SCHOLASTIC CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) prior fiscal year period as a result of the sale and leaseback of the Company's headquarters in New York City as the Company no longer owns the leasable space. Components of Cost of goods sold for the three and nine months ended February 28, 2026 and February 28, 2025 are as follows: Three months ended Nine months ended February 28, 2026 February 28, 2025 February 28, 2026 February 28, 2025 ($ amounts in millions) % of Revenue % of Revenue % of Revenue % of Revenue Product, service and production costs and inventory reserves $ 81.6 24.8 % $ 87.4 26.1 % $ 283.7 25.7 % $ 294.4 26.3 % Royalty and participation costs 27.2 8.3 % 28.5 8.5 % 91.8 8.3 % 91.2 8.2 % Prepublication and production amortization 8.3 2.5 % 7.2 2.1 % 23.3 2.1 % 24.6 2.2 % Postage, freight, shipping, fulfillment and other 33.2 10.1 % 31.5 9.4 % 100.6 9.1 % 101.3 9.1 % Total $ 150.3 45.7 % $ 154.6 46.1 % $ 499.4 45.2 % $ 511.5 45.8 % Cost of goods sold for the quarter ended February 28, 2026 was $150.3 million, or 45.7% of revenues, compared to $154.6 million, or 46.1% of revenues, in the prior fiscal year quarter. The decrease in Cost of Goods sold as a percentage of revenues was primarily driven by improved utilization of inventory in the U.S. book fairs channel which resulted in less excess and obsolete inventory, in addition to lower freight costs in the Company's international Major Markets. Royalty costs were also lower as a result of a decrease in the mix of higher-royalty bearing titles sold in the U.S. trade channel in the quarter ended February 28, 2026, partially offset by higher sales of royalty-bearing titles in Australia. This was partially offset by increased tariff charges, primarily in the U.S. book fairs channel, coupled with increased production costs from higher production services revenue in Entertainment and higher shipping and postage costs related to sponsored programs in Education Solutions . Cost of goods sold for the nine months ended February 28, 2026 was $499.4 million, or 45.2% of revenues, compared to $511.5 million, or 45.8% of revenues, in the prior fiscal year period. The decrease in Cost of goods sold as a percentage of revenues was primarily driven by improved utilization of inventory in the U.S. book fairs and book clubs channels which resulted in less excess and obsolete inventory, in addition to lower freight costs in the Company's international Major Markets. This was partially offset by increased tariff charges, primarily in the U.S. book fairs channel. The Company is evaluating the potential impact of a recent U.S. Supreme Court ruling pertaining to tariffs previously paid on imported products under the International Emergency Economic Powers Act (IEEPA). The Company estimates that approximately $9 million of its tariff payments are subject to this ruling, however, no amounts have been recognized to date. The ultimate timing and amount of any refund remain uncertain. Selling, general and administrative expenses for the quarter ended February 28, 2026 increased to $192.8 million, compared to $187.5 million in the prior fiscal year quarter. The $5.3 million increase was primarily attributable to higher rent expense as a result of the sale and leaseback of the Company's headquarters in New York City, partially offset by lower severance expense of $0.6 million in the quarter ended February 28, 2026 related to cost-saving initiatives. Selling, general and administrative expenses for the nine months ended February 28, 2026 decreased to $587.5 million, compared to $594.5 million in the prior fiscal year period. The $7.0 million decrease was primarily attributable to lower employee-related and external labor costs resulting from the Company's previous reorganization efforts and cost-saving initiatives and lower spending on general overhead expenses. This was partially offset by increased severance expense related to cost-saving initiatives of $5.7 million in the period ended February 28, 2026 and higher rent expense as a result of the sale and leaseback of the Company's headquarters in New York City. Depreciation and amortization expense for the quarter ended February 28, 2026 decreased by $4.0 million to $12.9 million, compared to $16.9 million in the prior fiscal year quarter. Depreciation and amortization expense 30 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) for the nine months ended February 28, 2026 decreased by $2.8 million to $45.7 million, compared to $48.5 million in the prior fiscal year period. The decrease in Depreciation and amortization expense was primarily attributable to the sale of the Company's headquarters in New York City and distribution center in Jefferson City. Asset impairments for the nine months ended February 28, 2026 were $9.4 million. The Company recognized asset impairments of $3.4 million related to certain products within the Education Solutions segment, $5.2 million primarily related to certain film and television programs in development within the Entertainment segment and $0.8 million related to a product that is no longer being sold within the Children's Book Publishing and Distribution segment. 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. Interest expense for the three and nine months ended February 28, 2026 was $1.9 million and $12.5 million, respectively, compared to $4.7 million and $13.4 million, respectively, in the prior fiscal year periods. The decrease in interest expense was due to repayments of borrowings under the U.S. Credit Agreement during the period ended February 28, 2026. Interest income for the three and nine months ended February 28, 2026 was $1.1 million and $2.2 million, compared to $0.4 million and $1.7 million, respectively, in the prior fiscal year periods. The increase in interest income was attributable to higher average short term investment balances in the period ended February 28, 2026 resulting from the net proceeds received from the sale and leaseback transactions. The Company invests excess cash in short term investments which earn competitive interest rates that change directionally in relation to the Federal Funds rate. Gain on sale and leaseback transactions for the three and nine months ended February 28, 2026 was $119.8 million and $118.2 million, respectively. During the third quarter of fiscal 2026, the Company completed the sale and leaseback transactions related to its headquarters in New York City and primary distribution center in Jefferson City, Missouri. The Company recognized a pre-tax gain of $118.2 million, which included certain transaction costs of $1.6 million incurred during the second quarter of fiscal 2026. The Company's interim effective tax rate, inclusive of discrete items, for the three and nine months ended February 28, 2026 was 31.9% and 33.1%, respectively, compared to 87.3% and 65.5%, respectively, for the prior fiscal year periods. The interim effective tax rate for the nine months ended February 28, 2026 varies from the statutory rate primarily due to non-deductible compensation for covered executive employees and expected state and local income tax. Net income for the quarter ended February 28, 2026 increased by $66.1 million to $62.5 million, compared to a net loss of $3.6 million in the prior fiscal year quarter. Earnings per basic and diluted share of Class A and Common Stock were $2.61 and $2.55, respectively, for the fiscal quarter ended February 28, 2026, compared to a loss per basic and diluted share of $0.13 in the prior fiscal year quarter. Net income for the nine months ended February 28, 2026 increased by $64.6 million to $47.3 million, compared to a net loss of $17.3 million in the prior fiscal year period. Earnings per basic and diluted share of Class A and Common Stock was $1.91 and $1.87, respectively, for the period ended February 28, 2026, compared to a loss per basic and diluted share of $0.61 in the prior fiscal year period. 31 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Children’s Book Publishing and Distribution Three months ended February 28, Nine months ended February 28, $ % $ % ($ amounts in millions) 2026 2025 Change Change 2026 2025 Change Change Revenues $ 197.6 $ 203.3 $ (5.7) (2.8) % $ 687.9 $ 675.7 $ 12.2 1.8 % Cost of goods sold 83.7 92.0 (8.3) (9.0) % 292.4 294.2 (1.8) (0.6) % Other operating expenses (1) 105.0 103.7 1.3 1.3 % 312.1 308.4 3.7 1.2 % Asset impairments — — — — % 0.8 — 0.8 NM Operating income (loss) $ 8.9 $ 7.6 $ 1.3 17.1 % $ 82.6 $ 73.1 $ 9.5 13.0 % (1) Other operating expenses include selling, general and administrative expenses and depreciation and amortization. NM Not meaningful Revenues for the quarter ended February 28, 2026 decreased by $5.7 million to $197.6 million, compared to $203.3 million in the prior fiscal year quarter. Trade channel revenues decreased $7.7 million, primarily due to the shift in timing of the Dog Man publication which occurred in the second fiscal quarter compared to the third fiscal quarter in the prior year. Revenues from School Reading Events increased $2.0 million, driven by higher revenue per fair in the book fairs channel. Revenues from the book clubs channel were relatively consistent with the prior fiscal year quarter. Revenues for the nine months ended February 28, 2026 increased by $12.2 million to $687.9 million, compared to $675.7 million in the prior fiscal year period. Revenues from School Reading Events increased $12.7 million, driven by higher fair count and increased revenue per fair in the book fairs channel, coupled with increased redemptions of book fair incentive program credits. This was partially offset by lower book clubs channel revenues primarily due to lower sponsor participation. Trade channel revenues were relatively consistent with the prior fiscal year period, decreasing $0.5 million, with continued success in the Hunger Games ® , Harry Potter ® and Dog Man franchises. Cost of goods sold for the quarter ended February 28, 2026 was $83.7 million, or 42.4% of revenues, compared to $92.0 million, or 45.3% of revenues, in the prior fiscal year quarter. The decrease in Cost of goods sold as a percentage of revenues was primarily driven by lower royalty costs as a result of a decrease in the mix of higher-royalty bearing titles sold in the trade channel in the quarter ended February 28, 2026, coupled with improved utilization of inventory in the book fairs channel which resulted in less excess and obsolete inventory. This was partially offset by increased tariff charges, primarily in the book fairs channel. Cost of goods sold for the nine months ended February 28, 2026 was $292.4 million, or 42.5% of revenues, compared to $294.2 million, or 43.5% of revenues, in the prior fiscal year period. Cost of goods sold benefited from improved utilization of inventory in the book fairs and book clubs channels resulting in less excess and obsolete inventory, partially offset by increased tariff charges, primarily in the book fairs channel. Other operating expenses for the quarter ended February 28, 2026 were $105.0 million which were comparable to $103.7 million in the prior fiscal year quarter. Other operating expenses for the nine months ended February 28, 2026 increased by $3.7 million to $312.1 million, compared to $308.4 million in the prior fiscal year period. The increase in Other operating expenses was primarily attributable to inflationary pressures and higher expected credit losses on customer receivables. Asset impairments for the nine months ended February 28, 2026 were $0.8 million. During the first quarter of fiscal 2026, the Company recognized an asset impairment of $0.8 million related to a certain product that is no longer being sold. Refer to Note 5, "Asset Write Down," of Notes to the Consolidated Financial Statements in Item 8, "Consolidated Financial Statements and Supplementary Data" for further details. Segment operating income for the quarter ended February 28, 2026 increased by $1.3 million to $8.9 million, compared to $7.6 million in the prior fiscal year quarter. The improvement was primarily attributable to favorable cost of goods sold as a result of lower royalty costs in the trade channel, coupled with improved utilization of inventory in the book fairs channel which resulted in less excess and obsolete inventory. 32 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Segment operating income for the nine months ended February 28, 2026 increased by $9.5 million to $82.6 million, compared to $73.1 million in the prior fiscal year period. The improvement was primarily attributable to increased revenues from the book fairs channel, coupled with favorable cost of goods sold as a result of improved utilization of inventory in the book fairs and book clubs channels resulting in less excess and obsolete inventory. 33 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Education Solutions Three months ended February 28, Nine months ended February 28, $ % $ % ($ amounts in millions) 2026 2025 Change Change 2026 2025 Change Change Revenues $ 56.1 $ 57.2 $ (1.1) (1.9) % $ 158.4 $ 184.1 $ (25.7) (14.0) % Cost of goods sold 23.2 23.0 0.2 0.9 % 66.3 77.7 (11.4) (14.7) % Other operating expenses (1) 38.1 41.1 (3.0) (7.3) % 119.8 130.8 (11.0) (8.4) % Asset impairments — — — — % 3.4 — 3.4 NM Operating income (loss) $ (5.2) $ (6.9) $ 1.7 24.6 % $ (31.1) $ (24.4) $ (6.7) (27.5) % (1) Other operating expenses include selling, general and administrative expenses and depreciation and amortization. NM Not meaningful Revenues for the quarter ended February 28, 2026 decreased by $1.1 million to $56.1 million, compared to $57.2 million in the prior fiscal year quarter. The decrease in segment revenues was primarily driven by lower sales of supplemental curriculum products resulting from the continued challenging funding market for schools and school districts, coupled with lower subscription revenues from Magazines+. This decline was partially offset by increased revenues from sponsored programs in the quarter ended February 28, 2026. Revenues for the nine months ended February 28, 2026 decreased by $25.7 million to $158.4 million, compared to $184.1 million in the prior fiscal year period. The decrease in segment revenues was primarily driven by lower sales of supplemental curriculum products due to the continued challenging funding market for schools and school districts, coupled with lower subscription revenues from Magazines+. Revenues from sponsored programs were relatively consistent with the prior fiscal year period. Cost of goods sold for the quarter ended February 28, 2026 was $23.2 million, or 41.4% of revenues, which was comparable to $23.0 million, or 40.2% of revenues, in the prior fiscal year quarter. Cost of goods sold as a percentage of revenues increased due to higher shipping and postage costs related to sponsored programs. Cost of goods sold for the nine months ended February 28, 2026 was $66.3 million, or 41.9% of revenues, compared to $77.7 million, or 42.2% of revenues, in the prior fiscal year period. Cost of goods sold as a percentage of revenues decreased due to lower product costs associated with the mix of products sold during the period ended February 28, 2026, partially offset by higher shipping and postage costs related to sponsored programs. Other operating expenses for the quarter ended February 28, 2026 decreased by $3.0 million to $38.1 million, compared to $41.1 million in the prior fiscal year quarter. Other operating expenses for the nine months ended February 28, 2026 decreased by $11.0 million to $119.8 million, compared to $130.8 million in the prior fiscal year period. The decrease in Other operating expenses was primarily attributable to lower employee-related and external labor costs and reduced spending on general overhead expenses. Asset impairments for the nine months ended February 28, 2026 were $3.4 million. During the second quarter of fiscal 2026, the Company recognized asset impairments of $3.4 million related to certain education products. Refer to Note 5, "Asset Write Down," of Notes to the Consolidated Financial Statements in Item 8, "Consolidated Financial Statements and Supplementary Data" for further details. Segment operating loss for the quarter ended February 28, 2026 decreased by $1.7 million to $5.2 million, compared to an operating loss of $6.9 million in the prior fiscal year quarter. The improvement was primarily attributable to lower employee-related and external labor costs as well as reduced spending on general overhead expenses. Segment operating loss for the nine months ended February 28, 2026 increased by $6.7 million to $31.1 million, compared to an operating loss of $24.4 million in the prior fiscal year period. The overall decline was driven by lower revenues and the asset impairments recognized during the period ended February 28, 2026, partially offset by lower employee-related and external labor costs as well as reduced spending on general overhead expenses. 34 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Entertainment Three months ended February 28, Nine months ended February 28, $ % $ % ($ amounts in millions) 2026 2025 Change Change 2026 2025 Change Change Revenues $ 16.0 $ 12.8 $ 3.2 25.0 % $ 44.7 $ 46.2 $ (1.5) (3.2) % Cost of goods sold 9.3 7.2 2.1 29.2 % 26.2 26.1 0.1 0.4 % Other operating expenses (1) 10.2 9.2 1.0 10.9 % 29.8 28.9 0.9 3.1 % Asset impairments — 0.3 (0.3) NM 5.2 0.3 4.9 NM Operating income (loss) $ (3.5) $ (3.9) $ 0.4 10.3 % $ (16.5) $ (9.1) $ (7.4) (81.3) % (1) Other operating expenses include selling, general and administrative expenses and depreciation and amortization. NM Not meaningful The Entertainment segment includes the operations of 9 Story, as acquired on June 20, 2024, and Scholastic Entertainment Inc. ("SEI"). Refer to Note 9 "Acquisitions," of Notes to the Consolidated Financial Statements in Item 8, "Consolidated Financial Statements and Supplementary Data" for further details regarding the acquisition of 9 Story. Revenues for the quarter ended February 28, 2026 increased by $3.2 million to $16.0 million, compared to $12.8 million in the prior fiscal year quarter. The increase in segment revenues was primarily driven by higher production revenues from services and an increase in episodic deliveries as compared to the prior fiscal year quarter. Revenues for the nine months ended February 28, 2026 decreased by $1.5 million to $44.7 million, compared to $46.2 million in the prior fiscal year period. The decrease in segment revenues was primarily driven by lower production revenues as a result of fewer episodic deliveries as compared to the prior fiscal year period and lower distribution revenues. This was partially offset by increased revenues from production services. Cost of goods sold for the quarter ended February 28, 2026 was $9.3 million, or 58.1% of revenues, compared to $7.2 million, or 56.3% of revenues, in the prior fiscal year quarter. The increase in Cost of goods sold as a percentage of revenues was primarily driven by the revenue mix between production services and episodic deliveries as there is a higher cost associated with production services. Cost of goods sold for the nine months ended February 28, 2026 was $26.2 million, or 58.6% of revenues, compared to $26.1 million, or 56.5% of revenues, in the prior fiscal year period. The increase in Cost of goods sold as a percentage of revenues was primarily driven by the increase in production services revenues which have a higher cost compared to production revenues related to episodic deliveries. Other operating expenses for the three and nine months ended February 28, 2026 were $10.2 million and $29.8 million, respectively, which were comparable to $9.2 million and $28.9 million, respectively, in the prior fiscal year periods. Asset impairments for the nine months ended February 28, 2026 were $5.2 million. During the second quarter of fiscal 2026, the Company recognized asset impairments of $4.9 million related to certain film and television programs in development and $0.3 million related to its ownership interest in a children's book publishing business located in the UK. Refer to Note 5, "Asset Write Down," of Notes to the Consolidated Financial Statements in Item 8, "Consolidated Financial Statements and Supplementary Data" for further details. Asset impairments for the three and nine months ended February 28, 2025 were $0.3 million. The Company early exited certain 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, primarily related to the right-of-use asset associated with the operating leases. Segment operating loss for the quarter ended February 28, 2026 was $3.5 million compared to $3.9 million in the prior fiscal year quarter. The $0.4 million improvement was primarily driven by the increased revenues during the quarter ended February 28, 2026. 35 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Segment operating loss for the nine months ended February 28, 2026 was $16.5 million compared to $9.1 million in the prior fiscal year period. The $7.4 million increase in operating loss was primarily driven by lower production and distribution revenues, coupled with the asset impairments recognized during the period ended February 28, 2026. International Three months ended February 28, Nine months ended February 28, $ % $ % ($ amounts in millions) 2026 2025 Change Change 2026 2025 Change Change Revenues $ 58.7 $ 59.3 $ (0.6) (1.0) % $ 207.6 $ 202.8 $ 4.8 2.4 % Cost of goods sold 35.3 33.8 1.5 4.4 % 118.6 118.0 0.6 0.5 % Other operating expenses (1) 28.1 27.6 0.5 1.8 % 85.5 89.5 (4.0) (4.5) % Operating income (loss) $ (4.7) $ (2.1) $ (2.6) (123.8) % $ 3.5 $ (4.7) $ 8.2 174.5 % (1) Other operating expenses include selling, general and administrative expenses and depreciation and amortization. Revenues for the quarter ended February 28, 2026 decreased by $0.6 million to $58.7 million, compared to $59.3 million in the prior fiscal year quarter. Local currency revenues across the Company's foreign operations decreased by $4.1 million, excluding favorable foreign exchange impact of $3.5 million. In the U.K., local currency revenues decreased $1.7 million, primarily within the trade channel reflecting the shift in timing of the Dog Man publication which occurred in the second fiscal quarter compared to the third quarter in the prior fiscal year. In Canada, local currency revenues decreased $1.7 million, primarily driven by lower trade channel sales due, in part, to the timing of the Dog Man publication, partially offset by increased book fairs channel sales. In Australia and New Zealand, local currency revenues decreased $0.9 million, primarily driven by lower education sales in New Zealand, partially offset by increased trade channel sales in Australia. In Asia, local currency revenues were consistent with the prior year quarter, increasing $0.2 million. In addition, export channel sales were consistent with the prior fiscal year quarter. Revenues for the nine months ended February 28, 2026 increased by $4.8 million to $207.6 million, compared to $202.8 million in the prior fiscal year period. Local currency revenues across the Company's foreign operations increased by $1.6 million, excluding favorable foreign exchange impact of $3.2 million. In Asia, local currency revenues increased $1.8 million, primarily driven by increased trade and education sales, which included growth in India. In Australia and New Zealand, local currency revenues increased $1.6 million, primarily driven by increased trade channel sales in Australia, partially offset by lower education sales in New Zealand. In the U.K., local currency revenues increased $0.7 million, primarily attributable to increased trade channel sales, coupled with increased book fairs channel sales on higher fair count. In addition, export channel sales increased $0.3 million compared to the prior fiscal year period. The overall increase in segment revenues was partially offset by a $2.8 million decrease in local currency revenues in Canada, primarily driven by lower book clubs and trade channel sales. Cost of goods sold for the quarter ended February 28, 2026 was $35.3 million, or 60.1% of revenues, compared to $33.8 million, or 57.0% of revenues, in the prior fiscal year quarter. The increase in Cost of goods sold as a percentage of revenues was driven by higher royalty costs in Australia due to an increase in the mix of higher-royalty bearing titles sold in the trade channel, partially offset by lower freight costs in the Company's Major Markets. Cost of goods sold for the nine months ended February 28, 2026 was $118.6 million, or 57.1% of revenues, compared to $118.0 million, or 58.2% of revenues. Cost of goods sold as a percentage of revenues decreased as a result of lower freight costs in the Company's Major Markets. Other operating expenses for the quarter ended February 28, 2026 were $28.1 million, compared to $27.6 million in the prior fiscal year quarter. Excluding unfavorable foreign exchange of $1.5 million, Operating expenses decreased $1.0 million primarily due to lower employee-related costs in Canada, the U.K. and Asia. Other operating expenses for the nine months ended February 28, 2026 were $85.5 million, compared to $89.5 million in the prior fiscal year period. Excluding unfavorable foreign exchange of $1.5 million, Other operating expenses decreased $5.5 million primarily driven by lower employee-related costs, primarily in Canada, the U.K. 36 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and Asia, which included lower severance expense of $1.0 million, in addition to lower bad debt expenses in Asia. Segment operating loss for the quarter ended February 28, 2026 was $4.7 million, compared to an operating loss of $2.1 million in the prior fiscal year quarter. The $2.6 million increase in operating loss was primarily attributable to lower revenues in Canada and New Zealand. Segment operating income for the nine months ended February 28, 2026 was $3.5 million, compared to an operating loss of $4.7 million in the prior fiscal year period. The $8.2 million improvement was primarily attributable to increased revenues in the U.K, Australia, and Asia, coupled with improved margins driven by lower freight costs and operational efficiencies. Overhead Unallocated overhead expense for the quarter ended February 28, 2026 increased by $3.8 million to $22.4 million, from $18.6 million in the prior fiscal year quarter. The increase was primarily attributable to the impact of the sale and leaseback transactions which resulted in lower rental income and higher rent expense, partially offset by lower depreciation expense. Unallocated overhead expense for the nine months ended February 28, 2026 increased by $2.1 million to $74.7 million, from $72.6 million in the prior fiscal year period. The increase was primarily attributable to the impact of the sale and leaseback transactions which resulted in lower rental income and higher rent expense, partially offset by lower depreciation expense. In addition, the Company incurred increased severance expense related to cost-savings initiatives of $7.6 million, which was partially offset by lower employee-related costs resulting from the Company's previous reorganization efforts and cost-savings programs. 37 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) 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. Liquidity and Capital Resources Cash used in operating activities was $39.1 million for the nine months ended February 28, 2026, compared to cash provided by operating activities of $17.3 million for the prior fiscal year period, representing an increase in cash used in operating activities of $56.4 million. The increase in cash used was primarily attributable to higher tax payments of approximately $38 million, largely due to the gain recognized on the sale and leaseback transactions, coupled with an additional contribution to the UK Pension Plan and higher severance payments. Cash provided by investing activities was $406.0 million for the nine months ended February 28, 2026, compared to cash used in investing activities of $232.0 million in the prior fiscal year period, representing an increase in cash provided by investing activities of $638.0 million. The increase in cash provided by investing activities was primarily driven by the pre-tax net proceeds of $452.4 million from the sale and leaseback transactions related to the Company's headquarters in New York City and primary distribution center in Jefferson City, Missouri during the nine months ended February 28, 2026, coupled with the cash paid for the 9 Story acquisition of $176.2 million, net of cash acquired, during the nine months ended February 28, 2025. In addition, capital expenditures were lower by $6.5 million during the nine months ended February 28, 2026. Cash used in financing activities was $386.9 million for the nine months ended February 28, 2026, compared to cash provided by financing activities of $197.6 million for the prior fiscal year period, representing an increase in cash used in financing activities of $584.5 million. The increase in cash used was primarily attributable to net repayments on borrowings under the U.S. Credit Agreement of $250.0 million in the nine months ended February 28, 2026 funded by the proceeds from the sale and leaseback transactions, compared to net borrowings of $275.0 million in the prior fiscal year period in which the Company incurred increased borrowings to fund the 9 Story acquisition. In addition, the Company repurchased $127.2 million of common stock in the nine months ended February 28, 2026, compared to $40.0 million of common stock repurchases in the prior fiscal year period. This was partially offset by an increase in net repayments of film related obligations of $17.7 million. Cash Position The Company’s cash and cash equivalents totaled $104.6 million at February 28, 2026, $124.0 million at May 31, 2025 and $94.7 million at February 28, 2025. Cash and cash equivalents held by the Company’s U.S. operations totaled $41.6 million at February 28, 2026, $48.7 million at May 31, 2025 and $41.0 million at February 28, 2025. 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 and dividend declarations. Under the Company's open-market buy-back program, $19.5 million remained available for future purchases of common shares as of February 28, 2026. Subsequent to February 28, 2026, the Board authorized an increase of $297.0 million for common stock repurchases, resulting in a current Board authorization of $300.0 million, which includes the remaining amount from the previous Board authorization, less repurchases of $16.5 million made subsequent to February 28, 2026. See Note 20, "Subsequent Events," of Notes to the Financial Statements - Unaudited in Item 1, "Financial Statements," for more information regarding the increased authorization. 38 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) 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 28, 2026, the Company’s primary sources of liquidity consisted of cash and cash equivalents of $104.6 million, cash from operations and the Company's U.S. Credit Agreement. See Note 6, "Debt," 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 $399.6 million of availability at February 28, 2026. Additionally, the Company has short-term credit facilities of $38.1 million, less current borrowings of $5.6 million and commitments of $3.6 million, resulting in $28.9 million of current availability under these facilities at February 28, 2026. 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 6, "Debt," 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, 2025. 39 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) 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 and tariffs, 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. 40 SCHOLASTIC CORPORATION