What changed in this filing

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Item 1. Financial Statements

2023-03-24 compared with 2022-12-16 · 234 added, 152 removed, 610 unchanged (39% of the section changed)

3 unchanged sentences

(Dollar amounts in millions, except per share data)

Three months ended Six months ended

November 30, November 30,

Three months ended Nine months ended

February 28, February 28,

2023 2022 2023 2022

21 unchanged sentences

(Dollar amounts in millions)

Three months ended Six months ended

November 30, November 30,

Three months ended Nine months ended

February 28, February 28,

2023 2022 2023 2022

11 unchanged sentences

(Dollar amounts in millions, except per share data)

November 30, 2022 May 31, 2022 November 30, 2021

February 28, 2023 May 31, 2022 February 28, 2022

(unaudited) (audited) (unaudited)

90 unchanged sentences

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 — — — — —

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

Class A Stock Common Stock Additional Paid-in Capital Accumulated

30 unchanged sentences

Balance at November 30, 2022 1.7 $ 0.0 32.4 $ 0.4 $ 629.0 $ ( 52.1 ) $ 992.4 $ ( 353.2 ) $ 1,216.5 $ 1.6 $ 1,218.1

Net Income (loss) — — — — — ( 19.2 ) — ( 19.2 ) ( 0.1 ) ( 19.3 )

Foreign currency translation adjustment — — — — — ( 1.0 ) — — ( 1.0 ) — ( 1.0 )

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

— — — — — 0.0 — — 0.0 — 0.0

Stock-based compensation — — — — 2.3 — — — 2.3 — 2.3

Proceeds pursuant to stock-based compensation plans — — — — 3.1 — — — 3.1 — 3.1

Purchases of treasury stock at cost — — ( 1.1 ) — — — — ( 46.9 ) ( 46.9 ) — ( 46.9 )

Treasury stock issued pursuant to equity-based plans — — 0.1 — ( 3.8 ) — — 4.2 0.4 — 0.4

Dividends ($ 0.20 per share)

— — — — — — ( 6.8 ) — ( 6.8 ) — ( 6.8 )

Balance at February 28, 2023 1.7 $ 0.0 31.4 $ 0.4 $ 630.6 $ ( 53.1 ) $ 966.4 $ ( 395.9 ) $ 1,148.4 $ 1.5 $ 1,149.9

See accompanying notes

2 unchanged sentences

(Dollar amounts in millions)

Six months ended

November 30, November 30,

Nine months ended

February 28, February 28,

Cash flows - operating activities:

91 unchanged sentences

Sale of Long-lived Assets

There were no sales of long-lived assets during the quarter ended November 30, 2022.

There were no sales of long-lived assets during the second and third quarters of fiscal 2023.

Refer to Note 4, Asset Write Down and Sale, for details regarding the disposition of the direct sales business in Asia completed during the first quarter of fiscal 2023.

5 unchanged sentences

New Accounting Pronouncements

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

In December 2022, ASU No.

2022-6, "Reference Rate Reform (Topic 848):

Deferral of the Sunset Date for Topic 848" was issued.

Refer to the Current Fiscal Year Adoptions section below for further details.

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.

13 unchanged sentences

The adoption of this ASU did not have a material impact to the Company's Condensed Consolidated Financial Statements.

2020-4 and ASU No.

In March 2020, the FASB issued ASU No.

2020-4, "Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting" (ASU 2020-4), and in December 2022, the FASB issued ASU No.

2022-6, "Reference Rate Reform (Topic 848):

Deferral of the Sunset Date for Topic 848" (ASU 2022-6).

ASU 2020-4 provides optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

This guidance is elective and applies to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

ASU 2022-6 defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

During the third quarter of fiscal 2023, the Company adopted the expedient in accounting for the amendments to the Company's Credit Agreement which were made as a result of the replacement of LIBOR as a reference rate.

Refer to Note 5, Debt, for further details regarding the interest

SCHOLASTIC CORPORATION

1 unchanged sentence

(Dollar amounts in millions, except per share data)

rate effected by these amendments, which will be applied prospectively.

The adoption of these ASUs did not have a material impact to the Company's Condensed Consolidated Financial Statements.

Disaggregated Revenue Data

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

Three months ended Six months ended

November 30, November 30,

Three months ended Nine months ended

February 28, February 28,

2023 2022 2023 2022

20 unchanged sentences

Estimated Returns

A liability for expected returns of $ 43.9 , $ 42.2 , and $ 50.7 is recorded within Other accrued expenses as of November 30, 2022, May 31, 2022, and November 30, 2021, respectively.

In addition, a return asset of $ 6.1 , $ 5.3 , and $ 5.0 is recorded within Prepaid expenses and other current assets as of November 30, 2022, May 31, 2022, and November 30, 2021, respectively, for the recoverable cost of product estimated to be returned by customers.

A liability for expected returns of $ 44.8 , $ 42.2 , and $ 48.8 is recorded within Other accrued expenses as of February 28, 2023, May 31, 2022, and February 28, 2022, respectively.

In addition, a return asset of $ 3.5 , $ 5.3 , and $ 4.5 is recorded within Prepaid expenses and other current assets as of February 28, 2023, May 31, 2022, and February 28, 2022, respectively, for the recoverable cost of product estimated to be returned by customers.

Deferred Revenue

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

November 30, 2022 May 31, 2022 November 30, 2021

February 28, 2023 May 31, 2022 February 28, 2022

Book fairs incentive credits $ 105.2 $ 100.1 $ 82.7

9 unchanged sentences

The Company's deferred revenue consists of contract liabilities for advance billings and payments received from customers in excess of revenue recognized and revenue allocated to outstanding book fairs incentive credits.

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

These liabilities are recorded within Deferred revenue on the Company's Condensed Consolidated Balance

SCHOLASTIC CORPORATION

1 unchanged sentence

(Dollar amounts in millions, except per share data)

which was included in the opening Deferred revenue balance in the amount of $ 49.5 and $ 80.3 for the three and six months ended November 30, 2022, respectively, and $ 27.9 and $ 43.2 for the three and six months ended November 30, 2021, respectively.

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 $ 45.9 and $ 126.2 for the three and nine months ended February 28, 2023, respectively, and $ 21.2 and $ 64.4 for the three and nine months ended February 28, 2022, respectively.

Allowance for Credit Losses

6 unchanged sentences

Balance as of June 1, 2022 $ 25.9

Current period provision (benefit) ( 1.5 )

Provision (benefit) ( 1.5 )

Write-offs and other ( 7.0 )

Balance as of August 31, 2022 $ 17.4

Current period provision 2.8

Provision (benefit) 2.8

Write-offs and other ( 2.8 )

Balance as of November 30, 2022 $ 17.4

Provision (benefit) 0.5

Write-offs and other ( 0.9 )

Balance as of February 28, 2023 $ 17.0

SEGMENT INFORMATION

10 unchanged sentences

(Dollar amounts in millions, except per share data)

The following table sets forth the Company's revenue and operating income (loss) by segment for the fiscal quarter ended November 30, 2022:

Three months ended Six months ended

November 30, November 30,

The following table sets forth the Company's revenue and operating income (loss) by segment for the periods indicated:

Three months ended Nine months ended

February 28, February 28,

2023 2022 2023 2022

18 unchanged sentences

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

November 30, 2022 May 31, 2022 November 30, 2021

February 28, 2023 May 31, 2022 February 28, 2022

US Revolving Credit Agreement $ — $ — $ —

4 unchanged sentences

Total long-term debt $ — $ — $ —

The Company's debt obligations as of November 30, 2022 have maturities of one year or less.

The Company's debt obligations as of February 28, 2023 have maturities of one year or less.

US Credit Agreement

On October 27, 2021, Scholastic Corporation and its principal operating subsidiary, Scholastic Inc., entered into an amended and restated 5-year credit agreement with a syndicate of banks and Bank of America, N.A., as administrative agent (the “Credit Agreement”).

The arrangement was accounted for as a debt modification.

The revised terms of the amended Credit Agreement include the following:

• an increase in borrowing limits to $ 300.0 from $ 250.0 , as amended on December 16, 2020 ;

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

• an unlimited basket for permitted payments of dividends and other distributions in respect of capital stock so long as the Corporation’s pro forma Consolidated Net Leverage Ratio, as defined, is not in excess of 2.75 :1;

• the elimination of a minimum liquidity covenant;

• the removal of an interest rate floor;

• the extension of the maturity date to October 27, 2026.

The Credit Agreement provides for an unsecured revolving credit facility and allows the Company to borrow, repay or prepay and reborrow at any time prior to the October 27, 2026 maturity date.

The Credit Agreement provides for a $ 300.0 unsecured revolving credit facility and allows the Company to borrow, repay or prepay and reborrow at any time prior to the October 27, 2026 maturity date.

The Credit Agreement also provides an unlimited basket for permitted payments of

dividends and other distributions in respect of capital stock so long as the Corporation’s pro forma Consolidated Net Leverage Ratio, as defined, is not in excess of 2.75 :1.

On February 28, 2023, the Company entered into the First and Second Amendments to the Credit Agreement with the lenders from time to time party thereto, Truist Bank and Wells Fargo Bank, National Association, as co-syndication agents and Bank of America, N.A., as administrative agent (collectively the "Amendments").

The Amendments, among other things, (i) adjusted the credit spread adjustment for SOFR (the secured overnight financing rate as administered by the Federal Reserve Bank of New York) to 0.10 % (10 basis points) and (ii) transitioned the reference rate under the Credit Agreement for borrowings from LIBOR (the London interbank offered rate) to SOFR, together with various other conforming changes to accommodate such replacement.

Under the Credit Agreement, interest on amounts borrowed thereunder is due and payable in arrears on the last day of the interest period (defined as the period commencing on the date of the advance and ending on the last day of the period selected by the Borrower at the time each advance is made).

1 unchanged sentence

• a Base Rate equal to the higher of (i) the prime rate, (ii) the prevailing Federal Funds rate plus 0.50 % or (iii) the Eurodollar Rate plus 1.00 % plus, in each case, an applicable margin ranging from 0.35 % to 0.75 %, as determined by the Company’s prevailing Consolidated Leverage Ratio (as defined in the Credit Agreement);

• 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 November 30, 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.

• a Eurodollar Rate equal to SOFR (Daily Simple or Term), plus a SOFR adjustment of 0.10 % per annum and an applicable margin ranging from 1.35 % to 1.75 %, as determined by the Company’s prevailing Consolidated Leverage Ratio.

As of February 28, 2023, 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 November 30, 2022, the commitment fee rate was 0.20 %.

As of February 28, 2023, 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 November 30, 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.

As of February 28, 2023, the Company had no outstanding borrowings under the Credit Agreement.

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

At November 30, 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.

At February 28, 2023, 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

1 unchanged sentence

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

As of November 30, 2021, the Company had $ 4.2 outstanding on the loan.

As of February 28, 2022, the Company had $ 4.2 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 agreement was repaid and closed on May 12, 2022.

As of November 30, 2021, the Company had $ 2.6 outstanding on the loan.

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

Lines of Credit

As of November 30, 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 November 30, 2022, May 31, 2022 and November 30, 2021.

As of November 30, 2022, availability under these unsecured money market bid rate credit lines totaled $ 6.3 .

As of February 28, 2023, 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, 2023, May 31, 2022 and February 28, 2022.

As of February 28, 2023, 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 November 30, 2022, the Company had various local currency international credit lines totaling $ 30.5 underwritten by banks primarily in the United States, Canada and the United Kingdom.

Outstanding borrowings under these facilities were $ 4.8 at November 30, 2022 at a weighted average interest rate of 5.4 %, $ 6.5 at May 31, 2022 at a weighted average interest rate of 5.4 %, and $ 7.5 at November 30, 2021 at a weighted average interest rate of 4.7 %.

As of November 30, 2022, the amounts available under these facilities totaled $ 25.7 .

As of February 28, 2023, the Company had various local currency international credit lines totaling $ 24.3 underwritten by banks primarily in the United States, Canada and the United Kingdom.

Outstanding borrowings under these facilities were $ 5.2 at February 28, 2023 at a weighted average interest rate of 5.0 %, $ 6.5 at May 31, 2022 at a weighted average interest rate of 5.4 %, and $ 6.8 at February 28, 2022 at a weighted average interest rate of 5.1 %.

As of February 28, 2023, the amounts available under these facilities totaled $ 19.1 .

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.

6 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.

During the third quarter of fiscal 2023, the Company received $ 5.0 in recoveries from its insurance programs related to photo litigation settlements accrued and paid in prior periods.

The recoveries were recognized as an offset to the legal settlements and reflected in Selling, general and administrative expenses in the Company's Condensed Consolidated Statement of Operations for the quarter ended February 28, 2023.

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 November 30, 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 Six months ended

November 30, November 30,

Three months ended Nine months ended

February 28, February 28,

2023 2022 2023 2022

6 unchanged sentences

Diluted $ ( 0.57 ) $ ( 0.44 ) $ 0.30 $ 0.80

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

Anti-dilutive shares pursuant to stock-based compensation plans

0.7 0.8 0.6 1.8

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

November 30, 2022 November 30, 2021

February 28, 2023 February 28, 2022

Options outstanding pursuant to stock-based compensation plans (in millions) 3.3 4.6

There are 0.7 million potentially anti-dilutive shares pursuant to stock-based compensation plans as of November 30, 2022.

As of November 30, 2022, $ 26.2 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 13, Treasury Stock, for a more complete description of the Company’s share buy-back program.

As of February 28, 2023, $ 28.2 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 13, Treasury Stock, and Note 20, Subsequent Events, for a more complete description of the Company’s share buy-back program.

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 $ 11.1 , net of cash acquired.

1 unchanged sentence

Fair values were assigned to the assets and liabilities acquired, including cash, receivables, and technology/know-how.

The receivables acquired have a fair value of $ 0.1 and have been determined to be collectible.

The receivables acquired had a fair value of $ 0.1 and have been substantially collected as of February 28, 2023.

The Company utilized internally-developed discounted cash flow forecasts to determine the fair value of the technology/know-how using a discount rate of 17.5 % to account for the relative risks of the estimated future cash flows.

4 unchanged sentences

The transaction was not determined to be material to the Company's results and therefore pro forma financial information is not presented.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

GOODWILL AND OTHER INTANGIBLES

2 unchanged sentences

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

November 30, 2022 May 31, 2022 November 30, 2021

February 28, 2023 May 31, 2022 February 28, 2022

Gross beginning balance $ 164.9 $ 165.9 $ 165.9

7 unchanged sentences

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

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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:

November 30, 2022 May 31, 2022 November 30, 2021

February 28, 2023 May 31, 2022 February 28, 2022

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

9 unchanged sentences

Refer to Note 8, Acquisitions, for further details regarding the acquisition.

There were no additions to intangible assets within the six months ended November 30, 2021.

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

3 unchanged sentences

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

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

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

November 30, 2022 May 31, 2022 November 30, 2021 Segment

February 28, 2023 May 31, 2022 February 28, 2022 Segment

Equity method investments $ 31.1 $ 31.0 $ 34.0 International

6 unchanged sentences

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

Income from equity investments is reported in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and totaled $ 1.2 and $ 0.5 for the three months ended November 30, 2022 and November 30, 2021, respectively, and $ 1.3 and $ 1.6 for the six months ended November 30, 2022 and November 30, 2021, respectively.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(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 $ 0.2 and less than $ 0.1 for the three months ended February 28, 2023 and February 28, 2022, respectively, and $ 1.5 and $ 1.6 for the nine months ended February 28, 2023 and February 28, 2022, respectively.

EMPLOYEE BENEFIT PLANS

2 unchanged sentences

Three months ended Three months ended

November 30, November 30,

February 28, February 28,

2023 2022 2023 2022

5 unchanged sentences

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

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

UK Pension Plan US Postretirement Benefits

Six months ended Six months ended

November 30, November 30,

Nine months ended Nine months ended

February 28, February 28,

2023 2022 2023 2022

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 six months ended November 30, 2022, the Company contributed $ 0.6 to the UK Pension Plan.

For the nine months ended February 28, 2023, the Company contributed $ 0.9 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 Six months ended

November 30, November 30,

Three months ended Nine months ended

February 28, February 28,

2023 2022 2023 2022

4 unchanged sentences

Total stock-based compensation expense $ 2.3 $ 1.6 $ 8.2 $ 6.1

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

Three months ended Six months ended

November 30, November 30,

Three months ended Nine months ended

February 28, February 28,

2023 2022 2023 2022

2 unchanged sentences

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

1 unchanged sentence

March 2020 50.0

Total current Board authorization at June 1, 2022 $ 50.0

Less repurchases made under this authorization $ ( 23.8 )

Remaining Board authorization at November 30, 2022 $ 26.2

Remaining Board authorization at November 30, 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.

Pursuant to a subsequent Board authorization on October 19, 2022, the Company commenced a modified Dutch auction tender offer on October 25, 2022, which expired on November 22, 2022.

December 2022 48.8

Total current Board authorizations $ 98.8

Less repurchases made under these authorizations $ ( 70.6 )

Remaining Board authorization at February 28, 2023 $ 28.2

Remaining Board authorization at February 28, 2023 represents the amount remaining under the current $ 48.8 Board authorization for Common share repurchases announced on December 14, 2022, which is available for further repurchases, from time to time as conditions allow, on the open market or through privately negotiated transactions.

See Note 20, Subsequent Events, for additional Board authorization for Common share repurchases.

Pursuant to a Board authorization on October 19, 2022, the Company commenced a modified Dutch auction tender offer on October 25, 2022, which expired on November 22, 2022.

Pursuant to this offer, the Company purchased 533,793 of its common shares at a price of $ 40.00 per share for a total cost of $ 23.3 , including related fees and expenses.

1 unchanged sentence

The Company funded the purchase of the shares in the tender offer using cash on hand.

Repurchases of the Company's Common Stock were $ 26.0 and $ 31.1 during the three and six months ended November 30, 2022, respectively, which included shares repurchased through the modified Dutch auction tender offer.

Repurchases of the Company's Common Stock were $ 46.9 and $ 78.0 during the three and nine months ended February 28, 2023, respectively, which included shares repurchased through the modified Dutch auction tender offer.

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

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

Three months ended November 30, 2022

Three months ended February 28, 2023

Foreign currency translation adjustments Retirement benefit plans Total

Beginning balance at September 1, 2022 $ ( 54.2 ) $ ( 0.8 ) $ ( 55.0 )

Beginning balance at December 1, 2022 $ ( 51.2 ) $ ( 0.9 ) $ ( 52.1 )

Other comprehensive income (loss) before reclassifications ( 1.0 ) — ( 1.0 )

4 unchanged sentences

Other comprehensive income (loss) ( 1.0 ) 0.0 ( 1.0 )

Ending balance at November 30, 2022 $ ( 51.2 ) $ ( 0.9 ) $ ( 52.1 )

Three months ended November 30, 2021

Ending balance at February 28, 2023 $ ( 52.2 ) $ ( 0.9 ) $ ( 53.1 )

Three months ended February 28, 2022

Foreign currency translation adjustments Retirement benefit plans Total

Beginning balance at September 1, 2021 $ ( 35.9 ) $ ( 4.5 ) $ ( 40.4 )

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

Other comprehensive income (loss) before reclassifications (net of tax of $ 0.0 )

( 4.4 ) 0.5 ( 3.9 )

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

3 unchanged sentences

Other comprehensive income (loss) 1.6 0.0 1.6

Ending balance at November 30, 2021 $ ( 40.3 ) $ ( 4.0 ) $ ( 44.3 )

Six months ended November 30, 2022

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

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

Nine months ended February 28, 2023

Foreign currency translation adjustments Retirement benefit plans Total

6 unchanged sentences

Other comprehensive income (loss) ( 7.6 ) ( 0.1 ) ( 7.7 )

Ending balance at November 30, 2022 $ ( 51.2 ) $ ( 0.9 ) $ ( 52.1 )

Six months ended November 30, 2021

Ending balance at February 28, 2023 $ ( 52.2 ) $ ( 0.9 ) $ ( 53.1 )

Nine months ended February 28, 2022

Foreign currency translation adjustments Retirement benefit plans Total

7 unchanged sentences

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

Ending balance at November 30, 2021 $ ( 40.3 ) $ ( 4.0 ) $ ( 44.3 )

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

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

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

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

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

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

2023 2022 2023 2022

10 unchanged sentences

• 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.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

The Company’s financial assets and liabilities measured at fair value consisted of cash and cash equivalents, debt and foreign currency forward contracts.

14 unchanged sentences

See Note 8, Acquisitions, for further details regarding the acquired assets and fair value measurements employed.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

INCOME TAXES AND OTHER TAXES

1 unchanged sentence

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

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

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 $ 10.1 as of November 30, 2022.

government enacted the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which, among other things, included provisions related to the carry back of net operating losses and the Employee Retention Credit.

The Company applied these provisions as applicable.

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

and the related receivable was $ 9.3 as of February 28, 2023.

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

2 unchanged sentences

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

The Company's interim effective tax rate, inclusive of discrete items, for the three and six months period ended November 30, 2022 was 25.3 % and 30.2 %, respectively, compared to 23.2 % and 21.1 %, respectively, for the prior fiscal year period.

The interim effective tax rate for the six months ended November 30, 2022 varied from the prior fiscal year period primarily due to tax shortfalls related to vested option cancellations in the current year period.

The Company's interim effective tax rate, inclusive of discrete items, for the three and nine month periods ended February 28, 2023 was 26.3 % and 36.3 %, respectively, compared to 23.7 % and 19.7 %, respectively, for the prior fiscal year period.

The interim effective tax rate for the nine months ended February 28, 2023 varied from the prior fiscal year period primarily due to a GILTI inclusion in the period ended February 28, 2023 and the release of reserves related to the IRS examination recognized in the prior period.

The interim effective tax rate for the nine months ended February 28, 2023 varied from the statutory rate due to tax shortfalls related to vested option cancellations in the first quarter of fiscal 2023.

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

income tax return, and also files tax returns in various states and other local jurisdictions.

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

Also, certain subsidiaries of the Company file income tax

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

returns in foreign jurisdictions.

The Company is routinely audited by various tax authorities.

The IRS has completed the examination of the U.S.

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

There was no additional impact to the financial results.

As of November 30, 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.

The Company was previously under audit for the fiscal 2015 through fiscal 2020 tax years and the examination was completed in the second quarter of fiscal 2023 with no impact to the financial results.

During the third quarter of fiscal 2023, the Company received a federal tax refund of $ 9.8 , inclusive of interest, which was released due to the completion of the IRS examination.

As of February 28, 2023, there was approximately $ 11.9 in receivables from the IRS related to the years previously under audit included in Income tax receivable in the Company’s Condensed Consolidated Balance Sheet as of that date.

Non-income Taxes

5 unchanged sentences

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

During the third quarter of fiscal 2023, the Company recognized a benefit of $ 1.8 related to a favorable settlement of certain legacy sales tax matters.

DERIVATIVES AND HEDGING

2 unchanged sentences

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

The notional values of the contracts as of November 30, 2022 and November 30, 2021

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

were $ 22.8 and $ 27.3 , respectively.

A net unrealized gain of $ 0.8 and $ 0.6 were recognized for the six months ended November 30, 2022 and November 30, 2021, respectively.

The notional values of the contracts as of February 28, 2023 and February 28, 2022 were $ 22.8 and $ 21.9 , respectively.

A net unrealized gain of $ 0.6 and $ 0.3 were recognized for the nine months ended February 28, 2023 and February 28, 2022, respectively.

OTHER ACCRUED EXPENSES

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

November 30, 2022 May 31, 2022 November 30, 2021

February 28, 2023 May 31, 2022 February 28, 2022

Accrued payroll, payroll taxes and benefits $ 31.6 $ 32.2 $ 35.3

5 unchanged sentences

Total accrued expenses $ 163.9 $ 193.3 $ 184.8

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 share repurchase program as previously approved by the Board.

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

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

SUBSEQUENT EVENTS

On December 14, 2022, the Board declared a quarterly cash dividend of $ 0.20 per share on the Company’s Class A and Common Stock for the third quarter of fiscal 2023.

The dividend is payable on March 15, 2023 to shareholders of record as of the close of business on January 31, 2023.

On December 14, 2022, the Board authorized an increase of $ 48.8 for Common share repurchases, resulting in a current Board authorization of $ 75.0 , which includes $ 26.2 remaining from the previous Board authorization.

On March 22, 2023, the Board declared a quarterly cash dividend of $ 0.20 per share on the Company’s Class A and Common Stock for the fourth quarter of fiscal 2023.

The dividend is payable on June 15, 2023 to shareholders of record as of the close of business on April 28, 2023.

On March 22, 2023, the Board also authorized an increase of $ 50.0 for Common share repurchases under the Company's share buy-back program, resulting in a current Board authorization of $ 75.2 , which includes $ 28.2 remaining from the previous Board authorization less share repurchases of $ 3.0 subsequent to February 28, 2023.

SCHOLASTIC CORPORATION

1 unchanged sentence

Overview and Outlook

Revenues for the second quarter ended November 30, 2022 were $587.9 million, compared to $524.2 million in the prior fiscal year quarter, an increase of $63.7 million or 12%.

The Company reported net income per diluted share of Class A and Common Stock of $2.12 in the second quarter of fiscal 2023, compared to $1.91 in the prior fiscal year quarter.

Revenues in the Company's Children's Book Publishing and Distribution segment rose by 19% in the quarter ended November 30, 2022, led by strong performance in the book fairs business which benefited from higher fair count, as well as increased revenue per fair compared to the prior year period.

In the U.S., fair count continued to trend at 85% pre-pandemic levels.

Within the Education Solutions segment, revenues held consistent with the prior fiscal year quarter and integration efforts related to the recently acquired A2i™ literacy assessment and instruction system have begun.

Internationally, in addition to the recovery of the book fairs channel, the trade channel in Australia, New Zealand and the UK performed well on the success of the Company’s best-selling series titles while Canada trade channel sales decreased as a result of overall softness in the retail market.

Operating income improved $16.7 million, or 20.0%, from the prior fiscal year quarter primarily driven by the higher revenue and profit contribution from the Children’s Book Publishing and Distribution segment, mainly from the book fairs channel, as well as the Company’s efforts to address inflationary pressures with cost containment and pricing related initiatives, partially offset by increased spending on long-term strategic investments in the Education Solutions segment.

The Company is expecting the U.S.

book fairs business to continue to outperform fiscal 2022 with higher fair count and improved revenue-per-fair.

The trade channel is expected to benefit from new releases from best-selling authors, including a new title from Dav Pilkey's Dog Man ® series.

The Education Solutions segment will continue to focus on strategic investments, including the integration of the recently acquired A2i™ literacy assessment.

The Company expects to incur approximately $3 million of additional costs before this assessment will become integrated into the Company's comprehensive digital literacy platform.

In addition, the Company is preparing for the seasonally important fiscal fourth quarter within the education channel.

Internationally, unfavorable economic conditions in the UK and Canada are expected to impact revenue growth and operating income.

However, the international margins are expected to benefit from the disposition of the direct sales business in Asia, which generated losses in the prior period.

The Company expects international operations to be impacted by unfavorable foreign currency translation as the U.S.

Revenues for the third quarter ended February 28, 2023 were $324.9 million, compared to $344.5 million in the prior fiscal year quarter, a decrease of $19.6 million or 6%.

The Company reported net loss per diluted share of Class A and Common Stock of $0.57 in the third quarter of fiscal 2023, compared to a net loss per diluted share of $0.44 in the prior fiscal year quarter.

During the third quarter of fiscal 2023, the Company's trade channel continued to be impacted by the softening retail demand for children’s books in the U.S.

and major international markets.

Despite the foregoing, the Children’s Book Publishing and Distribution segment revenues grew in the quarter with continued strong performance in the book fairs channel reflecting investments in innovation and improved fair experiences since the pandemic, as well as Scholastic’s unique and trusted position in schools.

Ongoing delays in school and school districts’ purchasing of instructional materials as they focus on managing staffing shortages and changes to the methods for literacy instruction contributed to lower revenues in Education Solutions .

The International segment experienced trends similar to the U.S.

markets with lower revenues in the trade channels partially offset by improvements in book fairs sales.

Operating loss increased $8.2 million, or 42%, from the prior fiscal year quarter primarily driven by the lower revenues and the continued impact of inflationary pressures on costs, in addition to decreased profit contribution from the Education Solutions segment, which included increased spending on long-term strategic investments.

The Company expects continued improvement in the book fairs businesses around the world, most notably in the U.S.

which continues to outperform fiscal 2022 with higher fair count and improved revenue-per-fair.

The trade channel will continue to release new titles from bestselling authors, including Dog Man ® #11:

Twenty Thousand Fleas Under the Sea by Dav Pilkey to be released at the end of March 2023, but expects unfavorable economic trends in the retail book markets to continue to negatively impact the channel both domestically and internationally.

The Education Solutions segment will continue to focus on integration efforts related to the Learning Ovations acquisition as well as the upcoming launch of Ready4Reading TM , a new K-3 phonics program.

The segment is preparing for the seasonally important fiscal fourth quarter, although the softness in the education instructional materials market could continue.

Internationally, margins are expected to continue to benefit from the disposition of the direct sales business in Asia, which generated losses in the prior period, despite unfavorable economic conditions in the UK and Canada which are expected to continue to impact revenue growth and operating income, together with unfavorable foreign currency translation as the U.S.

dollar remains strong.

1 unchanged sentence

Results of Operations

Revenues for the quarter ended November 30, 2022 increased by $63.7 million to $587.9 million, compared to $524.2 million in the prior fiscal year quarter.

The Children's Book Publishing and Distribution segment revenues increased by $65.8 million, primarily driven by higher book fairs channel revenues resulting from increased fair count, which continues to trend at 85% of pre-pandemic levels compared to 70% in the prior fiscal year period, coupled with higher revenue per fair.

In the Education Solutions segment, revenues were relatively consistent with the prior fiscal year quarter as revenues from sponsored programs offset lower sales as a result of the timing of the Rising Voices Library ® product launch in the prior period.

In local currency, the International segment revenues increased by $7.5 million, primarily driven by the recovery of the book fairs channel across the Major Markets (Canada, UK, Australia and New Zealand), partially offset by a decrease in book clubs channel revenues on lower than anticipated teacher participation, in addition to lower sales from the trade channel in Canada due to unfavorable economic condition and from Asia as a result of the disposition of the direct sales business.

International segment revenues were impacted by unfavorable foreign exchange of $10.1 million in the quarter ended November 30, 2022.

Revenues for the six months ended November 30, 2022 increased by $66.8 million to $850.8 million, compared to $784.0 million in the prior fiscal year period.

The Children's Book Publishing and Distribution segment revenues increased by $74.7 million primarily driven by higher book fairs channel revenues resulting from increased fair count, which continued to trend at 85% of pre-pandemic levels compared to 70% in the prior fiscal year period, coupled with higher revenue per fair and increased redemptions of book fair incentive

Revenues for the quarter ended February 28, 2023 decreased by $19.6 million to $324.9 million, compared to $344.5 million in the prior fiscal year quarter.

The Children's Book Publishing and Distribution segment revenues increased by $3.0 million, driven by higher book fairs channel revenues resulting from increased fair count and higher revenue per fair, substantially offset by lower trade channel revenues due to the industry-wide decline in the retail market for children's books and lower book clubs channel sales due to the timing of revenues in the prior year and a continued decline in order volumes.

In the Education Solutions segment, revenues decreased by $7.2 million primarily due to lower sales of instructional products and programs as a result of purchasing delays by school and district administrators and changes to the methods for literacy instruction.

In local currency, the International segment revenues decreased by $11.9 million, primarily driven by lower sales in Asia as a result of the disposition of the direct sales business, coupled with lower trade channel sales, largely in Canada, as a result of the industry-wide decline in retail sales as well as lower book clubs channel revenues in Australia and New Zealand.

International segment revenues were impacted by unfavorable foreign exchange of $3.5 million in the quarter ended February 28, 2023.

Revenues for the nine months ended February 28, 2023 increased by $47.2 million to $1,175.7 million, compared to $1,128.5 million in the prior fiscal year period.

The Children's Book Publishing and Distribution segment revenues increased by $77.7 million primarily driven by higher book fairs channel revenues resulting from increased fair count, higher revenue per fair and increased redemptions of book fair incentive program credits, partially offset by lower trade channel revenues due to the industry-wide decline in the retail market for

SCHOLASTIC CORPORATION

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

children's books and lower book clubs channel sales due to the multi-year trend of lower sponsor participation.

In the Education Solutions segment, revenues decreased by $13.6 million primarily driven by lower sales of instructional products and programs due to purchasing delays by school and district administrators and changes to the methods for literacy instruction as well as the shifting of revenues from the fourth quarter of fiscal 2021 due to supply chain constraints at that time into the first quarter of fiscal 2022.

In addition, the segment had lower sales of Rising Voices Library ® products.

This was partially offset by revenues from sponsored programs and increased revenues from traditional classroom book collections.

In local currency, the International segment revenues increased by $1.4 million primarily driven by increased revenues in the Company's Major Markets (Canada, UK, Australia and New Zealand) as a result of the continued recovery of the book fairs channel, partially offset by lower revenues in Asia as a result of the disposition of the direct sales business.

International segment revenues were impacted by unfavorable foreign exchange of $18.3 million in the nine months ended February 28, 2023.

Components of Cost of goods sold for the three and nine months ended February 28, 2023 and February 28, 2022 are as follows:

Three months ended Nine months ended

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

2023 2022 2023 2022

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

Product, service and production costs and inventory reserves $ 96.2 29.6 % $ 93.8 27.2 % $ 337.2 28.7 % $ 306.6 27.2 %

Royalty costs 24.8 7.6 % 30.0 8.7 % 97.6 8.3 % 102.8 9.1 %

Prepublication amortization 6.3 2.0 % 6.8 2.0 % 19.1 1.6 % 20.6 1.8 %

Postage, freight, shipping, fulfillment and other 33.8 10.4 % 39.0 11.3 % 112.1 9.5 % 110.9 9.8 %

Total $ 161.1 49.6 % $ 169.6 49.2 % $ 566.0 48.1 % $ 540.9 47.9 %

Cost of goods sold for the quarter ended February 28, 2023 was $161.1 million, or 49.6% of revenues, compared to $169.6 million, or 49.2% of revenues, in the prior fiscal year quarter.

Cost of goods sold for the nine months ended February 28, 2023 was $566.0 million, or 48.1% of revenues, compared to $540.9 million, or 47.9% of revenues, in the prior fiscal year period.

Cost of goods sold continued to be impacted by inflationary pressures which resulted in increased product costs due to higher print and inbound freight costs, substantially offset by lower royalty costs driven by the increased sales volume in the book fairs channel, which traditionally has a higher mix of non-royalty bearing titles.

In addition, the Education Solutions segment recognized higher inventory reserves due to lower utilization of aged inventory.

Favorable postage, freight, shipping and fulfillment costs as a percentage of revenue were driven by improved efficiencies at the Company's centralized distribution facility in Missouri which resulted in more units per shipment and fewer shipments to fulfill orders.

During fiscal 2023, the Company purchased a substantial amount of inventory at higher costs to mitigate long lead times and these higher costs will be reflected in Cost of goods sold and impact margins in the fourth quarter of fiscal 2023.

Selling, general and administrative expenses for the quarter ended February 28, 2023 decreased to $178.0 million, compared to $180.8 million in the prior fiscal year quarter.

The $2.8 million decrease was primarily attributable to overall lower costs in Asia as a result of the disposition of the direct sales business, a COVID-related governmental employee retention credit recognized in the book fairs channel in the quarter ended February 28, 2023 and lower severance expense from the Company's restructuring programs of $2.5 million.

In addition, the Company received and recognized insurance recoveries of $5.0 million in the quarter ended February 28, 2023 related to photo litigation settlements paid in prior periods and also recognized a benefit related to the favorable settlement of certain legacy sales tax matters.

The decrease was partially offset by increased labor costs, largely in the book fairs channel to support the increased fair count and in connection with the digital literacy platform integration efforts related to the Learning Ovations acquisition and the upcoming launch of Ready4Reading, in addition to increased marketing expenses in the book fairs channel associated with the increased fair count.

SCHOLASTIC CORPORATION

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements