Item 2. Management’s Discussion and Analysis
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 six months ended November 30, 2024 and November 30, 2023 are as follows:
Three months ended Six months ended
November 30, 2024 November 30, 2023 November 30, 2024 November 30, 2023
($ amounts in millions) % of Revenue % of Revenue % of Revenue % of Revenue
Product, service and production costs and inventory reserves $ 132.8 24.4 % $ 143.0 25.5 % $ 207.0 26.5 % $ 215.8 27.3 %
Royalty and participation costs 40.7 7.5 % 40.1 7.1 % 62.7 8.0 % 63.6 8.0 %
Prepublication and production amortization
10.7 1.9 % 6.9 1.2 % 17.4 2.2 % 13.9 1.8 %
Postage, freight, shipping, fulfillment and other 44.4 8.2 % 44.1 7.8 % 69.8 9.0 % 70.8 8.9 %
Total $ 228.6 42.0 % $ 234.1 41.6 % $ 356.9 45.7 % $ 364.1 46.0 %
Cost of goods sold for the quarter ended November 30, 2024 was $228.6 million, or 42.0% of revenues, compared to $234.1 million, or 41.6% of revenues, in the prior fiscal year quarter. Cost of goods sold was impacted by the addition of production and participation costs which were not present in the prior period as a result of the 9 Story acquisition in fiscal 2025. This increase was largely offset by the favorable mix of product sold in the quarter ended November 30, 2024, which resulted in lower product costs, primarily in the U.S. book fairs channel, the Education Solutions segment and in the U.K.
Cost of goods sold for the six months ended November 30, 2024 was $356.9, or 45.7% of revenues, compared to $364.1 million, or 46.0% of revenues, in the prior fiscal year period. Cost of goods sold benefited from favorable product mix in the U.S. trade and book fairs channels, which resulted in lower product costs, partly offset by the addition of production costs as a result of the 9 Story acquisition.
Selling, general and administrative expenses for the quarter ended November 30, 2024 increased to $224.9 million, compared to $213.1 million in the prior fiscal year quarter. The $11.8 million increase was primarily attributable to higher operating expenses from the addition of 9 Story and $3.8 million of severance expense from the Company's cost-saving initiatives incurred in the quarter ended November 30, 2024.
Selling, general and administrative expenses for the six months ended November 30, 2024 increased to $407.0 million, compared to $397.3 million in the prior fiscal year period. The $9.7 million increase was primarily attributable to the addition of 9 Story, which resulted in $2.1 million of transaction costs and higher operating expenses in the period ended November 30, 2024, partially offset by $1.3 million of lower severance expense from cost-saving initiatives.
Depreciation and amortization expenses for the three and six months ended November 30, 2024 were $16.3 million and $31.6 million, respectively, compared to $14.1 million and $27.5 million, respectively, in the prior fiscal year periods. 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. 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 six months ended November 30, 2024 increased by $1.4 million compared to the prior fiscal year period as a result of assets placed into service during fiscal 2024.
Interest expense for the three and six months ended November 30, 2024 was $4.9 million and $8.7 million, respectively, compared to $0.5 million and $0.8 million, respectively, in the prior fiscal year periods. The 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 three and six months ended November 30, 2024 was $0.5 million and $1.3 million, respectively, compared to $0.9 million and $2.6 million, respectively, in the prior fiscal year periods. The
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SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
decrease in interest income was attributable to lower average short term investment balances in the period ended November 30, 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.
The Company's interim effective tax rate, inclusive of discrete items, for the three and six months ended November 30, 2024 was 30.3% and 37.2%, compared to 24.2% and 22.9% for the prior fiscal year periods. The interim effective tax rate for the six months ended November 30, 2024 varies from the statutory rate primarily due to expected state and local income tax and non-deductible compensation for covered executive employees.
Net income for the quarter ended November 30, 2024 decreased by $28.1 million to $48.8 million, compared to $76.9 million in the prior fiscal year quarter. Earnings per basic and diluted share of Class A and Common Stock was $1.73 and $1.71, respectively, for the fiscal quarter ended November 30, 2024, compared to $2.51 and $2.45, respectively, in the prior fiscal year quarter.
Net loss for the six months ended November 30, 2024 was $13.7 million compared to net income of $2.7 million in the prior fiscal year period. Loss per basic and diluted share of Class A and Common Stock was $0.48 for the six months ended November 30, 2024, compared to earnings per basic and diluted share of $0.09 in the prior fiscal year period.
Children’s Book Publishing and Distribution
Three months ended November 30, Six months ended November 30,
$ % $ %
($ amounts in millions)
2024 2023 Change Change 2024 2023 Change Change
Revenues $ 367.0 $ 392.4 $ (25.4) (6.5) % $ 472.4 $ 494.8 $ (22.4) (4.5) %
Cost of goods sold 143.3 156.1 (12.8) (8.2) % 202.2 219.4 (17.2) (7.8) %
Other operating expenses (1)
121.6 124.7 (3.1) (2.5) % 204.7 204.8 (0.1) (0.0) %
Operating income (loss) $ 102.1 $ 111.6 $ (9.5) (8.5) % $ 65.5 $ 70.6 $ (5.1) (7.2) %
Operating margin 27.8 % 28.4 % 13.9 % 14.3 %
(1) Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization.
Revenues for the quarter ended November 30, 2024 decreased by $25.4 million to $367.0 million, compared to $392.4 million in the prior fiscal year quarter. Trade channel revenues decreased $15.1 million, primarily reflecting the timing of new releases as the prior fiscal quarter benefited from the release of Cat Kid Comic Club ® : Influencers and the interactive edition of Harry Potter and the Prisoner of Azkaban, in addition to continued sales of the paperback edition of The Ballad of Songbirds and Snakes ahead of the title’s movie release last fall, and the timing of foreign rights sales. This was partially offset by increased sales of backlist titles from the Dog Man ® series. New releases in the quarter ended November 30, 2024 included Christmas at Hogwarts by J.K. Rowling, The Bad Guys in One Last Thing (The Bad Guys ® #20), the paperback edition of The Christmas Pig and The Hunger Games: Illustrated Edition . Revenues from school reading events decreased $10.3 million. Book fairs channel revenues decreased $11.1 million as more fairs shifted into December than in the prior fiscal year quarter, coupled with slightly lower revenue per fair and lower redemptions of book fairs incentive credits. Revenue per fair was impacted by the addition of smaller fairs as the Company continues to grow fair count. Book clubs channel revenues improved slightly by $0.8 million as a result of higher revenue per sponsor. The Company continues to adapt its strategies to reengage sponsors and customers in the book clubs channel.
Revenues for the six months ended November 30, 2024 decreased by $22.4 million to $472.4 million, compared to $494.8 million in the prior fiscal year period. Trade channel revenues decreased $13.7 million, primarily due to lower sales of frontlist titles due to the timing of new releases as the prior year period benefited from the release of several frontlist titles, including Cat Kid Comic Club: Influencers , the interactive edition of Harry Potter and the Prisoner of Azkaban , and the paperback edition of The Ballad of Songbirds and Snakes . This was partially offset by increased sales of backlist titles from the Dog Man series and increased foreign rights sales in the period ended November 30, 2024. Revenues from school reading events decreased $8.7 million. Book fairs channel revenues decreased $9.6 million as more fairs shifted into December than in the prior fiscal year period, coupled with slightly lower revenue per fair, due to the addition of smaller fairs, and decreased redemptions of book fairs incentive credits. Book clubs channel revenues improved slightly by $0.9 million as a result of higher
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
revenue per sponsor, as the Company continues to adapt its strategies to reengage sponsors and customers in the book clubs channel.
Cost of goods sold for the quarter ended November 30, 2024 was $143.3 million, or 39.0% of revenues, compared to $156.1 million, or 39.8% of revenues, in the prior fiscal year quarter. Cost of goods sold benefited from the mix of product sold in the book fairs channel in the quarter ended November 30, 2024 compared to the prior fiscal year quarter as lower cost products were redeemed by book fairs incentive credits.
Cost of goods sold for the six months ended November 30, 2024 was $202.2 million, or 42.8% of revenues, compared to $219.4 million, or 44.3% of revenues, in the prior fiscal year period. Cost of goods sold benefited from the mix of product sold in the period ended November 30, 2024, which included higher foreign rights sales in the trade channel and redemptions of book fair incentive credits for lower cost products.
Other operating expenses for the quarter ended November 30, 2024 were $121.6 million, compared to $124.7 million in the prior fiscal year quarter. Other operating expenses decreased $3.1 million primarily driven by lower spending on promotional materials within the book clubs channel and lower labor costs as a result of warehouse efficiencies in the book fairs channel.
Other operating expenses for the six months ended November 30, 2024 were $204.7 million, which were comparable to $204.8 million in the prior fiscal year period.
Segment operating income for the quarter ended November 30, 2024 was $102.1 million, compared to $111.6 million in the prior fiscal year quarter. The $9.5 million decrease was primarily attributable to lower revenues from the book fairs channel, as more fairs shifted into December than in the prior fiscal year quarter, coupled with the timing of new releases in the trade channel and foreign rights sales.
Segment operating income for the six months ended November 30, 2024 was $65.5 million, compared to $70.6 million in the prior fiscal year period. The $5.1 million decrease was primarily attributable to lower revenues from the book fairs channel, as more fairs shifted into December than in the prior fiscal year period, coupled with lower trade channel revenues driven by the continued softness in the retail bookselling market and the timing of new releases.
Education Solutions
Three months ended November 30, Six months ended November 30,
$ % $ %
($ amounts in millions) 2024 2023 Change Change 2024 2023 Change Change
Revenues $ 71.2 $ 81.0 $ (9.8) (12.1) % $ 126.9 $ 147.0 $ (20.1) (13.7) %
Cost of goods sold 27.3 30.7 (3.4) (11.1) % 54.7 63.3 (8.6) (13.6) %
Other operating expenses (1)
44.4 44.5 (0.1) (0.2) % 89.7 96.6 (6.9) (7.1) %
Operating income (loss) $ (0.5) $ 5.8 $ (6.3) (108.6) % $ (17.5) $ (12.9) $ (4.6) (35.7) %
Operating margin NM 7.2 % 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 November 30, 2024 decreased by $9.8 million to $71.2 million, compared to $81.0 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 decrease spending on supplemental materials not aligned with Science of Reading based approaches to literacy. The decrease in revenues was also attributable to the timing of revenues from sponsored programs and lower subscription revenues from Magazines+. Partially offsetting the decline, the segment benefited from increased sales of the Company's Ready4Reading TM phonics curriculum and Rising Voices Library ® offering.
Revenues for the six months ended November 30, 2024 decreased by $20.1 million to $126.9 million, compared to $147.0 million in the prior fiscal year period. 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 decrease spending on supplemental materials. In addition, subscription revenues from
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
Magazines+ and revenues from literacy initiatives decreased from the prior fiscal year period. Partially offsetting the decline, the segment benefited from increased sales of the Company's Ready4Reading TM phonics curriculum and Rising Voices Library ® offering as well as increased revenues from sponsored programs in the first quarter.
Cost of goods sold for the quarter ended November 30, 2024 was $27.3 million, or 38.3% of revenues, compared to $30.7 million, or 37.9% of revenues, in the prior fiscal year quarter. Cost of goods sold as a percentage of revenues increased due to higher outbound freight costs related to sponsored programs, largely offset by lower prepublication amortization as a result of the impairment of certain education products in fiscal 2024 and lower product costs associated with the mix of products sold during the period ended November 30, 2024, primarily related to classroom libraries and paperback collections.
Cost of goods sold for the six months ended November 30, 2024 was $54.7 million, or 43.1% of revenues, compared to $63.3 million, or 43.1% of revenues, in the prior fiscal year period. Cost of goods sold benefited from lower prepublication amortization as a result of the impairment of certain education products in fiscal 2024, largely offset by higher outbound freight costs related to sponsored programs.
Other operating expenses for the quarter ended November 30, 2024 were $44.4 million, which were comparable to $44.5 million in the prior fiscal year quarter.
Other operating expenses for the six months ended November 30, 2024 were $89.7 million, compared to $96.6 million in the prior fiscal year period. The $6.9 million decrease in Other operating expenses was primarily attributable to lower commission expense driven by the lower revenues and lower external labor costs.
Segment operating loss for the quarter ended November 30, 2024 was $0.5 million, compared to operating income of $5.8 million in the prior fiscal year quarter. The $6.3 million decline was primarily driven by lower revenues resulting from decreased spending on supplemental materials and lower subscription revenues from Magazines+.
Segment operating loss for the six months ended November 30, 2024 was $17.5 million, compared to $12.9 million in the prior fiscal year period. The $4.6 million decline was primarily driven by lower revenues resulting from the decreased spending on supplemental materials, partially offset by lower external labor costs.
Entertainment
Three months ended November 30, Six months ended November 30,
$ % $ %
($ amounts in millions) 2024 2023 Change Change 2024 2023 Change Change
Revenues $ 16.8 $ 0.4 $ 16.4 NM $ 33.4 $ 0.8 $ 32.6 NM
Cost of goods sold 10.6 — 10.6 NM 18.9 — 18.9 NM
Other operating expenses (1)
10.9 1.2 9.7 NM 19.7 2.1 17.6 NM
Operating income (loss) $ (4.7) $ (0.8) $ (3.9) NM $ (5.2) $ (1.3) $ (3.9) NM
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
The Entertainment segment includes the operations of 9 Story Media Group Inc. ("9 Story") and Scholastic Entertainment Inc. ("SEI"). SEI was reported in the Children's Book Publishing and Distribution segment in prior periods. The financial results for SEI for the three months and six months ended November 30, 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 three and six months ended November 30, 2024 were $16.8 million and $33.4 million, respectively, compared to $0.4 million and $0.8 million, respectively, in the prior fiscal year period. The increase reflected the addition of 9 Story from the date of acquisition on June 20, 2024 through November 30, 2024 in which a majority of the revenues were driven by production revenue related to episodic deliveries, production
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
services provided to third parties and, to a lesser extent, revenues from royalties and distribution. Entertainment revenues have been impacted by delays in production greenlights from major platforms.
Cost of goods sold for the three and six months ended November 30, 2024 was $10.6 million, or 63.1% of revenues, and $18.9 million, or 56.6% of revenues, respectively. Cost of goods sold primarily consists of production costs and amortization, participation expenses and interest on film related obligations.
Other operating expenses for the three months ended November 30, 2024 were $10.9 million, which included $0.4 million of transaction costs related to the 9 Story acquisition and $0.4 million of severance expense related to cost-saving initiatives.
Other operating expenses for the six months ended November 30, 2024 were $19.7 million, which included $2.1 million of transaction costs related to the 9 Story acquisition and $0.4 million of severance expense related to cost-saving initiatives.
Segment operating loss for the three and six months ended November 30, 2024 was $4.7 million and $5.2 million, respectively.
International
Three months ended November 30, Six months ended November 30,
$ % $ %
($ amounts in millions) 2024 2023 Change Change 2024 2023 Change Change
Revenues $ 86.7 $ 86.5 $ 0.2 0.2 % $ 143.5 $ 143.7 $ (0.2) (0.1) %
Cost of goods sold 48.9 48.9 0.0 0.0 % 84.2 84.8 (0.6) (0.7) %
Other operating expenses (1)
32.1 29.6 2.5 8.4 % 61.9 59.1 2.8 4.7 %
Operating income (loss) $ 5.7 $ 8.0 $ (2.3) (28.8) % $ (2.6) $ (0.2) $ (2.4) NM
Operating margin 6.6 % 9.2 % 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 November 30, 2024 increased by $0.2 million to $86.7 million, compared to $86.5 million in the prior fiscal year quarter. Local currency revenues across the Company's foreign operations decreased by $1.7 million, excluding favorable foreign exchange impact of $1.9 million. In Australia and New Zealand, local currency revenues decreased $1.8 million, primarily driven by lower trade channel sales in Australia due to softness in the retail market. Export channel sales also decreased $0.5 million as compared to the prior fiscal year quarter. The overall decrease in segment revenues was partially offset by a $0.3 million increase in local currency revenues in Asia driven by growth in India and a $0.2 million increase in local currency revenues in the U.K., primarily driven by higher fair count in the book fairs channel. In Canada, local currency revenues increased $0.1 million as higher revenues from the book fairs and book clubs channels were offset by lower trade channel sales. Canada also benefited from lower trade sales returns from its major customers which partially offset the decline in trade channel sales.
Revenues for the six months ended November 30, 2024 decreased by $0.2 million to $143.5 million, compared to $143.7 million in the prior fiscal year period. Local currency revenues across the Company's foreign operations decreased by $1.9 million, excluding favorable foreign exchange impact of $1.7 million. In Australia and New Zealand, local currency revenues decreased $2.0 million, primarily driven by lower trade channel sales in Australia due to softness in the retail market. In Canada, local currency revenues decreased $0.4 million, driven by lower trade sales, partly offset by lower sales returns in the trade channel and higher sales from the book fairs and book clubs channels. Export channel revenues also decreased $0.9 million as compared to the prior fiscal year period. The decline in segment revenues was partially offset by a $1.3 million increase in local currency revenues in the U.K., driven by higher fair count in the book fairs channel and higher sales in the trade channel which benefited from the release of Jonty Gentoo: The Adventures of a Penguin by Julia Donaldson and Axel Scheffler. Local currency revenues in Asia were relatively consistent with the prior year period, increasing $0.1 million.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
Cost of goods sold for the quarter ended November 30, 2024 was $48.9 million, or 56.4% of revenues, compared to $48.9 million, or 56.5% of revenues, in the prior fiscal year quarter. Cost of goods sold for the six months ended November 30, 2024 was $84.2 million, or 58.7% of revenues, compared to $84.8 million, or 59.0% of revenues, in the prior fiscal year period. Lower product costs in the U.K. due to the mix of product sold in the period ended November 30, 2024 were offset by increased fulfillment costs in Australia on lower revenues.
Other operating expenses for the three and six months ended November 30, 2024 were $32.1 million and $61.9 million, respectively, compared to $29.6 million and $59.1 million in the prior fiscal year quarter. The increase in Other operating expenses for the three and six months periods ended November 30, 2024 was primarily due to severance expense from the Company's cost-saving initiatives in Asia of $1.4 million incurred in the period ended November 30, 2024, coupled with higher general overhead costs.
Segment operating income for the quarter ended November 30, 2024 was $5.7 million, compared to $8.0 million in the prior fiscal year quarter. The decrease was primarily due to lower revenues in Australia, coupled with severance expense from cost-saving initiatives in Asia and higher general overhead costs. This was partly offset by improved profitability in the U.K. as a result of lower product costs and in Canada which benefited from lower trade sales returns in the quarter ended November 30, 2024.
Segment operating loss for the six months ended November 30, 2024 was $2.6 million compared to $0.2 million in the prior fiscal year period. The increase in operating loss was primarily due to lower revenues in Australia, coupled with severance expense from cost-saving initiatives in Asia and higher general overhead costs. This was partly offset by improved profitability in the U.K. as a result of lower product costs and in Canada which benefited from lower trade sales returns in the quarter ended November 30, 2024.
Overhead
Unallocated overhead expense for the quarter ended November 30, 2024 increased by $4.6 million to $27.9 million, from $23.3 million in the prior fiscal year quarter. The increase was primarily attributable to higher employee-related costs, which included severance expense from the Company's cost-saving initiatives of $2.0 million incurred in the quarter ended November 30, 2024 as well as higher medical expense. This was partially offset by higher rental income of $0.6 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, 2024 was $54.0 million, consistent with the prior year period. Higher medical expense incurred in the period ended November 30, 2024 was offset by lower severance expense from the Company's cost-saving initiatives of $1.9 million and higher rental income of $0.8 million as a result of a new tenant leasing space in the Company's headquarters.
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 channel and Entertainment segment revenues can vary throughout the year due to the timing of published titles' release dates and program production deliveries and the start dates of distribution license agreements.
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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 $29.3 million for the six months ended November 30, 2024, compared to cash provided by operating activities of $71.6 million for the prior fiscal year period, representing a decrease in cash provided by operating activities of $42.3 million. The decrease in cash provided was primarily driven by increased inventory purchases and lower customer remittances on receivable balances in the period ended November 30, 2024, as well as increased medical claim payments, interest payments related to the Company's borrowings and higher spending in Entertainment due to the acquisition of 9 Story in fiscal 2025. This was partially offset by lower tax payments in the period ended November 30, 2024.
Cash used in investing activities was $217.2 million for the six months ended November 30, 2024, compared to cash used in investing activities of $49.1 million in the prior fiscal year period, representing an increase in cash used in investing activities of $168.1 million. The increase in cash used was driven by the cash paid for the 9 Story acquisition of $176.2 million, net of cash acquired, during the six months ended November 30, 2024, as compared to the prior year period in which the Company acquired certain amortizable intangible assets related to educational programs for $5.8 million and purchased the remaining noncontrolling interest related to Make Believe Ideas Limited for $2.1 million.
Cash provided by financing activities was $214.5 million for the six months ended November 30, 2024, compared to cash used in financing activities of $97.8 million for the prior fiscal year period, representing an increase in cash provided by financing activities of $312.3 million. The increase in cash provided was primarily attributable to borrowings of $250 million under the U.S. credit agreement incurred during the six months ended November 30, 2024 to fund the 9 Story acquisition and working capital needs. In addition, the Company repurchased common stock of $10.0 million, compared to repurchases of $90.2 million in the prior fiscal year quarter, which also resulted in lower dividends of $1.5 million, partially offset by $14.6 million of net repayments of film related obligations in the six months ended November 30, 2024.
Cash Position
The Company’s cash and cash equivalents totaled $139.6 million at November 30, 2024, $113.7 million at May 31, 2024 and $149.5 million at November 30, 2023. Cash and cash equivalents held by the Company’s U.S. operations totaled $86.5 million at November 30, 2024, $54.9 million at May 31, 2024 and $115.1 million at November 30, 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, $76.6 million remained available for future purchases of common shares as of November 30, 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 November 30, 2024, the Company’s primary sources of liquidity consisted of cash and cash equivalents of $139.6 million, cash from operations and the Company's U.S. Credit Agreement. On November 26, 2024, the U.S. Credit Agreement was amended, which, among other things, increased the borrowing limit from $300.0 million to $400.0 million and extended the maturity to November 26, 2029. See Note 4 of Notes to the Financial Statements - Unaudited in Item 1, "Financial Statements," for more information regarding the 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, less commitments of $0.4 million, has $149.6 million of availability. Additionally, the Company has short-term credit facilities of $26.9 million, less current borrowings of $6.2 million and commitments of $3.6 million, resulting in $17.1 million of current availability under these facilities at November 30, 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.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
Financing
The Company is party to the U.S. 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 $250.0 million in outstanding borrowings under the U.S. Credit Agreement as of November 30, 2024. Subsequent to November 30, 2024, the Company repaid borrowings of $25.0 million under the U.S. Credit Agreement. As indicated above, on November 26, 2024, the Company amended the U.S. Credit Agreement, which included an increase in the maximum commitments, an increase in interest pricing margins and an extension of the maturity date. Subsequent to November 30, 2024, based on the Company's prevailing Consolidated Net Leverage Ratio, the Company expects the applicable margin on Base Rate Advances to be 0.75%, the applicable margin on SOFR Advances to be 1.75% , and the commitment fee rate to be 0.25%.
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, 2024.
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, 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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