SCHOLASTIC CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Components of Cost of goods sold for the three and nine months ended February 29, 2024 and February 28, 2023 are as follows: Three months ended Nine months ended February 29, February 28, February 29, February 28, 2024 2023 2024 2023 ($ amounts in millions) $ % of Revenue $ % of Revenue $ % of Revenue $ % of Revenue Product, service and production costs and inventory reserves $ 83.5 25.8 % $ 96.2 29.6 % $ 299.3 26.9 % $ 337.2 28.7 % Royalty costs 26.9 8.3 % 24.8 7.6 % 90.5 8.1 % 97.6 8.3 % Prepublication amortization 6.7 2.1 % 6.3 2.0 % 20.6 1.8 % 19.1 1.6 % Postage, freight, shipping, fulfillment and other 31.6 9.7 % 33.8 10.4 % 102.4 9.2 % 112.1 9.5 % Total $ 148.7 45.9 % $ 161.1 49.6 % $ 512.8 46.0 % $ 566.0 48.1 % Cost of goods sold for the quarter ended February 29, 2024 was $148.7 million, or 45.9% of revenues, compared to $161.1 million, or 49.6% of revenues, in the prior fiscal year quarter. The improvement in Cost of goods sold as a percentage of revenues was primarily attributable to favorable product expenses due to lower printing and inbound freight costs partially offset by higher royalties due to the increase in trade publishing sales which carry a higher royalty rate. Cost of goods sold for the nine months ended February 29, 2024 was $512.8 million, or 46.0% of revenues, compared to $566.0 million, or 48.1% 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 expenses due to lower printing and inbound freight costs, decreased production costs due to the prior year release of " Eva the Owlet" , and lower royalties related to a higher mix of lower-royalty bearing titles sold in the domestic trade channel in the period ended February 29, 2024. 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 February 29, 2024 increased to $194.8 million, compared to $178.0 million in the prior fiscal year quarter. The $16.8 million increase was primarily attributable to higher severance expense from the Company's restructuring programs of $0.8 million and $3.0 million related to the Company's planned investment in 9 Story. In addition, in the prior period, the Company received approximately $3.3 million in COVID-related subsidies and $5.0 million in recoveries from its insurance programs related to photo litigation settlements accrued and paid in prior periods. The remaining increase was primarily related to increased internal and external service labor costs due in part to investment in growth opportunities, partially offset by lower promotional spending. Selling, general and administrative expenses for the nine months ended February 29, 2024 increased to $592.1 million, compared to $554.4 million in the prior fiscal year period. The $37.7 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 $7.1 million related to reorganization efforts and cost-saving initiatives in the school reading events business, Education Solutions and Canada and $3.0 million related to the Company's planned investment in 9 Story. In the prior period, the Company received approximately $3.3 million in COVID-related subsidies and $5.0 million in recoveries from its insurance programs related to photo litigation settlements accrued and paid in prior periods. These increases were partially offset by lower promotional spending. Depreciation and amortization expenses in the three and nine months ended February 29, 2024 of $14.6 million and $42.1 million, respectively, was relatively consistent compared to $13.5 million and $41.0 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 period ended February 29, 2024 was consistent with the prior year period. There were no significant assets placed into service during the period ended February 29, 2024. 25 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Asset impairments for the three and nine months ended February 29, 2024 were $0.5 million. The Company committed to a plan to cease use of a leased sales office with minimal use by employees due to a hybrid work environment, as a result of which the Company recognized an impairment expense of $0.5 million in the third quarter of fiscal 2024, primarily related to this right-of-use asset. Interest income for the three months ended February 29, 2024 was $1.1 million compared to $1.7 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 nine months ended February 29, 2024 was $3.7 million, compared to $3.4 million in the prior fiscal year period. The increase was attributable to higher interest rates earned in the period ended February 29, 2024. 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 three and nine months ended February 29, 2024 was $0.5 million and $1.3 million, respectively, compared to $0.3 million and $1.1 million, respectively, in the prior fiscal year periods. The increase was primarily due to interest expense on increased borrowings. The Company's interim effective tax rate, inclusive of discrete items, for the three and nine months ended February 29, 2024 was 23.4% and 23.5%, respectively, compared to 26.3% and 36.3%, respectively, for the prior fiscal year periods. Net loss attributable to Scholastic Corporation for the quarter ended February 29, 2024 increased by $7.3 million to $26.5 million, compared to $19.2 million in the prior fiscal year quarter. Loss per basic and diluted share of Class A and Common Stock was $0.91 and $0.91, respectively, for the fiscal quarter ended February 29, 2024, compared to $0.57 and $0.57, respectively, in the prior fiscal year quarter. Net loss attributable to Scholastic Corporation for the nine months ended February 29, 2024 increased by $34.4 million to $23.8 million, compared to net income of $10.6 million in the prior fiscal year period. Loss per basic and diluted share of Class A and Common Stock was $0.80 and $0.80, respectively, for the nine months ended February 29, 2024, compared to earnings per basic and diluted share of $0.31 and $0.30, respectively, in the prior fiscal year period. Net loss attributable to noncontrolling interest for the three months ended February 28, 2023 was $0.1 million. Net income attributable to noncontrolling interest for the nine months ended February 28, 2023 was $0.1 million. Children’s Book Publishing and Distribution Three months ended Nine months ended February 29, February 28, $ % February 29, February 28, $ % ($ amounts in millions) 2024 2023 Change Change 2024 2023 Change Change Revenues $ 193.6 $ 204.0 $ (10.4) (5.1) % $ 689.2 $ 747.0 $ (57.8) (7.7) % Cost of goods sold 87.5 103.7 (16.2) (15.6) % 306.9 361.4 (54.5) (15.1) % Other operating expenses (1) 106.4 98.4 8.0 8.1 % 313.3 300.6 12.7 4.2 % Asset impairments 0.5 — 0.5 NM 0.5 — 0.5 NM Operating income (loss) $ (0.8) $ 1.9 $ (2.7) (142.1) % $ 68.5 $ 85.0 $ (16.5) (19.4) % Operating margin NM 0.9 % 9.9 % 11.4 % (1) Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization. NM Not meaningful Revenues for the quarter ended February 29, 2024 decreased by $10.4 million to $193.6 million, compared to $204.0 million in the prior fiscal year quarter. The third fiscal quarter is a seasonally quiet quarter for the book clubs and book fairs channels. Due to the Company's on-going efforts to strategically reposition the book clubs business, revenues declined by $14.4 million when compared to the prior fiscal quarter. The book fairs channel revenues were relatively flat, a decrease of $0.8 million. In the trade channel, revenues were impacted by Scholastic Entertainment's prior year delivery of the animated TV show " Eva the Owlet ". Excluding Scholastic Entertainment sales, trade channel revenues increased $10.2 million driven by higher backlist sales and new releases from the Company's best-selling series, including Wings of Fire Graphix TM #7: Winter Turning, 26 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Heartstopper #5, Amulet #9: Waverider and The Baby-sitters Club Graphix #15: Claudia and the Bad Joke, as well as the release of Heroes: A Novel of Pearl Harbor from New York Times best-selling author Alan Gratz. The trade channel also benefited from continued strong 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 related increase in sales of titles from the original Hunger Games trilogy. Subsequent to the quarter ended February 29, 2024, the Company signed a definitive agreement to invest in 9 Story, a leading independent creator, producer and distributor of premium children's content. The strategic investment in 9 Story will expand the Company's media production, sales and licensing opportunities to leverage the brand, publishing capabilities and global children’s franchises across print, screens and merchandising. Revenues for the nine months ended February 29, 2024 decreased by $57.8 million to $689.2 million, compared to $747.0 in the prior fiscal year period. Revenues from school reading events decreased $43.8 million due to lower revenues from the book clubs channel of $43.3 million as efforts to reposition the business to a smaller, more profitable core resulted in a lower number of sponsors and fewer events. Revenues from the book fairs channel remained relatively consistent year over year on an increase in number of fairs offset by a modest decline in revenue per fair. Trade channel revenues decreased $14.0 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 ". 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 a related increase in sales of titles from the original Hunger Games trilogy as well as strong sales from several new releases including Cat Kid Comic Club ® : Influencers, Heartstopper #5, the interactive edition of Harry Potter and the Prisoner of Azkaban, Wings of Fire Graphix #7: Winter Turning, Wings of Fire: A Guide to the Dragon World and The Harry Potter Wizarding Almanac . Cost of goods sold for the quarter ended February 29, 2024 was $87.5 million, or 45.2% of revenues, compared to $103.7 million, or 50.8% of revenues, in the prior fiscal year quarter. The improvement in Cost of goods sold as a percentage of revenues was primarily attributable to favorable product expenses due to lower printing and inbound freight costs, partially offset by higher royalty costs due to the increase in trade publishing sales which carry a higher royalty rate. Cost of goods sold for the nine months ended February 29, 2024 was $306.9 million, or 44.5% of revenues, compared to $361.4 million, or 48.4% 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 expenses due to lower printing and inbound freight costs as well as favorable royalty costs as a result of a higher mix of lower-royalty bearing titles sold in the trade channel in the period ended February 29, 2024. Favorable Cost of goods sold is expected to continue into the fourth fiscal quarter. Other operating expenses for the quarter ended February 29, 2024 increased by $8.0 million to $106.4 million, compared to $98.4 million in the prior fiscal year quarter. Other operating expenses for the nine months ended February 29, 2024 increased by $12.7 million to $313.3 million, compared to $300.6 million in the prior fiscal year period. The increase in Other operating expenses was primarily driven by higher labor, equipment costs and rent for warehouse space in the book fairs channel to support increased fair count, a COVID-related governmental employee retention credit of approximately $3.3 million recognized in the prior period and $3.0 million related to the Company's planned investment in 9 Story. These increases were partially offset by a lower cost base in book clubs, reflecting lower promotional spending related to book clubs kits as a result of a change in the frequency of the distribution of kits to schools. Asset impairments for the three and nine months ended February 29, 2024 were $0.5 million. The Company committed to a plan to cease use of a leased sales office space with minimal use by employees due to a hybrid work environment, as a result of which the Company recognized an impairment expense of $0.5 million in the third quarter of fiscal 2024, primarily related to this right of use asset. Segment operating loss for the quarter ended February 29, 2024 was $0.8 million, compared to operating income of $1.9 million in the prior fiscal year quarter. The $2.7 million decrease was attributable to a COVID-related governmental employee retention credit recognized in the prior period, costs related to the Company's planned investment in 9 Story, the right of use asset impairment and lower revenues. This decrease was partially offset by lower freight costs and promotional spending. 27 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Segment operating income for the nine months ended February 29, 2024 was $68.5 million, compared to $85.0 million in the prior fiscal year period. The $16.5 million decrease in operating income was attributable to lower book clubs channel revenues as a result of efforts to reposition the business, a COVID-related governmental employee retention credit recognized in the prior period, costs related to the Company's planned investment in 9 Story and the right of use asset impairment. Higher planned book fair channel spending around growth initiatives impacting facility, technology and labor costs was offset by decreased promotional spending in the book clubs channel. Education Solutions Three months ended Nine months ended February 29, February 28, $ % February 29, February 28, $ % ($ amounts in millions) 2024 2023 Change Change 2024 2023 Change Change Revenues $ 68.5 $ 70.0 $ (1.5) (2.1) % $ 215.5 $ 223.2 $ (7.7) (3.4) % Cost of goods sold 26.2 25.8 0.4 1.6 % 89.5 84.8 4.7 5.5 % Other operating expenses (1) 43.1 43.5 (0.4) (0.9) % 139.7 135.0 4.7 3.5 % Operating income (loss) $ (0.8) $ 0.7 $ (1.5) NM $ (13.7) $ 3.4 $ (17.1) NM Operating margin NM 1.0 % NM 1.5 % (1) Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization. NM Not meaningful Revenues for the quarter ended February 29, 2024 decreased by $1.5 million to $68.5 million, compared to $70.0 million in the prior fiscal year quarter. The third fiscal quarter is a seasonally low volume quarter for the education channel. Sales in supplemental instructional materials were lower, primarily related to the shift in prevailing approaches to literacy instruction which was partially offset by increased revenues from state-sponsored programs. The segment continues to prepare for the seasonally important fourth fiscal quarter. Revenues for the nine months ended February 29, 2024 decreased by $7.7 million to $215.5 million, compared to $223.2 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. Cost of goods sold for the quarter ended February 29, 2024 was $26.2 million, or 38.2% of revenues, compared to $25.8 million, or 36.9% of revenues, in the prior fiscal year quarter. Cost of goods sold for the nine months ended February 29, 2024 was $89.5 million, or 41.5% of revenues, compared to $84.8 million, or 38.0% 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 February 29, 2024, 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 February 29, 2024 were $43.1 million, compared to $43.5 million in the prior fiscal year quarter, resulting in a decrease of $0.4 million primarily attributable to lower promotional spending partially offset by higher labor costs. Other operating expenses for the nine months ended February 29, 2024 were $139.7 million, compared to $135.0 million in the prior fiscal year period, resulting in an increase of $4.7 million. The increase in Other operating expenses was primarily attributable to higher costs as a result of increased spending on investments in long-term growth opportunities, partially offset by lower spending on promotional materials. Segment operating loss for the quarter ended February 29, 2024 was $0.8 million, compared to operating income of $0.7 million in the prior fiscal year quarter. The $1.5 million decrease was primarily driven by increased spending on investments in growth opportunities, partially offset by lower promotional spending. 28 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Segment operating loss for the nine months ended February 29, 2024 was $13.7 million, compared to operating income of $3.4 million in the prior fiscal year period. The $17.1 million decrease 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 fourth fiscal quarter of fiscal 2024. International Three months ended Nine months ended February 29, February 28, $ % February 29, February 28, $ % ($ amounts in millions) 2024 2023 Change Change 2024 2023 Change Change Revenues $ 59.1 $ 50.9 $ 8.2 16.1 % $ 202.8 $ 205.5 $ (2.7) (1.3) % Cost of goods sold 36.5 33.7 2.8 8.3 % 121.3 127.0 (5.7) (4.5) % Other operating expenses (1) 28.5 26.2 2.3 8.8 % 87.6 84.3 3.3 3.9 % Operating income (loss) $ (5.9) $ (9.0) $ 3.1 34.4 % $ (6.1) $ (5.8) $ (0.3) (5.2) % Operating margin NM NM NM NM (1) Other operating expenses include selling, general and administrative expenses, bad debt expenses, severance and depreciation and amortization. NM Not meaningful Revenues for the quarter ended February 29, 2024 increased by $8.2 million to $59.1 million, compared to $50.9 million in the prior fiscal year quarter. The foreign exchange impact on Revenues across the Company's foreign operations was not significant in the quarter ended February 29, 2024. In Canada, local currency revenues increased $3.2 million primarily due to higher revenues from the trade channel, coupled with higher book fairs channel revenues due to increased fair count and improved revenue per fair. UK local currency revenues increased $2.2 million, primarily driven by higher revenues from the trade channel, due to a strong performance of series titles including Hunger Games , Five Nights at Freddy’s ® and Dog Man ® . In Australia and New Zealand, local currency revenues increased $1.1 million, primarily driven by higher sales in the education channel coupled with higher sales from the book clubs channel. Local currency revenues in Asia increased $0.7 million primarily due to modest growth in India. Export channel sales also increased $1.0 million as compared to the prior fiscal year quarter. Revenues for the nine months ended February 29, 2024 decreased by $2.7 million to $202.8 million, compared to $205.5 million in the prior fiscal year period. Local currency revenues across the Company's ongoing foreign operations decreased by $0.5 million, excluding $1.5 million in lower revenues due to the disposition of the direct sales business in Asia and an unfavorable foreign exchange impact of $0.7 million. In Australia and New Zealand, local currency revenues decreased $4.6 million, primarily driven by lower sales in the trade channel due to the continued softness in the retail market. 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, as well as increased revenues in India. Partially offsetting the revenue decline, local currency revenues in the UK increased $3.8 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 increased $0.5 million primarily due to higher revenue per fair in the book fairs channel, partially offset by lower revenues from the book clubs channel. Export channel sales also increased $0.3 million as compared to the prior fiscal year period. Cost of goods sold for the quarter ended February 29, 2024 was $36.5 million, or 61.8% of revenues, compared to $33.7 million, or 66.2% of revenues, in the prior fiscal year quarter. Cost of goods sold for the nine months ended February 29, 2024 was $121.3 million, or 59.8% of revenues, compared to $127.0 million, or 61.8% 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. Other operating expenses for the quarter ended February 29, 2024 were $28.5 million, compared to $26.2 million in the prior fiscal year quarter. Other operating expenses increased $2.3 million primarily driven by higher employee-related costs and lower equity investment income in the quarter ended February 29, 2024. 29 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Other operating expenses for the nine months ended February 29, 2024 were $87.6 million, compared to $84.3 million in the prior fiscal year period. Other operating expenses increased $3.3 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 February 29, 2024. Segment operating loss for the quarter ended February 29, 2024 was $5.9 million, compared to $9.0 million in the prior fiscal year quarter. The $3.1 million decrease in operating loss was primarily driven by higher sales, coupled with operating efficiencies in Canada which benefited from the reorganization of its book clubs operations. Segment operating loss for the nine months ended February 29, 2024 was $6.1 million, compared to operating loss of $5.8 million in the prior fiscal year period. The $0.3 million increase in operating loss was primarily driven by lower trade channel revenues in 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. Overhead Unallocated overhead expense for the quarter ended February 29, 2024 increased by $6.1 million to $27.4 million, from $21.3 million in the prior year quarter. The increase was primarily attributable to a photo litigation settlement in the prior period, certain legacy sales tax items that benefited the prior year and higher employee related costs which included severance expense from restructuring programs of $0.8 million, partially offset with higher rental income of $1.0 million as a result of a new tenant leasing space in the Company's headquarters. Unallocated overhead expense for the nine months ended February 29, 2024 increased by $13.1 million to $81.4 million, from $68.3 million in the prior year period. The increase was primarily attributable to a photo litigation settlement in the prior period, certain legacy sales tax items that benefited the prior year and higher employee-related costs, which included severance expense from restructuring programs of $5.9 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 $2.7 million as a result of the new tenant leasing space in the Company's headquarters and timing of discretionary spending. Seasonality 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; therefore, the Company’s business is highly seasonal. As a result, the Company’s revenues in the first and third quarters of the fiscal year generally are lower than its revenues in the other two fiscal quarters. Typically, school-based channels and magazine revenues are minimal in the first quarter of the fiscal year as schools are not in session. Education channel revenues are generally higher in the fourth quarter. Trade sales can vary throughout the year due to varying release dates of published titles. 30 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Liquidity and Capital Resources Cash provided by operating activities was $84.7 million for the nine months ended February 29, 2024, compared to cash provided by operating activities of $28.9 million for the prior fiscal year period, representing an increase in cash provided by operating activities of $55.8 million. The increase in cash provided was primarily driven by approximately $148 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 February 29, 2024. Cash used in investing activities was $69.5 million for the nine months ended February 29, 2024, compared to cash used in investing activities of $65.3 million in the prior fiscal year period, representing an increase in cash used in investing activities of $4.2 million. The increase in cash used was driven by higher capital expenditures of $7.0 million, primarily for new point-of-sale equipment and trailers for the book fairs channel. 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 February 29, 2024, compared to the acquisition of Learning Ovations for $10.7 million in the prior year period. Cash used in financing activities was $129.4 million for the nine months ended February 29, 2024, compared to cash used by financing activities of $79.3 million for the prior fiscal year period, representing an increase in cash used in financing activities of $50.1 million. The increase in cash used was attributable to common stock repurchases of $143.0 million, compared to repurchases of $75.9 million in the prior fiscal year period and a decrease in net proceeds from stock option exercises of $9.7 million, offset by increased borrowings, net of repayments, of $26.5 million in the period ended February 29, 2024. Cash Position The Company’s cash and cash equivalents totaled $110.4 million at February 29, 2024, $224.5 million at May 31, 2023 and $198.8 million at February 28, 2023. Cash and cash equivalents held by the Company’s U.S. operations totaled $66.2 million at February 29, 2024, $174.6 million at May 31, 2023 and $166.0 million at February 28, 2023. 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, $46.0 million remained available for future purchases of common shares as of February 29, 2024. On March 20, 2024, the Board authorized an increase of $54.6 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 less share repurchases of $0.6 million subsequent to February 29, 2024. In addition, on March 11, 2024, the Company signed a definitive agreement to invest in a leading creator, producer and distributor of premium animated and live-action children's content. This strategic combination, with 9 Story, will expand the Company's ability to build and monetize on the Scholastic brand. The transaction is expected to close in the first quarter of fiscal 2025. 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 February 29, 2024, the Company’s primary sources of liquidity consisted of cash and cash equivalents of $110.4 million, cash from operations and the Company's U.S. credit agreement. The Company expects the U.S. credit agreement to provide it with an appropriate level of flexibility to strategically manage its business operations. The Company's U.S. credit agreement of $300.0 million, less borrowings of $25.0 million and commitments of $0.4 million, has $274.6 million of availability. Additionally, the Company has short-term credit facilities of $33.6 million, less current borrowings of $6.5 million and commitments of $3.4 million, resulting in $23.7 million of current availability under these facilities at February 29, 2024. The Company believes these 31 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) sources of liquidity are sufficient to finance its currently anticipated ongoing operating needs, as well as its financing and investing activities. The Company has available capacity under its U.S. credit agreement to initially finance its anticipated 9 Story investment of approximately $186.0 million. In addition, the U.S. 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 million. The Company will also evaluate longer-term liquidity strategies to determine the most advantageous financing arrangements in respect to such investment. Financing The Company is party to the U.S. 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 borrowings of $25.0 million under the U.S. credit agreement as of February 29, 2024. New Accounting Pronouncements Reference is made to Note 1 of Notes to Financial Statements - unaudited in Item 1, “Financial Statements,” for information concerning recent accounting pronouncements since the filing of the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2023. Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements. Additional written and oral forward-looking statements may be made by the Company from time to time in Securities and Exchange Commission ("SEC") filings and otherwise. The Company cautions readers that results or expectations expressed by forward-looking statements, including, without limitation, those relating to the Company’s future business prospects and strategic plans, ecommerce and digital initiatives, new product introductions, strategies, new education standards, goals, revenues, improved efficiencies, general operating costs, including transportation and labor costs and the extent such costs are impacted by inflationary pressures, manufacturing costs, medical costs, potential cost savings, merit pay, operating margins, working capital, liquidity, capital needs, the cost and timing of capital projects, interest costs, cash flows and income, are subject to risks and uncertainties, which may have an impact on the Company's operations and could cause actual results to differ materially from those indicated in the forward-looking statements, due to factors including those noted in the Annual Report and this Quarterly Report and other risks and factors identified from time to time in the Company’s filings with the SEC. The Company disclaims any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise. 32 SCHOLASTIC CORPORATION