What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-12-18 compared with 2020-09-25 · 196 added, 29 removed, 27 unchanged (89% of the section changed)

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

The increase was partially offset by lower employee-related costs and technology-related spending in an effort to mitigate the impact on operating income of lower sales volumes due to COVID-19, as well as the absence of a $1.5 million settlement, without admission of liability, for an alleged patent infringement that occurred in the prior year fiscal quarter.

Components of Cost of goods sold for the three and six months ended November 30, 2020 and November 30, 2019 are as follows:

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

2020 2019 2020 2019

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

Product, service and production costs $ 104.7 25.8 % $ 152.5 25.5 % $ 165.6 26.6 % $ 220.7 26.5 %

Royalty costs 40.3 9.9 % 40.5 6.8 % 63.7 10.3 % 62.8 7.6 %

Prepublication amortization 6.6 1.6 % 7.1 1.2 % 13.1 2.1 % 13.7 1.7 %

Postage, freight, shipping, fulfillment and other 47.7 11.8 % 64.2 10.8 % 80.1 12.9 % 104.2 12.6 %

Total $ 199.3 49.1 % $ 264.3 44.3 % $ 322.5 51.9 % $ 401.4 48.4 %

Cost of goods sold for the quarter ended November 30, 2020 was $199.3 million, or 49.1% of revenues, compared to $264.3 million, or 44.3% of revenues, in the prior fiscal year quarter.

The increase in Cost of goods sold as a percentage of revenues was primarily driven by the sales decline in the book fairs channel, which traditionally has a higher mix of non-royalty bearing titles, coupled with higher trade sales which typically have a higher royalty rate.

In addition, postage costs as a percentage of revenues increased in the school-based channels due to higher volumes of direct ship-to-home.

Cost of goods sold for the six months ended November 30, 2020 was $322.5 million, or 51.9% of revenues, compared to $401.4 million, or 48.4% of revenues, in the prior fiscal year period.

Selling, general and administrative expenses in the quarter ended November 30, 2020 decreased to $137.0 million, compared to $210.6 million in the prior fiscal year quarter.

The $73.6 million decrease was due to the Company's COVID-related cost-saving program, which included, but was not limited to, restructuring initiatives resulting in lower employee-related expenses, participation in government subsidy programs, when applicable, both domestically and internationally, lower spending on non-essential projects, and limitations on expenditures related to travel, events and conferences, in addition to lower contracted services within technology operations.

A substantial portion of the cost-saving program is 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.

Selling, general and administrative expenses in the six months ended November 30, 2020 decreased to $258.5 million, compared to $373.7 million in the prior fiscal year period.

The $115.2 million decrease was due to the Company's COVID-related cost-saving program, which included employee furlough and reduced work week programs, participation in government subsidy programs and restructuring initiatives, 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.

The majority of the employee short-term furlough and reduced work week programs were discontinued at the end of the first quarter of fiscal 2021.

Depreciation and amortization expenses in the three and six months ended November 30, 2020 were $15.8 million and $31.3 million, respectively, which were comparable to $15.4 million and $30.8 million, respectively, in the prior fiscal year periods.

Severance expense in the quarter ended November 30, 2020 was $5.3 million, compared to $1.8 million in the prior fiscal year quarter, which included charges related to cost-reduction and restructuring programs of $5.2 million and $0.9 million for the three months ended November 30, 2020 and November 30, 2019, respectively.

Severance expense in the six months ended November 30, 2020 was $17.3 million, compared to $6.2 million in the prior fiscal year period, which included charges related to cost-reduction and restructuring programs of $17.2 million and $3.7 million for the six months ended November 30, 2020 and November 30, 2019, respectively.

Net interest expense in the quarter ended November 30, 2020 was $1.2 million compared to Net interest income of less than $0.1 million in the prior fiscal year quarter.

Net interest expense in the six months ended November 30, 2020 was $2.4 million compared to Net interest income of $0.7 million in the prior fiscal year period.

The increase in Net interest expense for the three and six months ended November 30, 2020 was primarily due to interest expense on long-term debt borrowings.

The Company’s effective tax rate for the quarter ended November 30, 2020 was 26.1%, compared to 32.2% in the prior fiscal year quarter.

The Company’s effective tax rate for the six month period ended November 30, 2020 was 9.5%, compared to 29.2% in the prior fiscal year period.

Net income for the quarter ended November 30, 2020 decreased by $35.9 million to $35.2 million, compared to Net income of $71.1 million in the prior fiscal year quarter.

Earnings per basic and diluted share of Class A and Common Stock was $1.02 and $1.02, respectively, for the fiscal quarter ended November 30, 2020, compared to earnings per basic and diluted share of Class A and Common Stock of $2.04 and $2.02, respectively, in the prior fiscal year quarter.

Net loss for the six months ended November 30, 2020 was $4.6 million, an increase of $17.2 million compared to Net income of $12.6 million in the prior fiscal year period.

Net loss per basic and diluted share of Class A and Common Stock was $0.14 and $0.14, respectively, in the six month period ended November 30, 2020, compared to earnings per basic and diluted share of Class A and Common Stock of $0.36 and $0.35, respectively, in the prior fiscal year period.

Net income attributable to noncontrolling interest for the three and six months ended November 30, 2020 was $0.1 million.

Net income attributable to noncontrolling interest for the three and six months ended November 30, 2019 was $0.1 million.

Children’s Book Publishing and Distribution

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

($ amounts in millions)

2020 2019 change change 2020 2019 change change

Revenues $ 240.3 $ 413.6 $ (173.3) (41.9) % $ 331.2 $ 523.2 $ (192.0) (36.7) %

Cost of goods sold 118.5 171.5 (53.0) (30.9) % 173.1 237.0 (63.9) (27.0) %

Other operating expenses (1)

84.1 132.5 (48.4) (36.5) % 149.6 218.3 (68.7) (31.5) %

Operating income (loss) $ 37.7 $ 109.6 $ (71.9) (65.6) % $ 8.5 $ 67.9 $ (59.4) (87.5) %

Operating margin 15.7 % 26.5 % 2.6 % 13.0 %

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

Revenues for the quarter ended November 30, 2020 decreased by $173.3 million to $240.3 million, compared to $413.6 million in the prior fiscal year quarter.

The decrease in segment revenues is primarily driven by lower book fairs channel revenues of $176.4 million due to significantly lower in-person fair count as schools were not hosting fairs on-site due to COVID-19.

Book clubs channel revenues decreased $19.0 million due to a slow start in the early back-to-school period as a result of delays and disruptions in school openings, partially offset by increased direct ship-to-home order fulfillment.

Trade channel revenues increased by $22.1 million driven by the release of a number of best-selling frontlist titles, including The Ickabog by J.K.

Rowling, Dog Man:

Grime and Punishment by Dav Pilkey, All Because You Matter by Tami Charles and Three Keys by Kelly Yang, combined with increased backlist sales from best-selling series including Harry Potter, Dog Man, Hunger Games, Captain Underpants, The Bad Guys, and The Baby-Sitters Club ® Graphix.

Revenues for the six months ended November 30, 2020 decreased by $192.0 million to $331.2 million, compared to $523.2 million in the prior fiscal year period.

The decrease in segment revenues is primarily driven by lower book fairs channel revenues of $190.7 million, due to lower in-person fair count as schools were not able to host fairs on-site due to COVID-19, and lower book clubs channel revenues of $21.2 million due to

SCHOLASTIC CORPORATION

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

declines in sponsor engagement and COVID-impacted delays in school reopenings.

Trade channel revenues increased by $19.9 million, primarily due to sales of top-selling titles including The Ickabog ® , Dog Man:

Grime and Punishment, The Ballad of Songbirds and Snakes (A Hunger Games Novel), Logan Likes Mary Anne!

(The Baby-Sitters Club ® Graphix #8), Harry Potter and the Sorcerer’s Stone:

MinaLima Edition, coupled with increased sales of workbooks within the Scholastic Early Learners TM and BOB Books ® lines and higher backlist and audio book sales.

Cost of goods sold for the quarter ended November 30, 2020 was $118.5 million, or 49.3% of revenues, compared to $171.5 million, or 41.5% of revenues, in the prior fiscal year quarter.

The increase in Cost of goods sold as a percentage of revenues was primarily driven by the sales decline in the book fairs channel which traditionally has a higher mix of non-royalty bearing titles, coupled with higher trade sales which typically have a higher royalty rate.

In addition, postage costs as a percentage of revenues increased in the school-based channels due to higher volumes of direct ship-to-home sales.

Cost of goods sold for the six months ended November 30, 2020 was $173.1 million, or 52.3% of revenues, compared to $237.0 million, or 45.3% of revenues, in the prior fiscal year period.

Other operating expenses for the quarter ended November 30, 2020 decreased to $84.1 million, compared to $132.5 million in the prior fiscal year quarter.

The $48.4 million decrease was attributable to the cost-saving program, which resulted in a reduction in employee-related costs primarily within the book fairs channel and lower book clubs kit costs.

Other operating expenses for the six months ended November 30, 2020 decreased to $149.6 million, compared to $218.3 million in the prior fiscal year period.

The $68.7 million decrease was attributable to the cost-saving program, which included employee furlough and reduced work week programs in the first fiscal quarter, resulting in a reduction in employee-related costs across all channels in the segment, in addition to lower book clubs kit costs and temporary closure of book fair distribution facilities.

Segment operating income for the quarter ended November 30, 2020 was $37.7 million, compared to $109.6 million in the prior fiscal year quarter.

The decrease was primarily driven by the significant decline in book fairs channel revenues, partially offset by increased sales in the trade channel, coupled with the cost-saving program implemented by the Company.

Segment operating income for the six months ended November 30, 2020 was $8.5 million, compared to $67.9 million in the prior fiscal year period.

The Company expects continued impact from COVID-19 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 continue to emerge as a result of the COVID-19 pandemic.

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

($ amounts in millions) 2020 2019 change change 2020 2019 change change

Revenues $ 67.5 $ 69.9 $ (2.4) (3.4) % $ 121.1 $ 118.3 $ 2.8 2.4 %

Cost of goods sold 21.2 23.2 (2.0) (8.6) % 43.8 44.1 (0.3) (0.7) %

Other operating expenses (1)

34.4 40.5 (6.1) (15.1) % 67.6 81.4 (13.8) (17.0) %

Operating income (loss) $ 11.9 $ 6.2 $ 5.7 91.9 % $ 9.7 $ (7.2) $ 16.9 234.7 %

Operating margin 17.6 % 8.9 % 8.0 % — %

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

Revenues for the quarter ended November 30, 2020 decreased to $67.5 million, compared to $69.9 million in the prior fiscal year quarter, resulting in a decrease of $2.4 million.

The Company is winding down the custom publishing magazine business, which resulted in a decrease of $2.8 million in revenues compared to the prior

SCHOLASTIC CORPORATION

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

fiscal year quarter.

Excluding custom publishing business revenues, segment revenues increased $0.4 million driven by higher sales of the Company's line of Grab and Go reading packs to school districts and community-based organizations, as well as higher digital revenues for subscription products, which included S cholastic Literacy Pro ® , F.I.R.S.T.

® and BookFlix ® .

In addition, the Company's teaching resources business revenues increased from sales of products within its lines of jumbo workbooks and early readers.

This increase was partially offset by lower sales of the Company's traditional classroom book collections and classroom magazines as many school districts chose to operate remotely.

Revenues for the six months ended November 30, 2020 increased to $121.1 million, compared to $118.3 million in the prior fiscal year period, resulting in an increase of $2.8 million.

The Company is winding down the custom publishing magazine business, which resulted in a decrease of $4.8 million in revenues compared to the prior fiscal year period.

Excluding custom publishing business revenues, segment revenues increased $7.6 million driven by higher sales of the Company's Grab and Go reading packs to school districts and community-based organizations as well as higher sales of instructional programs.

Digital revenues also increased in the six months ended November 30, 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, coupled with higher sales of digital subscription products which included S cholastic Literacy Pro ® and BookFlix ® .

In addition, the Company's teaching resources business revenues increased from sales of products within its lines of jumbo workbooks and early readers.

This increase was partially offset by lower sales of the Company's traditional classroom book collections and classroom magazines as many school districts chose to operate remotely.

Cost of goods sold for the quarter ended November 30, 2020 was $21.2 million, or 31.4% of revenues, compared to $23.2 million, or 33.2% of revenues, in the prior fiscal year quarter.

Cost of goods sold for the six months ended November 30, 2020 was $43.8 million, or 36.2% of revenues, compared to $44.1 million, or 37.3% of revenues, in the prior fiscal year period.

The decrease in Cost of goods sold as a percentage of revenues for the three and six months ended November 30, 2020 was primarily due to favorable product mix from higher digital sales and sales of take-home packs.

Other operating expenses for the quarter ended November 30, 2020 decreased to $34.4 million, compared to $40.5 million in the prior fiscal year quarter.

Other operating expenses for the six months ended November 30, 2020 decreased to $67.6 million, compared to $81.4 million in the prior fiscal year period.

The decrease in Other operating expenses for the three and six months ended November 30, 2020 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.

Segment operating income for the quarter ended November 30, 2020 was $11.9 million, compared to $6.2 million in the prior fiscal year quarter.

The $5.7 million increase was primarily driven by the cost-saving measures taken to mitigate the impact of COVID-19.

Segment operating income for the six months ended November 30, 2020 was $9.7 million, compared to an operating loss of $7.2 million in the prior fiscal year period.

The $16.9 million improvement was primarily driven by cost-saving measures taken to mitigate the impact of COVID-19, coupled with revenue increases in a number of the segment's business lines, including Grab and Go reading packs, digital product subscriptions, and teaching resources products.

SCHOLASTIC CORPORATION

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

International

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

($ amounts in millions) 2020 2019 change change 2020 2019 change change

Revenues $ 98.4 $ 113.7 $ (15.3) (13.5) % $ 169.1 $ 188.3 $ (19.2) (10.2) %

Cost of goods sold 50.5 59.3 (8.8) (14.8) % 88.1 98.0 (9.9) (10.1) %

Other operating expenses (1)

28.7 42.7 (14.0) (32.8) % 56.6 82.3 (25.7) (31.2) %

Operating income (loss) $ 19.2 $ 11.7 $ 7.5 64.1 % $ 24.4 $ 8.0 $ 16.4 205.0 %

Operating margin 19.5 % 10.3 % 14.4 % 4.2 %

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

Revenues for the quarter ended November 30, 2020 decreased to $98.4 million, compared to $113.7 million in the prior fiscal year quarter.

Local currency revenues across the Company's foreign operations decreased by $17.8 million partially offset by favorable foreign exchange of $2.5 million.

In Canada and the UK, local currency revenues decreased $11.4 million and $3.9 million, respectively, primarily due to lower book fair events held as a result of COVID-19 restrictions, partially offset by higher sales in the trade channel due in part to the new title releases.

In Asia, local currency revenues decreased $5.2 million primarily driven by lower direct-to-home sales.

Australia and New Zealand local currency revenues increased $2.1 million, driven by increased sales across all channels, due in part to the COVID-19 response efforts of those countries as compared to other countries.

In addition, revenues from the foreign rights channel increased $1.7 million compared to the prior fiscal year quarter.

Revenues for the six months ended November 30, 2020 decreased to $169.1 million, compared to $188.3 million in the prior fiscal year period.

Local currency revenues across the Company's foreign operations decreased by $22.1 million partially offset by favorable foreign exchange of $2.9 million.

In Canada, local currency revenues decreased $12.9 million, primarily driven by lower school-based channel sales as a result of COVID-19 restrictions, partially offset by increased sales of best-selling trade titles.

In the UK, local currency revenues decreased $4.1 million, primarily due to lower volumes in the book fairs channel, partially offset by increased book clubs sales from parent-to-home orders, as well as increased sales of trade titles.

In Asia, local currency revenues decreased $10.1 million primarily related to lower revenues from the direct sales channel due in part to the adverse impact of COVID-19.

Australia and New Zealand local currency revenues increased $3.6 million, primarily on higher revenue from the trade and book clubs channels, partially offset by lower volumes in the book fairs channel.

In addition, revenues from the foreign rights channel increased $2.1 million compared to the prior fiscal year period.

Cost of goods sold for the quarter ended November 30, 2020 was $50.5 million, or 51.3% of revenues, compared to $59.3 million, or 52.2% of revenues, in the prior fiscal year quarter.

The lower cost of goods sold as a percentage of revenue was primarily driven by the book fairs channel which had lower fulfillment costs due to revenue declines.

Cost of goods sold for the six months ended November 30, 2020 was $88.1 million, or 52.1% of revenues, as compared to $98.0 million, or 52.0% of revenues, in the prior fiscal year period.

Higher royalty costs due to a sales shift to trade titles with higher royalty rates were offset by lower fulfillment costs in the book fairs channel due to revenue declines.

Other operating expenses for the quarter ended November 30, 2020 were $28.7 million, compared to $42.7 million in the prior fiscal year quarter.

Other operating expenses decreased $14.0 million primarily driven by lower employee-related expenses as a result of the cost-saving program implemented by the Company and the benefit of COVID-related governmental employee retention programs in Australia, Canada, and the UK which resulted in a subsidy of $2.8 million.

The Company will continue to explore the applicability of employee retention programs country by country but expects such programs to wind down in the coming fiscal quarters.

This decrease was partially offset by severance expense of $1.3 million related to the cost-reduction measures and branch consolidation costs of $0.3 million in the quarter ended November 30, 2020.

Other operating expenses for the six months ended November 30, 2020 were $56.6 million, compared to $82.3 million in the prior fiscal year period.

Other operating expenses decreased $25.7 million primarily driven by lower

SCHOLASTIC CORPORATION

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

employee-related expenses as a result of the cost-saving program implemented by the Company and COVID-related governmental employee retention programs in Australia, Canada, and the UK which resulted in a subsidy of $8.2 million.

This decrease was partially offset by severance expense of $2.3 million related to the cost-reduction measures and branch consolidation costs of $0.3 million in the six months ended November 30, 2020.

Segment operating income for the quarter ended November 30, 2020 was $19.2 million, compared to $11.7 million in the prior fiscal year quarter.

Total local currency operating results across the Company's foreign operations increased $6.8 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 as well as severance expense.

Segment operating income for the six months ended November 30, 2020 was $24.4 million, compared to segment operating income of $8.0 million in the prior fiscal year period.

Total local currency operating results across the Company's foreign operations increased $15.5 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 as well as severance expense.

Unallocated overhead expense for the quarter ended November 30, 2020 decreased by $2.4 million to $20.0 million, from $22.4 million in the prior fiscal year quarter.

The decrease was primarily attributable to lower employee-related costs, which included a COVID-related governmental employee retention credit, and lower contracted services within technology operations in an effort to mitigate the impact on operating income of lower sales volumes due to COVID-19, as well as the absence of a $1.0 million pretax charge in the prior fiscal year quarter relating to a settlement arising from an intellectual property producing agreement.

This decrease was partially offset by severance expense related to the cost-saving program, which increased by $3.0 million to $3.9 million, compared to $0.9 million in the prior fiscal year quarter.

Unallocated overhead expense for the six months ended November 30, 2020 decreased by $0.2 million to $50.8 million, from $51.0 million in the prior fiscal year period.

The decrease was primarily attributable to lower employee-related costs, which included a COVID-related governmental employee retention credit, and lower technology-related spending, including contracted services, in an effort to mitigate the impact on operating income of lower sales volumes due to COVID-19, as well as the absence of a $1.5 million settlement, without admission of liability, for an alleged patent infringement and a $1.0 million pretax charge related to a settlement arising from an intellectual property producing agreement in the prior fiscal year period.

This decrease was partially offset by severance expense related to the cost-saving program, which increased by $11.2 million to $14.9 million, compared to $3.7 million in the prior fiscal year period.

The Company’s Children’s Book Publishing and Distribution school-based book club and book fair channels and most of its Education businesses operate on a school-year basis;

3 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.

SCHOLASTIC CORPORATION

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

Liquidity and Capital Resources

Cash used by operating activities was $26.0 million for the three months ended August 31, 2020, compared to cash used by operating activities of $97.6 million for the prior fiscal year quarter, representing a decrease in cash used by operating activities of $71.6 million.

While there were lower revenues in the quarter ended August 31, 2020, the cost-saving measures taken by the Company resulted in a decrease in cash used compared to the prior fiscal year quarter.

The Company modified inventory procurement and other activities, which usually ramp up in advance of the back-to-school selling season, to adapt to the anticipated impact of the COVID-related delays in school re-openings.

In addition, there was an overall reduction in general spending as part of the cost-saving programs, such as lower payroll spending due to employee furlough programs, lower spending on non-essential projects, and limitations on expenditures related to travel, events, and conferences.

The Company intends to continue to limit spending in view of the economic uncertainty brought on by the global pandemic.

Cash used in investing activities was $8.9 million for the three months ended August 31, 2020, compared to cash used in investing activities of $24.3 million in the prior fiscal year quarter, representing a decrease in cash used in investing activities of $15.4 million.

The decrease in cash used was primarily driven by the net proceeds from the sale of the Danbury facility of $12.3 million and the absence of the UK land acquisition of $3.3 million which occurred in the prior fiscal year quarter.

The Company intends to continue to limit investment spending in view of the economic uncertainty brought on by the global pandemic.

Cash used in financing activities was $5.3 million for the three months ended August 31, 2020, compared to cash used in financing activities of $12.3 million for the prior fiscal year quarter, representing a decrease in cash used in financing activities of $7.0 million.

The decrease in cash used is primarily related to the suspension of the Company's share buy back program pursuant to which $12.6 million of common stock was reacquired in the prior fiscal year quarter.

This was partially offset by lower short-term credit facility net borrowings of $7.8 million.

Cash provided by operating activities was $20.1 million for the six months ended November 30, 2020, compared to cash provided by operating activities of $14.3 million for the prior fiscal year period, representing an increase in cash provided by operating activities of $5.8 million.

While there were lower revenues in the six months ended November 30, 2020, the Company’s cost-savings initiatives continued to drive overall lower net spending levels and lower inventory purchases as it re-aligned its operations and staffing levels to adapt to lower COVID-related customer demand, especially in the book fairs channel.

There was an overall reduction in general spending as part of the cost-saving program, such as lower payroll spending due to employee furlough programs, lower spending on non-essential projects, and limitations on expenditures related to travel, events and conferences.

The Company intends to continue to limit certain spending in view of the economic uncertainty brought on by the global pandemic.

Cash used in investing activities was $24.1 million for the six months ended November 30, 2020, compared to cash used in investing activities of $48.4 million in the prior fiscal year period, representing a decrease in cash used in investing activities of $24.3 million.

The decrease in cash used was primarily driven by the net proceeds from the sale of the Danbury facility of $12.3 million, lower capital expenditures of $4.5 million as the Company concentrated on targeted enhancements to its technology platforms and digital services, as well as the relocation and consolidation of certain distribution, warehousing and back-office operations, which are expected to lower the Company’s fixed costs of operations in future periods, and lower prepublication spending of $4.2 million.

In addition, the absence of the UK land acquisition of $3.3 million which occurred in the prior fiscal year quarter as part of a warehouse consolidation project contributed to the decrease of cash used.

Cash used in financing activities was $36.2 million for the six months ended November 30, 2020, compared to cash used in financing activities of $22.1 million for the prior fiscal year period, representing an increase in cash used in financing activities of $14.1 million.

The increase in cash used is primarily related to a repayment of borrowings under the US loan agreement of $25.0 million, coupled with lower short-term credit facility net borrowings of $5.8 million.

This increase was partially offset by the temporary suspension of the Company's share buy back program pursuant to which $19.6 million of common stock was reacquired in the prior fiscal year period.

Cash Position

The Company’s cash and cash equivalents totaled $355.5 million at August 31, 2020, $393.8 million at May 31, 2020 and $199.4 million at August 31, 2019.

The Company’s cash and cash equivalents totaled $356.6 million at November 30, 2020, $393.8 million at May 31, 2020 and $277.8 million at November 30, 2019.

Cash and cash equivalents held by the Company’s U.S.

operations totaled $323.7 million at August 31, 2020, $364.2 million at May 31, 2020 and $177.5 million at August 31, 2019.

SCHOLASTIC CORPORATION

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

operations totaled $309.4 million at November 30, 2020, $364.2 million at May 31, 2020 and $254.3 million at November 30, 2019.

Due to the seasonal nature of its business as discussed under “Seasonality” above, the Company usually experiences negative cash flows in the June through October time period.

As a result of the Company’s business cycle, borrowings have historically increased during June, July and August, have generally peaked in September or October, and have been at their lowest point in May.

The Company expects lower cash receipts from its school channel businesses in the second quarter of fiscal 2021 as a result of the effects of COVID-19 on school re-openings, resulting in lower book fairs and book clubs revenues.

As a precautionary measure in the context of the COVID-19 pandemic, the Company accessed its $375.0 million committed bank credit facility in the fourth quarter of fiscal 2020 by taking a U.S.

The Company expects lower cash receipts from its school channel businesses in the third quarter of fiscal 2021 as a result of the continued effects of COVID-19 on the patterns of school instruction, primarily resulting in lower book fairs revenues.

As a precautionary measure in the context of the COVID-19 pandemic, the Company accessed its committed bank credit facility in the fourth quarter of fiscal 2020 by taking a U.S.

dollar LIBOR-based advance for $200.0 million, although there continues to be no immediate working capital requirement.

The Company’s operating philosophy is to use cash provided by operating activities to create value by paying down debt, reinvesting in existing businesses and, from time to time, making acquisitions that will complement its portfolio of businesses or acquiring other strategic assets, as well as engaging in shareholder enhancement initiatives, such as share repurchases or dividend declarations.

The Company’s open-market buy-back program continues to be suspended in the face of COVID-19 uncertainties.

During the second quarter of fiscal 2021, the Company paid down $25.0 million of the borrowings, resulting in $175.0 million outstanding as of November 30, 2020.

On December 16, 2020, the US loan agreement was amended, which, among other things, included adjustments to certain covenant thresholds and reduced the borrowing limit from $375.0 million to $250.0 million.

See Note 17 of Notes to the Financial Statements - Unaudited, "Financial Statements" for more information concerning the amended US loan agreement.

SCHOLASTIC CORPORATION

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

initiatives, such as share repurchases or dividend declarations.

The Company’s open-market buy-back program continues to be temporarily suspended in the face of COVID-19 uncertainties.

The Company has maintained, and expects to maintain for the foreseeable future, sufficient liquidity to fund ongoing operations, including working capital requirements, pension contributions, postretirement benefits, debt service, planned capital expenditures and other investments, as well as dividends and share repurchases as appropriate in the context of COVID-19 considerations.

As of August 31, 2020, the Company’s primary sources of liquidity consisted of cash and cash equivalents of $355.5 million, cash from operations and the Company's loan agreements in the US and the UK totaling $386.4 million, less borrowings of $211.4 million and commitments of $0.4 million, resulting in $174.6 million of availability.

The Company may at any time, but in any event not more than once in any calendar year, request that the aggregate availability of credit under the US Loan Agreement be increased by an amount of $10.0 million or an integral multiple of $10.0 million (but not to exceed $150.0 million).

Additionally, the Company has short-term credit facilities of $55.2 million, less current borrowings of $8.5 million and commitments of $3.9 million, resulting in $42.8 million of current availability at August 31, 2020.

As of November 30, 2020, the Company’s primary sources of liquidity consisted of cash and cash equivalents of $356.6 million, cash from operations and the Company's loan agreements in the US and the UK.

As indicated above, the US loan agreement was amended on December 16, 2020, which reduced the borrowing limit from $375.0 million to $250.0 million, of which a maximum of $225.0 is available until the Company satisfies its original financial covenants and the minimum

liquidity covenant that has been added by the amendment.

The Company expects the amended US loan agreement to provide it with an appropriate level of flexibility to strategically manage the business through the global pandemic.

The Company's amended US loan agreement and its loan agreements in the UK total $236.4 million, less borrowings of $186.4 million and commitments of $0.4 million, resulting in $49.6 million of availability.

Additionally, the Company has short-term credit facilities of $46.7 million, less current borrowings of $8.4 million and commitments of $3.9 million, resulting in $34.4 million of current availability at November 30, 2020.

Accordingly, the Company believes these sources of liquidity are sufficient to finance its currently anticipated ongoing operating needs, as well as its financing and investing activities, taking COVID-19 into consideration.

The Company is party to the US and UK Loan Agreements and certain credit lines with various banks as described in Note 4 of Notes to Condensed Consolidated Financial Statements - unaudited in Item 1, “Financial Statements." The Company had $200.0 million in outstanding borrowings under the US Loan Agreement as of August 31, 2020.

The Company is party to the US loan agreement, the UK loan agreements and certain credit lines with various banks as described in Note 4 of Notes to Condensed Consolidated Financial Statements - unaudited in Item 1, “Financial Statements." The Company had $175.0 million in outstanding borrowings under the US loan agreement as of November 30, 2020.

As indicated above, on December 16, 2020, the Company entered into an amendment to the US loan agreement which included temporary covenant relief and a reduction in the maximum commitments.

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

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

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

As of November 30, 2020, the Company had $2.7 million outstanding on the loan.

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

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

As of August 31, 2020, the Company had $8.7 million outstanding on the loan.

As of November 30, 2020, the Company had $8.7 million outstanding on the loan.

New Accounting Pronouncements

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Additional written and oral forward-looking statements may be made by the Company from time to time in Securities and Exchange Commission ("SEC") filings and otherwise.

The Company cautions readers that results or expectations expressed by forward-looking statements, including, without limitation, those relating to the Company’s future business prospects and strategic plans, ecommerce and digital initiatives, new product introductions, strategies, new education standards, goals, revenues, improved efficiencies, general costs, manufacturing costs, medical costs, potential cost savings, merit pay, operating margins, working capital, liquidity, capital needs, the cost and timing of capital projects, interest costs, cash flows and income, are subject to risks and uncertainties, including, in particular, how the foregoing may be affected by developments in the context of the current COVID-19 pandemic and measures or responses of governmental authorities, business suppliers or customers, which may have an impact on the Company's operations and could cause actual results to differ materially from those indicated in the forward-looking statements, due to factors including those noted in the Annual Report and this Quarterly Report and other risks and factors identified from time to time in the Company’s filings with the SEC.

The Company cautions readers that results or expectations expressed by forward-looking statements, including, without limitation, those relating to the Company’s future business prospects and strategic plans, ecommerce and digital initiatives, new product introductions, strategies, new education standards, goals, revenues, improved efficiencies, general costs, manufacturing costs, medical costs, potential cost savings, merit pay, operating margins, working capital, liquidity, capital needs, the cost and timing of capital projects, interest costs, cash flows and income, are subject to risks and uncertainties, including, in particular, how the foregoing may be affected by developments in the context of the current COVID-19 pandemic and measures or responses of governmental authorities, school administrators, business suppliers or customers, which may have an impact on the Company's operations and could cause actual results to differ materially from those indicated in the forward-looking statements, due to factors including those noted in the Annual Report and this Quarterly Report and other risks and factors identified from time to time in the Company’s filings with the SEC.

The Company disclaims any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis