What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-12-15 compared with 2023-09-22 · 145 added, 116 removed, 65 unchanged (80% of the section changed)

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

Overview and Outlook

Revenues for the first quarter ended August 31, 2023 were $228.5 million, compared to $262.9 million in the prior fiscal year quarter, a decrease of $34.4 million or 13%.

The Company reported net loss per diluted share of Class A and Common Stock of $2.35 in the first quarter of fiscal 2024, compared to a net loss per diluted share of $1.33 in the prior fiscal year quarter.

First quarter results reflect the Company's implementation of its newly integrated school reading events strategy while investing in other areas of its business for long-term growth.

Within the Children's Book Publishing and Distribution segment, the trade channel was impacted by the overall softness in the retail book market resulting in lower backlist sales, partly offset by multiple frontlist bestsellers.

In Education Solutions , revenues were lower year-over-year, primarily reflecting the shifting seasonality of this business to the fourth fiscal quarter, as well as the timing of revenues from state-sponsored programs.

The International segment was also impacted by softness in the retail market which resulted in lower trade channel revenues in major markets.

The Company is well-positioned to meet the demand for the current back-to-school season with a fair count goal of 90% of pre-pandemic levels.

The integrated school reading events business has completed its reorganization and begun to implement new customer-centric strategies.

Although the trade channel may continue to be impacted by softness in the retail book market, it is expected to benefit from the release of new titles from the Dog Man ® , Cat Kid Comic Club ® , and Heartstopper TM series, The Harry Potter Wizarding Almanac and the new Goosebumps ® TV series on Disney+ ® and Hulu ® .

Within Education Solutions , while the Company expects the continuance of the revenue shift trend centered on the fourth fiscal quarter, it continues to be well-positioned to meet the customized needs of educators throughout the year.

In addition, the segment is expected to benefit from the actions completed to streamline the organization and adjust the operating model under new leadership.

Internationally, the Company expects the recently completed reorganization in Canada to drive greater operating efficiencies across North American operations.

Results of Operations

Revenues for the quarter ended August 31, 2023 decreased by $34.4 million to $228.5 million, compared to $262.9 million in the prior fiscal year quarter.

The Children's Book Publishing and Distribution segment revenues decreased by $21.9 million, primarily driven by lower trade channel revenues which reflect the overall softness in the retail book market resulting in lower backlist sales.

In the Education Solutions segment, revenues decreased by $7.2 million primarily due to the timing of revenues from sponsored programs and summer reading offerings.

In local currency, the International segment revenues decreased by $6.4 million, reflecting lower sales in Asia as a result of the disposition of the direct sales business, coupled with lower sales in Canada and Australia, primarily from the trade channels, which similar to the U.S., continued to be impacted by the softness in the retail market.

International segment revenues were also impacted by unfavorable foreign exchange of $1.4 million in the quarter ended August 31, 2023.

Components of Cost of goods sold for the three months ended August 31, 2023 and August 31, 2022 are as follows:

Three months ended

August 31, August 31,

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

Components of Cost of goods sold for the three and six months ended November 30, 2023 and November 30, 2022 are as follows:

Three months ended Six months ended

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

2023 2022 2023 2022

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

Product, service and production costs and inventory reserves $ 143.0 25.5 % $ 158.6 27.0 % $ 215.8 27.3 % $ 241.0 28.3 %

3 unchanged sentences

Total $ 234.1 41.6 % $ 260.4 44.3 % $ 364.1 46.0 % $ 404.9 47.6 %

SCHOLASTIC CORPORATION Item 2.

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

Cost of goods sold for the quarter ended August 31, 2023 was $130.0 million, or 56.9% of revenues, compared to $144.5 million, or 55.0% of revenues, in the prior fiscal year quarter.

The increase in Cost of goods sold as a percentage of revenues was primarily attributable to higher prepublication amortization as a result of the release of Ready4Reading TM at the end of fiscal 2023 as well as higher fulfillment costs in Canada and the UK as a result of increased labor costs.

Product costs were marginally unfavorable as a result of the higher costs associated with delivering professional learning services within Education Solutions , which were partially offset by lower production costs and favorable product mix in the domestic trade channel.

Selling, general and administrative expenses for the quarter ended August 31, 2023 increased to $184.2 million, compared to $162.8 million in the prior fiscal year quarter.

The $21.4 million increase was primarily attributable to higher labor and equipment costs in the U.S.

book fairs channel to support the expected increase in fair count for fiscal 2024, in addition to higher severance expense from the Company's restructuring programs of $6.3 million related to reorganization efforts and cost-saving initiatives in the school reading events business, Education Solutions and in Canada.

In addition, the Company continued to spend on investments in long-term growth opportunities within the Education Solutions segment.

Depreciation and amortization expenses for the quarter ended August 31, 2023 were $13.4 million compared to $13.7 million in the prior fiscal year quarter.

Cost of goods sold for the quarter ended November 30, 2023 was $234.1 million, or 41.6% of revenues, compared to $260.4 million, or 44.3% of revenues, in the prior fiscal year quarter.

Cost of goods sold for the six months ended November 30, 2023 was $364.1 million, or 46.0% of revenues, compared to $404.9 million, or 47.6% of revenues, in the prior fiscal year period.

The improvement in Cost of goods sold as a percentage of revenues was primarily attributable to favorable product costs due to lower printing and inbound freight costs, in addition to lower production costs and lower royalty costs related to a higher mix of lower-royalty bearing titles sold in the domestic trade channel in the period ended November 30, 2023.

This was partially offset by higher prepublication amortization as a result of the release of Ready4Reading TM at the end of fiscal 2023.

Selling, general and administrative expenses for the quarter ended November 30, 2023 decreased to $213.1 million, compared to $213.6 million in the prior fiscal year quarter.

The $0.5 million decrease was primarily attributable to lower promotional spending, largely offset by increased spending related to facilities and labor ahead of expected growth in the book fairs channel and investments in growth opportunities in Education Solutions.

Selling, general and administrative expenses for the six months ended November 30, 2023 increased to $397.3 million, compared to $376.4 million in the prior fiscal year period.

The $20.9 million increase was primarily attributable to increased spending related to facilities and labor ahead of expected growth in the book fairs channel and investments in growth opportunities in Education Solutions.

In addition, the Company incurred higher severance expense from the Company's restructuring programs of $6.3 million related to reorganization efforts and cost-saving initiatives in the school reading events business, Education Solutions and in Canada.

This was partially offset by lower promotional spending.

Depreciation and amortization expenses in the three and six months ended November 30, 2023 of $14.1 million and $27.5 million, respectively, was relatively consistent compared to $13.8 million and $27.5 million, respectively, in the prior fiscal year periods.

The Company continues to shift spending to cloud computing arrangements in which the amortization expense is included in Selling, general and administrative expenses rather than Depreciation and amortization.

Amortization related to cloud computing arrangements for the quarter ended August 31, 2023 was relatively consistent with the prior year period.

There were no significant assets placed into service during the quarter ended August 31, 2023.

Interest income for the quarter ended August 31, 2023 was $1.7 million compared to $0.6 million in the prior fiscal year quarter.

The $1.1 million increase was attributable to higher interest rates earned in the quarter ended August 31, 2023.

Amortization related to cloud computing arrangements for the period ended November 30, 2023 was consistent with the prior year period.

There were no significant assets placed into service during the period ended November 30, 2023.

Interest income for the three months ended November 30, 2023 was $0.9 million, compared to $1.1 million in the prior fiscal year quarter.

The decrease in interest income was due to lower investment balances as compared to the prior fiscal year quarter.

Interest income for the six months ended November 30, 2023 was $2.6 million, compared to $1.7 million in the prior fiscal year period.

The increase was attributable to higher interest rates earned in the period ended November 30, 2023.

The Company invests excess cash in short term investments which earn competitive interest rates that change directionally in relation to the Federal Funds rate.

Interest expense for the quarter ended August 31, 2023 was $0.3 million compared to $0.4 million in the prior fiscal year quarter.

There were no significant changes in average debt borrowings compared to the prior fiscal year quarter.

The Company's interim effective tax rate, inclusive of discrete items, for the quarter ended August 31, 2023 was 24.3%, compared to 21.6% for the prior fiscal year period.

Net loss attributable to Scholastic Corporation for the quarter ended August 31, 2023 increased by $28.7 million to $74.2 million, compared to $45.5 million in the prior fiscal year quarter.

Loss per basic and diluted share of Class A and Common Stock was $2.35 and $2.35, respectively, for the fiscal quarter ended August 31, 2023, compared to $1.33 and $1.33, respectively, in the prior fiscal year quarter.

Net income attributable to noncontrolling interest for the quarter ended August 31, 2022 was $0.1 million.

SCHOLASTIC CORPORATION Item 2.

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

Interest expense for the three and six months ended November 30, 2023 was $0.5 million and $0.8 million, respectively, compared to $0.4 million and $0.8 million, respectively, in the prior fiscal year periods.

There were no significant changes in average debt borrowings compared to the prior fiscal year periods.

The Company's interim effective tax rate, inclusive of discrete items, for the three and six months ended November 30, 2023 was 24.2% and 22.9%, respectively, compared to 25.3% and 30.2%, respectively, for the prior fiscal year periods.

Net income attributable to Scholastic Corporation for the quarter ended November 30, 2023 increased by $1.6 million to $76.9 million, compared to $75.3 million in the prior fiscal year quarter.

Earnings per basic and diluted share of Class A and Common Stock was $2.51 and $2.45, respectively, for the fiscal quarter ended November 30, 2023, compared to $2.17 and $2.12, respectively, in the prior fiscal year quarter.

Net income attributable to Scholastic Corporation for the six months ended November 30, 2023 decreased by $27.1 million to $2.7 million, compared to $29.8 million in the prior fiscal year period.

Earnings per basic and diluted share of Class A and Common Stock was $0.09 and $0.09, respectively, for the six months ended November 30, 2023, compared to $0.86 and $0.84, respectively, in the prior fiscal year period.

Net income attributable to noncontrolling interest for the three and six months ended November 30, 2022 was $0.1 million and $0.2 million, respectively.

Children’s Book Publishing and Distribution

Three months ended August 31,

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

($ amounts in millions)

2023 2022 Change Change

2023 2022 Change Change 2023 2022 Change Change

Revenues $ 392.8 $ 418.3 $ (25.5) (6.1) % $ 495.6 $ 543.0 $ (47.4) (8.7) %

3 unchanged sentences

Operating income (loss) $ 110.8 $ 113.2 $ (2.4) (2.1) % $ 69.3 $ 83.1 $ (13.8) (16.6) %

Operating margin NM NM

Operating margin 28.2 % 27.1 % 14.0 % 15.3 %

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

NM Not meaningful

Revenues for the quarter ended August 31, 2023 decreased by $21.9 million to $102.8 million, compared to $124.7 million in the prior fiscal year quarter.

Trade channel revenues decreased $17.2 million reflecting the overall softness in the retail book market, driving lower revenues for backlist titles and offsetting strong sales from frontlist bestsellers including This Winter by Alice Oseman, The Bad Guys in Let the Games Begin!

(The Bad Guys ® #17) by Aaron Blabey, The Official Harry Potter Cookbook, and The Ballad of Songbirds and Snakes by

Revenues for the quarter ended November 30, 2023 decreased by $25.5 million to $392.8 million, compared to $418.3 million in the prior fiscal year quarter.

Revenues from school reading events decreased $23.9 million due to lower revenues from the book clubs channel as efforts to reposition the business resulted in a lower number of sponsors and fewer events, partially offset by higher book fairs channel revenues of $1.3 million on increased fair count.

Also within the book fairs channel, increased redemptions of incentive program credits were partly offset by modestly lower average revenue per fair, reflecting the addition of mostly smaller fairs as the Company increased fair count.

Trade channel revenues decreased $1.6 million, largely driven by lower media revenues compared to the prior year when the Company completed the delivery of episodes of the animated TV show " Eva the Owlet " TM based on the Owl Diaries TM book series.

Excluding media channel sales, trade channel revenues increased 3%, driven by the success of multiple frontlist and backlist titles and higher foreign rights sales.

New releases in the quarter ended November 30, 2023 included Cat Kid Comic Club:

Influencers , the interactive edition of Harry Potter and the Prisoner of Azkaban , Wings of Fire TM :

A Guide to the Dragon World , The Official Five Nights at Freddy’s Cookbook , The Bad Guys in Look Who’s Talking ( The Bad Guys ® #18) and All We Need is Love and A Really Soft Pillow .

The trade channel also benefited from increased sales of the new paperback edition of The Ballad of Songbirds and Snakes in connection with Lionsgate's theatrical release in November 2023, and a similar boost in sales of titles from the original Hunger Games trilogy.

Revenues for the six months ended November 30, 2023 decreased by $47.4 million to $495.6 million, compared to $543.0 in the prior fiscal year period.

Revenues from school reading events decreased $28.6 million due to lower revenues from the book clubs channel as efforts to reposition the business resulted in a lower number of sponsors and fewer events.

Revenues from the book fairs channel remained consistent year over year.

Trade channel revenues decreased $18.8 million reflecting modest declines in the retail book market, the prior year release of Harry Potter and the Order of the Phoenix:

The Illustrated Edition and lower media revenues associated with the prior year release of the animated series " Eva the Owlet " TM .

Despite modest declines in the retail book market, the trade channel benefited from sales of the new paperback edition of The Ballad of Songbirds and Snakes in connection with Lionsgate's theatrical release in November 2023 and increased sales of titles from the original Hunger Games trilogy as well as several new releases including Cat Kid Comic Club:

SCHOLASTIC CORPORATION

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

Suzanne Collins in paperback.

If the retail book market remains soft, the trade channel could continue to be negatively impacted during the remainder of fiscal 2024.

In addition, lower media revenues contributed to the revenue decrease as the Company completed the delivery of episodes associated with the production of the animated series "Eva the Owlet" TM in fiscal 2023.

Revenues from school reading events decreased $4.7 million primarily due to lower redemptions of book fair incentive program credits.

Revenues from school reading events are generally not significant in the first fiscal quarter as most schools are not in session.

Cost of goods sold for the quarter ended August 31, 2023 was $63.3 million, or 61.6% of revenues, compared to $77.1 million, or 61.8% of revenues, in the prior fiscal year quarter.

Cost of goods sold benefited from the mix of product sold in the quarter ended August 31, 2023 as compared to the prior fiscal year quarter, coupled with lower production costs.

Other operating expenses for the quarter ended August 31, 2023 increased to $81.0 million, compared to $77.7 million in the prior fiscal year quarter.

Other operating expenses increased $3.3 million primarily driven by higher labor and equipment costs in the book fairs channel to support the expected increase in fair count for fiscal 2024, coupled with increased rent for warehouse space.

This was partially offset by lower book clubs kit costs as a result of a change in the timing of the distribution of kits to schools.

Segment operating loss for the quarter ended August 31, 2023 was $41.5 million, compared to $30.1 million in the prior fiscal year quarter.

The $11.4 million increase in operating loss was primarily attributable to lower trade channel revenues reflecting the continued softness in the retail market, coupled with lower redemptions of book fair incentive program credits.

In addition, the segment incurred higher labor and equipment costs in the book fairs channel to support the expected increase in fair count for fiscal 2024.

Influencers , the interactive edition of Harry Potter and the Prisoner of Azkaban , Wings of Fire:

A Guide to the Dragon World and The Harry Potter Wizarding Almanac.

Cost of goods sold for the quarter ended November 30, 2023 was $156.1 million, or 39.7% of revenues, compared to $180.6 million, or 43.2% of revenues, in the prior fiscal year quarter.

Cost of goods sold for the six months ended November 30, 2023 was $219.4 million, or 44.3% of revenues, compared to $257.7 million, or 47.5% of revenues, in the prior fiscal year period.

Cost of goods sold benefited from favorable product costs due to lower inbound freight and printing costs, in addition to lower production costs.

Royalty costs were also favorable as a result of a higher mix of lower-royalty bearing titles sold in the trade channel in the period ended November 30, 2023.

Favorable Cost of goods sold is expected to continue into the second half of the fiscal year.

Other operating expenses for the quarter ended November 30, 2023 increased by $1.4 million to $125.9 million, compared to $124.5 million in the prior fiscal year quarter.

Other operating expenses for the six months ended November 30, 2023 increased by $4.7 million to $206.9 million, compared to $202.2 million in the prior fiscal year period.

The increase in Other operating expenses was primarily driven by higher labor and equipment costs in the book fairs channel ahead of expected growth for fiscal 2024, coupled with increased rent for warehouse space.

This was partially offset by lower promotional spending related to book clubs kits as a result of a change in the frequency of the distribution of kits to schools.

Segment operating income for the quarter ended November 30, 2023 was $110.8 million, compared to $113.2 million in the prior fiscal year quarter.

The $2.4 million decrease in operating income was primarily attributable to lower book clubs channel revenues reflecting efforts to reposition the business.

In addition, the book fairs channel incurred higher planned spending related to facilities and labor ahead of expected growth, partially offset by lower promotional spending related to book clubs kits.

Segment operating income for the six months ended November 30, 2023 was $69.3 million, compared to $83.1 million in the prior fiscal year period.

The $13.8 million decrease in operating income was primarily attributable to lower book clubs channel revenues as a result of efforts to reposition the business.

In addition, the segment incurred higher planned spending related to facilities and labor ahead of expected growth in the book fairs channel, which was partially offset by lower promotional spending related to book clubs kits.

Education Solutions

Three months ended August 31,

($ amounts in millions) 2023 2022 Change Change

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

($ amounts in millions) 2023 2022 Change Change 2023 2022 Change Change

Revenues $ 81.0 $ 80.0 $ 1.0 1.3 % $ 147.0 $ 153.2 $ (6.2) (4.0) %

3 unchanged sentences

Operating income (loss) $ 5.8 $ 7.0 $ (1.2) (17.1) % $ (12.9) $ 2.7 $ (15.6) NM

Operating margin NM NM

Operating margin 7.2 % 8.8 % NM 1.8 %

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

NM Not meaningful

Revenues for the quarter ended August 31, 2023 decreased by $7.2 million to $66.0 million, compared to $73.2 million in the prior fiscal year quarter.

The decrease in segment revenues was primarily driven by timing of revenues from sponsored programs and summer learning product offerings as the Company continues to experience a shift in sales into the fourth fiscal quarter.

Partially offsetting the lower revenues, the segment benefited from increased revenues from the Scholastic Family and Community Engagement (FACE) TM and Literacy Partners initiatives as a result of continued growth in the funding for community and government programs to support childhood literacy, as well as higher revenues from professional learning services delivered during the quarter ended August 31, 2023.

Cost of goods sold for the quarter ended August 31, 2023 was $32.6 million, or 49.4% of revenues, compared to $30.4 million, or 41.5% of revenues, in the prior fiscal year quarter.

The increase in Cost of goods sold as a percentage of revenues was primarily attributable to higher prepublication amortization as result of the release of Ready4Reading TM at the end of fiscal 2023.

In addition, the segment incurred higher product costs associated with the delivery of professional learning services during the quarter ended August 31, 2023.

Other operating expenses for the quarter ended August 31, 2023 were $52.1 million, compared to $47.1 million in the prior fiscal year quarter, resulting in an increase of $5.0 million.

The increase in Other operating expenses was primarily attributable to higher labor and outside service costs as a result of increased spending on investments in long-term growth opportunities.

Revenues for the quarter ended November 30, 2023 increased by $1.0 million to $81.0 million, compared to $80.0 million in the prior fiscal year quarter.

The segment benefited from increased revenues from state-sponsored programs, partly offset by sales declines in supplemental instructional materials, primarily related to the shift in prevailing approaches to literacy instruction.

The segment continues to prepare for the seasonally important fourth fiscal quarter.

Revenues for the six months ended November 30, 2023 decreased by $6.2 million to $147.0 million, compared to $153.2 million in the prior fiscal year period.

The decrease in segment revenues was primarily driven by timing of revenues from summer learning product offerings as the Company continues to experience a shift in sales from the first fiscal quarter into the fourth fiscal quarter, coupled with declines in supplemental instructional materials.

Partially offsetting the lower revenues, the segment benefited from increased revenues from its Literacy Initiatives, such as the Scholastic Family and Community Engagement (FACE) TM initiative, as a result of continued growth in the funding for community and extended learning programs to support childhood literacy.

SCHOLASTIC CORPORATION

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

Segment operating loss for the quarter ended August 31, 2023 was $18.7 million, compared to $4.3 million in the prior fiscal year quarter.

The $14.4 million increase in operating loss was primarily driven by the timing of revenues related to sponsored programs and summer learning product offerings, coupled with higher cost of product due to the mix of product sold during the quarter ended August 31, 2023 and higher prepublication amortization.

In addition, increased spending on investments in growth opportunities, which is expected to continue during fiscal 2024, contributed to the increase in operating loss.

Cost of goods sold for the quarter ended November 30, 2023 was $30.7 million, or 37.9% of revenues, compared to $28.6 million, or 35.8% of revenues, in the prior fiscal year quarter.

Cost of goods sold for the six months ended November 30, 2023 was $63.3 million, or 43.1% of revenues, compared to $59.0 million, or 38.5% of revenues, in the prior fiscal year period.

The increase in Cost of goods sold as a percentage of revenues was primarily attributable to higher costs associated with the mix of product sold during the period ended November 30, 2023, coupled with increased fulfillment costs.

In addition, the segment incurred higher prepublication amortization as result of the release of Ready4Reading TM at the end of fiscal 2023.

Other operating expenses for the quarter ended November 30, 2023 were $44.5 million, compared to $44.4 million in the prior fiscal year quarter, resulting in an increase of $0.1 million.

Other operating expenses for the six months ended November 30, 2023 were $96.6 million, compared to $91.5 million in the prior fiscal year period, resulting in an increase of $5.1 million.

The increase in Other operating expenses was primarily attributable to higher labor and outside service costs as a result of increased spending on investments in long-term growth opportunities, partially offset by lower spending on promotional materials.

Segment operating income for the quarter ended November 30, 2023 was $5.8 million, compared to $7.0 million in the prior fiscal year quarter.

The $1.2 million decrease in operating income was primarily driven by unfavorable cost of product due to product mix and higher prepublication amortization, coupled with increased spending on investments in growth opportunities.

Segment operating loss for the six months ended November 30, 2023 was $12.9 million, compared to operating income of $2.7 million in the prior fiscal year period.

The $15.6 million decrease in operating income was primarily driven by lower revenues, coupled with unfavorable cost of product due to product mix and higher prepublication amortization and increased spending on investments in growth opportunities.

Higher operating cost levels are expected to continue in the second half of fiscal 2024 as the Company continues to invest in growth initiatives.

International

Three months ended August 31,

($ amounts in millions) 2023 2022 Change Change

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

($ amounts in millions) 2023 2022 Change Change 2023 2022 Change Change

Revenues $ 86.5 $ 89.6 $ (3.1) (3.5) % $ 143.7 $ 154.6 $ (10.9) (7.1) %

3 unchanged sentences

Operating income (loss) $ 8.0 $ 6.7 $ 1.3 19.4 % $ (0.2) $ 3.2 $ (3.4) (106.3) %

Operating margin NM NM

Operating margin 9.2 % 7.5 % NM 2.1 %

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

NM Not meaningful

Revenues for the quarter ended August 31, 2023 decreased by $7.8 million to $57.2 million, compared to $65.0 million in the prior fiscal year quarter.

Local currency revenues across the Company's ongoing foreign operations decreased by $4.8 million, excluding $1.6 million in lower revenues from the disposition of the direct sales business and unfavorable foreign exchange impact of $1.4 million.

In Canada, local currency revenues decreased $2.7 million primarily due to lower trade channel sales reflecting the softness in the retail book market, coupled with lower revenues from the book clubs channel.

The Company has completed the reorganization of book clubs operations in Canada which is expected to drive greater efficiencies.

Local currency revenues in Asia decreased $0.7 million primarily due to lower sales from the trade and Asia export channels as a result of the timing of orders in the prior fiscal year quarter in which shipments shifted in from the fourth quarter of fiscal 2022.

In Australia and New Zealand, local currency revenues decreased $1.8 million, primarily driven by lower sales in the Australian trade channel due to the continued softness in the retail market and timing of new releases, partially offset by higher revenues from the book fairs channel driven by higher fair count as the pandemic recovery continued.

In the UK, local currency revenues increased $0.2 million, primarily driven by higher revenues from the book fairs channel as a result of increased redemptions of incentive credits, partially offset by lower sales in the trade channel.

Export channel sales also increased $0.2 million as compared to the prior fiscal year quarter.

Cost of goods sold for the quarter ended August 31, 2023 was $35.9 million, or 62.8% of revenues, compared to $39.5 million, or 60.8% of revenues, in the prior fiscal year quarter.

The increase in Cost of goods sold as a percentage of revenue was attributable to higher fulfillment costs, primarily in Canada and the UK, due to increased labor costs.

Other operating expenses for the quarter ended August 31, 2023 were $29.5 million, compared to $29.0 million in the prior fiscal year quarter.

Other operating expenses increased $0.5 million primarily driven by severance expense from restructuring programs within the book clubs channel in Canada of $1.2 million in the quarter ended August 31, 2023, partially offset by favorable foreign exchange impact of $0.6 million.

Segment operating loss for the quarter ended August 31, 2023 was $8.2 million, compared to $3.5 million in the prior fiscal year quarter.

The $4.7 million increase in operating loss was primarily driven by lower trade channel revenues in Canada and Australia, coupled with higher fulfillment costs due to increased labor costs in Canada and the UK.

In addition, the segment incurred severance expense from restructuring programs in Canada which are expected to drive greater operating efficiencies across North American operations.

Revenues for the quarter ended November 30, 2023 decreased by $3.1 million to $86.5 million, compared to $89.6 million in the prior fiscal year quarter.

Local currency revenues across the Company's foreign operations decreased by $3.8 million, excluding favorable foreign exchange impact of $0.7 million.

In Australia and New Zealand, local currency revenues decreased $3.8 million, primarily driven by lower sales in the trade channel due to the continued softness in the retail market, coupled with lower sales from the book clubs channel.

Local currency revenues in Asia decreased $0.5 million primarily due to lower sales from the trade and education channels in Asia, partially offset by increased revenues from the education channel in the Philippines.

Export channel sales also decreased $0.9 million as compared to the prior fiscal year quarter.

Partially offsetting the revenue decline, UK local currency revenues increased $1.4 million, primarily driven by higher revenues from the trade and book fairs channels, partially offset by lower sales from the book clubs channel.

In Canada, local currency revenues were consistent with the prior year as higher volumes in the book fairs channel were offset by lower revenues from the book clubs channel.

Revenues for the six months ended November 30, 2023 decreased by $10.9 million to $143.7 million, compared to $154.6 million in the prior fiscal year period.

Local currency revenues across the Company's ongoing foreign operations decreased by $8.5 million, excluding $1.7 million in lower revenues from the disposition of the direct sales business in Asia and unfavorable foreign exchange impact of $0.7 million.

In Australia and New Zealand, local currency revenues decreased $5.7 million, primarily driven by lower sales in the trade channel due to the

SCHOLASTIC CORPORATION

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

Unallocated overhead expense for the quarter ended August 31, 2023 increased by $10.5 million to $30.7 million, from $20.2 million in the prior year quarter.

The increase was primarily attributable to higher employee-related costs, which included severance expense from its restructuring programs of $5.1 million related to the reorganization efforts and cost-saving initiatives in the school reading events division and Education Solutions as well as higher medical expense.

This was partially offset by higher rental income of $1.0 million as a result of a new tenant leasing space in the Company's headquarters.

continued softness in the retail market, coupled with lower sales from the book clubs channel.

In Canada, local currency revenues decreased $2.7 million primarily due to lower trade channel sales reflecting the softness in the retail book market and lower revenues from the book clubs channel, partially offset by higher revenue per fair in the book fairs channel.

Local currency revenues in Asia decreased $1.0 million primarily due to lower sales from the trade and education channels in Asia, partially offset by increased revenues from the education channel in the Philippines.

Export channel sales also decreased $0.7 million as compared to the prior fiscal year period.

Partially offsetting the revenue decline, local currency revenues in the UK increased $1.6 million, primarily driven by higher revenues from the trade and book fairs channels, partially offset by lower sales from the book clubs channel.

Cost of goods sold for the quarter ended November 30, 2023 was $48.9 million, or 56.5% of revenues, compared to $53.8 million, or 60.0% of revenues, in the prior fiscal year quarter.

Cost of goods sold for the six months ended November 30, 2023 was $84.8 million, or 59.0% of revenues, compared to $93.3 million, or 60.3% of revenues, in the prior fiscal year period.

The decrease in Cost of goods sold as a percentage of revenues was primarily attributable to favorable product costs due to lower print and inbound freight costs as well as lower outbound freight charges, primarily in Canada and Australia.

Other operating expenses for the quarter ended November 30, 2023 were $29.6 million, compared to $29.1 million in the prior fiscal year quarter.

Other operating expenses increased $0.5 million primarily driven by lower equity investment income in the quarter ended November 30, 2023.

Other operating expenses for the six months ended November 30, 2023 were $59.1 million, compared to $58.1 million in the prior fiscal year period.

Other operating expenses increased $1.0 million primarily driven by lower equity investment income, coupled with severance expense from restructuring programs within the book clubs channel in Canada of $1.2 million in the period ended November 30, 2023.

This was partially offset by lower overhead spending in Asia as a result of the disposition of the direct sales business.

Segment operating income for the quarter ended November 30, 2023 was $8.0 million, compared to $6.7 million in the prior fiscal year quarter.

The $1.3 million increase in operating income was primarily driven by operating efficiencies in Canada which benefited from the reorganization of its book clubs operations.

Segment operating loss for the six months ended November 30, 2023 was $0.2 million, compared to operating income of $3.2 million in the prior fiscal year period.

The $3.4 million decrease in operating income was primarily driven by lower trade channel revenues in Canada and Australia reflecting the continued softness in the retail market, coupled with higher severance expense from restructuring programs in Canada which are expected to continue to drive greater operating efficiencies across North American operations.

Unallocated overhead expense for the quarter ended November 30, 2023 decreased by $3.5 million to $23.3 million, from $26.8 million in the prior year quarter.

The decrease was primarily attributable to timing of discretionary spending, coupled with higher rental income of $0.7 million as a result of a new tenant leasing space in the Company's headquarters.

Unallocated overhead expense for the six months ended November 30, 2023 increased by $7.0 million to $54.0 million, from $47.0 million in the prior year period.

The increase was primarily attributable to higher employee-related costs, which included severance expense from restructuring programs of $5.1 million in the first fiscal quarter related to the reorganization efforts and cost-saving initiatives in the school reading events division and Education Solutions as well as higher medical expense.

This was partially offset by higher rental income of $1.7 million as a result of a new tenant leasing space in the Company's headquarters and timing of discretionary spending.

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

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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 fourth quarter.

Education channel

SCHOLASTIC CORPORATION

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

revenues are generally higher in the fourth quarter.

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

Liquidity and Capital Resources

Cash used by operating activities was $38.1 million for the three months ended August 31, 2023, compared to cash used by operating activities of $60.3 million for the prior fiscal year period, representing a decrease in cash used by operating activities of $22.2 million.

The decrease in cash used was primarily driven by lower inventory purchases as lead times have returned to pre-pandemic levels resulting in a return to historical purchasing patterns.

This was partially offset by lower customer remittances on receivable balances in the quarter ended August 31, 2023.

The Company also paid higher severance in the quarter ended August 31, 2023 and increased spending on growth initiatives in Education Solutions as well as increased general expenses in the book fairs channel to support the expected increased fair count for fiscal 2024.

Cash used in investing activities was $21.8 million for the three months ended August 31, 2023, compared to cash used in investing activities of $16.2 million in the prior fiscal year period, representing an increase in cash used in investing activities of $5.6 million.

The increase in cash used was driven by higher capital expenditures of $2.9 million, primarily for new point-of-sale and fleet equipment for the book fairs channel, as well as increased prepublication spending of $0.6 million associated with digital product development in Education Solutions .

In addition, the Company acquired the remaining shares of Make Believe Ideas Limited for $2.1 million during the quarter ended August 31, 2023.

Cash used in financing activities was $39.3 million for the three months ended August 31, 2023, compared to cash provided by financing activities of $1.6 million for the prior fiscal year period, representing an increase in cash used in financing activities of $40.9 million.

The increase in cash used was attributable to common stock repurchases of $35.9 million, compared to repurchases of $4.7 million in the prior fiscal year quarter, a decrease in net proceeds from stock option exercises of $8.3 million in the period ended August 31, 2023 and higher dividend payments of $1.4 million.

Cash provided by operating activities was $71.6 million for the six months ended November 30, 2023, compared to cash provided by operating activities of $21.3 million for the prior fiscal year period, representing an increase in cash provided by operating activities of $50.3 million.

The increase in cash provided was primarily driven by approximately $80 million in lower inventory purchases as lead times have returned to pre-pandemic levels resulting in a return to historical purchasing patterns, which also reflected lower freight and manufacturing costs.

This was partially offset by lower customer remittances on receivable balances, increased spending on growth initiatives in Education Solutions and higher planned spending related to facilities and labor ahead of expected growth in the book fairs channel, as well as higher severance paid in the period ended November 30, 2023.

Cash used in investing activities was $49.1 million for the six months ended November 30, 2023, compared to cash used in investing activities of $45.8 million in the prior fiscal year period, representing an increase in cash used in investing activities of $3.3 million.

The increase in cash used was driven by higher capital expenditures of $5.0 million, primarily for new point-of-sale equipment and trailers for the book fairs channel, as well as increased prepublication spending of $0.7 million associated with product development in Education Solutions .

This was partially offset by lower acquisition‑related payments in which the Company acquired the remaining shares of Make Believe Ideas Limited for $2.1 million and certain amortizable intangible assets related to educational programs for $5.8 million during the period ended November 30, 2023, compared to the acquisition of Learning Ovations for $10.7 million in the prior year period.

Cash used in financing activities was $97.8 million for the six months ended November 30, 2023, compared to cash used by financing activities of $29.0 million for the prior fiscal year period, representing an increase in cash used in financing activities of $68.8 million.

The increase in cash used was attributable to common stock repurchases of $90.2 million, compared to repurchases of $29.7 million in the prior fiscal year period, a decrease in net proceeds from stock option exercises of $9.2 million in the period ended November 30, 2023 and higher dividend payments of $0.8 million.

Cash Position

The Company’s cash and cash equivalents totaled $125.8 million at August 31, 2023, $224.5 million at May 31, 2023 and $239.7 million at August 31, 2022.

The Company’s cash and cash equivalents totaled $149.5 million at November 30, 2023, $224.5 million at May 31, 2023 and $261.1 million at November 30, 2022.

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

operations totaled $90.1 million at August 31, 2023, $174.6 million at May 31, 2023 and $202.2 million at August 31, 2022.

operations totaled $115.1 million at November 30, 2023, $174.6 million at May 31, 2023 and $228.7 million at November 30, 2022.

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

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

Under the Company's open-market buy-back program, $85.7 million remained available for future purchases of common shares as of August 31, 2023.

SCHOLASTIC CORPORATION

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

Under the Company's open-market buy-back program, $33.8 million remained available for future purchases of common shares as of November 30, 2023.

Subsequent to November 30, 2023, the Board authorized an increase of $66.2 million for common stock repurchases, resulting in a current Board authorization of $100.0 million, which includes the remaining amount from the previous Board authorization.

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

As of August 31, 2023, the Company’s primary sources of liquidity consisted of cash and cash equivalents of $125.8 million, cash from operations and the Company's U.S.

As of November 30, 2023, the Company’s primary sources of liquidity consisted of cash and cash equivalents of $149.5 million, cash from operations and the Company's U.S.

credit agreement.

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credit agreement, less commitments of $0.4 million, has $299.6 million of availability.

Additionally, the Company has short-term credit facilities of $34.7 million, less current borrowings of $5.9 million and commitments of $3.4 million, resulting in $25.4 million of current availability under these facilities at August 31, 2023.

Additionally, the Company has short-term credit facilities of $40.9 million, less current borrowings of $6.3 million and commitments of $3.4 million, resulting in $31.2 million of current availability under these

SCHOLASTIC CORPORATION

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

facilities at November 30, 2023.

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

1 unchanged sentence

credit agreement and certain credit lines with various banks as described in Note 4 of Notes to Condensed Consolidated Financial Statements - unaudited in Item 1, “Financial Statements." The Company had no outstanding borrowings under the U.S.

credit agreement as of August 31, 2023.

credit agreement as of November 30, 2023.

New Accounting Pronouncements

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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 2. Management’s Discussion and Analysis