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 28, 2025 and February 29, 2024 are as follows: Three months ended Nine months ended February 28, 2025 February 29, 2024 February 28, 2025 February 29, 2024 ($ amounts in millions) % of Revenue % of Revenue % of Revenue % of Revenue Product, service and production costs and inventory reserves $ 87.4 26.1 % $ 83.5 25.8 % $ 294.4 26.3 % $ 299.3 26.9 % Royalty and participation costs 28.5 8.5 % 26.9 8.3 % 91.2 8.2 % 90.5 8.1 % Prepublication and production amortization 7.2 2.1 % 6.7 2.1 % 24.6 2.2 % 20.6 1.8 % Postage, freight, shipping, fulfillment and other 31.5 9.4 % 31.6 9.7 % 101.3 9.1 % 102.4 9.2 % Total $ 154.6 46.1 % $ 148.7 45.9 % $ 511.5 45.8 % $ 512.8 46.0 % Cost of goods sold for the quarter ended February 28, 2025 was $154.6 million, or 46.1% of revenues, compared to $148.7 million, or 45.9% 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 February 28, 2025, which resulted in lower product costs, primarily in the U.K. and New Zealand. Cost of goods sold for the nine months ended February 28, 2025 was $511.5 million, or 45.8% of revenues, compared to $512.8 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 as well as in the U.K. and New Zealand, which resulted in lower product costs, partly offset by the addition of production costs as a result of the 9 Story acquisition. The Company does not expect the remainder of fiscal 2025 to be materially impacted by the current tariff increases. Selling, general and administrative expenses for the quarter ended February 28, 2025 decreased to $187.5 million, compared to $194.8 million in the prior fiscal year quarter. The $7.3 million decrease was primarily attributable to lower employee-related costs within overhead, lower commission expense and external labor costs within Education Solutions and a decrease in transaction costs related to the 9 Story acquisition of $2.5 million. This was partially offset by higher operating expenses from the addition of 9 Story and an increase in severance expense of $1.0 million from the Company's cost-saving initiatives. Selling, general and administrative expenses for the nine months ended February 28, 2025 increased to $594.5 million, compared to $592.1 million in the prior fiscal year period. The $2.4 million increase was primarily attributable to the addition of 9 Story, which resulted in higher operating expenses in the period ended February 28, 2025, partially offset by $0.3 million of lower severance expense from cost-saving initiatives and lower commission expense and external labor costs within Education Solutions. Depreciation and amortization expenses for the three and nine months ended February 28, 2025 were $16.9 million and $48.5 million, respectively, compared to $14.6 million and $42.1 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 also 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 nine months ended February 28, 2025 increased by $2.0 million compared to the prior fiscal year period as a result of assets placed into service during fiscal 2024 and during the first half of fiscal 2025. Asset impairments for the three and nine months ended February 28, 2025 were $0.3 million and $0.4 million, respectively, primarily related to the early exit of leased office space within the Entertainment segment. Asset impairments for the three and nine months ended February 29, 2024 were $0.5 million, primarily related to the early exit of leased sales office space within the Children's Book Publishing and Distribution segment. 26 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Interest expense for the three and nine months ended February 28, 2025 was $4.7 million and $13.4 million, respectively, compared to $0.5 million and $1.3 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 for the fourth quarter of fiscal 2025. Interest income for the three and nine months ended February 28, 2025 was $0.4 million and $1.7 million, respectively, compared to $1.1 million and $3.7 million, respectively, in the prior fiscal year periods. The decrease in interest income was attributable to lower average short term investment balances in the period ended February 28, 2025. 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 nine months ended February 28, 2025 was 87.3% and 65.5%, respectively, compared to 23.4% and 23.5%, respectively, for the prior fiscal year periods. The interim effective tax rate for the nine months ended February 28, 2025 varies from the statutory rate primarily due to the expected state and local income tax and non-deductible compensation for covered executive employees. Due to the seasonal nature of the business, the tax benefit on the operating loss for the nine months ended February 28, 2025 will be impacted by the Company's typically profitable fourth fiscal quarter. Net loss for the quarter ended February 28, 2025 improved by $22.9 million to $3.6 million, compared to a net loss of $26.5 million in the prior fiscal year quarter. Loss per basic and diluted share of Class A and Common Stock was $0.13 for the fiscal quarter ended February 28, 2025, compared to $0.91 in the prior fiscal year quarter. Net loss for the nine months ended February 28, 2025 improved by $6.5 million to $17.3 million compared to a net loss of $23.8 million in the prior fiscal year period. Loss per basic and diluted share of Class A and Common Stock was $0.61 for the nine months ended February 28, 2025, compared to $0.80 in the prior fiscal year period. Children’s Book Publishing and Distribution Three months ended Nine months ended February 28, February 29, $ % February 28, February 29, $ % ($ amounts in millions) 2025 2024 Change Change 2025 2024 Change Change Revenues $ 203.3 $ 193.1 $ 10.2 5.3 % $ 675.7 $ 687.9 $ (12.2) (1.8) % Cost of goods sold 92.0 87.5 4.5 5.1 % 294.2 306.9 (12.7) (4.1) % Other operating expenses (1) 103.7 102.8 0.9 0.9 % 308.4 307.6 0.8 0.3 % Asset impairments — 0.5 (0.5) (100.0) % — 0.5 (0.5) (100.0) % Operating income (loss) $ 7.6 $ 2.3 $ 5.3 NM $ 73.1 $ 72.9 $ 0.2 0.3 % Operating margin 3.7 % 1.2 % 10.8 % 10.6 % (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 28, 2025 increased by $10.2 million to $203.3 million, compared to $193.1 million in the prior fiscal year quarter. The increase in segment revenues was primarily driven by increased revenues from School Reading Events of $9.9 million. Book fairs channel revenues increased $8.0 million, driven by higher fair count as a larger number of fall-season fairs occurred in December compared to the prior year period. Revenue per fair was consistent with the prior fiscal year quarter. Book clubs channel revenues increased $1.9 million as a result of higher revenue per sponsor and an increase in events. Trade channel revenues were relatively consistent with the prior fiscal year quarter, increasing $0.3 million. In the quarter ended February 28, 2025, the Company benefited from increased sales from the Dog Man ® series, which included the latest release, Dog Man #13: Big Jim Begins , in addition to sales of deluxe editions of titles in the Hunger Games ® series and the release of Wings of Fire Graphix TM Novel #8: Escaping Peril . This was offset by lower sales of backlist titles reflecting continued softness in the retail book market. 27 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Revenues for the nine months ended February 28, 2025 decreased by $12.2 million to $675.7 million, compared to $687.9 million in the prior fiscal year period. Trade channel revenues decreased $13.4 million, primarily due to lower sales of backlist titles reflecting continued softness in the retail book market and 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 decline was partially offset by increased sales from the Dog Man series, which included the latest release, Dog Man #13: Big Jim Begins, and increased foreign rights sales in the period ended February 28, 2025. The overall decrease in segment revenues was partially offset by increased revenues from School Reading Events of $1.2 million. Book clubs channel revenues increased by $2.8 million, driven by higher revenue per sponsor and an increase in events. Book fairs channel revenues decreased $1.6 million as a result of slightly lower revenue per fair, due to the addition of smaller fairs, and decreased redemptions of book fairs incentive credits, partially offset by higher fair count. Cost of goods sold for the quarter ended February 28, 2025 was $92.0 million, or 45.3% of revenues, which was comparable to $87.5 million, or 45.3% of revenues, in the prior fiscal year quarter. Cost of goods sold for the nine months ended February 28, 2025 was $294.2 million, or 43.5% of revenues, compared to $306.9 million, or 44.6% of revenues, in the prior fiscal year period. Cost of goods sold benefited from the mix of product sold in the period ended February 28, 2025, which included higher foreign rights sales in the trade channel and redemptions of book fair incentive credits for lower cost products, as well as lower print costs in the book fairs channel. Other operating expenses for the three and nine months ended February 28, 2025 were $103.7 million and $308.4 million, respectively, compared to $102.8 million and $307.6 million, respectively, in the prior fiscal year periods. The increase in Other operating expenses was primarily attributable to higher distribution costs within the book fairs channel. Asset impairments for the three and nine months ended February 29, 2024 were $0.5 million. The Company ceased use of a leased sales office space, as a result of which the Company recognized an impairment expense of $0.5 million in the third quarter of fiscal 2024. Segment operating income for the quarter ended February 28, 2025 was $7.6 million, compared to $2.3 million in the prior fiscal year quarter. The $5.3 million improvement was primarily attributable to higher revenues from School Reading Events, primarily driven by higher fair count in the book fairs channel. Segment operating income for the nine months ended February 28, 2025 was $73.1 million, compared to $72.9 million in the prior fiscal year period. Lower revenues, primarily within the trade channel due to softness in the retail book market, were offset by lower product costs associated with the mix of product sold in the period ended February 28, 2025 and lower print costs in the book fairs channel. Education Solutions Three months ended Nine months ended February 28, February 29, $ % February 28, February 29, $ % ($ amounts in millions) 2025 2024 Change Change 2025 2024 Change Change Revenues $ 57.2 $ 68.5 $ (11.3) (16.5) % $ 184.1 $ 215.5 $ (31.4) (14.6) % Cost of goods sold 23.0 26.2 (3.2) (12.2) % 77.7 89.5 (11.8) (13.2) % Other operating expenses (1) 41.1 43.1 (2.0) (4.6) % 130.8 139.7 (8.9) (6.4) % Operating income (loss) $ (6.9) $ (0.8) $ (6.1) NM $ (24.4) $ (13.7) $ (10.7) (78.1) % (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 28, 2025 decreased by $11.3 million to $57.2 million, compared to $68.5 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 have decreased spending on supplemental programs due to a focus on the adoption and implementation of new evidence-based core programs. The decrease in revenues was also attributable to lower subscription revenues from Magazines+ and lower revenues from 28 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) community literacy programs. Revenues from sponsored programs were consistent with the prior fiscal year quarter. Revenues for the nine months ended February 28, 2025 decreased by $31.4 million to $184.1 million, compared to $215.5 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 evidence-based core programs and decrease spending on supplemental materials. In addition, subscription revenues from Magazines+ and revenues from community literacy programs 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 increased revenues from sponsored programs in the first quarter. Cost of goods sold for the quarter ended February 28, 2025 was $23.0 million, or 40.2% of revenues, compared to $26.2 million, or 38.2% 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 and higher product costs associated with the mix of products sold during the quarter ended February 28, 2025. This was partially offset by lower prepublication amortization as a result of the impairment of certain education products in fiscal 2024. Cost of goods sold for the nine months ended February 28, 2025 was $77.7 million, or 42.2% of revenues, compared to $89.5 million, or 41.5% of revenues, in the prior fiscal year period. Cost of goods sold as a percentage of revenues increased due to higher outbound freight costs related to sponsored programs, which was substantially offset by lower prepublication amortization as a result of the impairment of certain education products in fiscal 2024. Other operating expenses for the three and nine months ended February 28, 2025 were $41.1 million and $130.8 million, respectively, compared to $43.1 million and $139.7 million, respectively, in the prior fiscal year periods. The decrease in Other operating expenses was primarily attributable to lower commission expense driven by the lower revenues, lower external labor costs and decreased marketing spend. Segment operating loss for the quarter ended February 28, 2025 was $6.9 million, compared to $0.8 million in the prior fiscal year quarter. Segment operating loss for the nine months ended February 28, 2025 was $24.4 million, compared to $13.7 million in the prior fiscal year period. The decline was driven by lower revenues, primarily attributable to the market conditions which resulted in decreased spending on supplemental materials and lower subscription revenues from Magazines+, partially offset by lower external labor costs. Entertainment Three months ended Nine months ended February 28, February 29, $ February 28, February 29, $ ($ amounts in millions) 2025 2024 Change 2025 2024 Change Revenues $ 12.8 $ 0.5 $ 12.3 $ 46.2 $ 1.3 $ 44.9 Cost of goods sold 7.2 0.0 7.2 26.1 0.0 26.1 Other operating expenses (1) 9.2 3.6 5.6 28.9 5.7 23.2 Asset impairments 0.3 — 0.3 0.3 — 0.3 Operating income (loss) $ (3.9) $ (3.1) $ (0.8) $ (9.1) $ (4.4) $ (4.7) (1) Other operating expenses include selling, general and administrative expenses, bad debt expenses, severance and depreciation and amortization. The Entertainment segment includes the operations of 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 nine months ended February 29, 2024 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 nine months ended February 28, 2025 were $12.8 million and $46.2 million, respectively, compared to $0.5 million and $1.3 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 February 28, 2025 in which a majority of the revenues were driven by production revenue related to episodic deliveries, production 29 SCHOLASTIC CORPORATION 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 nine months ended February 28, 2025 was $7.2 million, or 56.3% of revenues, and $26.1 million, or 56.5% 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 February 28, 2025 were $9.2 million, which included transaction costs of $0.5 million related to the 9 Story acquisition and severance expense of $0.7 million related to cost-saving initiatives. Other operating expenses for the three months ended February 29, 2024 were $3.6 million, which included transaction costs of $3.0 million related to the 9 Story acquisition. Other operating expenses for the nine months ended February 28, 2025 were $28.9 million, which included transaction costs of $2.6 million related to the 9 Story acquisition and severance expense of $1.1 million related to cost-saving initiatives. Other operating expenses for the nine months ended February 29, 2024 were $5.7 million, which included transaction costs of $3.0 million related to the 9 Story acquisition. Asset impairments for the three and nine months ended February 28, 2025 were $0.3 million. The Company ceased use of a leased office space as a result of which the Company recognized an impairment expense of $0.3 million in the third quarter of fiscal 2025. Segment operating loss for the three and nine months ended February 28, 2025 was $3.9 million and $9.1 million, respectively. International Three months ended Nine months ended February 28, February 29, $ % February 28, February 29, $ % ($ amounts in millions) 2025 2024 Change Change 2025 2024 Change Change Revenues $ 59.3 $ 59.1 $ 0.2 0.3 % $ 202.8 $ 202.8 $ 0.0 0.0 % Cost of goods sold 33.8 36.5 (2.7) (7.4) % 118.0 121.3 (3.3) (2.7) % Other operating expenses (1) 27.6 28.5 (0.9) (3.2) % 89.5 87.6 1.9 2.2 % Operating income (loss) $ (2.1) $ (5.9) $ 3.8 64.4 % $ (4.7) $ (6.1) $ 1.4 23.0 % (1) Other operating expenses include selling, general and administrative expenses, bad debt expenses, severance and depreciation and amortization. Revenues for the quarter ended February 28, 2025 increased by $0.2 million to $59.3 million, compared to $59.1 million in the prior fiscal year quarter. Local currency revenues across the Company's foreign operations increased by $2.9 million, excluding unfavorable foreign exchange impact of $2.7 million. In Australia and New Zealand, local currency revenues increased $1.8 million, driven by increased sales of education products in New Zealand, which more than offset lower revenues in Australia. In the U.K., local currency revenues increased $1.2 million, primarily within the trade channel, driven by higher sales of titles within Dav Pilkey's Dog Man series, which included the latest release, Dog Man #13: Big Jim Begins. In Canada, local currency revenues increased $1.2 million driven by higher revenues from the trade and book clubs channels, partially offset by lower book fairs channel sales. The overall increase in segment revenues was partially offset by a $0.6 million decrease in local currency revenues in Asia, primarily within the trade and education channels, partly offset by growth in India, as well as lower export channel sales of $0.7 million. Revenues for the nine months ended February 28, 2025 and February 29, 2024 were $202.8 million. Local currency revenues across the Company's foreign operations increased by $1.0 million, excluding unfavorable foreign exchange impact of $1.0 million. In the U.K., local currency revenues increased $2.5 million, primarily driven by 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 and Dog Man #13: Big Jim Begins by Dav Pilkey as well as higher fair count in the book fairs channel. In Canada, local currency revenues increased $0.8 million, driven by higher sales from the book clubs channels, partially offset by lower sales of education products. Canada also benefited from lower trade sales returns from its major customers which partially offset the decline in trade channel sales. Partially offsetting the increase in segment revenues, local currency revenues in Australia and New 30 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Zealand decreased $0.2 million as increased sales of education products in New Zealand were more than offset by lower revenues in Australia, primarily due to continued softness in the retail market. In Asia, local currency revenues decreased $0.5 million due to lower sales within the trade and education channels, partially offset by growth in India. In addition, export channel revenues decreased $1.6 million as compared to the prior fiscal year period. Cost of goods sold for the quarter ended February 28, 2025 was $33.8 million, or 57.0% of revenues, compared to $36.5 million, or 61.8% of revenues, in the prior fiscal year quarter. Cost of goods sold as a percentage of revenues decreased as a result of lower product costs in the U.K. and New Zealand due to the mix of product sold in the quarter ended February 28, 2025, coupled with lower excess and obsolete inventory in Canada as a result of improved inventory usage. Cost of goods sold for the nine months ended February 28, 2025 was $118.0 million, or 58.2% of revenues, compared to $121.3 million, or 59.8% of revenues, in the prior fiscal year period. Cost of goods sold as a percentage of revenues decreased as a result of lower product costs in the U.K. and New Zealand due to the mix of product sold in the period ended February 28, 2025, partly offset by increased fulfillment costs in Australia on lower revenues. Other operating expenses for the three months ended February 28, 2025 were $27.6 million, compared to $28.5 million in the prior fiscal year quarter. Excluding favorable foreign exchange impact of $1.2 million, Other operating expenses were consistent with the prior quarter. Other operating expenses for the nine months ended February 28, 2025 were $89.5 million, compared to $87.6 million in the prior fiscal year period. The $1.9 million increase in Other operating expenses was primarily due to higher general overhead costs and higher severance expense from the Company's cost-saving initiatives of $0.3 million in which the Company incurred $1.5 million in Asia in the period ended February 28, 2025, compared to $1.2 million in Canada in the prior fiscal year period. Segment operating loss for the quarter ended February 28, 2025 was $2.1 million, compared to an operating loss of $5.9 million in the prior fiscal year quarter. The $3.8 million improvement was primarily attributable to higher revenues in Canada, the U.K. and New Zealand, coupled with lower product costs associated with the mix of product sold in the quarter ended February 28, 2025 and improved profitability in Canada which benefited from operating efficiencies. Segment operating loss for the nine months ended February 28, 2025 was $4.7 million compared to an operating loss of $6.1 million in the prior fiscal year period. The $1.4 million improvement was primarily attributable to higher revenues in Canada, the U.K. and New Zealand, coupled with lower product costs associated with the mix of product sold in the period ended February 28, 2025 and improved profitability in Canada which benefited from operating efficiencies and lower trade sales returns. This improvement was partially offset by higher general overhead costs and lower profitability from Australia due to lower revenues and higher fulfillment costs. Overhead Unallocated overhead expense for the quarter ended February 28, 2025 decreased by $8.8 million to $18.6 million, from $27.4 million in the prior fiscal year quarter. The decrease was primarily attributable to lower employee-related costs, which were partially offset by increased severance expense of $0.2 million related to the Company's cost-savings initiatives and higher medical costs, as well as higher rental income of $0.3 million. Unallocated overhead expense for the nine months ended February 28, 2025 decreased by $8.8 million to $72.6 million, from $81.4 million in the prior year period. The decrease was primarily attributable to lower employee-related costs, which included lower severance expense of $1.7 million related to the Company's cost-savings initiatives, partially offset by higher medical costs. In addition, the Company benefited from higher rental income of $1.1 million as a result of a new tenant leasing space in the Company's headquarters. Seasonality 31 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) 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. Liquidity and Capital Resources Cash provided by operating activities was $17.3 million for the nine months ended February 28, 2025, compared to cash provided by operating activities of $84.7 million for the prior fiscal year period, representing a decrease in cash provided by operating activities of $67.4 million. The decrease in cash provided was primarily driven by lower customer remittances and increased inventory purchases and royalty advance payments in the period ended February 28, 2025, 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 and lower discretionary spending in the period ended February 28, 2025. Cash used in investing activities was $232.0 million for the nine months ended February 28, 2025, compared to cash used in investing activities of $69.5 million in the prior fiscal year period, representing an increase in cash used in investing activities of $162.5 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 nine months ended February 28, 2025, as compared to the prior year period in which the Company acquired certain amortizable intangible assets related to educational programs and a U.S.-based children's book publishing business for $6.0 million and purchased the remaining noncontrolling interest related to Make Believe Ideas Limited for $2.1 million. This was partially offset by lower capital expenditures of $3.9 million. Cash provided by financing activities was $197.6 million for the nine months ended February 28, 2025, compared to cash used in financing activities of $129.4 million for the prior fiscal year period, representing an increase in cash provided by financing activities of $327.0 million. The increase in cash provided was primarily attributable to borrowings of $275 million under the U.S. Credit Agreement incurred during the nine months ended February 28, 2025 to fund the 9 Story acquisition and working capital needs. In addition, the Company repurchased common stock of $40.0 million, compared to repurchases of $143.0 million in the prior fiscal year quarter, which also resulted in lower dividends of $1.9 million, partially offset by $18.6 million of net repayments of film related obligations in the nine months ended February 28, 2025. Cash Position The Company’s cash and cash equivalents totaled $94.7 million at February 28, 2025, $113.7 million at May 31, 2024 and $110.4 million at February 29, 2024. Cash and cash equivalents held by the Company’s U.S. operations totaled $41.0 million at February 28, 2025, $54.9 million at May 31, 2024 and $66.2 million at February 29, 2024. 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, $46.6 million remained available for future purchases of common shares as of February 28, 2025. Subsequent to February 28, 2025, the Board authorized an increase of $53.4 million for common share repurchases, resulting in a current Board authorization of $100 million, which includes the remaining amount from the previous Board authorization. The Company has maintained, and expects to maintain for the foreseeable future, sufficient liquidity to fund ongoing operations, including working capital requirements, pension contributions, postretirement benefits, debt service, planned capital expenditures and other investments, as well as dividends and share repurchases. As 32 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) of February 28, 2025, the Company’s primary sources of liquidity consisted of cash and cash equivalents of $94.7 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 million to $400 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 borrowings of $275.0 million and commitments of $0.4 million, has $124.6 million of availability. Additionally, the Company has short-term credit facilities of $25.6 million, less current borrowings of $5.8 million and commitments of $3.6 million, resulting in $16.2 million of current availability under these facilities at February 28, 2025. 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. 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." 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. 33 SCHOLASTIC CORPORATION