SCHOLASTIC CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Components of Cost of goods sold for the three and nine months ended February 28, 2021 and February 29, 2020 are as follows: Three months ended Nine months ended February 28, February 29, February 28, February 29, 2021 2020 2021 2020 ($ amounts in millions) $ % of Revenue $ % of Revenue $ % of Revenue $ % of Revenue Product, service and production costs $ 71.9 25.9 % $ 99.6 26.7 % $ 237.5 26.4 % $ 320.3 26.6 % Royalty costs 27.9 10.0 % 28.5 7.6 % 91.6 10.2 % 91.3 7.6 % Prepublication amortization 6.6 2.4 % 6.9 1.8 % 19.7 2.2 % 20.6 1.7 % Postage, freight, shipping, fulfillment and other 39.6 14.3 % 48.0 12.9 % 119.7 13.3 % 152.2 12.7 % Total $ 146.0 52.6 % $ 183.0 49.0 % $ 468.5 52.1 % $ 584.4 48.6 % Cost of goods sold for the quarter ended February 28, 2021 was $146.0 million, or 52.6% of revenues, compared to $183.0 million, or 49.0% of revenues, in the prior fiscal year quarter. Cost of goods sold for the nine months ended February 28, 2021 was $468.5 million, or 52.1% of revenues, compared to $584.4 million, or 48.6% of revenues, in the prior fiscal year period. The increase in Cost of goods sold as a percentage of revenues for the three and nine months ended February 28, 2021 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, freight and shipping costs as a percentage of revenues increased in the school-based channels due to higher volumes of direct ship-to-home and the payment of holiday surcharges as a result of industry-wide capacity constraints. Selling, general and administrative expenses in the quarter ended February 28, 2021 decreased to $129.1 million, compared to $190.4 million in the prior fiscal year quarter. The $61.3 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 resulting in a subsidies of $2.1 million internationally and $4.6 million domestically, and reductions in spending across all major categories including medical, outside services and consultants, travel, and supplies. Selling, general and administrative expenses in the nine months ended February 28, 2021 decreased to $387.6 million, compared to $564.1 million in the prior fiscal year period. The $176.5 million decrease was due to the Company's COVID-related cost-saving program, which included employee furlough and reduced work week programs and restructuring initiatives resulting in lower employee-related expenses, participation in government subsidy programs resulting in subsidies of $10.3 million internationally and $6.5 million domestically, improvements in operating and financial processes, and other efforts to lower the Company's overall cost base. A substantial portion of the cost-saving program, excluding the government subsidy programs, is expected to bring permanent improvements to the Company's cost structure. 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 nine months ended February 28, 2021 were $14.7 million and $46.0 million, respectively, which were comparable to $15.4 million and $46.2 million, respectively, in the prior fiscal year periods. Asset impairments and write downs in the three and nine months ended February 28, 2021 were $10.9 million, compared to $40.0 million in the prior fiscal year periods. In the fiscal quarter ended February 28, 2021, the Company committed to a plan to cease use of its leased office space in New York City and consolidate into the company-owned New York headquarters and permanently close 12 of its 54 U.S. book fairs warehouses as part of a branch consolidation project. As a result, the Company recorded an impairment of the ROU assets associated with operating leases in the amount of $9.4 million and an impairment of $1.5 million of other long-lived assets, primarily leasehold improvements. The Company will continue to identify opportunities to consolidate distribution networks within the book fairs business. In the prior fiscal year quarter ended February 29, 2020, changes were made to the Company's North American purchasing protocols, product offerings and inventory retention policies reducing the anticipated inventory requirements in the Company's school 25 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) channels. As a result, the Company recorded a write down of inventory of $37.6 million and author advances and prepublication costs, related to the inventory, of $1.6 million and $0.8 million, respectively. Severance expense in the quarter ended February 28, 2021 was $1.0 million, compared to $4.5 million in the prior fiscal year quarter, which included charges related to cost-reduction and restructuring programs of $0.8 million and $3.2 million for the three months ended February 28, 2021 and February 29, 2020, respectively. Severance expense in the nine months ended February 28, 2021 was $18.3 million, compared to $10.7 million in the prior fiscal year period, which included charges related to cost-reduction and restructuring programs of $18.0 million and $6.9 million for the nine months ended February 28, 2021 and February 29, 2020, respectively. Net interest expense in the quarter ended February 28, 2021 was $1.7 million compared to Net interest income of $0.3 million in the prior fiscal year quarter. Net interest expense in the nine months ended February 28, 2021 was $4.1 million compared to Net interest income of $1.0 million in the prior fiscal year period. The increase in Net interest expense for the three and nine months ended February 28, 2021 was primarily due to interest expense on debt borrowings. Gain (loss) on sale of assets and other in the quarter ended February 28, 2021 was $3.8 million. The Company sold the UK distribution center located in Southam and recognized a gain on sale of $3.8 million. Gain (loss) on sale of assets and other in the nine months ended February 28, 2021 was $10.4 million. The Company sold the company-owned facility located in Danbury, Connecticut and the UK distribution center located in Southam, recognizing a gain on sale of $6.6 million and $3.8 million, respectively. The Company’s effective tax rate for the quarter ended February 28, 2021 was 36.4%, compared to 28.0% in the prior fiscal year quarter. The Company’s effective tax rate for the nine month period ended February 28, 2021 was 29.0%, compared to 27.4% in the prior fiscal year period. Net loss attributable to Scholastic Corporation for the quarter ended February 28, 2021 decreased by $29.4 million to $13.9 million, compared to Net loss of $43.3 million in the prior fiscal year quarter. Loss per basic and diluted share of Class A and Common Stock was $0.41 and $0.41, respectively, for the fiscal quarter ended February 28, 2021, compared to loss per basic and diluted share of Class A and Common Stock of $1.25 and $1.25, respectively, in the prior fiscal year quarter. Net loss attributable to Scholastic Corporation for the nine months ended February 28, 2021 was $18.6 million, an improvement of $12.2 million compared to Net loss of $30.8 million in the prior fiscal year period. Net loss per basic and diluted share of Class A and Common Stock was $0.54 and $0.54, respectively, in the nine month period ended February 28, 2021, compared to loss per basic and diluted share of Class A and Common Stock of $0.89 and $0.89, respectively, in the prior fiscal year period. Net loss attributable to noncontrolling interest for the quarter ended February 28, 2021 was $0.1 million compared to net income attributable to noncontrolling interest of less than $0.1 million in the prior fiscal year quarter. Net income attributable to noncontrolling interest for the nine months ended February 28, 2021 was less than $0.1 million compared to $0.1 million in the prior fiscal year period. 26 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Children’s Book Publishing and Distribution Three months ended Nine months ended February 28, February 29, $ % February 28, February 29, $ % ($ amounts in millions) 2021 2020 change change 2021 2020 change change Revenues $ 141.3 $ 220.2 $ (78.9) (35.8) % $ 472.5 $ 743.4 $ (270.9) (36.4) % Cost of goods sold 76.6 106.1 (29.5) (27.8) % 249.7 343.1 (93.4) (27.2) % Other operating expenses (1) 68.9 111.9 (43.0) (38.4) % 218.5 330.2 (111.7) (33.8) % Asset impairments 2.4 — 2.4 100.0 % 2.4 — 2.4 100.0 % Operating income (loss) $ (6.6) $ 2.2 $ (8.8) NM $ 1.9 $ 70.1 $ (68.2) (97.3) % Operating margin — % 1.0 % 0.4 % 9.4 % (1) Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization. NM Not meaningful Revenues for the quarter ended February 28, 2021 decreased by $78.9 million to $141.3 million, compared to $220.2 million in the prior fiscal year quarter. The decrease in segment revenues is primarily driven by lower book fairs channel revenues of $73.1 million due to a significantly lower in-person fair count as a result of the continued impact of COVID-19. Book clubs channel revenues decreased $8.4 million due in part to a strategic reduction in certain offers and SKUs to enhance profitability, coupled with the continued impact of COVID-19. Trade channel revenues increased by $2.6 million driven by increased sales of frontlist titles including Cat Kid Comic Club by Dav Pilkey, The Dangerous Gift (Wings of Fire, Book 14), Claudia and the New Girl (The Baby-Sitters Club ® Graphic Novel #9) and Ground Zero , combined with increased sales from the best-selling Harry Potter series and book-based activity kits within the Klutz line, as well as higher audio book sales. Revenues for the nine months ended February 28, 2021 decreased by $270.9 million to $472.5 million, compared to $743.4 million in the prior fiscal year period. The decrease in segment revenues is primarily driven by lower book fairs channel revenues of $263.8 million, due to the significantly 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 $29.6 million due to COVID-impacted delays in school reopenings coupled with a strategic reduction in certain offers and SKUs to enhance profitability. Trade channel revenues increased by $22.5 million, primarily due to sales of top-selling titles including Dog Man: Grime and Punishment, The Ickabog ® , Cat Kid Comic Club , The Ballad of Songbirds and Snakes (A Hunger Games Novel), Logan Likes Mary Anne! (The Baby-Sitters Club Graphic Novel #8), The Dangerous Gift (Wings of Fire, Book 14), and Harry Potter and the Sorcerer’s Stone: MinaLima Edition, coupled with increased backlist sales from best-selling series including Harry Potter ® , Dog Man ® , Hunger Games ® , Captain Underpants ® , The Bad Guys TM , Five Nights at Freddy's, and The Baby-Sitters Club ® Graphix TM , as well as increased sales of workbooks within the Scholastic Early Learners and BOB Books ® lines and higher audio book sales. Cost of goods sold for the quarter ended February 28, 2021 was $76.6 million, or 54.2% of revenues, compared to $106.1 million, or 48.2% of revenues, in the prior fiscal year quarter. Cost of goods sold for the nine months ended February 28, 2021 was $249.7 million, or 52.8% of revenues, compared to $343.1 million, or 46.2% of revenues, in the prior fiscal year period. The increase in Cost of goods sold as a percentage of revenues for the three and nine months ended February 28, 2021 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, freight and shipping costs as a percentage of revenues increased in the school-based channels due to higher volumes of direct ship-to-home and the payment of holiday surcharges as a result of industry-wide capacity constraints. Other operating expenses for the quarter ended February 28, 2021 decreased to $68.9 million, compared to $111.9 million in the prior fiscal year quarter. The $43.0 million decrease was attributable to the cost-saving program, which resulted in a reduction in employee-related costs primarily within the book fairs channel, as well as COVID-related governmental employee retention credits and lower book clubs kit costs. The decrease was partially offset by certain restructuring activities within the book fairs operations which resulted in branch consolidation costs of $0.5 million. Other operating expenses for the nine months ended February 28, 2021 decreased to $218.5 million, compared to $330.2 million in the prior fiscal year period. The $111.7 million decrease was attributable to the cost-saving program, which included employee furlough and reduced work week programs in the first fiscal quarter, 27 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) resulting in a reduction in employee-related costs across all channels, a COVID-related governmental employee retention credit, lower book clubs kit costs and savings from the temporary closure of certain book fair distribution facilities. The decrease was partially offset by certain restructuring activities within the book fairs operations which resulted in branch consolidation costs of $0.5 million. Asset impairments for the three and nine months ended February 28, 2021 were $2.4 million. The Company committed to a plan to permanently close 12 of its 54 book fairs warehouses in the U.S. as part of the branch consolidation project, as a result of which the Company recognized an impairment expense of $2.4 million in the third quarter, primarily related to the ROU assets associated with these warehouse operating leases. The Company intends to continue to identify opportunities to consolidate distribution networks within the book fairs business. Segment operating loss for the quarter ended February 28, 2021 was $6.6 million, compared to operating income of $2.2 million in the prior fiscal year quarter. The decrease was primarily driven by the significant decline in book fairs channel revenues and related restructuring activities within the book fairs operations which resulted in asset impairment charges and branch consolidation costs. This decrease was partially offset by increased sales in the trade channel and increased profitability in the book clubs channel due to lower kit costs, as well as a reduction in employee-related costs, primarily in the school-based channels, attributable to the cost-saving programs implemented by the Company. Segment operating income for the nine months ended February 28, 2021 was $1.9 million, compared to $70.1 million in the prior fiscal year period. The decrease was primarily driven by the significant decline in book fairs channel revenues and related restructuring activities within the book fairs operations which resulted in asset impairment charges and branch consolidation costs. This decrease was partially offset by increased sales in the trade channel and increased profitability in the book clubs channel due to lower kit costs, as well as a reduction in employee-related costs, primarily in the school-based channels, attributable to the cost-saving programs implemented by the Company. The Company expects a 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 customer requirements as schools resume in-person instruction. Education Three months ended Nine months ended February 28, February 29, $ % February 28, February 29, $ % ($ amounts in millions) 2021 2020 change change 2021 2020 change change Revenues $ 66.3 $ 74.3 $ (8.0) (10.8) % $ 187.4 $ 192.6 $ (5.2) (2.7) % Cost of goods sold 20.7 23.9 (3.2) (13.4) % 64.5 68.0 (3.5) (5.1) % Other operating expenses (1) 35.5 40.6 (5.1) (12.6) % 103.1 122.0 (18.9) (15.5) % Operating income (loss) $ 10.1 $ 9.8 $ 0.3 3.1 % $ 19.8 $ 2.6 $ 17.2 NM Operating margin 15.2 % 13.2 % 10.6 % 1.3 % (1) Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization. NM Not meaningful Revenues for the quarter ended February 28, 2021 decreased to $66.3 million, compared to $74.3 million in the prior fiscal year quarter, resulting in a decrease of $8.0 million. The decrease in segment revenues is primarily driven by lower sales of classroom magazines of $4.3 million and lower custom publishing revenues of $2.0 million as the Company has been winding down the custom publishing business. In addition, the decrease was driven by lower sales of the Company's traditional classroom book collections, which benefited in the prior fiscal year quarter from a large school district sale, partially offset by increased sales of take-home reading packs, teaching resources early readers and workbooks, and digital subscription products. Revenues for the nine months ended February 28, 2021 decreased to $187.4 million, compared to $192.6 million in the prior fiscal year period, resulting in a decrease of $5.2 million. The Company has been winding down the custom publishing business, which resulted in a decrease of $6.8 million in revenues compared to the prior fiscal year period. Excluding custom publishing business revenues, segment revenues increased $1.6 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 nine months ended February 28, 2021 due to higher sales of digital subscription products, including S cholastic 28 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Literacy Pro ® and BookFlix ® , coupled with , a large school district sale of the Scholastic Literacy Pro and F.I.R.S.T. ® digital programs for independent reading and foundational reading skills. In addition, the Company's teaching resources business revenues increased from sales 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 remained closed for in-person learning. Cost of goods sold for the quarter ended February 28, 2021 was $20.7 million, or 31.2% of revenues, compared to $23.9 million, or 32.2% of revenues, in the prior fiscal year quarter. The decrease in Cost of goods sold as a percentage of revenues was primarily due to lower employee costs associated with professional services revenue as services were delivered virtually rather than in person. Cost of goods sold for the nine months ended February 28, 2021 was $64.5 million, or 34.4% of revenues, compared to $68.0 million, or 35.3% of revenues, in the prior fiscal year period. The decrease in Cost of goods sold as a percentage of revenues was primarily due to favorable product mix from higher digital sales and sales of take-home reading packs, coupled with lower employee costs associated with professional services revenue as services were delivered virtually rather than in person. Other operating expenses for the quarter ended February 28, 2021 decreased to $35.5 million, compared to $40.6 million in the prior fiscal year quarter. Other operating expenses for the nine months ended February 28, 2021 decreased to $103.1 million, compared to $122.0 million in the prior fiscal year period. The decrease in Other operating expenses for the three and nine months ended February 28, 2021 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 February 28, 2021 was $10.1 million, compared to $9.8 million in the prior fiscal year quarter. The $0.3 million increase was primarily driven by the cost-saving measures taken to mitigate the impact of COVID-19. Segment operating income for the nine months ended February 28, 2021 was $19.8 million, compared to $2.6 million in the prior fiscal year period. The $17.2 million increase 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. International Three months ended Nine months ended February 28, February 29, $ % February 28, February 29, $ % ($ amounts in millions) 2021 2020 change change 2021 2020 change change Revenues $ 69.9 $ 78.8 $ (8.9) (11.3) % $ 239.0 $ 267.1 $ (28.1) (10.5) % Cost of goods sold 39.1 43.1 (4.0) (9.3) % 127.2 141.1 (13.9) (9.9) % Other operating expenses (1) 31.9 39.4 (7.5) (19.0) % 88.5 121.7 (33.2) (27.3) % Operating income (loss) $ (1.1) $ (3.7) $ 2.6 70.3 % $ 23.3 $ 4.3 $ 19.0 NM Operating margin — % — % 9.7 % 1.6 % (1) Other operating expenses include selling, general and administrative expenses, bad debt expenses, severance and depreciation and amortization. NM Not meaningful Revenues for the quarter ended February 28, 2021 decreased to $69.9 million, compared to $78.8 million in the prior fiscal year quarter. Local currency revenues across the Company's foreign operations decreased by $12.4 million, partially offset by favorable foreign exchange of $3.5 million. In Canada, local currency revenues decreased $4.9 million and in the UK, local currency revenues decreased by $3.3 million, due to lower school-based channel sales in Canada and lower book fair events in the UK, resulting from the continued impact of COVID-19. In Asia, local currency revenues decreased $3.4 million primarily driven by lower direct-to-home sales and lower school-based channel revenues. Australia and New Zealand local currency revenues decreased $0.8 million, primarily driven by lower revenues in the school-based channels in Australia. 29 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Revenues for the nine months ended February 28, 2021 decreased to $239.0 million, compared to $267.1 million in the prior fiscal year period. Local currency revenues across the Company's foreign operations decreased by $34.5 million, partially offset by favorable foreign exchange of $6.4 million. In Canada, local currency revenues decreased $17.8 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 $7.4 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 $13.5 million primarily related to lower revenues from the direct sales channel and lower school-based channel revenues due in part to the adverse impact of COVID-19. Australia and New Zealand local currency revenues increased $2.8 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 $1.9 million and revenues from the export channel decreased $0.5 million compared to the prior fiscal year period. Cost of goods sold for the quarter ended February 28, 2021 was $39.1 million, or 55.9% of revenues, compared to $43.1 million, or 54.7% of revenues, in the prior fiscal year quarter. The increase in cost of goods sold as a percentage of revenue was primarily driven by increased royalty costs due to a sales shift to trade titles with higher royalty rates. Cost of goods sold for the nine months ended February 28, 2021 was $127.2 million, or 53.2% of revenues, as compared to $141.1 million, or 52.8% of revenues, in the prior fiscal year period, resulting from higher royalty costs due to a sales shift to trade titles with higher royalty rates, partially offset by lower fulfillment costs in the book fairs channel due to revenue declines. Other operating expenses for the quarter ended February 28, 2021 were $31.9 million, compared to $39.4 million in the prior fiscal year quarter. Other operating expenses decreased $7.5 million primarily driven by lower employee-related expenses as a result of the cost-saving programs implemented by the Company and the benefit of COVID-related governmental employee retention programs in Canada and the UK which resulted in subsidies of $2.1 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 $0.2 million related to the cost-reduction measures. Other operating expenses for the nine months ended February 28, 2021 were $88.5 million, compared to $121.7 million in the prior fiscal year period. Other operating expenses decreased $33.2 million primarily driven by lower employee-related expenses as a result of the cost-saving programs implemented by the Company and COVID-related governmental employee retention programs in Australia, New Zealand, Canada, and the UK which resulted in subsidies of $10.3 million. This decrease was partially offset by severance expense of $2.5 million related to the cost-reduction measures and branch consolidation costs of $0.3 million. Segment operating loss for the quarter ended February 28, 2021 was $1.1 million, compared to $3.7 million in the prior fiscal year quarter. Total local currency operating results across the Company's foreign operations improved $2.5 million, primarily driven by COVID-related governmental employee retention programs and lower employee-related costs as a result of cost-saving measures, partially offset by lower revenues in the book fairs and direct sales channels. Segment operating income for the nine months ended February 28, 2021 was $23.3 million, compared to $4.3 million in the prior fiscal year period. Total local currency operating results across the Company's foreign operations increased $18.0 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 increased severance expense and branch consolidation costs. Overhead Unallocated overhead expense for the quarter ended February 28, 2021 decreased by $41.7 million to $26.6 million, from $68.3 million in the prior fiscal year quarter. $40.0 million of the decrease related to a one-time write down of inventory that occurred in the prior fiscal year quarter. Also contributing to the decrease in costs were reductions in spending across all major categories including employee-related expenses, medical, outside 30 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) services and consultants, travel, and supplies, as well as lower severance expenses related to cost-saving programs, which decreased by $2.6 million to $0.6 million, compared to $3.2 million in the prior fiscal year quarter. The reductions in expense were partially offset by the $8.5 million asset impairment related to the leased office space in New York City in connection with the consolidation into the company-owned New York headquarters. Unallocated overhead expense for the nine months ended February 28, 2021 decreased by $41.9 million to $77.4 million, from $119.3 million in the prior fiscal year period. A substantial portion of the decrease is related to charges in the prior fiscal year period that did not reoccur in the current nine-month fiscal year period including the $40.0 million write down of inventory, a $1.5 million settlement charge related to an alleged patent infringement and a $1.0 million settlement arising from an intellectual property producing agreement. Also contributing to the decrease in costs were lower employee-related costs, resulting in part from a COVID-related governmental employee retention credit, and reductions in spending across all major categories including medical, outside services and consultants, travel, and supplies. The decrease in costs was partially offset by the $8.5 million asset impairment related to the leased office space in New York City in connection with the consolidation into the company-owned New York headquarters and higher severance expense related to the cost-saving programs, which increased by $8.6 million to $15.5 million, compared to $6.9 million in the prior fiscal year period. Seasonality 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; therefore, the Company’s business is highly seasonal. As a result, the Company’s revenues in the first and third quarters of the fiscal year generally are lower than its revenues in the other two fiscal quarters. Typically, school-based channels and magazine revenues are minimal in the first quarter of the fiscal year as schools are not in session. Trade sales can vary throughout the year due to varying release dates of published titles. Presently, there remain many uncertainties concerning the timing of and any patterns which may emerge with respect to 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 fourth quarter of fiscal 2021. Liquidity and Capital Resources Cash provided by operating activities was $36.5 million for the nine months ended February 28, 2021, compared to cash provided by operating activities of $44.0 million for the prior fiscal year period, representing a decrease in cash provided by operating activities of $7.5 million. The decrease in cash provided was primarily driven by lower customer remittances due to lower revenues in the nine months ended February 28, 2021, partially offset by an overall reduction in spending across all major categories as part of the cost-saving programs including employee-related costs, medical, outside services and consultants, travel, and supplies, as well as lower tax payments. 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 $34.9 million for the nine months ended February 28, 2021, compared to cash used in investing activities of $74.4 million in the prior fiscal year period, representing a decrease in cash used in investing activities of $39.5 million. The decrease in cash used was driven by the net proceeds from the sale of the Danbury facility and the Southam distribution center of $12.3 million and $5.1 million, respectively, in addition to the presence of the UK land acquisition of $3.3 million in the prior fiscal year period as part of a warehouse consolidation project. The Company also had lower capital expenditures of $11.3 million as it continued to make strategic investments in key growth areas of the business and technology, both internal and customer-facing, to allow it to operate with greater efficiency, and lower prepublication spending of $6.2 million. Cash used in financing activities was $46.2 million for the nine months ended February 28, 2021, compared to cash used in financing activities of $39.7 million for the prior fiscal year period, representing an increase in cash used in financing activities of $6.5 million. The increase in cash used is primarily related to a repayment of borrowings under the U.S. loan agreement of $25.0 million, coupled with lower short-term credit facility net borrowings of $13.3 million. This increase was partially offset by the temporary suspension of the Company's 31 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) share buy back program pursuant to which $32.2 million of common stock was reacquired in the prior fiscal year period. Cash Position The Company’s cash and cash equivalents totaled $353.2 million at February 28, 2021, $393.8 million at May 31, 2020 and $263.8 million at February 29, 2020. Cash and cash equivalents held by the Company’s U.S. operations totaled $305.9 million at February 28, 2021, $364.2 million at May 31, 2020 and $240.2 million at February 29, 2020. 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 fourth 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. During the second quarter of fiscal 2021, the Company paid down $25.0 million of the borrowing, resulting in $175.0 million outstanding as of February 28, 2021, which is classified as current effective as of the third quarter of fiscal 2021. On December 16, 2020, the U.S. 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 5 of Notes to the Financial Statements - Unaudited in Item 1, "Financial Statements" for more information concerning the amended U.S. loan agreement. 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 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 February 28, 2021, the Company’s primary sources of liquidity consisted of cash and cash equivalents of $353.2 million, cash from operations and the Company's loan agreements in the U.S. and the UK. As indicated above, the U.S. 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 pre-amendment financial covenants and the minimum liquidity covenant that has been added by the Amendment. The Company expects the amended U.S. loan agreement to provide it with an appropriate level of flexibility to strategically manage the business through the global pandemic. The Company's amended U.S. loan agreement and its loan agreements in the UK total $236.9 million, less borrowings of $182.2 million and commitments of $0.4 million, resulting in $54.3 million of availability. Additionally, the Company has short-term credit facilities of $41.9 million, less current borrowings of $8.5 million and commitments of $3.9 million, resulting in $29.5 million of current availability at February 28, 2021. 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. 32 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Financing The Company is party to the U.S. loan agreement, the UK loan agreements and certain credit lines with various banks as described in Note 5 of Notes to Condensed Consolidated Financial Statements - unaudited in Item 1, “Financial Statements." The Company had $175.0 million in outstanding borrowings under the U.S. loan agreement as of February 28, 2021, which are classified as current effective as of the third quarter of fiscal 2021. As indicated above, on December 16, 2020, the Company entered into the Amendment to the U.S. 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 in Warwickshire. The loan has a maturity date of July 31, 2021. As of February 28, 2021, the Company had $2.8 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 in Warwickshire. The loan has a maturity date of July 31, 2021. As of February 28, 2021, the Company had $4.4 million outstanding on the loan. New Accounting Pronouncements Reference is made to Note 1 of Notes to Financial Statements - unaudited in Item 1, “Financial Statements,” for information concerning recent accounting pronouncements since the filing of the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2020. Forward Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements. 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, 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. 33 SCHOLASTIC CORPORATION