In Canada, local currency revenues decreased $1.5 million, primarily driven by lower school-based channel sales resulting from the impact of COVID-19, partially offset by increased sales of best-selling trade titles.

In the UK, local currency revenues decreased $0.2 million, primarily due to lower volumes in the book fairs channel, partially offset by increased book clubs sales from parent-to-home orders and demand for digital product, as well as increased sales of the Hunger Games ® titles within the trade channel.

Australia and New Zealand local currency revenues increased $1.5 million, primarily on higher revenue from the trade and book clubs channels, partially offset by lower volumes in the book fairs channel.

In Asia, local currency revenues decreased $4.9 million primarily related to lower revenues from the direct sales channel due in part to the adverse impact of COVID-19.

In addition, revenues from the export and foreign rights channels increased a total of $0.8 million compared to the prior fiscal year quarter.

Cost of goods sold for the quarter ended August 31, 2020 was $37.6 million, or 53.2% of revenues, compared to $38.7 million, or 51.9% of revenues, in the prior fiscal year quarter.

The higher cost of goods sold as a percentage of revenue was driven by higher royalty costs due to a sales shift to trade titles with higher royalty rates.

Other operating expenses for the quarter ended August 31, 2020 were $27.9 million, compared to $39.6 million in the prior fiscal year quarter.

Other operating expenses decreased $11.7 million primarily driven by COVID-related governmental employee retention programs in Australia, Canada, and the UK, which are expected to cease in fiscal 2021, in addition to lower employee-related expenses as a result of cost-saving programs implemented by the Company.

This decrease was partially offset by severance expense of $1.0 million in the quarter ended August 31, 2020 related to the cost-reduction measures.

Segment operating income for the quarter ended August 31, 2020 was $5.2 million, compared to segment operating loss of $3.7 million in the prior fiscal year quarter.

Total local currency operating results across the Company's foreign operations increased $8.7 million, primarily driven by COVID-related governmental employee retention programs and lower employee-related costs as a result of cost-saving measures, in addition to increased trade channel revenues, partially offset by lower revenues in the book fairs and direct sales channels.

Unallocated overhead expense for the quarter ended August 31, 2020 increased by $2.2 million to $30.8 million, from $28.6 million in the prior fiscal year quarter.

Severance expense, related to cost-reduction programs, increased by $8.2 million to $11.0 million, compared to $2.8 million in the prior fiscal year quarter.

SCHOLASTIC CORPORATION

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What changed 10-Q

Item 1. Financial Statements