What changed in this filing

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Item 1. Financial Statements

2022-09-23 compared with 2022-03-18 · 121 added, 370 removed, 483 unchanged (50% of the section changed)

3 unchanged sentences

(Dollar amounts in millions, except per share data)

Three months ended Nine months ended

February 28, February 28,

2022 2021 2022 2021

Three months ended

Revenues $ 262.9 $ 259.8

3 unchanged sentences

Depreciation and amortization 13.7 14.9

Asset impairments and write downs — 10.9 — 10.9

Total operating costs and expenses 321.0 291.8

2 unchanged sentences

Other components of net periodic benefit (cost) 0.0 0.0

Gain (loss) on sale of assets and other — 3.8 6.2 10.4

Earnings (loss) before income taxes ( 57.9 ) ( 33.3 )

10 unchanged sentences

(Dollar amounts in millions)

Three months ended Nine months ended

February 28, February 28,

2022 2021 2022 2021

Three months ended

Net income (loss) $ ( 45.4 ) $ ( 24.4 )

10 unchanged sentences

(Dollar amounts in millions, except per share data)

February 28, 2022 May 31, 2021 February 28, 2021

August 31, 2022 May 31, 2022 August 31, 2021

(unaudited) (audited) (unaudited)

5 unchanged sentences

Prepaid expenses and other current assets 89.4 68.1 71.7

Assets held for sale — 3.7 —

Total current assets 991.5 996.0 958.1

65 unchanged sentences

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

Proceeds pursuant to stock-based compensation plans — — — — 0.5 — — — 0.5 — 0.5

Treasury stock issued pursuant to equity-based plans — — 0.1 — ( 0.9 ) — — 1.5 0.6 — 0.6

2 unchanged sentences

Balance at August 31, 2021 1.7 $ 0.0 32.8 $ 0.4 $ 627.6 $ ( 40.4 ) $ 887.0 $ ( 326.3 ) $ 1,148.3 $ 1.3 $ 1,149.6

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

Net Income (loss) — — — — — — ( 13.9 ) — ( 13.9 ) ( 0.1 ) ( 14.0 )

Foreign currency translation adjustment — — — — — 6.3 — — 6.3 — 6.3

Pension and post-retirement adjustments (net of tax of $ 0.1 )

— — — — — 0.0 — — — — —

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

Treasury stock issued pursuant to equity-based plans — — 0.1 — ( 0.4 ) — — 0.8 0.4 — 0.4

Dividends ($ 0.15 per share)

— — — — — — ( 5.3 ) — ( 5.3 ) — ( 5.3 )

Balance at February 29, 2021 1.7 $ 0.0 32.7 $ 0.4 $ 625.4 $ ( 35.4 ) $ 913.9 $ ( 328.9 ) $ 1,175.4 $ 1.4 $ 1,176.8

See accompanying notes

Class A Stock Common Stock Additional Paid-in Capital Accumulated

14 unchanged sentences

Proceeds pursuant to stock-based compensation plans — — — — 11.6 — — — 11.6 — 11.6

Treasury stock issued pursuant to equity-based plans — — 0.1 — ( 0.9 ) — — 1.5 0.6 — 0.6

Dividends ($ 0.15 per share)

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

Balance at August 31, 2021 1.7 $ 0.0 32.8 $ 0.4 $ 627.6 $ ( 40.4 ) $ 887.0 $ ( 326.3 ) $ 1,148.3 $ 1.3 $ 1,149.6

Net Income (loss) — — — — — — 68.3 — 68.3 0.1 68.4

Foreign currency translation adjustment — — — — — ( 4.4 ) — — ( 4.4 ) — ( 4.4 )

Pension and post-retirement adjustments (net of tax of $( 0.1 ))

— — — — — 0.5 — — 0.5 — 0.5

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

Proceeds pursuant to stock-based compensation plans — — — — 2.1 — — — 2.1 — 2.1

Purchases of treasury stock at cost — — ( 0.1 ) — — — — ( 5.1 ) ( 5.1 ) — ( 5.1 )

2 unchanged sentences

— — — — — — ( 6.9 ) — ( 6.9 ) — ( 6.9 )

Other (noncontrolling interest) — — — — — — — — — ( 0.2 ) ( 0.2 )

Balance at November 30, 2021 1.7 $ 0.0 32.9 $ 0.4 $ 625.1 $ ( 44.3 ) $ 950.1 $ ( 322.5 ) $ 1,208.8 $ 1.2 $ 1,210.0

Net Income (loss) — — — — — ( 15.3 ) — ( 15.3 ) 0.2 ( 15.1 )

Foreign currency translation adjustment — — — — — 1.6 — — 1.6 — 1.6

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

— — — — — 0.0 — — 0.0 — 0.0

Stock-based compensation — — — — 1.6 — — — 1.6 — 1.6

Proceeds pursuant to stock-based compensation plans — — — — 7.3 — — — 7.3 — 7.3

Purchases of treasury stock at cost — — ( 0.4 ) — — — — ( 15.4 ) ( 15.4 ) — ( 15.4 )

Treasury stock issued pursuant to equity-based plans — — 0.3 — ( 7.1 ) — — 7.6 0.5 — 0.5

Dividends ($ 0.15 per share)

— — — — — — ( 5.3 ) — ( 5.3 ) — ( 5.3 )

Other (noncontrolling interest) — — — — — — — — — 0.1 0.1

Balance at February 28, 2022 1.7 $ 0.0 32.8 $ 0.4 $ 626.9 $ ( 42.7 ) $ 929.5 $ ( 330.3 ) $ 1,183.8 $ 1.5 $ 1,185.3

Balance at August 31, 2022 1.7 $ 0.0 32.7 $ 0.4 $ 629.5 $ ( 55.0 ) $ 924.1 $ ( 334.2 ) $ 1,164.8 $ 1.5 $ 1,166.3

See accompanying notes

2 unchanged sentences

(Dollar amounts in millions)

Nine months ended

February 28, February 28,

Three months ended

August 31, August 31,

Cash flows - operating activities:

10 unchanged sentences

Income from equity-method investments ( 0.1 ) ( 1.1 )

Non cash write off related to asset impairments and write downs — 10.9

(Gain) loss on sale of assets ( 6.2 ) ( 10.4 )

Changes in assets and liabilities, net of amounts acquired:

14 unchanged sentences

Additions to property, plant and equipment ( 11.4 ) ( 10.2 )

Net proceeds from sale of assets 10.4 17.4

Other 0.1 0.1

Net cash provided by (used in) investing activities ( 16.2 ) ( 14.5 )

21 unchanged sentences

Accordingly, references in this document to fiscal 2023 relate to the twelve-month period ending May 31, 2023.

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

Noncontrolling Interest

13 unchanged sentences

Typically, school-based channels and magazine revenues are minimal in the first quarter of the fiscal year as schools are not in session.

Education channel revenues are generally higher in the first and fourth quarters.

Education channel revenues are generally higher in the fourth quarter.

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

Presently, there remain uncertainties concerning the timing of and any patterns which may emerge with respect to school instruction, whether in-school, remote or hybrid for the school year, and the nature and continuing magnitude of the negative impact of COVID-19 into and beyond the fourth quarter of fiscal 2022.

Use of estimates

8 unchanged sentences

• Inventory reserves

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

• Cost of goods sold from book fair operations during interim periods based on estimated gross profit rates

2 unchanged sentences

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

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

• Assets and liabilities acquired in business combinations

1 unchanged sentence

• Allocation of transaction price to contractual performance obligations

Sale of Long-lived Assets

During the second quarter of fiscal 2022, the Company sold a facility, which included office and warehouse space, located in Lake Mary, Florida as part of an initiative to rightsize its real estate footprint to reduce occupancy costs.

The long-lived assets, which consisted of land, building, building improvements, furniture and fixtures, were included in the Children's Book Publishing and Distribution segment.

These assets had a carrying value of $ 4.2 and were classified as held for sale as of the third quarter of fiscal 2021.

The net proceeds from the sale were $ 10.4 and the Company recognized a gain on sale of $ 6.2 .

During the third quarter of fiscal 2021, the Company sold the UK distribution center located in Southam.

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

The assets had a carrying value of $ 1.3 and were classified as held for sale as of the fiscal year ended May 31, 2020.

The net proceeds from the sale were $ 5.1 and the Company recognized a gain on sale of $ 3.8 .

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 Easton, Pennsylvania.

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

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

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

The amounts recognized as a gain on sale are included within Gain (loss) on sale of assets and other within the Company's Condensed Consolidated Statements of Operations.

Assets Held For Sale

During the third quarter of fiscal 2020, the Company committed to a plan to sell the UK distribution center located in Witney to consolidate the operations into a new facility in Warwickshire.

These assets are included in the International segment.

The long-lived assets which consist of building and building improvements are classified as held for sale.

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

As of February 28, 2022, the carrying amount was $ 2.2 which is included in Property, plant and equipment, net within the Company's Condensed Consolidated Balance Sheets.

During the second quarter of fiscal 2022, the Company entered into a purchase and sale agreement for this facility and expects a gain on the sale to be recognized in the fourth quarter of fiscal 2022.

New Accounting Pronouncements

There were no new accounting pronouncements issued in the third quarter of fiscal 2022 which would impact the Company.

There were no new accounting pronouncements issued in the first quarter of fiscal 2023 which would impact the Company.

Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2022 for more information on current applicable authoritative guidance and its impact on the Company's financial statements.

Current Fiscal Year Adoptions:

The Company adopted ASU No.

2019-12 as of the beginning of the first quarter of fiscal 2022 which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes , and clarifies certain aspects of the current guidance to promote consistency among reporting entities.

Most amendments

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

within ASU No.

2019-12 are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis.

As of the first quarter of fiscal 2022, the Company adopted the applicable amendments of the ASU using the modified retrospective basis for those amendments that are not applied on a prospective basis.

The adoption of ASU No.

2019-12 did not have a material impact on the Company's Condensed Consolidated Financial Statements.

Disaggregated Revenue Data

Effective June 1, 2021, the former “Education” reportable segment was renamed as the “Education Solutions” reportable segment, in connection with the consolidation of the segment’s multiple channels into a single Education Solutions group.

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

Three months ended Nine months ended

February 28, February 28,

2022 2021 2022 2021

Three months ended

Book Clubs - U.S.

$ 40.5 $ 35.1 $ 99.2 $ 107.9

Book Fairs - U.S.

76.0 27.0 268.2 87.9

77.1 74.7 266.6 256.9

Trade - International (1)

7.4 6.1 35.3 26.5

Total Children's Book Publishing and Distribution $ 124.7 $ 115.8

5 unchanged sentences

International - Other Markets (3)

17.5 22.1 47.3 63.0

Total International $ 65.0 $ 63.9

4 unchanged sentences

Estimated Returns

A liability for expected returns of $ 48.8 , $ 45.2 , and $ 51.6 is recorded within Other accrued expenses as of February 28, 2022, May 31, 2021, and February 28, 2021, respectively.

In addition, a return asset of $ 4.5 , $ 3.4 , and $ 3.9 is recorded within Prepaid expenses and other current assets as of February 28, 2022, May 31, 2021, and February 28, 2021, respectively, for the recoverable cost of product estimated to be returned by customers.

A liability for expected returns of $ 41.5 , $ 42.2 , and $ 44.9 is recorded within Other accrued expenses as of August 31, 2022, May 31, 2022, and August 31, 2021, respectively.

In addition, a return asset of $ 7.8 , $ 5.3 , and $ 4.2 is recorded within Prepaid expenses and other current assets as of August 31, 2022, May 31, 2022, and August 31, 2021, respectively, for the recoverable cost of product estimated to be returned by customers.

SCHOLASTIC CORPORATION

3 unchanged sentences

The following table presents further detail regarding the Company's deferred revenue balance as of the dates indicated:

February 28, 2022 May 31, 2021 February 28, 2021

August 31, 2022 May 31, 2022 August 31, 2021

Book fairs incentive credits $ 84.4 $ 100.1 $ 52.4

2 unchanged sentences

education-related (1)

16.5 13.6 10.6

Media-related 15.6 15.8 5.6

Stored value cards 9.3 9.4 3.9

12.6 11.6 13.0

Total deferred revenue $ 182.6 $ 172.8 $ 125.5

3 unchanged sentences

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 $ 21.2 and $ 15.5 for the three months ended February 28, 2022 and February 28, 2021, respectively, and $ 64.4 and $ 56.6 for the nine months ended February 28, 2022 and February 28, 2021, respectively.

The Company recognized revenue which was included in the opening Deferred revenue balance in the amount of $ 30.8 and $ 15.3 for the three months ended August 31, 2022 and August 31, 2021, respectively.

Allowance for Credit Losses

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

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

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

4 unchanged sentences

Balance as of June 1, 2022 $ 25.9

Current period provision 1.6

Current period provision (benefit) ( 1.5 )

Write-offs and other ( 7.0 )

Balance as of August 31, 2022 $ 17.4

Current period provision 4.2

Write-offs and other ( 3.1 )

Balance as of November 30, 2021 $ 22.9

Current period provision 2.7

Write-offs and other ( 2.3 )

Balance as of February 28, 2022 $ 23.3

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

SEGMENT INFORMATION

3 unchanged sentences

This segment is comprised of three operating segments.

• Education Solutions includes the publication and distribution to schools and libraries of children’s books, classroom magazines, print and digital supplemental and core classroom materials and related support services, and print and on-line reference and non-fiction products for grades pre-kindergarten to 12 in the United States.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

• Education Solutions includes the publication and distribution to schools and libraries of children’s books, classroom magazines, print and digital supplemental and core classroom materials and related support services, and print and online reference and non-fiction products for grades prekindergarten to 12 in the United States.

This segment is comprised of one operating segment.

1 unchanged sentence

This segment is comprised of three operating segments.

The following table sets forth the Company's revenue and operating income (loss) by segment for the fiscal quarters ended February 28, 2022 and February 28, 2021:

Three months ended Nine months ended

February 28, February 28,

2022 2021 2022 2021

The following table sets forth the Company's revenue and operating income (loss) by segment for the fiscal quarter ended August 31, 2022:

Three months ended

Children's Book Publishing and Distribution $ 124.7 $ 115.8

9 unchanged sentences

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

ASSET WRITE DOWN

The Company did not recognize any asset write downs through the end of the third fiscal quarter of fiscal 2022.

During the third quarter of fiscal 2021, the Company committed to a plan to cease use of certain leased office space in New York City and consolidate into the company-owned New York headquarters building.

The right-of-use (ROU) assets and the other long-lived assets associated with these operating leases are included in the Overhead segment.

An impairment expense of $ 8.5 was recognized in the prior period, of which $ 7.0 related to the ROU assets and $ 1.5 related to other long-lived assets, primarily leasehold improvements.

Also during the third quarter of fiscal 2021, the Company committed to a plan to permanently close 12 of the 54 book fairs warehouses in the U.S.

as part of a branch consolidation project.

The ROU assets and the other long-lived assets associated with these warehouse operating leases are included in the Children’s Book Publishing and Distribution segment.

An impairment expense of $ 2.4 was recognized in the prior period, primarily related to the ROU assets.

The impact of the total $ 10.9 impairment was a loss per basic and diluted share of Class A and Common Stock of $ 0.23 in the three and nine month periods ended February 28, 2021.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

ASSET WRITE DOWN AND SALE

During the first quarter of fiscal 2023, the Company completed the disposition of the direct sales business in Asia.

The Company committed to a plan to cease operations and exit the direct sales business in Asia, including the disposition of the Malaysia legal entity, during the fourth quarter of fiscal 2022.

Accordingly, the Company wrote down the related assets during fiscal 2022, which were included in the International segment and consisted of accounts receivable, inventory, other current assets and long-lived assets, to their recoverable value of $ 3.7 .

The remaining assets, consisting of accounts receivable and inventory, were classified as held for sale and recorded as a current asset on the Company's Condensed Consolidated Balance Sheet as of May 31, 2022.

The Company recognized a loss of $ 15.1 in fiscal 2022 which was included in Gain (Loss) on assets held for sale within the Company's Condensed Consolidated Statement of Operations.

The impact of the impairment was a loss per basic and diluted share of Class A and Common Stock of $ 0.33 and $ 0.32 , respectively, in the twelve months ended May 31, 2022.

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

February 28, 2022 May 31, 2021 February 28, 2021

August 31, 2022 May 31, 2022 August 31, 2021

US Revolving Credit Agreement $ — $ — $ 75.0

4 unchanged sentences

Total long-term debt $ — $ — $ —

The Company's debt obligations as of February 28, 2022 have maturities of one year or less.

The Company's debt obligations as of August 31, 2022 have maturities of one year or less.

US Credit Agreement

13 unchanged sentences

• a Eurodollar Rate equal to the London interbank offered rate (LIBOR), plus an applicable margin ranging from 1.35 % to 1.75 %, as determined by the Company’s prevailing Consolidated Leverage Ratio.

As of February 28, 2022, the applicable margin on Base Rate Advances was 0.35 % and the applicable margin on Eurodollar Advances was 1.35 %, both based on the Company’s prevailing Consolidated Leverage Ratio.

As of August 31, 2022, the applicable margin on Base Rate Advances was 0.35 % and the applicable margin on Eurodollar Advances was 1.35 %, both based on the Company’s prevailing Consolidated Leverage Ratio.

The Credit Agreement provides for payment of a commitment fee in respect of the aggregate unused amount of revolving credit commitments ranging from 0.20 % per annum to 0.30 % per annum based upon the Corporation’s then prevailing Consolidated Leverage Ratio.

As of February 28, 2022, the commitment fee rate was 0.20 %.

As of August 31, 2022, the commitment 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 Credit Agreement has an accordion feature which permits the Company, provided certain conditions are satisfied, to increase the facility by up to an additional $ 150.0 .

As of February 28, 2022, the Company had no outstanding borrowings under the Credit Agreement.

During the first and second quarters of fiscal 2022, the Company paid down $ 100.0 and $ 75.0 , respectively, of the remaining borrowings as of the beginning of the fiscal year.

As of August 31, 2022, the Company had no outstanding borrowings under the Credit Agreement.

The Credit Agreement contains certain financial covenants related to leverage and interest coverage ratios (as defined in the Credit Agreement), limitations on the amount of dividends and other distributions, and other limitations on fundamental changes to the Corporation or its business.

The Company was in compliance with required covenants for all periods presented.

At February 28, 2022, the Company had open standby letters of credit totaling $ 4.3 issued under certain credit lines, including $ 0.4 under the Credit Agreement and $ 3.9 under the domestic credit lines discussed below.

At August 31, 2022, the Company had open standby letters of credit totaling $ 4.1 issued under certain credit lines, including $ 0.4 under the Credit Agreement and $ 3.7 under the domestic credit lines discussed below.

UK Loan Agreements

On January 24, 2020, Scholastic Limited UK entered into a term loan facility to fund the construction of the new UK facility in Warwickshire.

As of February 28, 2022, the borrowing limit was £ 3.2 .

The loan had an original maturity date of July 31, 2021, which was extended to July 31, 2022 in May 2021.

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

The interest was charged at 1.77 % per annum over the Base Rate until July 31, 2021 and 2.25 % per annum over the Base Rate thereafter.

The Base Rate is currently equal to 0.50 % per annum and is subject to change.

As of February 28, 2022, the Company had $ 4.2 outstanding on the loan and no remaining available credit under this facility.

The term loan facility was repaid and closed on March 31, 2022.

As of August 31, 2021, the Company had $ 4.3 outstanding on the loan.

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

The loan had an original maturity date of July 31, 2021, which was extended to July 31, 2022 in May 2021.

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

The interest was charged at 1.77 % per annum over the Base Rate until July 31, 2021 and 2.25 % per annum over the Base Rate thereafter.

The Base Rate is currently equal to 0.50 % per annum and is subject to change.

As of February 28, 2022, the Company had $ 2.7 outstanding on the loan.

The loan agreement was repaid and closed on May 12, 2022.

As of August 31, 2021, the Company had $ 2.8 outstanding on the loan.

Lines of Credit

As of February 28, 2022, 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 February 28, 2022, May 31, 2021 and February 28, 2021.

As of February 28, 2022, availability under these unsecured money market bid rate credit lines totaled $ 6.1 .

As of August 31, 2022, 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 August 31, 2022, May 31, 2022 and August 31, 2021.

As of August 31, 2022, availability under these unsecured money market bid rate credit lines totaled $ 6.3 .

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

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

As of February 28, 2022, the Company had various local currency international credit lines totaling $ 27.7 underwritten by banks primarily in the United States, Canada and the United Kingdom.

Outstanding borrowings under these facilities were $ 6.8 at February 28, 2022 at a weighted average interest rate of 5.1 %, $ 7.9 at May 31, 2021 at a weighted average interest rate of 4.7 %, and $ 8.5 at February 28, 2021 at a weighted average interest rate of 4.6 %.

As of February 28, 2022, the amounts available under these facilities totaled $ 20.9 .

As of August 31, 2022, the Company had various local currency international credit lines totaling $ 26.4 underwritten by banks primarily in the United States, Canada and the United Kingdom.

Outstanding borrowings under these facilities were $ 6.3 at August 31, 2022 at a weighted average interest rate of 5.8 %, $ 6.5 at May 31, 2022 at a weighted average interest rate of 5.4 %, and $ 7.4 at August 31, 2021 at a weighted average interest rate of 4.8 %.

As of August 31, 2022, the amounts available under these facilities totaled $ 20.1 .

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.

COMMITMENTS AND CONTINGENCIES

The COVID-19 pandemic and actions taken, or which may be taken in the future following any changes in 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 third quarter of fiscal 2022.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

Legal Matters

4 unchanged sentences

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

On July 20, 2021, the Company, along with its co-defendants in a certain legal proceeding, executed a settlement agreement regarding certain licenses and trademarks related to intellectual property used in formerly owned products, which were included in the sale of the educational technology and services business that occurred in fiscal 2015.

Without admitting to the allegations raised, the agreement required the Company to pay $ 20.0 in a one-time cash payment to avoid the uncertainties of trial and the additional costs of preparing for and presenting an on-going legal defense in this matter.

The Company recognized an accrual for the settlement amount in fiscal 2021 as the events that gave rise to the litigation had taken place prior to May 31, 2021.

The settlement was paid in September 2021.

The Company received $ 6.6 in recoveries from its insurance programs during the first quarter of fiscal 2022, which was recognized as an offset to the legal settlement and reflected in Selling, general and administrative expenses in the Company's Condensed Consolidated Statement of Operations.

During the first quarter of fiscal 2022, the Company received $ 6.6 in recoveries from its insurance programs related to an intellectual property legal settlement, which was accrued in fiscal 2021.

The recoveries were recognized as an offset to the legal settlement and reflected in Selling, general and administrative expenses in the Company's Condensed Consolidated Statement of Operations for the quarter ended August 31, 2021.

While the Company expects to receive additional recoveries from its insurance programs, it is premature to determine with any level of probability or accuracy the amount of those recoveries at this time.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

EARNINGS (LOSS) PER SHARE

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 Nine months ended

February 28, February 28,

2022 2021 2022 2021

Three months ended

Net income (loss) attributable to Class A and Common Stockholders $ ( 45.5 ) $ ( 24.2 )

5 unchanged sentences

Diluted $ ( 1.33 ) $ ( 0.70 )

* The Company experienced a net loss for the three month period ended February 28, 2022 and the three and nine month periods ended February 28, 2021 and therefore did not report any dilutive share impact.

Net income (loss) attributable to Class A and Common Stockholders excludes earnings of $ 0.2 for the nine month period ended February 28, 2022, for earnings attributable to participating restricted stock units.

The Company experienced a loss for the three month period ended February 28, 2022 and the three and nine month periods ended February 28, 2021 and therefore did not allocate any loss to certain participating restricted stock units.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

The Company experienced a loss for the three month periods ended August 31, 2022 and August 31, 2021 and therefore did not allocate any loss to certain participating restricted stock units.

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

February 28, 2022 February 28, 2021

August 31, 2022 August 31, 2021

Options outstanding pursuant to stock-based compensation plans (in millions) 3.3 4.9

There were 0.6 million of potentially anti-dilutive shares pursuant to stock-based compensation plans as of February 28, 2022.

There are no potentially anti-dilutive shares pursuant to stock-based compensation plans as of August 31, 2022.

A portion of the Company’s Restricted Stock Units ("RSUs"), which are granted to employees, participate in earnings through cumulative dividends.

1 unchanged sentence

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

As of February 28, 2022, $ 47.7 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 August 31, 2022, $ 28.8 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 12, Treasury Stock, for a more complete description of the Company’s share buy-back program.

2 unchanged sentences

The Company monitors impairment indicators in light of changes in market conditions, near and long-term demand for the Company’s products and other relevant factors.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

February 28, 2022 May 31, 2021 February 28, 2021

August 31, 2022 May 31, 2022 August 31, 2021

Gross beginning balance $ 164.9 $ 165.9 $ 165.9

5 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:

February 28, 2022 May 31, 2021 February 28, 2021

August 31, 2022 May 31, 2022 August 31, 2021

Beginning balance - Other intangibles subject to amortization $ 6.0 $ 8.4 $ 8.4

Adjustments — ( 0.5 ) ( 0.5 )

Amortization expense ( 0.5 ) ( 2.0 ) ( 0.5 )

4 unchanged sentences

Total other intangibles $ 7.4 $ 8.1 $ 9.9

There were no additions to intangible assets within the nine months ended February 28, 2022 and February 28, 2021.

There were no additions to intangible assets within the three months ended August 31, 2022 and August 31, 2021.

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

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

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

3 unchanged sentences

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

February 28, 2022 May 31, 2021 February 28, 2021 Segment

August 31, 2022 May 31, 2022 August 31, 2021 Segment

Equity method investments $ 28.7 $ 31.0 $ 34.4 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 $ 0.0 and $ 0.7 for the three months ended February 28, 2022 and February 28, 2021, respectively, and $ 1.6 and $ 6.1 for the nine months ended February 28, 2022 and February 28, 2021, respectively.

EMPLOYEE BENEFIT PLANS

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

UK Pension Plan US Postretirement Benefits

Three months ended Three months ended

February 28, February 28,

2022 2021 2022 2021

Components of net periodic benefit cost:

Interest cost $ 0.2 $ 0.2 $ 0.0 $ 0.0

Expected return on assets ( 0.3 ) ( 0.2 ) — —

Amortization of prior service (credit) loss 0.0 0.0 ( 0.2 ) ( 0.2 )

Amortization of net actuarial (gain) loss 0.2 0.1 — 0.0

Total $ 0.1 $ 0.1 $ ( 0.2 ) $ ( 0.2 )

SCHOLASTIC CORPORATION

1 unchanged sentence

(Dollar amounts in millions, except per share data)

Income from equity investments is reported in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and totaled $ 0.1 and $ 1.1 for the three months ended August 31, 2022 and August 31, 2021, respectively .

EMPLOYEE BENEFIT PLANS

UK Pension Plan US Postretirement Benefits

Nine months ended Nine months ended

February 28, February 28,

Three months ended Three months ended

August 31, August 31,

2022 2021 2022 2021

9 unchanged sentences

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

For the nine months ended February 28, 2022, the Company contributed $ 1.2 to the UK Pension Plan.

For the three months ended August 31, 2022, the Company contributed $ 0.3 to the UK Pension Plan.

The Company expects, based on actuarial calculations, to contribute cash of approximately $ 1.1 to the UK Pension Plan for the fiscal year ending May 31, 2023.

1 unchanged sentence

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

Three months ended Nine months ended

February 28, February 28,

2022 2021 2022 2021

Three months ended

Stock option expense $ 0.6 $ 0.7

4 unchanged sentences

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

Three months ended Nine months ended

February 28, February 28,

2022 2021 2022 2021

Three months ended

Common Stock issued pursuant to stock-based compensation plans (in millions) 0.3 0.1

In September 2021, the Class A Stockholders approved the 2021 Stock Incentive Plan (the "2021 Plan") which provides for the issuance of certain equity awards, including non-qualified stock options, time-vested restricted stock units, performance-based restricted stock units, incentive stock options and other equity awards.

There are 2,500,000 shares available for issuance pursuant to awards granted under the 2021 Plan.

No further awards can be granted under the 2011 Stock Incentive Plan.

TREASURY STOCK

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

SCHOLASTIC CORPORATION

1 unchanged sentence

(Dollar amounts in millions, except per share data)

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

Authorizations Amount

March 2018 $ 50.0

TREASURY STOCK

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

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

Authorization Amount

March 2020 50.0

Total current Board authorizations at June 1, 2021 $ 100.0

Less repurchases made under these authorizations $ ( 52.3 )

Remaining Board authorization at February 28, 2022 $ 47.7

Remaining Board authorization at February 28, 2022 represents the amount remaining under 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 privately negotiated transactions.

Repurchases of the Company's Common Stock were $ 15.4 and $ 19.6 during the three and nine months ended February 28, 2022, respectively, which included a privately negotiated transaction with a related party for an aggregate purchase price of $ 12.2 .

See Note 18, Related Party Transactions, for further details regarding this transaction.

Total current Board authorization at June 1, 2022 $ 50.0

Less repurchases made under this authorization $ ( 21.2 )

Remaining Board authorization at August 31, 2022 $ 28.8

Remaining Board authorization at August 31, 2022 represents the amount remaining under 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 privately negotiated transactions.

Repurchases of the Company's Common Stock were $ 5.1 during the three months ended August 31, 2022.

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

1 unchanged sentence

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

Three months ended February 28, 2022

Three months ended August 31, 2022

Foreign currency translation adjustments Retirement benefit plans Total

Beginning balance at December 1, 2021 $ ( 40.3 ) $ ( 4.0 ) $ ( 44.3 )

Beginning balance at June 1, 2022 $ ( 44.6 ) $ ( 0.8 ) $ ( 45.4 )

Other comprehensive income (loss) before reclassifications ( 9.6 ) — ( 9.6 )

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

Amortization of net actuarial (gain) loss (net of tax of $ 0.0 )

Amortization of net actuarial loss (net of tax of $ 0.0 )

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

1 unchanged sentence

Other comprehensive income (loss) ( 9.6 ) 0.0 ( 9.6 )

Ending balance at February 28, 2022 $ ( 38.7 ) $ ( 4.0 ) $ ( 42.7 )

Three months ended February 28, 2021

Ending balance at August 31, 2022 $ ( 54.2 ) $ ( 0.8 ) $ ( 55.0 )

Three months ended August 31, 2021

Foreign currency translation adjustments Retirement benefit plans Total

Beginning balance at December 1, 2020 $ ( 38.9 ) $ ( 2.8 ) $ ( 41.7 )

Beginning balance at June 1, 2021 $ ( 30.1 ) $ ( 4.6 ) $ ( 34.7 )

Other comprehensive income (loss) before reclassifications ( 5.8 ) — ( 5.8 )

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 )

Amortization of net actuarial loss (net of tax of $ 0.0 )

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

— ( 0.1 ) ( 0.1 )

Other comprehensive income (loss) ( 5.8 ) 0.1 ( 5.7 )

Ending balance at February 28, 2021 $ ( 32.6 ) $ ( 2.8 ) $ ( 35.4 )

Ending balance at August 31, 2021 $ ( 35.9 ) $ ( 4.5 ) $ ( 40.4 )

SCHOLASTIC CORPORATION

1 unchanged sentence

(Dollar amounts in millions, except per share data)

Nine months ended February 28, 2022

Foreign currency translation adjustments Retirement benefit plans Total

Beginning balance at June 1, 2021 $ ( 30.1 ) $ ( 4.6 ) $ ( 34.7 )

Other comprehensive income (loss) before reclassifications (net of tax of $ 0.1 )

( 8.6 ) 0.5 ( 8.1 )

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

Amortization of net actuarial (gain) loss (net of tax of $ 0.0 )

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

— ( 0.5 ) ( 0.5 )

Other comprehensive income (loss) ( 8.6 ) 0.6 ( 8.0 )

Ending balance at February 28, 2022 $ ( 38.7 ) ( 4.0 ) ( 42.7 )

Nine months ended February 28, 2021

Foreign currency translation adjustments Retirement benefit plans Total

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

Other comprehensive income (loss) before reclassifications (net of tax of $ 1.7 )

17.4 5.3 22.7

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 $ 0.2 )

— ( 0.2 ) ( 0.2 )

Other comprehensive income (loss) 17.4 5.5 22.9

Ending balance at February 28, 2021 $ ( 32.6 ) $ ( 2.8 ) $ ( 35.4 )

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

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

February 28, February 28, February 28, February 28,

2022 2021 2022 2021

Three months ended Condensed Consolidated Statements of Operations line item

August 31, August 31,

Employee benefit plans:

Amortization of net actuarial (gain) loss $ 0.2 $ 0.1 $ 0.6 $ 0.4 Other components of net periodic benefit (cost)

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

Amortization of prior service (credit) loss ( 0.2 ) ( 0.2 ) Other components of net periodic benefit (cost)

6 unchanged sentences

• 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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(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.

13 unchanged sentences

See Note 9, Investments, for a more complete description of the fair value measurements employed.

Operating lease ROU assets were recorded at fair value in connection with a prior period impairment and fair value was determined using the discounted cash flow method.

See Note 4, Asset Write Down, for a more complete description of the impairment recognized in the third quarter of fiscal 2021.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

INCOME TAXES AND OTHER TAXES

Tax Legislation Updates

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.

On March 27, 2020, the U.S.

In response to the COVID-19 pandemic, the U.S.

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

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

The Company filed its Federal income tax return and benefited from the provisions in the CARES Act 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.

The Company also took advantage of the 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 has deferred employer-side social security payments resulting in a future liability.

As of February 28, 2022, the Company has a current liability of $ 3.8 .

The Company applied the provisions in the CARES Act related to the carry back of net operating losses and the Employee Retention Credit.

In fiscal 2021, the Company applied for employee retention credits in the U.S.

and the related receivable was $ 11.9 as of February 28, 2022.

and the related receivable was $ 12.1 as of August 31, 2022.

During the first quarter of fiscal 2022, the Company received a federal tax refund of $ 63.1 primarily related to the carry back of net operating losses generated in the U.S.

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

The Company’s effective tax rate is based on expected income and statutory tax rates and takes into consideration permanent differences between financial statement and tax return income applicable to

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

the Company in the various jurisdictions in which the Company operates.

The effect of discrete items, such as changes in estimates, changes in rates or tax status, and unusual or infrequently occurring events, is recognized in the interim period in which the discrete item occurs.

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, for the three and nine month periods ended February 28, 2022 was 23.7 % and 19.7 %, respectively, compared to 36.4 % and 29.0 %, respectively, for the prior fiscal year periods.

The decrease in the interim effective tax rate for the nine months ended February 28, 2022 is primarily due to the release of an uncertain tax position in the current fiscal year related to an effective settlement recognized as part of an ongoing IRS audit.

The Company's interim effective tax rate, inclusive of discrete items, for the three months ended August 31, 2022 was 21.6 % compared to 26.7 % for the prior fiscal year period.

The decrease in the interim effective tax rate for the three months ended August 31, 2022 was primarily due to tax shortfalls related to vested option cancellations in the current fiscal year quarter.

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

2 unchanged sentences

The Company is routinely audited by various tax authorities.

The IRS is currently examining the US income tax returns for the fiscal 2015 through fiscal 2020 tax years.

As of February 28, 2022, there is approximately $ 20.0 in receivables from the IRS related to the years under audit included in Income tax receivable in the Company’s Condensed Consolidated Balance Sheet.

The IRS is substantially complete with the examination of the U.S.

income tax returns for the fiscal 2015 through fiscal 2020 tax years.

The examination is expected to be finalized in the third quarter of fiscal 2023 and the Company does not expect any additional impact to the financial results.

As of August 31, 2022, there was approximately $ 20.0 in receivables from the IRS related to the years under audit included in Income tax receivable in the Company’s Condensed Consolidated Balance Sheet for that period.

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 recognizes the unrealized gain or loss in Other current assets or Other current liabilities.

The notional values of the contracts as of February 28, 2022 and February 28, 2021 were $ 21.9 and $ 26.5 , respectively.

A net unrealized gain of $ 0.3 and a net unrealized loss of $ 1.6 were recognized for the nine months ended February 28, 2022 and February 28, 2021, respectively.

The notional values of the contracts as of August 31, 2022 and August 31, 2021 were

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

$ 21.3 and $ 26.8 , respectively.

A net unrealized gain of $ 0.6 and a net unrealized loss of less than $ 0.1 were recognized for the three months ended August 31, 2022 and August 31, 2021, respectively.

OTHER ACCRUED EXPENSES

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

February 28, 2022 May 31, 2021 February 28, 2021

August 31, 2022 May 31, 2022 August 31, 2021

Accrued payroll, payroll taxes and benefits $ 36.8 $ 32.2 $ 35.1

5 unchanged sentences

Total accrued expenses $ 162.6 $ 193.3 $ 168.2

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

RELATED PARTY TRANSACTIONS

On January 12, 2022, the Company entered into a share repurchase agreement to purchase shares of its common stock from the Estate of M.

Richard Robinson, Jr.

in a privately negotiated transaction.

Pursuant to the repurchase agreement, the Company purchased 300,000 shares of common stock on January 19, 2022 at a price of $ 40.65 per share, representing an aggregate purchase price of $ 12.2 .

The price per share paid represented a 4.2 % discount to the closing price of the stock, $ 42.43 , on the date of execution of the repurchase agreement.

The repurchase was made pursuant to the Company’s current share repurchase program as previously approved by the Board.

The aforementioned transaction was approved by the Board upon the recommendation of the Audit Committee.

SUBSEQUENT EVENTS

The Board declared a quarterly cash dividend of $ 0.15 per share on the Company’s Class A and Common Stock for the fourth quarter of fiscal 2022.

The dividend is payable on June 15, 2022 to shareholders of record as of the close of business on April 29, 2022.

SCHOLASTIC CORPORATION

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

Overview and Outlook

Revenues for the third quarter ended February 28, 2022 were $344.5 million, compared to $277.5 million in the prior fiscal year quarter, an increase of $67.0 million.

The Company reported net loss per diluted share of Class A and Common Stock of $0.44 in the third quarter of fiscal 2022, compared to $0.41 in the prior fiscal year quarter.

With schools back in session, the book fairs channel drove a majority of the revenue increase with a higher number of in-person book fairs and higher revenue per fair.

The Company’s education offerings also drove higher revenues primarily related to core instructional products and sales from Scholastic Magazines + TM , the Company's newly branded classroom magazines business with new content in both print and digital, including videos and activities.

In addition, Education Solutions revenues increased for the New Worlds Reading Initiative , a five-year agreement with University of Florida’s Lastinger Center for Learning to provide books to Florida students (kindergarten through 5th grade) who are reading below grade level.

The Company began fulfilling orders in the third fiscal quarter for the more than 100,000 students enrolled in the program.

Higher trade channel revenues were driven by core backlist titles as demand for the Company’s best-selling series continues.

Internationally, Canada experienced higher revenues in all channels, while the Asia markets continued to be negatively impacted by COVID-related shutdowns and recently adopted restrictive regulations in China.

Operating loss improved $4.7 million over the prior fiscal year quarter as a result of the higher sales volume as the Company recovers from the pandemic.

The Company experienced and will continue to experience higher inflationary pressures in printing, paper, transportation and labor costs, which partially offset the increases in revenues.

In the Children’s Book Publishing and Distribution segment, the Company expects the number of in-person book fairs to continue to trend at 70% of pre-pandemic levels in the fourth fiscal quarter with improved revenue per fair over the same period.

In the book clubs channel, having cleared the backlogged orders, the Company expects to see continued strong customer re-engagement.

The trade channel is anticipating the benefit of new fourth fiscal quarter releases, such as Cat Kid Comic Club ® #3:

On Purpose by Dav Pilkey, and Colin Kaepernick's I Color Myself Different.

In addition, the Company’s media group has a robust pipeline that should favorably impact future fiscal year periods commencing in fiscal 2023.

In the Education Solutions segment, the Company anticipates a strong fourth quarter driven by its comprehensive education offerings, which includes both print and digital content.

Revenues related to summer reading initiatives are also expected to be robust as educators continue to seek materials to boost student reading levels.

In addition, revenues related to the New Worlds Reading Initiative will be recognized in the fourth quarter as additional shipments are made to enrolled students, pursuant to which a significant number of books are also expected to be shipped in the summer months of June and July during the first quarter of fiscal 2023 after marketing efforts ramp up toward the end of the school year.

Scholastic Magazines+ has launched pre-orders for fiscal 2023 for the highly-anticipated Storyworks ® 1, which creates a full line of Storyworks ELA titles for advanced kindergarten and grades 1-6.

Internationally, the Company is optimistic that fewer COVID related restrictions will benefit the major markets in Canada, UK, and Australia and New Zealand, but anticipates that COVID related issues and the recently adopted restrictive regulations in China will result in continued softness in Asia.

Cost pressures for paper, printing, and freight will continue in the fourth quarter as current period inventory, with an associated higher cost of product, is sold.

Similarly, the Company expects higher labor costs due to continuing inflationary pressures.

Additionally, rising fuel costs will impact the business, primarily related to the delivery of book fairs where the Company manages its own distribution fleet.

The Company is taking all available actions to mitigate higher costs and identify further opportunities for incremental cost savings, including process improvements and automation, proactive resource allocation, book fair vehicle route optimization, vendor diversification, product rationalization and pricing, as well as the benefits of cross divisional collaborations.

Results of Operations

Revenues for the quarter ended February 28, 2022 increased by $67.0 million to $344.5 million, compared to $277.5 million in the prior fiscal year quarter.

The Children's Book Publishing and Distribution segment revenues increased by $58.1 million, primarily driven by higher book fairs channel revenues resulting from increased fair count and higher revenue per fair as schools have reopened and resumed in-person learning.

In the Education Solutions segment, revenues increased by $10.9 million, primarily driven by revenues from the newly launched New Worlds Reading Initiative with University of Florida’s Lastinger Center for Learning, coupled with higher sales of instructional products and programs, primarily Scholastic Bookroom, and increased circulation revenue

SCHOLASTIC CORPORATION

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

from the Magazines+ business.

In local currency, the International segment revenues decreased by $0.4 million, primarily driven by lower sales in Asia as the local markets continued to be impacted by COVID-related shutdowns and the restrictive regulations in China, partially offset by increased revenues in Canada across all channels.

International segment revenues were impacted by unfavorable foreign exchange of $1.6 million in the quarter ended February 28, 2022.

Revenues for the nine months ended February 28, 2022 increased by $229.6 million to $1,128.5 million, compared to $898.9 million in the prior fiscal year period.

The Children's Book Publishing and Distribution segment revenues increased by $190.1 million primarily driven by higher book fairs channel revenues, particularly in the second and third quarters, resulting from increased fair count and higher revenue per fair as schools reopened and resumed in-person learning.

Additionally, trade channel revenues were higher, primarily driven by increased sales of backlist titles from best-selling series, including Harry Potter ® and Dog Man ® , and new releases of frontlist titles including J.K.

Rowling’s The Christmas Pig and Dav Pilkey's Cat Kid Comic Club ® :

Perspectives.

In the Education Solutions segment, revenues increased by $49.4 million primarily driven by higher sales of instructional products and programs, including the early childhood curriculum program PreK On My Way TM and Scholastic Bookroom, as well as increased circulation revenue from the Magazines+ business.

In addition, revenues increased from the Company’s new Rising Voices Library ® offering, which meets the increasing demand for culturally responsive content and instruction, and the newly launched New Worlds Reading Initiative with University of Florida’s Lastinger Center for Learning.

In local currency, the International segment revenues decreased by $14.7 million primarily driven by lower sales in Asia as the local markets continued to be impacted by COVID-related shutdowns and the restrictive regulations in China.

Revenues also decreased in Australia and New Zealand in the school-based channels due to additional lockdowns imposed by the COVID variant, partially offset by higher sales in Canada across all channels.

International segment revenues benefited from favorable foreign exchange of $4.8 million in the nine months ended February 28, 2022.

Components of Cost of goods sold for the three and nine months ended February 28, 2022 and February 28, 2021 are as follows:

Three months ended Nine months ended

February 28, February 28, February 28, February 28,

2022 2021 2022 2021

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

Product, service and production costs $ 93.8 27.2 % $ 71.9 25.9 % $ 306.6 27.2 % $ 237.5 26.4 %

Royalty costs 30.0 8.7 % 27.9 10.1 % 102.8 9.1 % 91.6 10.2 %

Prepublication amortization 6.8 2.0 % 6.6 2.4 % 20.6 1.8 % 19.7 2.2 %

Postage, freight, shipping, fulfillment and other 39.0 11.3 % 29.5 10.6 % 110.9 9.8 % 91.8 10.2 %

Total $ 169.6 49.2 % $ 135.9 49.0 % $ 540.9 47.9 % $ 440.6 49.0 %

Cost of goods sold for the quarter ended February 28, 2022 was $169.6 million, or 49.2% of revenues, compared to $135.9 million, or 49.0% of revenues, in the prior fiscal year quarter.

Cost of goods sold for the nine months ended February 28, 2022 was $540.9 million, or 47.9% of revenues, compared to $440.6 million, or 49.0% of revenues, in the prior fiscal year period.

Cost of goods sold was impacted by higher costs due to shortages in labor and transportation and supply chain issues impacting paper and printing costs.

The Company expects these costs to continue to be negatively impacted during the balance of fiscal 2022, and Cost of goods sold will reflect the higher costs as current period inventory is sold using the first-in, first-out method.

The increased costs were more than offset by lower royalty costs due to the substantial increase in book fairs channel revenues which have a higher mix of non-royalty bearing titles.

Selling, general and administrative expenses for the quarter ended February 28, 2022 increased to $180.8 million, compared to $140.2 million in the prior fiscal year quarter.

The $40.6 million increase was primarily attributable to higher employee-related costs as a result of higher headcount in the book fairs warehouses to meet the increased demand, coupled with higher labor costs across the Company.

In addition, the Company incurred higher warehouse-related costs, as certain reopened book fair distribution facilities were temporarily closed in the prior fiscal year quarter, and recognized lower subsidies from COVID-related governmental retention programs in the quarter ended February 28, 2022, which decreased by $7.0 million as compared to

On September 1, 2022, the Company acquired 100 % of the share capital of Learning Ovations Inc., a U.S.-based education technology business and developer of a literacy assessment and instructional system, for a base purchase price of $ 11.0 , subject to purchase price adjustments.

The results of operations of this business subsequent to the acquisition will be included in the Education Solutions segment.

The Board declared a quarterly cash dividend of $ 0.20 per share on the Company’s Class A and Common Stock for the second quarter of fiscal 2023.

The dividend is payable on December 15, 2022 to shareholders of record as of the close of business on October 31, 2022.

SCHOLASTIC CORPORATION

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What changed 10-Q

Item 1. Financial Statements