What changed in this filing

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Item 1. Financial Statements

2020-12-18 compared with 2020-09-25 · 247 added, 230 removed, 541 unchanged (47% of the section changed)

3 unchanged sentences

(Dollar amounts in millions, except per share data)

Three months ended

August 31, August 31,

Three months ended Six months ended

November 30, November 30, November 30, November 30,

2020 2019 2020 2019

Revenues $ 406.2 $ 597.2 $ 621.4 $ 829.8

14 unchanged sentences

Net income (loss) attributable to Scholastic Corporation $ 35.1 $ 71.0 $ ( 4.7 ) $ 12.5

Basic and diluted earnings (loss) per Share of Class A

and Common Stock

Basic and diluted earnings (loss) per Share of Class A and Common Stock

Basic $ 1.02 $ 2.04 $ ( 0.14 ) $ 0.36

4 unchanged sentences

(Dollar amounts in millions)

Three months ended

August 31, August 31,

Three months ended Six months ended

November 30, November 30, November 30, November 30,

2020 2019 2020 2019

Net income (loss) $ 35.2 $ 71.1 $ ( 4.6 ) $ 12.6

10 unchanged sentences

(Dollar amounts in millions, except per share data)

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

November 30, 2020 (unaudited) May 31, 2020 (audited) November 30, 2019 (unaudited)

Current Assets:

76 unchanged sentences

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

Net Income (loss) — — — — — — 71.0 — 71.0 0.0 71.0

Foreign currency translation adjustment — — — — — 3.9 — — 3.9 — 3.9

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

— — — — — 0.2 — — 0.2 — 0.2

Stock-based compensation — — — — 0.9 — — — 0.9 — 0.9

Proceeds pursuant to stock-based compensation plans — — — — 0.3 — — — 0.3 — 0.3

Purchases of treasury stock at cost — — ( 0.1 ) — — — — ( 7.1 ) ( 7.1 ) — ( 7.1 )

Treasury stock issued pursuant to equity-based plans — — 0.0 — ( 2.1 ) — — 2.7 0.6 — 0.6

Dividends ($ 0.15 per share)

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

Balance at November 30, 2019 1.7 $ 0.0 33.0 $ 0.4 $ 621.3 $ ( 57.4 ) $ 1,014.7 $ ( 319.0 ) $ 1,260.0 $ 1.3 $ 1,261.3

See accompanying notes

Class A Stock Common Stock Additional Paid-in Capital Accumulated

13 unchanged sentences

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

Purchases of treasury stock at cost — — — — — — — — — — —

Treasury stock issued pursuant to equity-based plans — — 0.0 — ( 0.2 ) — — 0.5 0.3 — 0.3

2 unchanged sentences

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) — — — — — — 35.1 — 35.1 0.1 35.2

Foreign currency translation adjustment — — — — — 0.4 — — 0.4 — 0.4

Pension and post-retirement adjustments (net of tax of $ 1.8 )

— — — — — 5.4 — — 5.4 — 5.4

Stock-based compensation — — — — 3.0 — — — 3.0 — 3.0

Treasury stock issued pursuant to equity-based plans — — 0.1 — ( 1.5 ) — — 3.1 1.6 — 1.6

Dividends ($ 0.15 per share)

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

Balance at November 30, 2020 1.7 $ 0.0 32.6 $ 0.4 $ 624.3 $ ( 41.7 ) $ 933.1 $ ( 329.7 ) $ 1,186.4 $ 1.5 $ 1,187.9

See accompanying notes

2 unchanged sentences

(Dollar amounts in millions)

Three months ended

August 31, August 31,

Six months ended

November 30, November 30,

Cash flows - operating activities:

28 unchanged sentences

Acquisition of land — ( 3.3 )

Other investment and acquisition-related payments — ( 0.1 )

Net cash provided by (used in) investing activities ( 24.1 ) ( 48.4 )

4 unchanged sentences

Reacquisition of common stock — ( 19.6 )

Proceeds pursuant to stock-based compensation plans — 0.3

Payment of dividends ( 10.3 ) ( 10.5 )

Other 1.9 ( 0.2 )

Net cash provided by (used in) financing activities ( 36.2 ) ( 22.1 )

26 unchanged sentences

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

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.

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, was negatively impacted by the COVID-19 pandemic, particularly in the book fairs channel.

Presently, there remain many uncertainties concerning the timing of and any patterns which may emerge from school instruction, whether in-school, remote or hybrid, for the remaining school year, and the nature and continuing magnitude of the negative impact of COVID-19 into and beyond the third quarter of fiscal 2021 will depend on the actual timing and emerging patterns of such school instruction throughout the United States.

Use of estimates

11 unchanged sentences

• Royalty advance reserves and royalty expense accruals

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

SCHOLASTIC CORPORATION

1 unchanged sentence

(Dollar amounts in millions, except per share data)

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

• Assets and liabilities acquired in business combinations

2 unchanged sentences

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.

During the second quarter of fiscal 2021, there were no sales of long-lived assets.

During the first quarter of fiscal 2021, the company-owned facility located in Danbury, Connecticut was sold and the Company 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.

8 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 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.

As of November 30, 2020, the carrying amounts totaled $ 3.3 which are included in Property, plant and equipment, net within the Company's Condensed Consolidated Balance Sheets.

The Company will continue to identify opportunities to reduce its real estate footprint related to owned and leased properties.

New Accounting Pronouncements

Current Fiscal Quarter Adoptions:

There were no new accounting pronouncements in the second fiscal quarter of 2021 which would impact the Company.

Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2020 for more information on current applicable authoritative guidance and its impact on the Company's financial statements.

Current Fiscal Year Adoptions:

In June 2016, the FASB issued ASU No.

8 unchanged sentences

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)

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.

Disaggregated Revenue Data

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

Three months ended

August 31, August 31,

Three months ended Six months ended

November 30, November 30, November 30, November 30,

2020 2019 2020 2019

Book Clubs $ 66.9 $ 85.9 $ 72.7 $ 93.9

3 unchanged sentences

Major Markets (1)

83.1 94.6 139.7 150.9

Other Markets (2)

24.8 29.3 45.1 54.0

Total Revenues $ 406.2 $ 597.2 $ 621.4 $ 829.8

2 unchanged sentences

Estimated Returns

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.

A liability for expected returns of $ 54.5 , $ 43.5 , and $ 42.4 is recorded within Other accrued expenses as of November 30, 2020, May 31, 2020, and November 30, 2019, respectively.

In addition, a return asset of $ 3.3 , $ 2.7 , and $ 2.6 is recorded within Prepaid expenses and other current assets as of November 30, 2020, May 31, 2020, and November 30, 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 $ 16.9 and $ 18.8 for the three months ended August 31, 2020 and August 31, 2019, respectively.

The Company recognized revenue which was included in the opening deferred revenue balance in the amount of $ 24.2 and $ 46.9 for the three months ended November 30, 2020 and November 30, 2019, respectively, and $ 41.1 and $ 74.0 for the six months ended November 30, 2020 and November 30, 2019, respectively.

Allowance for Credit Losses

2 unchanged sentences

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:

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

Allowance for Credit Losses

3 unchanged sentences

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)

Current period provision 2.1

Write-offs and other ( 1.8 )

Balance as of November 30, 2020 $ 21.2

SEGMENT INFORMATION

7 unchanged sentences

This segment is comprised of three operating segments.

The following table sets forth information for the Company's segments for the fiscal quarters ended November 30, 2020 and November 30, 2019:

Distribution Education Overhead (1)

Domestic International Total

Three months ended

November 30, 2020

Revenues $ 240.3 $ 67.5 $ — $ 307.8 $ 98.4 $ 406.2

Bad debt expense ( 0.1 ) 1.3 — 1.2 0.9 2.1

Depreciation and amortization (2)

6.6 3.3 11.9 21.8 1.6 23.4

Segment operating income (loss) 37.7 11.9 ( 20.0 ) 29.6 19.2 48.8

Expenditures for other noncurrent assets (3)

9.6 3.2 8.1 20.9 3.1 24.0

Three months ended

November 30, 2019

Revenues $ 413.6 $ 69.9 $ — $ 483.5 $ 113.7 $ 597.2

Bad debt expense 1.1 0.8 — 1.9 0.8 2.7

Depreciation and amortization (2)

6.5 3.4 10.9 20.8 1.8 22.6

Segment operating income (loss) 109.6 6.2 ( 22.4 ) 93.4 11.7 105.1

Expenditures for other noncurrent assets (3)

14.7 5.0 10.6 30.3 5.8 36.1

SCHOLASTIC CORPORATION

1 unchanged sentence

(Dollar amounts in millions, except per share data)

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

The following table sets forth information for the Company's segments for the fiscal periods ended November 30, 2020 and November 30, 2019:

Distribution Education Overhead (1)

Domestic International Total

Three months ended

August 31, 2020

Six months ended

November 30, 2020

Revenues $ 331.2 $ 121.1 $ — $ 452.3 $ 169.1 $ 621.4

3 unchanged sentences

Segment operating income (loss) 8.5 9.7 ( 50.8 ) ( 32.6 ) 24.4 ( 8.2 )

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

Segment assets at November 30, 2020 607.1 212.8 957.4 1,777.3 329.6 2,106.9

Goodwill at November 30, 2020 47.3 68.2 — 115.5 10.1 125.6

Expenditures for other noncurrent assets (3)

21.7 6.3 18.9 46.9 6.6 53.5

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

Other non-current assets at November 30, 2020 (3)

171.0 123.7 487.2 781.9 86.4 868.3

Three months ended

August 31, 2019

Six months ended

November 30, 2019

Revenues $ 523.2 $ 118.3 $ — $ 641.5 $ 188.3 $ 829.8

3 unchanged sentences

Segment operating income (loss) 67.9 ( 7.2 ) ( 51.0 ) 9.7 8.0 17.7

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

Segment assets at November 30, 2019 674.6 196.1 846.8 1,717.5 314.2 2,031.7

Goodwill at November 30, 2019 47.2 68.2 — 115.4 10.0 125.4

Expenditures for other noncurrent assets (3)

28.7 9.6 18.2 56.5 12.7 69.2

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

Other non-current assets at November 30, 2019 (3)

219.6 122.4 514.3 856.3 98.6 954.9

3 unchanged sentences

(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.

Expenditures for other noncurrent assets for the International segment include expenditures for long-lived assets of $ 1.5 and $ 4.2 for the three months ended November 30, 2020 and 2019, respectively, and $ 3.5 and $ 9.9 for the six months ended November 30, 2020 and 2019.

Other noncurrent assets for the International segment include long-lived assets of $ 46.6 and $ 66.8 as of November 30, 2020 and 2019, respectively.

SCHOLASTIC CORPORATION

2 unchanged sentences

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

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

November 30, 2020 May 31, 2020 November 30, 2019

US Revolving Loan $ 175.0 $ 200.0 $ —

4 unchanged sentences

Total long-term debt $ 175.0 $ 210.6 $ 2.6

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:

The following table sets forth the maturities of the carrying values of the Company’s debt obligations as of November 30, 2020 for the twelve-month periods ended November 30:

Total debt $ 194.8

US Loan Agreement

On December 16, 2020, the Company entered into an amendment to its existing loan agreement, which includes adjustments to, and suspension of, certain covenant thresholds, as well as a reduction in maximum commitments to $ 250.0 .

The amendment was executed in order to avoid noncompliance with certain covenants in the existing agreement at November, 30, 2020 due to the temporary impacts of COVID-19.

Refer to Note 17, Subsequent Events, for further discussion of Amendment No.

1 to the Loan Agreement which temporarily supersedes certain terms described below for the existing loan agreement.

On January 5, 2017, Scholastic Corporation and Scholastic Inc.

10 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)

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.

As of November 30, 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 August 31, 2020, the facility fee rate was 0.20 %.

At November 30, 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 August 31, 2020, the Company had outstanding borrowings of $ 200.0 under the Loan Agreement.

As of November 30, 2020, the Company had outstanding borrowings of $ 175.0 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.

No borrowings were outstanding under the Loan Agreement as of November 30, 2019.

At November 30, 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.

UK Loan Agreement

4 unchanged sentences

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.

As of November 30, 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.

3 unchanged sentences

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.

As of November 30, 2020, the Company had $ 8.7 outstanding on the loan and no remaining available credit under this facility.

Lines of Credit

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 .

As of November 30, 2020, the Company’s domestic credit lines available under unsecured money market bid rate credit lines totaled $ 10.0 .

There were no outstanding borrowings under these credit lines as of November 30, 2020, May 31, 2020 and November 30, 2019.

As of November 30, 2020, availability under these unsecured money market bid rate credit lines totaled $ 6.1 .

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 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.

As of November 30, 2020, the Company had various local currency international credit lines totaling $ 36.7 underwritten by banks primarily in the United States, Canada and the United Kingdom.

Outstanding borrowings under these facilities were $ 8.4 at November 30, 2020 at a weighted average interest rate of 4.4 %, $ 7.9 at May 31, 2020 at a weighted average interest rate of 4.6 %, and $ 13.5 at November 30, 2019 at a weighted average interest rate of 3.8 %.

As of November 30, 2020, the amounts available under these facilities totaled $ 28.3 .

SCHOLASTIC CORPORATION

1 unchanged sentence

(Dollar amounts in millions, except per share data)

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.

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.

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

Legal Matters

6 unchanged sentences

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

Three months ended

August 31, August 31,

Three months ended Six months ended

November 30, November 30,

2020 2019 2020 2019

Net income (loss) attributable to Class A and Common Stockholders $ 35.1 $ 70.9 $ ( 4.7 ) $ 12.5

5 unchanged sentences

Diluted $ 1.02 $ 2.02 $ ( 0.14 ) $ 0.35

* 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:

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.

* The Company experienced a net loss for the six month period ended November 30, 2020 and therefore did not report any dilutive share impact.

Net income (loss) attributable to Class A and Common Stockholders excludes earnings of less than $ 0.1 and $ 0.1 for the three month periods ended November 30, 2020 and November 30, 2019, respectively, and less than $ 0.1 for the six month period ended November 30, 2019, for earnings attributable to participating restricted stock units.

The Company experienced a loss for the six month period ended November 30, 2020 and therefore did not allocate any loss to the participating restricted stock units.

SCHOLASTIC CORPORATION

1 unchanged sentence

(Dollar amounts in millions, except per share data)

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

November 30, 2020 November 30, 2019

Options outstanding pursuant to stock-based compensation plans (in millions) 5.2 3.0

On October 1, 2020, the Company made an additional stock option grant to employees as a non-cash incentive.

There were 2.8 million of potentially anti-dilutive shares pursuant to stock-based compensation plans as of November 30, 2020.

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 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.

As of November 30, 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:

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

November 30, 2020 May 31, 2020 November 30, 2019

Gross beginning balance $ 164.5 $ 164.8 $ 164.8

6 unchanged sentences

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:

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

November 30, 2020 May 31, 2020 November 30, 2019

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

6 unchanged sentences

Total other intangibles $ 11.8 $ 12.6 $ 12.8

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

There were no additions to intangible assets within the six months ended November 30, 2020.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

4 unchanged sentences

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

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

November 30, 2020 May 31, 2020 November 30, 2019 Segment

Equity method investments $ 32.5 $ 25.0 $ 26.0 International

6 unchanged sentences

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.

Income from equity investments is reported in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and totaled $ 4.6 and $ 2.0 for the three months ended November 30, 2020 and November 30, 2019, respectively, and $ 5.4 and $ 3.0 for the six months ended November 30, 2020 and November 30, 2019, respectively.

EMPLOYEE BENEFIT PLANS

2 unchanged sentences

Three months ended Three months ended

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

November 30, November 30, November 30, November 30,

2020 2019 2020 2019

5 unchanged sentences

Total $ 0.1 $ 0.2 $ ( 0.1 ) $ 0.0

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 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.

SCHOLASTIC CORPORATION

1 unchanged sentence

(Dollar amounts in millions, except per share data)

UK Pension Plan US Postretirement Benefits

Six months ended Six months ended

November 30, November 30, November 30, November 30,

2020 2019 2020 2019

Components of net periodic benefit cost:

Interest cost $ 0.3 $ 0.4 $ 0.2 $ 0.3

Expected return on assets ( 0.4 ) ( 0.5 ) — —

Net amortization of prior service (credit) cost 0.0 0.0 ( 0.2 ) ( 0.1 )

Amortization of (gains) losses 0.3 0.5 0.0 0.0

Total $ 0.2 $ 0.4 $ 0.0 $ 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 six months ended November 30, 2020, the Company contributed $ 0.6 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 2021, the Company announced a change in benefits for certain US postretirement benefit plan participants.

Beginning January 1, 2021, the plan will establish Health Reimbursement Accounts (HRAs) to provide these participants with additional flexibility to choose healthcare options based on individual needs.

As a result of this change, the Company remeasured its Postretirement Benefit obligation as of November 30, 2020, and recognized a reduction of $ 7.6 to its benefit obligation and a reduction to its accumulated comprehensive loss of $ 7.6 in the second quarter of fiscal 2021.

The related prior service credit will be amortized as a Component of net periodic benefit (cost) over the average remaining life expectancy of plan participants of approximately 12 years.

STOCK-BASED COMPENSATION

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

Three months ended

August 31, August 31,

Three months ended Six months ended

November 30, November 30, November 30, November 30,

2020 2019 2020 2019

Stock option expense $ 2.5 $ 0.4 $ 2.8 $ 1.0

3 unchanged sentences

Total stock-based compensation expense $ 3.0 $ 0.9 $ 3.6 $ 2.4

On October 1, 2020, the Company made an additional stock option grant to employees as a non-cash incentive.

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

Three months ended

August 31, August 31,

Three months ended Six months ended

November 30, November 30, November 30, November 30,

2020 2019 2020 2019

Common Stock issued pursuant to stock-based compensation plans (in millions) 0.1 0.1 0.1 0.1

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

TREASURY STOCK

6 unchanged sentences

Less repurchases made under these authorizations $ ( 32.7 )

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.

Remaining Board authorization at November 30, 2020 $ 67.3

Remaining Board authorization at November 30, 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 and six months ended November 30, 2020.

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

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 November 30, 2020

Foreign currency translation adjustments Retirement benefit plans Total

Beginning balance at September 1, 2020 $ ( 39.3 ) $ ( 8.2 ) $ ( 47.5 )

Other comprehensive income (loss) before reclassifications 0.4 5.3 5.7

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 $ 0.1 )

— ( 0.1 ) ( 0.1 )

Other comprehensive income (loss) 0.4 5.4 5.8

Ending balance at November 30, 2020 $ ( 38.9 ) $ ( 2.8 ) $ ( 41.7 )

Three months ended November 30, 2019

Foreign currency translation adjustments Retirement benefit plans Total

Beginning balance at September 1, 2019 $ ( 49.1 ) $ ( 12.4 ) $ ( 61.5 )

Other comprehensive income (loss) before reclassifications 3.9 — 3.9

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

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

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

— ( 0.1 ) ( 0.1 )

Other comprehensive income (loss) 3.9 0.2 4.1

Ending balance at November 30, 2019 $ ( 45.2 ) $ ( 12.2 ) $ ( 57.4 )

SCHOLASTIC CORPORATION

1 unchanged sentence

(Dollar amounts in millions, except per share data)

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

Six months ended November 30, 2020

Foreign currency translation adjustments Retirement benefit plans Total

4 unchanged sentences

Amortization of prior service credit (net of tax of $ 0.1 )

— ( 0.1 ) ( 0.1 )

Other comprehensive income (loss) 11.1 5.5 16.6

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

Three months ended August 31, 2019

Ending balance at November 30, 2020 $ ( 38.9 ) $ ( 2.8 ) $ ( 41.7 )

Six months ended November 30, 2019

Foreign currency translation adjustments Retirement benefit plans Total

4 unchanged sentences

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

— ( 0.1 ) ( 0.1 )

Other comprehensive income (loss) 1.9 0.4 2.3

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

Ending balance at November 30, 2019 $ ( 45.2 ) $ ( 12.2 ) $ ( 57.4 )

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

Three months ended Condensed Consolidated Statements of Operations line item

August 31, August 31,

Three months ended Six months ended Condensed Consolidated Statements of Operations line item

November 30, November 30, November 30, November 30,

2020 2019 2020 2019

Employee benefit plans:

7 unchanged sentences

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

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

SCHOLASTIC CORPORATION

1 unchanged sentence

(Dollar amounts in millions, except per share data)

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

3 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.

11 unchanged sentences

Tax Legislation Updates

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

In response to the COVID-19 pandemic, many governments have enacted or are contemplating additional 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.

3 unchanged sentences

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.

to previous periods which were taxed at the higher 35% federal corporate tax rate and provisions related to the Employee Retention Credit, which was created by the CARES Act to encourage entities to keep employees on their payroll despite experiencing economic hardship due to the COVID-19 pandemic.

The Company is deferring employer-side social security payments which have resulted in a long term liability of $ 8.7 as of November 30, 2020.

Internationally, the Company is applying for employee retention credits when applicable and appropriate.

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

3 unchanged sentences

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.

While the Company does not anticipate a material impact on the overall income tax provision, the final regulations, specifically the high-tax exception, will reduce taxable income.

SCHOLASTIC CORPORATION

5 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 23.2 % for the three month period ended August 31, 2020.

The Company's interim effective tax rate, inclusive of discrete items, was 26.1 % for the three month period ended November 30, 2020 and 9.5 % for the six month period ended November 30, 2020.

The effective tax rate for the six month period ended November 30, 2020 varies from the statutory tax rate primarily due to employee stock option cancellations and additional GILTI inclusions.

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

2 unchanged sentences

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.

The Company has been notified by the IRS that there will be an examination of the income tax return for fiscal 2015.

Non-income Taxes

9 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 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.

The notional values of the contracts as of November 30, 2020 and November 30, 2019 were $ 29.2 and $ 26.0 , respectively.

A net unrealized loss of $ 1.1 and a net unrealized gain $ 0.3 were recognized for the six months ended November 30, 2020 and November 30, 2019, respectively.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

OTHER ACCRUED EXPENSES

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

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

November 30, 2020 May 31, 2020 November 30, 2019

Accrued payroll, payroll taxes and benefits $ 38.6 $ 38.8 $ 41.7

5 unchanged sentences

Total accrued expenses $ 183.0 $ 161.5 $ 178.2

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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.

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

The dividend is payable on March 15, 2021 to shareholders of record as of the close of business on January 29, 2021.

On December 16, 2020, the Company and its principal operating subsidiary, Scholastic Inc., entered into an amendment to its existing credit agreement with a syndicate of banks and Bank of America, N.A., as administrative agent, which includes adjustments to, and suspension of, certain covenant thresholds.

The principal revised terms of the credit agreement effected by the amendment include the following:

• The aggregate maximum commitments of the lenders have been reduced to $ 250.0 , of which a maximum of $ 225.0 is available until the Company satisfies the pre-amendment covenants in the credit agreement and a new covenant requiring Consolidated Liquidity (as defined) of a minimum amount of $ 200.0 ;

• The minimum interest coverage covenant is suspended until after the end of the Company’s fourth fiscal quarter ending May 31, 2021;

• The securitization of the Company’s inventory and accounts receivable;

• A modified limitation on asset sales (not to exceed 10 % of Consolidated Total Assets, as defined, excluding sale of collateral);

• A facility fee rate of 0.40 %;

• A limitation on Acquisitions (as defined) to an aggregate amount of $ 25.0 per fiscal year;

• Modification of the interest rate and fees during the remaining period of the credit facility, pursuant to which the revised interest rate is equal to 2.25 % for any Eurodollar Rate Advance and 1.25 % with respect to any Base Rate Advance, until receipt of the Company's financial statements and related certificates for the fiscal year ending May 31, 2021, and 1.60 % for any Eurodollar Rate Advance and 0.60 % for any Base Rate Advance drawn after the delivery by the Company of its financial statements and related certificates for the fiscal year ending May 31, 2021.

• A limit on quarterly cash dividends of $ 5.2 per fiscal quarter plus the dollar amount of all cash dividends payable (at the rate applicable as of the First Amendment Effective Date) in such fiscal quarter in respect of capital stock of the Company issued after the First Amendment Effective Date as a result of the regular vesting or exercise of issued and outstanding stock awards in the normal course of business.

Other restricted payments (e.g., for share repurchases, etc.) are limited to the "builder basket" and leverage construct in the pre-amendment credit agreement together with an additional requirement that the Company have Consolidated Liquidity (as defined) that exceeds $ 300.0 .

Prior to the Agent's receipt of the Company's financial statements for the fiscal year ending May 31, 2021, use of this restricted payment basket (apart from dividends) is capped at $ 30.0 .

SCHOLASTIC CORPORATION

1 unchanged sentence

Overview and Outlook

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 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

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 amortization 6.5 3.0 % 6.6 2.8 %

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

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”)

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.

Revenues for the second quarter ended November 30, 2020 were $406.2 million, compared to $597.2 million in the prior fiscal year quarter, a decrease of $191.0 million.

The Company reported net earnings per diluted share of Class A and Common Stock of $1.02 in the second quarter of fiscal 2021, compared to $2.02 in the prior fiscal year quarter.

During the second quarter ended November 30, 2020, the Company continued to reduce its operating costs, right-size its employee base, and match inventory purchases to customer demand to help mitigate the impact of lower fairs’ revenues on its profitability and cash position.

While the book fairs channel continued to have a significant decline in sales, as schools were generally not hosting in-person book fairs as a result of coronavirus concerns and restrictions and the resulting patterns of school instruction, operating income improved over the prior fiscal year quarter for a majority of the Company's other businesses in the U.S.

and internationally.

The trade channel continued to exceed prior fiscal year quarter results as new titles were released in the fiscal quarter ended November 30, 2020, including Dav Pilkey's Dog Man:

Grime and Punishment and The Ickabog ® by J.K.

Rowling, in addition to increased sales of other best-selling trade titles.

The Company also benefited from higher revenues within the Education segment, excluding the custom publishing magazine business which is winding down, from products including Grab and Go reading packs, teaching resources workbooks, and digital product subscriptions.

The Company has identified opportunities for additional savings in the second half of the fiscal year, which cost-cutting actions, along with the continued expectation of increased performance in the Company’s trade and education businesses, are expected to help mitigate the impact of lower expected book fairs revenues in the third fiscal quarter.

Scheduled new releases in the second half of fiscal 2021 are expected to continue to position the trade business for further growth, and the Company’s growing media and entertainment business, through its production partnerships and the licensing of the Company's content and characters, is expected to continue to complement the Company’s book sales.

Results of Operations

Children’s Book Publishing and Distribution

Three 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 %

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 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.

Revenues for the quarter ended November 30, 2020 decreased to $406.2 million, compared to $597.2 million in the prior fiscal year.

The Children's Book Publishing and Distribution segment revenues decreased by $173.3 million, primarily driven by lower book fairs channel revenues due to lower in-person fair count as schools were not hosting fairs on-site due to COVID-19, partially offset by increased trade channel revenues driven by the release of a number of best-selling frontlist titles combined with higher backlist sales from best-selling series.

In the Education segment, revenues decreased by $2.4 million, primarily due to the wind down of the custom publishing magazine business, partially offset by increased sales of Grab and Go reading packs and digital product subscriptions as well as higher sales in the teaching resources business.

In local currency, the International segment revenues decreased by $17.8 million, primarily driven by lower revenues in the book fairs channels in Canada and the UK and lower direct-to-home sales in Asia, partially offset by increased revenues in the trade channel across all international markets.

International segment revenues were impacted by favorable foreign exchange of $2.5 million in the quarter ended November 30, 2020.

Revenues for the six months ended November 30, 2020 decreased to $621.4 million, compared to $829.8 million in the prior fiscal year period.

The Children's Book Publishing and Distribution segment revenues decreased by $192.0 million, primarily driven by lower book fairs channel revenues due to lower in-person fair count as schools were not hosting fairs on-site due to COVID-19, partially offset by increased trade channel revenues driven by the release of a number of best-selling frontlist titles combined with higher backlist sales from best-selling series.

In the Education segment, revenues increased by $2.8 million, primarily due to higher sales of digital products in literacy programs and take-home Grab and Go reading packs, as well as higher sales in the teaching resources business, partially offset by the wind down of the customer publishing magazine business.

In local currency, the International segment revenues decreased by $22.1 million, primarily driven by lower revenues in the school-based channels in Canada, lower book fairs channel revenues in the UK and lower direct-to-home sales in Asia, partially offset by increased revenues in the trade channel across all international markets.

International segment revenues were impacted by favorable foreign exchange of $2.9 million in the period.

SCHOLASTIC CORPORATION

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What changed 10-Q

Item 1. Financial Statements