What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-09-27 compared with 2024-03-22 · 144 added, 172 removed, 66 unchanged (83% of the section changed)

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

Overview and Outlook

Revenues for the first quarter ended August 31, 2024 were $237.2 million, compared to $228.5 million in the prior fiscal year quarter, an increase of $8.7 million or 4%.

The Company reported net loss per diluted share of Class A and Common Stock of $2.21 in the first quarter of fiscal 2024, compared to a net loss per diluted share of $2.35 in the prior fiscal year quarter.

First quarter results reflect the addition of 9 Story to the newly formed Entertainment segment, driving an overall increase in revenues.

Within the Children's Book Publishing and Distribution segment, revenues increased on higher foreign rights sales, partly offset by lower frontlist sales compared to the prior year period when the Company released the paperback edition of the fourth book in the Hunger Games series, The Ballad of Songbirds and Snakes .

Fiscal 2025 revenues are expected to benefit from new releases in the second half of the fiscal year, including the newest book in Dav Pilkey’s Dog Man ® series and the fifth book in Suzanne Collins’ Hunger Games series, Sunrise on the Reaping .

Within Education Solutions, school districts continued to focus on adopting and implementing new core programs, driving lower sales of supplemental curriculum products, partly offset by increased sales to state-sponsored partners driven by the growing number of kids participating in these programs.

Internationally, revenues were comparable to the prior year period as increased backlist sales in the U.K., were offset by revenue declines in Canada and the export channel.

In fiscal 2025, the Company remains focused on expanding the reach and impact of its book fairs and book clubs, while innovating how it serves its school partners.

Within Education Solutions , the Company continues to develop new structured literacy programs and supplemental products for schools, which are expected to launch next summer.

The Company also continues to focus on advancing its strategy as a global children’s media and content company with the integration of 9 Story and growing its slate of media properties in development and production.

Results of Operations

Revenues for the quarter ended August 31, 2024 increased by $8.7 million to $237.2 million, compared to $228.5 million in the prior fiscal year quarter.

The increase in consolidated revenues was driven by the newly formed Entertainment segment, with revenues of $16.6 million, primarily reflecting the acquisition of 9 Story, which closed in June.

The Children's Book Publishing and Distribution segment revenues increased by $3.0 million, primarily driven by increased foreign rights sales within the trade channel.

In the Education Solutions segment, revenues decreased by $10.3 million primarily due to the continued decline in spending on supplemental materials, partially offset by increased revenues from sponsored programs.

In local currency, the International segment revenues decreased by $0.2 million, primarily reflecting lower sales in Canada and export which offset higher revenues from the UK trade channel.

International segment revenues were also impacted by unfavorable foreign exchange of $0.2 million in the quarter ended August 31, 2024.

Components of Cost of goods sold for the three months ended August 31, 2024 and August 31, 2023 are as follows:

Three months ended

August 31, 2024 August 31, 2023

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

Product, service and production costs and inventory reserves $ 74.2 31.3 % $ 72.8 31.8 %

Royalty costs 22.0 9.3 % 23.5 10.3 %

Prepublication amortization 6.7 2.1 % 6.3 2.0 % 20.6 1.8 % 19.1 1.6 %

Prepublication and production amortization

6.7 2.8 % 7.0 3.1 %

Postage, freight, shipping, fulfillment and other 25.4 10.7 % 26.7 11.7 %

Total $ 128.3 54.1 % $ 130.0 56.9 %

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.

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.

Cost of goods sold for the quarter ended August 31, 2024 was $128.3 million, or 54.1% of revenues, compared to $130.0 million, or 56.9% of revenues, in the prior fiscal year quarter.

Cost of goods sold benefited from favorable product mix in the U.S.

trade channel which resulted in lower product costs, in addition to lower outbound freight and fulfillment costs, primarily in the U.S.

book fairs channel, and lower royalty costs within Education Solutions .

This was partially offset by higher product costs associated with the mix of products sold in Education Solutions relating to community facing programs and summer reading products, coupled with the addition of production costs as a result of the 9 Story acquisition.

Selling, general and administrative expenses for the quarter ended August 31, 2024 decreased to $182.1 million, compared to $184.2 million in the prior fiscal year quarter.

The $2.1 million decrease was primarily attributable to lower commission, external labor and marketing expenses in Education Solutions , coupled with lower severance expense from the Company's cost-saving initiatives.

This was partially offset by higher operating expenses from the addition of 9 Story and higher labor costs in the U.S.

book fairs channel due to inflationary pressures, as well as to support the expected volume of fairs for the fall season.

Depreciation and amortization expenses for the quarter ended August 31, 2024 were $15.3 million compared to $13.4 million in the prior fiscal year quarter.

The increase in Depreciation and amortization was primarily due to amortization expense on the intangible assets acquired as a result of the 9 Story acquisition.

Amortization related to cloud computing arrangements for the quarter ended August 31, 2024 increased by $0.6 million compared to the prior fiscal year quarter as a result of assets placed into service during fiscal 2024.

Interest expense for the quarter ended August 31, 2024 was $3.8 million compared to $0.3 million in the prior fiscal year quarter.

The $3.5 million increase in interest expense was due to borrowings under the U.S.

credit agreement incurred during the first quarter of fiscal 2025 to fund the 9 Story acquisition.

Interest expense is expected to increase by a similar amount each quarter for the remainder of the fiscal year.

Interest income for the quarter ended August 31, 2024 was $0.8 million compared to $1.7 million in the prior fiscal year quarter.

The $0.9 million decrease was attributable to lower average short term investment balances in the quarter ended August 31, 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.

The Company's interim effective tax rate, inclusive of discrete items, for the quarter ended August 31, 2024 was 31.9%, compared to 24.3% for the prior fiscal year period.

The interim effective tax rate for the three months ended August 31, 2024 varies from the statutory rate primarily due to expected state and local income tax and non-deductible compensation for covered executive employees.

Net loss attributable to Scholastic Corporation for the quarter ended August 31, 2024 improved by $11.7 million to a loss of $62.5 million, compared to a loss of $74.2 million in the prior fiscal year quarter.

Loss per basic and diluted share of Class A and Common Stock was $2.21 for the fiscal quarter ended August 31, 2024, compared to $2.35 in the prior fiscal year quarter.

Children’s Book Publishing and Distribution

Three months ended Nine months ended

February 29, February 28, $ % February 29, February 28, $ %

Three months ended August 31,

($ amounts in millions)

2024 2023 Change Change 2024 2023 Change Change

2024 2023 Change Change

Revenues $ 105.4 $ 102.4 $ 3.0 2.9 %

2 unchanged sentences

83.1 80.1 3.0 3.7 %

Asset impairments 0.5 — 0.5 NM 0.5 — 0.5 NM

Operating income (loss) $ (36.6) $ (41.0) $ 4.4 10.7 %

Operating margin NM 0.9 % 9.9 % 11.4 %

Operating margin NM NM

(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,

SCHOLASTIC CORPORATION

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.

Revenues for the quarter ended August 31, 2024 increased by $3.0 million to $105.4 million, compared to $102.4 million in the prior fiscal year quarter.

Revenues from school reading events increased $1.6 million, primarily within the book fairs channel.

Revenues from school reading events are generally not significant in the first fiscal

SCHOLASTIC CORPORATION

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.

quarter as most schools are not in session.

Trade channel revenues increased $1.4 million reflecting increased foreign rights sales, offset by lower sales of frontlist titles as the retail bookselling market for juvenile titles was down slightly year-over-year and the prior year period benefited from the release of the paperback edition of The Ballad of Songbirds and Snakes ahead of the title’s movie release last fall.

New releases in the quarter ended August 31, 2024 included the paperback release of J.K.

Rowling's The Christmas Pig , The Baby-Sitter's Club #16:

Kristy and the Walking Disaster , The Bad Guys #19:

The Bad Guys in the Serpent and the Beast, Unico:

Awakening (Volume 1):

An Original Manga , and When We Flew Away by NYT bestselling author Alice Hoffman.

Cost of goods sold for the quarter ended August 31, 2024 was $58.9 million, or 55.9% of revenues, compared to $63.3 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 trade channel in the quarter ended August 31, 2024, which included higher foreign rights sales, as compared to the prior fiscal year quarter, resulting in lower product costs.

In addition, the segment benefited from lower outbound freight and fulfillment costs, primarily in the book fairs channel, coupled with lower print costs.

Other operating expenses for the quarter ended August 31, 2024 were $83.1 million, compared to $80.1 million in the prior fiscal year quarter.

Other operating expenses increased $3.0 million primarily driven by higher labor costs in the U.S.

book fairs channel due to inflationary pressures and to support the expected volume of fairs for the fall season.

Segment operating loss for the quarter ended August 31, 2024 was $36.6 million, compared to $41.0 million in the prior fiscal year quarter.

The $4.4 million improvement was primarily attributable to the increased foreign rights sales, which have a higher profit margin than traditional trade sales.

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

Three months ended August 31,

($ amounts in millions) 2024 2023 Change Change

Revenues $ 55.7 $ 66.0 $ (10.3) (15.6) %

2 unchanged sentences

45.3 52.1 (6.8) (13.1) %

Operating income (loss) $ (0.8) $ 0.7 $ (1.5) NM $ (13.7) $ 3.4 $ (17.1) NM

Operating income (loss) $ (17.0) $ (18.7) $ 1.7 9.1 %

Operating margin NM NM

1 unchanged sentence

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.

Revenues for the quarter ended August 31, 2024 decreased by $10.3 million to $55.7 million, compared to $66.0 million in the prior fiscal year quarter.

The decrease in segment revenues was primarily driven by the continued impact of market conditions as school districts focus on adopting and implementing new core programs and spending on materials not aligned with Science of Reading based approaches to literacy continued to decline, in addition to the timing of sales from literacy initiatives.

Partially offsetting the decline, the segment benefited from increased revenues from state-sponsored partners, driven by the growing number of kids participating in these programs, and increased sales from the Company’s Rising Voices Library ® offering.

Cost of goods sold for the quarter ended August 31, 2024 was $27.4 million, or 49.2% of revenues, compared to $32.6 million, or 49.4% of revenues, in the prior fiscal year quarter.

Cost of goods sold benefited from lower prepublication amortization as a result of the impairment of certain education products in fiscal 2024 and lower royalty costs driven by product mix.

This was partially offset by higher product costs associated with the mix of products sold during the period ended August 31, 2024, primarily related to community facing programs and summer reading products.

Other operating expenses for the quarter ended August 31, 2024 were $45.3 million, compared to $52.1 million in the prior fiscal year quarter, resulting in a decrease of $6.8 million.

The decrease in Other operating expenses was primarily attributable to lower commission expense driven by the lower revenues, lower external labor costs as a result of the timing of work on new product launches and lower marketing expenses due to the timing of mailings for the magazines business.

SCHOLASTIC CORPORATION

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.

Segment operating loss for the quarter ended August 31, 2024 was $17.0 million, compared to $18.7 million in the prior fiscal year quarter.

The $1.7 million improvement was primarily driven by the increased sales from sponsored programs as increases in participation have a significant impact on profitability, as well as lower expenses driven by lower prepublication amortization, lower external labor costs and the timing of marketing mailings for the magazine business.

Entertainment

Three months ended August 31,

($ amounts in millions) 2024 2023 Change Change

Revenues $ 16.6 $ 0.4 $ 16.2 NM

Cost of goods sold 8.3 0.0 8.3 NM

Other operating expenses (1)

8.8 0.9 7.9 NM

Operating income (loss) $ (0.5) $ (0.5) $ — — %

Operating margin NM NM

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

NM Not meaningful

The Entertainment segment includes the operations of 9 Story Media Group Inc.

("9 Story") and Scholastic Entertainment Inc.

SEI was reported in the Children's Book Publishing and Distribution segment in prior periods.

The financial results for SEI for the three months ended August 31, 2023 have been reclassified to Entertainment to reflect this change.

Refer to Note 7 of Notes to Condensed Consolidated Financial Statements - unaudited in Item 1, “Financial Statements" for further details regarding the acquisition of 9 Story.

Revenues for the quarter ended August 31, 2024 were $16.6 million, compared to $0.4 million in the prior fiscal year quarter.

The $16.2 million increase reflected the addition of 9 Story from the date of acquisition on June 20, 2024 through August 31, 2024 in which a majority of the revenues were driven by production revenue related to episodic deliveries, production services provided to third parties and, to a lesser extent, revenues from royalties and distribution.

Cost of goods sold for the quarter ended August 31, 2024 was $8.3 million, or 50.0% of revenues.

Cost of goods sold primarily consists of production costs and amortization, participation expenses and interest on film related obligations.

Other operating expenses for the quarter ended August 31, 2024 were $8.8 million, which included $1.7 million of transaction costs related to the 9 Story acquisition.

Segment operating loss for the quarter ended August 31, 2024 was $0.5 million.

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

Three months ended August 31,

($ amounts in millions) 2024 2023 Change Change

Revenues $ 56.8 $ 57.2 $ (0.4) (0.7) %

3 unchanged sentences

Operating income (loss) $ (8.3) $ (8.2) $ (0.1) (1.2) %

Operating margin NM NM NM NM

Operating margin 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.

Revenues for the quarter ended August 31, 2024 decreased by $0.4 million to $56.8 million, compared to $57.2 million in the prior fiscal year quarter.

Local currency revenues across the Company's ongoing foreign operations decreased by $0.2 million, excluding unfavorable foreign exchange impact of $0.2 million.

In the U.K., local currency revenues increased $1.1 million, primarily driven by the trade channel which benefited from

SCHOLASTIC CORPORATION

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.

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.

higher sales from backlist titles within the Dog Man and Hunger Games series.

In Canada, local currency revenues decreased $0.5 million primarily driven by lower education channel sales due, in part, to lower school funding, coupled with lower sales from the book fairs channel.

In Australia and New Zealand, local currency revenues decreased $0.2 million, driven by lower sales in New Zealand, primarily in the book clubs channel due to lower revenue per order and the timing of certain education orders, partially offset by higher revenues in Australia, primarily driven by increased sales from the book fairs and trade channels.

Local currency revenues in Asia decreased $0.2 million primarily due to lower sales from the trade and education channels, partially offset by growth in India within the trade channel.

Export channel sales also decreased $0.4 million as compared to the prior fiscal year quarter due to the timing of orders.

Cost of goods sold for the quarter ended August 31, 2024 was $35.3 million, or 62.1% of revenues, which was comparable to $35.9 million, or 62.8% of revenues, in the prior fiscal year quarter.

Other operating expenses for the quarter ended August 31, 2024 were $29.8 million, compared to $29.5 million in the prior fiscal year quarter.

The Company benefited from lower employee related expenses as the prior fiscal year quarter included $1.2 million of severance expense related to reorganization efforts within the book clubs channel in Canada, which was offset by higher general overhead costs in the quarter ended August 31, 2024.

Segment operating loss for the quarter ended August 31, 2024 was $8.3 million, which was comparable to $8.2 million in the prior fiscal year quarter.

Unallocated overhead expense for the quarter ended August 31, 2024 decreased by $4.6 million to $26.1 million, from $30.7 million in the prior year quarter.

The decrease was primarily attributable to lower severance expense from the Company's cost-saving initiatives in respect to which the Company incurred $1.2 million in the quarter ended August 31, 2024 compared to $5.1 million in the prior fiscal year quarter.

In addition, revenue from rental income increased $0.2 million to $2.7 million for the quarter ended August 31, 2024, compared to $2.5 million in the prior fiscal year quarter, driven by a new tenant leasing space in the Company's headquarters.

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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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.

Trade channel and Entertainment segment revenues can vary throughout the year due to the timing of published titles' release dates and program production deliveries and distribution license period start dates.

SCHOLASTIC CORPORATION

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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 used by operating activities was $41.9 million for the three months ended August 31, 2024, compared to cash used by operating activities of $38.1 million for the prior fiscal year period, representing an increase in cash used by operating activities of $3.8 million.

The increase in cash used was primarily driven by lower customer remittances on receivable balances in the quarter ended August 31, 2024, substantially offset by lower severance payments and lower spending in Education Solutions related to commissions and external labor costs.

Cash used in investing activities was $200.8 million for the three months ended August 31, 2024, compared to cash used in investing activities of $21.8 million in the prior fiscal year period, representing an increase in cash used in investing activities of $179.0 million.

The increase in cash used was primarily due to the 9 Story acquisition for $176.4 million, net of cash acquired, during the three months ended August 31, 2024.

In addition, the Company incurred higher capital expenditures of $5.7 million primarily related to spending on a new literacy platform within Education Solutions and expanding the available rental space in its headquarters.

Cash provided by financing activities was $211.9 million for the three months ended August 31, 2024, compared to cash used in financing activities of $39.3 million for the prior fiscal year period, representing an increase in cash provided by financing activities of $251.2 million.

The increase in cash provided was primarily attributable to borrowings of $225 million under the U.S.

credit agreement incurred during the three months ended August 31, 2024 to fund the 9 Story acquisition.

In addition, the Company repurchased common stock of $5.0 million, compared to repurchases of $35.9 million in the prior fiscal year quarter, and paid lower dividends of $0.8 million, partially offset by $2.4 million of net repayments of film related obligations in the three months ended August 31, 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.

The Company’s cash and cash equivalents totaled $84.1 million at August 31, 2024, $113.7 million at May 31, 2024 and $125.8 million at August 31, 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.

operations totaled $30.4 million at August 31, 2024, $54.9 million at May 31, 2024 and $90.1 million at August 31, 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.

Under the Company's open-market buy-back program, $81.6 million remained available for future purchases of common shares as of August 31, 2024.

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.

As of August 31, 2024, the Company’s primary sources of liquidity consisted of cash and cash equivalents of $84.1 million, cash from operations and the Company's U.S.

credit agreement.

The Company is currently in the process of amending its U.S.

credit agreement, increasing the borrowing capacity from $300 million to $400 million and extending the term an additional 5 years.

The Company expects the U.S.

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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

credit agreement, less commitments of $0.4 million, has $74.6 million of availability.

Additionally, the Company has short-term credit facilities of $24.0 million, less current borrowings of $6.1 million and commitments of $3.6 million, resulting in $14.3 million of current availability under these facilities at August 31, 2024.

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.

SCHOLASTIC CORPORATION

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.

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.

credit agreement and certain credit lines with various banks, including those related to film related obligations, as described in Note 4 of Notes to Condensed Consolidated Financial Statements - unaudited in Item 1, “Financial Statements." The Company had $225.0 million in outstanding borrowings under the U.S.

credit agreement as of August 31, 2024.

New Accounting Pronouncements

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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 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, tax incentives, 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.

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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