UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended

~~February 28,~~August 31, 2023

Commission File No.

000-19860

SCHOLASTIC CORPORATION

(Exact name of Registrant as specified in its charter)


Delaware		13-3385513
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
557 Broadway,
New York,	New York	10012
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (212) 343-6100


Title of Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	SCHL	The NASDAQ Stock Market LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date:


Title of each class						Number of shares outstanding as of ~~February 28,~~August 31, 2023
Common Stock, $0.01 par value						~~31,391,956~~29,359,962
Class A Stock, $0.01 par value						1,656,200

SCHOLASTIC CORPORATION

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED ~~February 28,~~August 31, 2023

INDEX



Part I - Financial Information		Page

Item 1.	Financial Statements

	Condensed Consolidated Statements of Operations (Unaudited)	3

	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	4

	Condensed Consolidated Balance Sheets (Unaudited)	5

	Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows (Unaudited)	87

	Notes to Condensed Consolidated Financial Statements (Unaudited)	98

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2318

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3324

Item 4.	Controls and Procedures	3425

Part II - Other Information

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3526

Item 6.	Exhibits	3627

Signatures		3829

PART I - FINANCIAL INFORMATION


Item 1. Financial Statements


SCHOLASTIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED (Dollar amounts in millions, except per share data)


		Three months ended				Nine months ended					Three months ended
		February 28,				February 28,					August 31,
		2023		2022		2023		2022			2023		2022
Revenues	Revenues	$	324.9	$	344.5	$	1,175.7	$	1,128.5	Revenues	$	228.5	$	262.9
Operating costs and expenses:	Operating costs and expenses:									Operating costs and expenses:
Cost of goods sold	Cost of goods sold		161.1		169.6		566.0		540.9	Cost of goods sold		130.0		144.5
Selling, general and administrative expenses	Selling, general and administrative expenses		178.0		180.8		554.4		512.7	Selling, general and administrative expenses		184.2		162.8
Depreciation and amortization	Depreciation and amortization		13.5		13.6		41.0		43.0	Depreciation and amortization		13.4		13.7

Total operating costs and expenses	Total operating costs and expenses		352.6		364.0		1,161.4		1,096.6	Total operating costs and expenses		327.6		321.0
Operating income (loss)	Operating income (loss)		(27.7)		(19.5)		14.3		31.9	Operating income (loss)		(99.1)		(58.1)
Interest income (expense), net	Interest income (expense), net		1.4		(0.4)		2.3		(2.2)	Interest income (expense), net		1.4		0.2
Other components of net periodic benefit (cost)	Other components of net periodic benefit (cost)		0.1		0.1		0.2		0.1	Other components of net periodic benefit (cost)		(0.3)		0.0
Gain (loss) on sale of assets and other			—		—		—		6.2

Earnings (loss) before income taxes	Earnings (loss) before income taxes		(26.2)		(19.8)		16.8		36.0	Earnings (loss) before income taxes		(98.0)		(57.9)
Provision (benefit) for income taxes	Provision (benefit) for income taxes		(6.9)		(4.7)		6.1		7.1	Provision (benefit) for income taxes		(23.8)		(12.5)
Net income (loss)	Net income (loss)		(19.3)		(15.1)		10.7		28.9	Net income (loss)		(74.2)		(45.4)
Less: Net income (loss) attributable to noncontrolling interest	Less: Net income (loss) attributable to noncontrolling interest		(0.1)		0.2		0.1		0.1	Less: Net income (loss) attributable to noncontrolling interest		—		0.1
Net income (loss) attributable to Scholastic Corporation	Net income (loss) attributable to Scholastic Corporation	$	(19.2)	$	(15.3)	$	10.6	$	28.8	Net income (loss) attributable to Scholastic Corporation	$	(74.2)	$	(45.5)
Basic and diluted earnings (loss) per share of Class A and Common Stock	Basic and diluted earnings (loss) per share of Class A and Common Stock									Basic and diluted earnings (loss) per share of Class A and Common Stock
Basic	Basic	$	(0.57)	$	(0.44)	$	0.31	$	0.83	Basic	$	(2.35)	$	(1.33)
Diluted	Diluted	$	(0.57)	$	(0.44)	$	0.30	$	0.80	Diluted	$	(2.35)	$	(1.33)

See accompanying notes


SCHOLASTIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - UNAUDITED (Dollar amounts in millions)


		Three months ended				Nine months ended					Three months ended
		February 28,				February 28,					August 31,
		2023		2022		2023		2022			2023		2022
Net income (loss)	Net income (loss)	$	(19.3)	$	(15.1)	$	10.7	$	28.9	Net income (loss)	$	(74.2)	$	(45.4)
Other comprehensive income (loss), net:	Other comprehensive income (loss), net:									Other comprehensive income (loss), net:
Foreign currency translation adjustments	Foreign currency translation adjustments		(1.0)		1.6		(7.6)		(8.6)	Foreign currency translation adjustments		1.8		(9.6)
Pension and postretirement adjustments (net of tax)	Pension and postretirement adjustments (net of tax)		(0.0)		0.0		(0.1)		0.6	Pension and postretirement adjustments (net of tax)		0.2		0.0
Total other comprehensive income (loss), net	Total other comprehensive income (loss), net	$	(1.0)	$	1.6	$	(7.7)	$	(8.0)	Total other comprehensive income (loss), net	$	2.0	$	(9.6)
Comprehensive income (loss)	Comprehensive income (loss)	$	(20.3)	$	(13.5)	$	3.0	$	20.9	Comprehensive income (loss)	$	(72.2)	$	(55.0)
Less: Net income (loss) attributable to noncontrolling interest	Less: Net income (loss) attributable to noncontrolling interest		(0.1)		0.2		0.1		0.1	Less: Net income (loss) attributable to noncontrolling interest		—		0.1
Comprehensive income (loss) attributable to Scholastic Corporation	Comprehensive income (loss) attributable to Scholastic Corporation	$	(20.2)	$	(13.7)	$	2.9	$	20.8	Comprehensive income (loss) attributable to Scholastic Corporation	$	(72.2)	$	(55.1)

See accompanying notes


SCHOLASTIC CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED (Dollar amounts in millions, except per share data)


		February 28, 2023		May 31, 2022		February 28, 2022			August 31, 2023		May 31, 2023		August 31, 2022
		(unaudited)		(audited)		(unaudited)			(unaudited)		(audited)		(unaudited)
ASSETS	ASSETS							ASSETS
Current Assets:	Current Assets:							Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	198.8	$	316.6	$	308.9	Cash and cash equivalents	$	125.8	$	224.5	$	239.7
Accounts receivable, net	Accounts receivable, net		261.7		299.4		287.7	Accounts receivable, net		201.9		278.0		242.9
Inventories, net	Inventories, net		367.5		281.4		299.4	Inventories, net		353.2		334.5		379.1
Income tax receivable	Income tax receivable		28.5		26.8		22.9	Income tax receivable		33.4		8.9		40.4
Prepaid expenses and other current assets	Prepaid expenses and other current assets		71.4		68.1		72.4	Prepaid expenses and other current assets		70.4		47.0		89.4
Assets held for sale			—		3.7		—

Total current assets	Total current assets		927.9		996.0		991.3	Total current assets		784.7		892.9		991.5
Noncurrent Assets:	Noncurrent Assets:							Noncurrent Assets:
Property, plant and equipment, net	Property, plant and equipment, net		510.5		517.0		520.7	Property, plant and equipment, net		523.3		521.4		512.6
Prepublication costs, net	Prepublication costs, net		54.0		55.5		58.3	Prepublication costs, net		55.0		56.4		53.6
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net		75.3		81.9		69.3	Operating lease right-of-use assets, net		96.4		85.7		77.9
Royalty advances, net	Royalty advances, net		59.6		49.2		53.2	Royalty advances, net		58.6		56.8		57.6
Goodwill	Goodwill		131.9		125.3		125.7	Goodwill		132.8		132.7		124.7
Noncurrent deferred income taxes	Noncurrent deferred income taxes		21.4		21.5		25.3	Noncurrent deferred income taxes		20.5		21.0		21.1
Other assets and deferred charges	Other assets and deferred charges		96.9		94.4		96.7	Other assets and deferred charges		101.0		99.8		92.7
Total noncurrent assets	Total noncurrent assets		949.6		944.8		949.2	Total noncurrent assets		987.6		973.8		940.2
Total assets	Total assets	$	1,877.5	$	1,940.8	$	1,940.5	Total assets	$	1,772.3	$	1,866.7	$	1,931.7

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:	Current Liabilities:							Current Liabilities:
Lines of credit and current portion of long-term debt	Lines of credit and current portion of long-term debt	$	5.2	$	6.5	$	13.7	Lines of credit and current portion of long-term debt	$	5.9	$	6.0	$	6.3
Accounts payable	Accounts payable		158.4		162.3		173.4	Accounts payable		167.7		170.9		208.9
Accrued royalties	Accrued royalties		83.2		61.3		84.2	Accrued royalties		72.0		52.8		85.0
Deferred revenue	Deferred revenue		203.0		172.8		176.8	Deferred revenue		171.1		169.1		182.6
Other accrued expenses	Other accrued expenses		163.9		193.3		184.8	Other accrued expenses		145.9		168.9		162.6
Accrued income taxes	Accrued income taxes		1.4		2.7		3.9	Accrued income taxes		13.2		13.4		1.7
Operating lease liabilities	Operating lease liabilities		21.8		20.8		22.4	Operating lease liabilities		22.9		21.2		21.2
Total current liabilities	Total current liabilities		636.9		619.7		659.2	Total current liabilities		598.7		602.3		668.3
Noncurrent Liabilities:	Noncurrent Liabilities:							Noncurrent Liabilities:
Long-term debt	Long-term debt		—		—		—	Long-term debt		—		—		—
Operating lease liabilities	Operating lease liabilities		62.8		69.8		57.1	Operating lease liabilities		83.1		73.8		65.8
Other noncurrent liabilities	Other noncurrent liabilities		27.9		32.9		38.9	Other noncurrent liabilities		35.9		26.1		31.3
Total noncurrent liabilities	Total noncurrent liabilities		90.7		102.7		96.0	Total noncurrent liabilities		119.0		99.9		97.1
Commitments and Contingencies (see Note 6)			—		—		—
Commitments and Contingencies (see Note 5)								Commitments and Contingencies (see Note 5)		—		—		—
Stockholders’ Equity:	Stockholders’ Equity:							Stockholders’ Equity:
Preferred Stock, $1.00 par value: Authorized, 2.0 shares; Issued and Outstanding, none	Preferred Stock, $1.00 par value: Authorized, 2.0 shares; Issued and Outstanding, none	$	—	$	—	$	—	Preferred Stock, $1.00 par value: Authorized, 2.0 shares; Issued and Outstanding, none	$	—	$	—	$	—
Class A Stock, $0.01 par value: Authorized, 4.0 shares; Issued and Outstanding, 1.7 shares	Class A Stock, $0.01 par value: Authorized, 4.0 shares; Issued and Outstanding, 1.7 shares		0.0		0.0		0.0	Class A Stock, $0.01 par value: Authorized, 4.0 shares; Issued and Outstanding, 1.7 shares		0.0		0.0		0.0
Common Stock, $0.01 par value: Authorized, 70.0 shares; Issued, 42.9 shares; Outstanding, 31.4, 32.5, and 32.8 shares, respectively			0.4		0.4		0.4
Common Stock, $0.01 par value: Authorized, 70.0 shares; Issued, 42.9 shares; Outstanding, 29.3, 30.0, and 32.7 shares, respectively								Common Stock, $0.01 par value: Authorized, 70.0 shares; Issued, 42.9 shares; Outstanding, 29.3, 30.0, and 32.7 shares, respectively		0.4		0.4		0.4
Additional paid-in capital	Additional paid-in capital		630.6		627.0		626.9	Additional paid-in capital		632.7		632.2		629.5
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)		(53.1)		(45.4)		(42.7)	Accumulated other comprehensive income (loss)		(53.8)		(55.8)		(55.0)
Retained earnings	Retained earnings		966.4		976.5		929.5	Retained earnings		955.1		1,035.6		924.1
Treasury stock, at cost: 11.5, 10.4 and 10.1 shares, respectively			(395.9)		(341.5)		(330.3)
Treasury stock, at cost: 13.6, 12.9 and 10.2 shares, respectively								Treasury stock, at cost: 13.6, 12.9 and 10.2 shares, respectively		(479.8)		(449.5)		(334.2)
Total stockholders’ equity of Scholastic Corporation	Total stockholders’ equity of Scholastic Corporation		1,148.4		1,217.0		1,183.8	Total stockholders’ equity of Scholastic Corporation		1,054.6		1,162.9		1,164.8
Noncontrolling interest	Noncontrolling interest		1.5		1.4		1.5	Noncontrolling interest		—		1.6		1.5
Total stockholders’ equity	Total stockholders’ equity		1,149.9		1,218.4		1,185.3	Total stockholders’ equity		1,054.6		1,164.5		1,166.3
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	1,877.5	$	1,940.8	$	1,940.5	Total liabilities and stockholders’ equity	$	1,772.3	$	1,866.7	$	1,931.7

See accompanying notes


SCHOLASTIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - UNAUDITED (Dollar amounts in millions, except per share data)


		Class A Stock			Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Treasury Stock At Cost			Total Stockholders' Equity of Scholastic Corporation			Noncontrolling Interest		Total Stockholders' Equity			Class A Stock			Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Treasury Stock At Cost			Total Stockholders' Equity of Scholastic Corporation			Noncontrolling Interest		Total Stockholders' Equity
		Shares	Amount		Shares	Amount																					Shares	Amount		Shares	Amount
Balance at June 1, 2021		1.7	$	0.0	32.7	$	0.4		$	626.5		$	(34.7)	$	916.4		$	(327.8)		$	1,180.8	$	1.5	$	1,182.3
Balance at June 1, 2022																										Balance at June 1, 2022	1.7	$	0.0	32.5	$	0.4		$	627.0		$	(45.4)	$	976.5		$	(341.5)		$	1,217.0	$	1.4	$	1,218.4
Net Income (loss)	Net Income (loss)	—	—		—	—			—			—		(24.2)			—			(24.2)		(0.2)		(24.4)		Net Income (loss)	—	—		—	—			—			—		(45.5)			—			(45.5)		0.1		(45.4)
Foreign currency translation adjustment	Foreign currency translation adjustment	—	—		—	—			—			(5.8)		—			—			(5.8)		—		(5.8)		Foreign currency translation adjustment	—	—		—	—			—			(9.6)		—			—			(9.6)		—		(9.6)
Pension and post-retirement adjustments (net of tax of $0.1)	Pension and post-retirement adjustments (net of tax of $0.1)	—	—		—	—			—			0.1		—			—			0.1		—		0.1		Pension and post-retirement adjustments (net of tax of $0.1)	—	—		—	—			—			0.0		—			—			0.0		—		0.0
Stock-based compensation	Stock-based compensation	—	—		—	—			1.5			—		—			—			1.5		—		1.5		Stock-based compensation	—	—		—	—			1.7			—		—			—			1.7		—		1.7
Proceeds pursuant to stock-based compensation plans	Proceeds pursuant to stock-based compensation plans	—	—		—	—			0.5			—		—			—			0.5		—		0.5		Proceeds pursuant to stock-based compensation plans	—	—		—	—			11.6			—		—			—			11.6		—		11.6

Treasury stock issued pursuant to equity-based plans		—	—		0.1	—			(0.9)			—		—			1.5			0.6		—		0.6
Dividends ($0.15 per share)		—	—		—	—			—			—		(5.2)			—			(5.2)		—		(5.2)

Balance at August 31, 2021		1.7	$	0.0	32.8	$	0.4		$	627.6		$	(40.4)	$	887.0		$	(326.3)		$	1,148.3	$	1.3	$	1,149.6
Net Income (loss)		—	—		—	—			—			—		68.3			—			68.3		0.1		68.4
Foreign currency translation adjustment		—	—		—	—			—			(4.4)		—			—			(4.4)		—		(4.4)
Pension and post-retirement adjustments (net of tax of $(0.1))		—	—		—	—			—			0.5		—			—			0.5		—		0.5
Stock-based compensation		—	—		—	—			3.0			—		—			—			3.0		—		3.0
Proceeds pursuant to stock-based compensation plans		—	—		—	—			2.5			—		—			—			2.5		—		2.5
Purchases of treasury stock at cost	Purchases of treasury stock at cost	—	—		(0.1)	—			—			—		—			(4.2)			(4.2)		—		(4.2)		Purchases of treasury stock at cost	—	—		(0.1)	—			—			—		—			(5.1)			(5.1)		—		(5.1)
Treasury stock issued pursuant to equity-based plans	Treasury stock issued pursuant to equity-based plans	—	—		0.2	—			(8.0)			—		—			8.0			—		—		—		Treasury stock issued pursuant to equity-based plans	—	—		0.3	—			(10.8)			—		—			12.4			1.6		—		1.6
Dividends ($0.15 per share)		—	—		—	—			—			—		(5.2)			—			(5.2)		—		(5.2)
Other (noncontrolling interest)		—	—		—	—			—			—		—			—			—		(0.2)		(0.2)
Balance at November 30, 2021		1.7	$	0.0	32.9	$	0.4		$	625.1		$	(44.3)	$	950.1		$	(322.5)		$	1,208.8	$	1.2	$	1,210.0
Net Income (loss)		—	—		—	—			—			—		(15.3)			—			(15.3)		0.2		(15.1)
Foreign currency translation adjustment		—	—		—	—			—			1.6		—			—			1.6		—		1.6
Pension and post-retirement adjustments (net of tax of $0.0)		—	—		—	—			—			0.0		—			—			—		—		—
Stock-based compensation		—	—		—	—			1.6			—		—			—			1.6		—		1.6
Proceeds pursuant to stock-based compensation plans		—	—		—	—			7.3			—		—			—			7.3		—		7.3
Purchases of treasury stock at cost		—	—		(0.4)	—			—			—		—			(15.4)			(15.4)		—		(15.4)
Treasury stock issued pursuant to equity-based plans		—	—		0.3	—			(7.1)			—		—			7.6			0.5		—		0.5
Dividends ($0.15 per share)		—	—		—	—			—			—		(5.3)			—			(5.3)		—		(5.3)
Other (noncontrolling interest)		—	—		—	—			—			—		—			—			—		0.1		0.1
Balance at February 28, 2022		1.7	$	0.0	32.8	$	0.4		$	626.9		$	(42.7)	$	929.5		$	(330.3)		$	1,183.8	$	1.5	$	1,185.3
Dividends ($0.20 per share)																										Dividends ($0.20 per share)	—	—		—	—			—			—		(6.9)			—			(6.9)		—		(6.9)

Balance at August 31, 2022																										Balance at August 31, 2022	1.7	$	0.0	32.7	$	0.4		$	629.5		$	(55.0)	$	924.1		$	(334.2)		$	1,164.8	$	1.5	$	1,166.3


		Class A Stock			Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Treasury Stock At Cost			Total Stockholders' Equity of Scholastic Corporation			Noncontrolling Interest		Total Stockholders' Equity			Class A Stock			Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Treasury Stock At Cost			Total Stockholders' Equity of Scholastic Corporation			Noncontrolling Interest		Total Stockholders' Equity
		Shares	Amount		Shares	Amount																					Shares	Amount		Shares	Amount
Balance at June 1, 2022		1.7	$	0.0	32.5	$	0.4		$	627.0		$	(45.4)	$	976.5		$	(341.5)		$	1,217.0	$	1.4	$	1,218.4
Balance at June 1, 2023																										Balance at June 1, 2023	1.7	$	0.0	30.0	$	0.4		$	632.2		$	(55.8)	$	1,035.6		$	(449.5)		$	1,162.9	$	1.6	$	1,164.5
Net Income (loss)	Net Income (loss)	—	—		—	—			—			—		(45.5)			—			(45.5)		0.1		(45.4)		Net Income (loss)	—	—		—	—			—			—		(74.2)			—			(74.2)				(74.2)
Foreign currency translation adjustment	Foreign currency translation adjustment	—	—		—	—			—			(9.6)		—			—			(9.6)		—		(9.6)		Foreign currency translation adjustment	—	—		—	—			—			1.8		—			—			1.8		—		1.8
Pension and post-retirement adjustments (net of tax of $0.1)	Pension and post-retirement adjustments (net of tax of $0.1)	—	—		—	—			—			0.0		—			—			0.0		—		0.0		Pension and post-retirement adjustments (net of tax of $0.1)	—	—		—	—			—			0.2		—			—			0.2		—		0.2
Stock-based compensation	Stock-based compensation	—	—		—	—			1.7			—		—			—			1.7		—		1.7		Stock-based compensation	—	—		—	—			2.3			—		—			—			2.3		—		2.3
Proceeds pursuant to stock-based compensation plans	Proceeds pursuant to stock-based compensation plans	—	—		—	—			11.6			—		—			—			11.6		—		11.6		Proceeds pursuant to stock-based compensation plans	—	—		—	—			3.0			—		—			—			3.0		—		3.0
Purchases of treasury stock at cost	Purchases of treasury stock at cost	—	—		(0.1)	—			—			—		—			(5.1)			(5.1)		—		(5.1)		Purchases of treasury stock at cost	—	—		(0.8)	—			—			—		—			(36.2)			(36.2)		—		(36.2)
Treasury stock issued pursuant to equity-based plans	Treasury stock issued pursuant to equity-based plans	—	—		0.3	—			(10.8)			—		—			12.4			1.6		—		1.6		Treasury stock issued pursuant to equity-based plans	—	—		0.1	—			(4.3)			—		—			5.9			1.6		—		1.6
Dividends ($0.20 per share)	Dividends ($0.20 per share)	—	—		—	—			—			—		(6.9)			—			(6.9)		—		(6.9)		Dividends ($0.20 per share)	—	—		—	—			—			—		(6.3)			—			(6.3)		—		(6.3)
Other (noncontrolling interest)																										Other (noncontrolling interest)	—	—		—	—			(0.5)			0.0		—			—			(0.5)		(1.6)		(2.1)
Balance at August 31, 2023																										Balance at August 31, 2023	1.7	$	0.0	29.3	$	0.4		$	632.7		$	(53.8)	$	955.1		$	(479.8)		$	1,054.6	$	—	$	1,054.6

Balance at August 31, 2022		1.7	$	0.0	32.7	$	0.4		$	629.5		$	(55.0)	$	924.1		$	(334.2)		$	1,164.8	$	1.5	$	1,166.3
Net Income (loss)		—	—		—	—			—			—		75.3			—			75.3		0.1		75.4
Foreign currency translation adjustment		—	—		—	—			—			3.0		—			—			3.0		—		3.0
Pension and post-retirement adjustments (net of tax of $0.0)		—	—		—	—			—			(0.1)		—			—			(0.1)		—		(0.1)
Stock-based compensation		—	—		—	—			4.2			—		—			—			4.2		—		4.2
Proceeds pursuant to stock-based compensation plans		—	—		—	—			1.5			—		—			—			1.5		—		1.5
Purchases of treasury stock at cost		—	—		(0.6)	—			—			—		—			(26.0)			(26.0)		—		(26.0)
Treasury stock issued pursuant to equity-based plans		—	—		0.3	—			(6.2)			—		—			7.0			0.8		—		0.8
Dividends ($0.20 per share)		—	—		—	—			—			—		(7.0)			—			(7.0)		—		(7.0)

Balance at November 30, 2022		1.7	$	0.0	32.4	$	0.4		$	629.0		$	(52.1)	$	992.4		$	(353.2)		$	1,216.5	$	1.6	$	1,218.1
Net Income (loss)		—	—		—				—			—		(19.2)			—			(19.2)		(0.1)		(19.3)
Foreign currency translation adjustment		—	—		—	—			—			(1.0)		—			—			(1.0)		—		(1.0)
Pension and post-retirement adjustments (net of tax of $0.1)		—	—		—	—			—			0.0		—			—			0.0		—		0.0
Stock-based compensation		—	—		—	—			2.3			—		—			—			2.3		—		2.3
Proceeds pursuant to stock-based compensation plans		—	—		—	—			3.1			—		—			—			3.1		—		3.1
Purchases of treasury stock at cost		—	—		(1.1)	—			—			—		—			(46.9)			(46.9)		—		(46.9)
Treasury stock issued pursuant to equity-based plans		—	—		0.1	—			(3.8)			—		—			4.2			0.4		—		0.4
Dividends ($0.20 per share)		—	—		—	—			—			—		(6.8)			—			(6.8)		—		(6.8)

Balance at February 28, 2023		1.7	$	0.0	31.4	$	0.4		$	630.6		$	(53.1)	$	966.4		$	(395.9)		$	1,148.4	$	1.5	$	1,149.9

See accompanying notes


SCHOLASTIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED (Dollar amounts in millions)


		Nine months ended					Three months ended
		February 28,		February 28,			August 31,		August 31,
		2023		2022			2023		2022
Cash flows - operating activities:	Cash flows - operating activities:					Cash flows - operating activities:
Net income (loss) attributable to Scholastic Corporation	Net income (loss) attributable to Scholastic Corporation	$	10.6	$	28.8	Net income (loss) attributable to Scholastic Corporation	$	(74.2)	$	(45.5)
Adjustments to reconcile Net income (loss) to net cash provided by (used in) operating activities:	Adjustments to reconcile Net income (loss) to net cash provided by (used in) operating activities:					Adjustments to reconcile Net income (loss) to net cash provided by (used in) operating activities:
Provision for losses on accounts receivable	Provision for losses on accounts receivable		1.8		8.5	Provision for losses on accounts receivable		0.6		(1.5)
Provision for losses on inventory	Provision for losses on inventory		15.2		12.7	Provision for losses on inventory		6.2		4.2
Provision for losses on royalty advances	Provision for losses on royalty advances		2.6		2.6	Provision for losses on royalty advances		0.9		0.9
Amortization of prepublication costs	Amortization of prepublication costs		18.5		19.9	Amortization of prepublication costs		6.7		6.3
Depreciation and amortization	Depreciation and amortization		48.3		49.0	Depreciation and amortization		15.8		16.2
Amortization of pension and postretirement plans	Amortization of pension and postretirement plans		(0.3)		(0.0)	Amortization of pension and postretirement plans		0.1		(0.1)
Deferred income taxes	Deferred income taxes		(0.4)		(0.3)	Deferred income taxes		0.5		0.1
Stock-based compensation	Stock-based compensation		8.2		6.1	Stock-based compensation		2.3		1.7
Income from equity-method investments	Income from equity-method investments		(1.5)		(1.6)	Income from equity-method investments		(0.2)		(0.1)

(Gain) loss on sale of assets			—		(6.2)

Changes in assets and liabilities, net of amounts acquired:	Changes in assets and liabilities, net of amounts acquired:					Changes in assets and liabilities, net of amounts acquired:
Accounts receivable	Accounts receivable		32.9		(43.4)	Accounts receivable		75.8		54.6
Inventories	Inventories		(105.4)		(46.2)	Inventories		(24.5)		(105.9)
Prepaid expenses and other current assets	Prepaid expenses and other current assets		(2.9)		(25.8)	Prepaid expenses and other current assets		(23.4)		(20.8)
Income tax receivable	Income tax receivable		(1.8)		65.8	Income tax receivable		(24.5)		(13.7)
Royalty advances	Royalty advances		(13.4)		(12.5)	Royalty advances		(2.6)		(9.7)
Accounts payable	Accounts payable		(2.7)		37.2	Accounts payable		(3.4)		48.9
Accrued income taxes	Accrued income taxes		(1.1)		1.1	Accrued income taxes		(0.1)		(0.9)
Accrued royalties	Accrued royalties		22.8		39.5	Accrued royalties		19.2		24.5
Deferred revenue	Deferred revenue		31.0		78.4	Deferred revenue		2.0		10.4
Other accrued expenses	Other accrued expenses		(30.5)		(19.4)	Other accrued expenses		(21.4)		(28.7)
Other, net	Other, net		(3.0)		(15.7)	Other, net		6.1		(1.2)
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities		28.9		178.5	Net cash provided by (used in) operating activities		(38.1)		(60.3)

Cash flows - investing activities:	Cash flows - investing activities:					Cash flows - investing activities:
Prepublication expenditures	Prepublication expenditures		(17.8)		(13.0)	Prepublication expenditures		(5.4)		(4.8)
Additions to property, plant and equipment	Additions to property, plant and equipment		(36.8)		(28.0)	Additions to property, plant and equipment		(14.3)		(11.4)
Net proceeds from sale of assets			—		10.4

Other investment and acquisition-related payments	Other investment and acquisition-related payments		(10.7)		0.1	Other investment and acquisition-related payments		(2.1)		—
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities		(65.3)		(30.5)	Net cash provided by (used in) investing activities		(21.8)		(16.2)

Cash flows - financing activities:	Cash flows - financing activities:					Cash flows - financing activities:
Borrowings under lines of credit, credit agreement and revolving loan	Borrowings under lines of credit, credit agreement and revolving loan		2.5		2.4	Borrowings under lines of credit, credit agreement and revolving loan		0.7		1.2
Repayments of lines of credit, credit agreement and revolving loan	Repayments of lines of credit, credit agreement and revolving loan		(3.6)		(178.2)	Repayments of lines of credit, credit agreement and revolving loan		(0.9)		(1.3)
Repayment of capital lease obligations	Repayment of capital lease obligations		(1.7)		(1.7)	Repayment of capital lease obligations		(0.6)		(0.6)
Reacquisition of common stock	Reacquisition of common stock		(75.9)		(19.5)	Reacquisition of common stock		(35.9)		(4.7)
Proceeds pursuant to stock-based compensation plans	Proceeds pursuant to stock-based compensation plans		18.4		9.6	Proceeds pursuant to stock-based compensation plans		3.8		12.1
Payment of dividends	Payment of dividends		(18.9)		(15.5)	Payment of dividends		(6.5)		(5.1)
Other	Other		(0.1)		—	Other		0.1		—
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities		(79.3)		(202.9)	Net cash provided by (used in) financing activities		(39.3)		1.6

Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents		(2.1)		(2.7)	Effect of exchange rate changes on cash and cash equivalents		0.5		(2.0)

Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents		(117.8)		(57.6)	Net increase (decrease) in cash and cash equivalents		(98.7)		(76.9)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period		316.6		366.5	Cash and cash equivalents at beginning of period		224.5		316.6
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	198.8	$	308.9	Cash and cash equivalents at end of period	$	125.8	$	239.7

See accompanying notes


SCHOLASTIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (Dollar amounts in millions, except per share data)

1. BASIS OF PRESENTATION

Principles of consolidation

The accompanying condensed consolidated interim financial statements (referred to as the “Financial Statements” herein) include the accounts of Scholastic Corporation (the “Corporation”) and all wholly-owned and majority-owned subsidiaries (collectively, “Scholastic” or the “Company”). Intercompany transactions are eliminated in consolidation.

The Company’s fiscal year is not a calendar year. Accordingly, references in this document to fiscal ~~2023~~2024 relate to the twelve-month period ending May 31, ~~2023.~~2024.

Noncontrolling Interest

~~The~~On June 1, 2023, the Company ~~owns a 95.0% majority ownership interest in~~acquired the remaining shares of Make Believe Ideas Limited ("MBI"), a UK-based children's book publishing ~~company. The~~company, which represented a 5.0% noncontrolling interest, increasing the Company's total ownership from 95.0% to 100%.

Prior to June 1, 2023, the founder and chief executive officer of MBI ~~retains~~retained a 5.0% noncontrolling ownership interest in MBI. The Company fully consolidated MBI as of the acquisition date and the 5.0% noncontrolling interest iswas classified within stockholder's equity.

Interim Financial Statements

The accompanying Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information, and should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, ~~2022.~~2023. The Financial Statements presented in this Quarterly Report on Form 10-Q are unaudited; however, in the opinion of management, the Financial Statements reflect all adjustments, consisting solely of normal, recurring adjustments, necessary for the fair presentation of the Financial Statements for the periods presented.

Seasonality

The Company’s Children’s Book Publishing and Distribution school-based book club and book fair channels and most of its Education Solutions businesses operate on a school-year basis; therefore, the Company’s business is highly seasonal. As a result, the Company’s revenues in the first and third quarters of the fiscal year generally are lower than its revenues in the other two fiscal quarters. Typically, school-based channels and magazine revenues are minimal in the first quarter of the fiscal year as schools are not in session. Education channel revenues are generally higher in the fourth quarter. Trade sales can vary throughout the year due to varying release dates of published titles.

Use of estimates

The preparation of these Financial Statements involves the use of estimates and assumptions by management, which affects the amounts reported in the Financial Statements and accompanying notes. The Company bases its estimates on historical experience, current business factors, and various other assumptions believed to be reasonable under the circumstances, all of which are necessary, in order to form a basis for determining the carrying values of certain assets and liabilities. Actual results may differ from those estimates and assumptions. On an on-going basis, the Company evaluates the adequacy of its reserves and the estimates used in these calculations, including, but not limited to:

•Accounts receivable allowance for credit losses

•Pension and postretirement benefit plans

•Uncertain tax positions

•The timing and amount of future income taxes and related deductions

•Inventory reserves

•Cost of goods sold from book fair operations during interim periods based on estimated gross profit rates


SCHOLASTIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (Dollar amounts in millions, except per share data)

•Sales tax contingencies

•Royalty advance reserves and royalty expense accruals

•Impairment testing for goodwill, intangible and other long-lived assets and investments

•Assets and liabilities acquired in business combinations

•Variable consideration related to anticipated returns

•Allocation of transaction price to contractual performance obligations

New Accounting Pronouncements

There were no new accounting pronouncements issued in the first quarter of fiscal 2024 which would impact the Company. Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2023 for more information on current applicable authoritative guidance and its impact on the Company's financial statements.

2. REVENUES

Disaggregated Revenue Data

The following table presents the Company’s segment revenues disaggregated by region and domestic channel:


	Three months ended
	August 31,
	2023		2022
Book Clubs - U.S.	$	2.6	$	6.3
Book Fairs - U.S.		27.3		28.3
Trade - U.S.		62.5		76.2
Trade - International (1)		10.4		13.9
Total Children's Book Publishing and Distribution	$	102.8	$	124.7

Education Solutions - U.S.	$	66.0	$	73.2
Total Education Solutions	$	66.0	$	73.2

International - Major Markets (2)	$	47.8	$	53.4
International - Other Markets (3)		9.4		11.6
Total International	$	57.2	$	65.0

Total (4)	$	226.0	$	262.9

(1) Primarily includes foreign rights and certain product sales in the UK.

(2) Includes Canada, UK, Australia and New Zealand.

(3) Primarily includes markets in Asia.

(4) Total revenues of $228.5 in fiscal 2024 include rental income of $2.5 related to leased space in the Company's headquarters which was not allocated to a segment. In fiscal 2023, rental income of $1.5 was recognized as a reduction to Selling, general and administrative expenses.

Estimated Returns

A liability for expected returns of $33.1, $34.9, and $41.5 is recorded within Other accrued expenses as of August 31, 2023, May 31, 2023, and August 31, 2022, respectively. In addition, a return asset of $5.4, $4.7, and $7.8 is recorded within Prepaid expenses and other current assets as of August 31, 2023, May 31, 2023, and August 31, 2022, respectively, for the recoverable cost of product estimated to be returned by customers.


SCHOLASTIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (Dollar amounts in millions, except per share data)

•~~Assets and liabilities acquired in business combinations~~

•~~Variable consideration related to anticipated returns~~

•~~Allocation of transaction price to contractual performance obligations~~

~~Sale of Long-lived Assets~~

There were no sales of long-lived assets during the second and third quarters of fiscal 2023. Refer to Note 4, Asset Write Down and Sale, for details regarding the disposition of the direct sales business in Asia completed during the first quarter of fiscal 2023.

During the second quarter of fiscal 2022, the Company sold a facility, which included office and warehouse space, located in Lake Mary, Florida as part of an initiative to rightsize its real estate footprint to reduce occupancy costs. The long-lived assets, which consisted of land, building, building improvements, furniture and fixtures, were included in the ~~Children's Book Publishing and Distribution~~ segment. These assets had a carrying value of $4.2 and were classified as held for sale as of the third quarter of fiscal 2021. The net proceeds from the sale were $10.4 and the Company recognized a gain on sale of $6.2. This amount is included within Gain (loss) on sale of assets and other within the Company's Condensed Consolidated Statements of Operations.

~~New Accounting Pronouncements~~

In December 2022, ASU No. 2022-6, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date for Topic 848" was issued. Refer to the Current Fiscal Year Adoptions section below for further details. Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2022 for more information on current applicable authoritative guidance and its impact on the Company's financial statements.

~~Current Fiscal Year Adoptions:~~

~~ASU No. 2021-8~~

~~The Company adopted ASU No. 2021-8, "Business Combinations (Topic 805): Accounting for Contract Assets and~~ Contract Liabilities from Contracts with Customers" (ASU 2021-8), in the beginning of the second quarter of fiscal 2023. The updates in this guidance seek to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the following: 1. Recognition of an acquired contract liability and 2. Payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in ASU 2021-8 improve comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. The amendments improve comparability by specifying for all acquired revenue contracts regardless of their timing of payment: (1) the circumstances in which the acquirer should recognize contract assets and contract liabilities that are acquired in a business combination and (2) how to measure those contract assets and contract liabilities. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The Company early adopted ASU 2021-8 and applied the amendments in accounting for the acquisition of Learning Ovations, Inc. during the second quarter of fiscal 2023, which was accounted for as a business combination under the acquisition method of accounting. The adoption of this ASU did not have a material impact to the Company's Condensed Consolidated Financial Statements.

~~ASU No. 2020-4 and ASU No. 2022-6~~

In March 2020, the FASB issued ASU No. 2020-4, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" (ASU 2020-4), and in December 2022, the FASB issued ASU No. 2022-6, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date for Topic 848" (ASU 2022-6). ASU 2020-4 provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This guidance is elective and applies to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2022-6 defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. During the third quarter of fiscal 2023, the Company adopted the expedient in accounting for the amendments to the Company's Credit Agreement which were made as a result of the replacement of LIBOR as a reference rate. Refer to Note 5, Debt, for further details regarding the interest


SCHOLASTIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (Dollar amounts in millions, except per share data)

~~rate effected by these amendments, which will be applied prospectively. The adoption of these ASUs did not have a material impact to the Company's Condensed Consolidated Financial Statements.~~

~~2. REVENUES~~

~~Disaggregated Revenue Data~~

~~The following table presents the Company’s segment revenues disaggregated by region and domestic channel:~~

Three months ended Nine months ended
February 28, February 28,
2023 2022 2023 2022
Book Clubs - U.S. $ 27.7 $ 40.5 $ 91.6 $ 99.2
Book Fairs - U.S. 103.5 76.0 372.6 268.2
Trade - U.S. 64.8 77.1 248.9 266.6
Trade - International(1)
8.0 7.4 33.9 35.3
Total Children's Book Publishing and Distribution $ 204.0 $ 201.0 $ 747.0 $ 669.3
Education Solutions - U.S. $ 70.0 $ 77.2 $ 223.2 $ 236.8
Total Education Solutions $ 70.0 $ 77.2 $ 223.2 $ 236.8
International - Major Markets(2)
$ 41.3 $ 48.8 $ 171.8 $ 175.1
International - Other Markets(3)
9.6 17.5 33.7 47.3
Total International $ 50.9 $ 66.3 $ 205.5 $ 222.4
Total Revenues $ 324.9 $ 344.5 $ 1,175.7 $ 1,128.5

~~(1) Primarily includes foreign rights and certain product sales in the UK.~~

~~(2) Includes Canada, UK, Australia and New Zealand.~~

~~(3) Primarily includes markets in Asia.~~

~~Estimated Returns~~

A liability for expected returns of $44.8, $42.2, and $48.8 is recorded within Other accrued expenses as of February 28, 2023, May 31, 2022, and February 28, 2022, respectively. In addition, a return asset of $3.5, $5.3, and $4.5 is recorded within Prepaid expenses and other current assets as of February 28, 2023, May 31, 2022, and February 28, 2022, respectively, for the recoverable cost of product estimated to be returned by customers.

~~Deferred Revenue~~

The following table presents further detail regarding the Company's ~~deferred revenue balance~~contract liabilities as of the dates indicated:


		February 28, 2023		May 31, 2022		February 28, 2022			August 31, 2023		May 31, 2023		August 31, 2022
Book fairs incentive credits	Book fairs incentive credits	$	105.2	$	100.1	$	82.7	Book fairs incentive credits	$	96.1	$	110.8	$	84.4
Magazines+ subscriptions	Magazines+ subscriptions		30.7		4.5		30.4	Magazines+ subscriptions		24.2		5.0		24.7
U.S. digital subscriptions	U.S. digital subscriptions		25.2		19.5		18.2	U.S. digital subscriptions		26.8		22.8		23.8
U.S. education-related(1)	U.S. education-related(1)		13.5		13.6		12.5	U.S. education-related (1)		12.1		9.8		16.5
Media-related	Media-related		4.4		15.8		11.6	Media-related		0.0		0.0		15.6
Stored value cards	Stored value cards		14.8		9.4		8.8	Stored value cards		13.1		12.4		9.3
Other(2)	Other(2)		9.2		9.9		12.6	Other (2)		9.4		8.3		8.3
Total deferred revenue		$	203.0	$	172.8	$	176.8
Total contract liabilities								Total contract liabilities	$	181.7	$	169.1	$	182.6

(1) Primarily includes ~~deferred revenue~~contract liabilities related to contracts with school districts and professional services.

(2) Primarily includes ~~deferred revenue~~contract liabilities related to various international products and services.

The Company's ~~deferred revenue consists of~~ contract liabilities ~~for~~consist of advance billings and payments received from customers in excess of revenue recognized and revenue allocated to outstanding book fairs incentive credits. ~~These~~As of August 31, 2023, contract liabilities of $171.1 are recorded within Deferred revenue on the Company's Condensed Consolidated Balance


SCHOLASTIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (Dollar amounts in millions, except per share data)

~~Sheets~~ Sheet and are classified as short term, as substantially all of the associated performance obligations are expected to be satisfied, and related revenue recognized, within one year. The remaining $10.6 of contract liabilities as of August 31, 2023 are recorded within Other noncurrent liabilities on the Company's Condensed Consolidated Balance Sheet as the associated performance obligations are expected to be satisfied, and related revenue recognized, in excess of one year. Contract liabilities of $169.1 and $182.6 as of May 31, 2023 and August 31, 2022, respectively, are recorded within Deferred revenue on the Company's Condensed Consolidated Balance Sheets. The Company recognized revenue which was included in the opening Deferred revenue balance in the amount of ~~$45.9 and $126.2~~$32.3 for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023, ~~respectively,~~ and ~~$21.2 and $64.4~~$30.8 for the three ~~and nine~~ months ended ~~February 28, 2022, respectively.~~August 31, 2022.

Allowance for Credit Losses

The Company recognizes an allowance for credit losses on customer receivables that are expected to be incurred over the lifetime of the receivable. Reserves for estimated credit losses are established at the time of sale and are based on relevant information about past events, current conditions, and supportable forecasts impacting its ultimate collectability, including specific reserves on a customer-by-customer basis, creditworthiness of the Company’s customers and prior collection experience. The Company reviews new information as it becomes available and makes adjustments to the reserves accordingly. At the time the Company determines that a receivable balance, or any portion thereof, is deemed to be permanently uncollectible, the balance is then written off.

The following table presents the change in the allowance for credit losses, which is included in Accounts Receivable, net on the Condensed Consolidated Balance Sheets:

Allowance for Credit Losses

Balance as of June 1, ~~2022~~2023

~~25.9~~16.7

Provision (benefit)

~~(1.5)~~0.6

Write-offs and other

~~(7.0)~~(0.2)

Balance as of August 31, ~~2022~~2023

~~17.4~~17.1

~~Provision (benefit)~~

~~2.8~~

~~Write-offs and other~~

~~(2.8)~~

~~Balance as of November 30, 2022~~

~~17.4~~

~~Provision (benefit)~~

~~0.5~~

~~Write-offs and other~~

~~(0.9)~~

~~Balance as of February 28, 2023~~

~~17.0~~

3. SEGMENT INFORMATION

The Company categorizes its businesses into three reportable segments: Children’s Book Publishing and Distribution, Education Solutions and International.

•Children’s Book Publishing and Distribution operates as an integrated business which includes the publication and distribution of children’s books, ebooks, media and interactive products primarily in the


SCHOLASTIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (Dollar amounts in millions, except per share data)

United States through its school reading events business, which includes book clubs and book fairs ~~in its school~~ channels, and through the trade channel. This segment is comprised of ~~three~~two operating segments.

•Education Solutions includes the publication and distribution to schools and libraries of children’s books, classroom magazines, print and digital supplemental and core classroom materials and related support services, and print and online reference and non-fiction products for grades ~~prekindergarten~~pre-kindergarten to 12 in the United States. This segment is comprised of one operating segment.

•International includes the publication and distribution of products and services outside the United States by the Company’s international operations and its export businesses. This segment is comprised of three operating segments.


SCHOLASTIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (Dollar amounts in millions, except per share data)

The following table sets forth the Company's revenue and operating income (loss) by segment for the periods indicated:


		Three months ended				Nine months ended					Three months ended
		February 28,									August 31,
		2023		2022		2023		2022			2023		2022
Revenues	Revenues									Revenues
Children's Book Publishing and Distribution	Children's Book Publishing and Distribution	$	204.0	$	201.0	$	747.0	$	669.3	Children's Book Publishing and Distribution	$	102.8	$	124.7
Education Solutions	Education Solutions		70.0		77.2		223.2		236.8	Education Solutions		66.0		73.2
International	International		50.9		66.3		205.5		222.4	International		57.2		65.0
Total(1)	Total(1)	$	324.9	$	344.5	$	1,175.7	$	1,128.5	Total(1)	$	226.0	$	262.9

Operating income (loss)	Operating income (loss)									Operating income (loss)
Children's Book Publishing and Distribution	Children's Book Publishing and Distribution	$	1.9	$	5.0	$	85.0	$	68.5	Children's Book Publishing and Distribution	$	(41.5)	$	(30.1)
Education Solutions	Education Solutions		0.7		13.1		3.4		36.0	Education Solutions		(18.7)		(4.3)
International	International		(9.0)		(5.0)		(5.8)		2.0	International		(8.2)		(3.5)
Overhead ~~(1)~~(2)	Overhead ~~(1)~~(2)		(21.3)		(32.6)		(68.3)		(74.6)	Overhead ~~(1)~~(2)		(30.7)		(20.2)
Total	Total	$	(27.7)	$	(19.5)	$	14.3	$	31.9	Total	$	(99.1)	$	(58.1)
(1) Overhead includes all domestic corporate amounts not allocated to segments, including expenses and costs related to the management of corporate assets.

~~4. ASSET WRITE DOWN AND SALE~~

~~During~~(1) Total revenues of $228.5 in fiscal 2024 include rental income of $2.5 related to leased space in the ~~first quarter of~~Company's headquarters which was not allocated to a segment. In fiscal 2023, ~~the Company completed the disposition~~rental income of the direct sales business in Asia. The Company committed to a plan to cease operations and exit the direct sales business in Asia, including the disposition of the Malaysia legal entity, during the fourth quarter of fiscal 2022. Accordingly, the Company wrote down the related assets during fiscal 2022, which were included in the ~~International~~ segment and consisted of accounts receivable, inventory, other current assets and long-lived assets, to their recoverable value of $3.7. The remaining assets, consisting of accounts receivable and inventory, were classified as held for sale and recorded$1.5 was recognized as a ~~current asset on~~reduction to Selling, general and administrative expenses.

(2) Overhead includes all domestic corporate amounts not allocated to segments, including expenses and costs related to the ~~Company's Condensed Consolidated Balance Sheet as~~management of May 31, 2022. The Company recognized a loss of $15.1 in the fourth quarter of fiscal 2022 which was included in Gain (Loss) on assets held for sale within the Company's Condensed Consolidated Statement of Operations. The impact of the impairment was a loss per basic and diluted share of Class A and Common Stock of $0.33 and $0.32, respectively, in the twelve months ended May 31, 2022.corporate assets.

5.4. DEBT

The following table summarizes the carrying value of the Company's debt as of the dates indicated:


		February 28, 2023		May 31, 2022		February 28, 2022			August 31, 2023		May 31, 2023		August 31, 2022
US Revolving Credit Agreement	US Revolving Credit Agreement	$	—	$	—	$	—	US Revolving Credit Agreement	$	—	$	—	$	—
Unsecured lines of credit	Unsecured lines of credit		5.2		6.5		6.8	Unsecured lines of credit		5.9		6.0		6.3
UK Loans			—		—		6.9
Total debt	Total debt	$	5.2	$	6.5	$	13.7	Total debt	$	5.9	$	6.0	$	6.3
Less lines of credit, short-term debt and current portion of long-term debt	Less lines of credit, short-term debt and current portion of long-term debt		(5.2)		(6.5)		(13.7)	Less lines of credit, short-term debt and current portion of long-term debt		(5.9)		(6.0)		(6.3)
Total long-term debt	Total long-term debt	$	—	$	—	$	—	Total long-term debt	$	—	$	—	$	—

The Company's debt obligations as of ~~February 28,~~August 31, 2023 have maturities of one year or less.

US Credit Agreement

On October 27, 2021, Scholastic Corporation and its principal operating subsidiary, Scholastic Inc., entered into an amended and restated 5-year credit agreement with a syndicate of banks and Bank of America, N.A., as administrative agent (the “Credit Agreement”). The Credit Agreement provides for a $300.0 unsecured revolving credit facility and allows the Company to borrow, repay or prepay and reborrow at any time prior to the October 27, 2026 maturity date. The Credit Agreement also provides an unlimited basket for permitted payments of

dividends and other distributions in respect of capital stock so long as the Corporation’s pro forma Consolidated Net Leverage Ratio, as defined, is not in excess of 2.75:1.

On February 28, 2023, the Company entered into the First and Second Amendments to the Credit Agreement with the lenders from time to time party thereto, Truist Bank and Wells Fargo Bank, National Association, as co-syndication agents and Bank of America, N.A., as administrative agent (collectively the "Amendments"). The Amendments, among other things, (i) adjusted the credit spread adjustment for SOFR (the secured overnight financing rate as administered by the Federal Reserve Bank of New York) to 0.10% (10 basis points) and (ii) transitioned the reference rate under the Credit Agreement for borrowings from LIBOR (the London interbank offered rate) to SOFR, together with various other conforming changes to accommodate such replacement.

Under the Credit Agreement, interest on amounts borrowed thereunder is due and payable in arrears on the last day of the interest period (defined as the period commencing on the date of the advance and ending on the last day of the period selected by the Borrower at the time each advance is made). The interest pricing under the Credit Agreement is dependent upon the Borrower’s election of a rate that is either:

•a Base Rate equal to the higher of (i) the prime rate, (ii) the prevailing Federal Funds rate plus 0.50% or (iii) the Eurodollar Rate plus 1.00% plus, in each case, an applicable margin ranging from 0.35% to 0.75%, as determined by the Company’s prevailing Consolidated Leverage Ratio (as defined in the Credit Agreement);

- or -

•a Eurodollar Rate equal to SOFR (Daily Simple or Term), plus a SOFR adjustment of 0.10% per annum and an applicable margin ranging from 1.35% to 1.75%, as determined by the Company’s prevailing Consolidated Leverage Ratio.

As of ~~February 28,~~August 31, 2023, the applicable margin on Base Rate Advances was 0.35% and the applicable margin on Eurodollar Advances was 1.35%, both based on the Company’s prevailing Consolidated Leverage Ratio.

The Credit Agreement provides for payment of a commitment fee in respect of the aggregate unused amount of revolving credit commitments ranging from 0.20% per annum to 0.30% per annum based upon the Corporation’s then prevailing Consolidated Leverage Ratio. As of ~~February 28,~~August 31, 2023, the commitment fee rate was 0.20%.

A portion of the revolving credit facility, up to a maximum of $50.0, is available for the issuance of letters of credit. In addition, a portion of the revolving credit facility, up to a maximum of $15.0, is available for swingline loans. The Credit Agreement has an accordion feature which permits the Company, provided certain conditions are satisfied, to increase the facility by up to an additional $150.0.

As of ~~February 28,~~August 31, 2023, the Company had no outstanding borrowings under the Credit Agreement.

The Credit Agreement contains certain financial covenants related to leverage and interest coverage ratios (as defined in the Credit Agreement), limitations on the amount of dividends and other distributions, and other limitations on fundamental changes to the Company or its business. The Company was in compliance with required covenants for all periods presented.

At ~~February 28,~~August 31, 2023, the Company had open standby letters of credit totaling ~~$4.1~~$3.8 issued under certain credit lines, including $0.4 under the Credit Agreement and ~~$3.7~~$3.4 under the domestic credit lines discussed below.

~~UK Loan Agreements~~

On January 24, 2020, Scholastic Limited UK entered into a term loan facility to fund the construction of the new UK facility in Warwickshire. The term loan facility was repaid and closed on March 31, 2022. As of February 28, 2022, the Company had $4.2 outstanding on the loan.

On September 23, 2019, Scholastic Limited UK entered into a term loan agreement to borrow £2.0 to fund a land purchase in connection with the construction of the new UK facility in Warwickshire. The loan agreement was repaid and closed on May 12, 2022. As of February 28, 2022, the Company had $2.7 outstanding on the loan.

Lines of Credit

As of ~~February 28,~~August 31, 2023, the Company’s domestic credit lines available under unsecured money market bid rate credit lines totaled $10.0. There were no outstanding borrowings under these credit lines as of ~~February 28,~~August 31, 2023, May 31, ~~2022~~2023 and ~~February 28,~~August 31, 2022. As of ~~February 28,~~August 31, 2023, availability under these unsecured money market bid rate credit lines totaled ~~$6.3.~~$6.6, excluding commitments of $3.4. All loans made under these credit lines are at the sole discretion of the lender and at an interest rate and term agreed to at the time each loan is made, but not to exceed 365 days. These credit lines may be renewed, if requested by the Company, at the option of the lender.

As of ~~February 28,~~August 31, 2023, the Company had various local currency international credit lines totaling ~~$24.3~~$24.7 underwritten by banks primarily in the United States, Canada and the United Kingdom. Outstanding borrowings under these facilities were ~~$5.2~~$5.9 at ~~February 28,~~August 31, 2023 at a weighted average interest rate of ~~5.0%~~4.4%, ~~$6.5~~compared to outstanding borrowings of$6.0 at May 31, 2023 at a weighted average interest rate of 4.9%, and $6.3 at August 31, 2022 at a weighted average interest rate of ~~5.4%, and $6.8 at February 28, 2022 at a weighted average interest rate of 5.1%~~5.8%. As of ~~February 28,~~August 31, 2023, the amounts available under these facilities totaled ~~$19.1.~~$18.8. These credit lines are typically available for overdraft borrowings or loans up to 364 days and may be renewed, if requested by the Company, at the sole option of the lender.

6.5. COMMITMENTS AND CONTINGENCIES

Legal Matters

Various claims and lawsuits arising in the normal course of business are pending against the Company. The Company accrues a liability for such matters when it is probable that a liability has occurred and the amount of such liability can be reasonably estimated. When only a range can be estimated, the most probable amount in the range is accrued unless no amount within the range is a better estimate than any other amount, in which case the minimum amount in the range is accrued. Legal costs associated with litigation are expensed in the period in which they are incurred. The Company does not expect, in the case of those various claims and lawsuits arising in the normal course of business where a loss is considered probable or reasonably possible, that the reasonably possible losses from such claims and lawsuits (either individually or in the aggregate) would have a material adverse effect on the Company’s consolidated financial position or results of operations.

~~During the third quarter of fiscal 2023, the~~The Company ~~received $5.0 in recoveries from its insurance programs related~~expects to photo litigation settlements accrued and paid in prior periods. The recoveries were recognized as an offset to the legal settlements and reflected in Selling, general and administrative expenses in the Company's Condensed Consolidated Statement of Operations for the quarter ended February 28, 2023.

~~During the first quarter of fiscal 2022, the Company received $6.6 in~~receive additional recoveries from its insurance programs related to an intellectual property legal settlement ~~which was~~ accrued induring fiscal 2021. The recoveries were recognized as an offset to the legal settlement and reflected in Selling, general and administrative expenses in the Company's Condensed Consolidated Statement of Operations for the quarter ended February 28, 2022. While the Company expects to receive additional recoveries from its insurance programs,2021, however, it is premature to determine with any level of probability or accuracy the amount of those recoveries at this time.

6. EARNINGS (LOSS) PER SHARE

The following table summarizes the reconciliation of the numerators and denominators for the basic and diluted earnings (loss) per share computation for the periods indicated:


	Three months ended
	August 31,
	2023		2022
Net income (loss) attributable to Class A and Common Stockholders	$	(74.2)	$	(45.5)
Weighted average Shares of Class A Stock and Common Stock outstanding for basic earnings (loss) per share (in millions)		31.6		34.3
Dilutive effect of Class A Stock and Common Stock potentially issuable pursuant to stock-based compensation plans (in millions)*		—		—
Adjusted weighted average Shares of Class A Stock and Common Stock outstanding for diluted earnings (loss) per share (in millions)		31.6		34.3
Earnings (loss) per share of Class A Stock and Common Stock:
Basic	$	(2.35)	$	(1.33)
Diluted	$	(2.35)	$	(1.33)
Anti-dilutive shares pursuant to stock-based compensation plans		0.7		0.5

* The Company experienced a net loss for all periods presented and therefore did not report any dilutive share impact

The following table sets forth options outstanding pursuant to stock-based compensation plans as of the dates indicated:


	August 31, 2023	August 31, 2022
Options outstanding pursuant to stock-based compensation plans (in millions)	3.0	3.3

As of August 31, 2023, $85.7 remained available for future purchases of common shares under the repurchase authorization of the Board of Directors (the "Board") in effect on that date. See Note 12, Treasury Stock, for a more complete description of the Company’s share buy-back program.

1311


SCHOLASTIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (Dollar amounts in millions, except per share data)

7. ~~EARNINGS (LOSS) PER SHARE~~

~~The following table summarizes the reconciliation of the numerators and denominators for the basic and diluted earnings (loss) per share computation for the periods indicated:~~

Three months ended Nine months ended
February 28, February 28,
2023 2022 2023 2022
Net income (loss) attributable to Class A and Common Stockholders $ (19.2) $ (15.3) $ 10.6 $ 28.6
Weighted average Shares of Class A Stock and Common Stock outstanding for basic earnings (loss) per share (in millions) 33.7 34.6 34.2 34.6
Dilutive effect of Class A Stock and Common Stock potentially issuable pursuant to stock-based compensation plans (in millions) — — 0.9 1.0
Adjusted weighted average Shares of Class A Stock and Common Stock outstanding for diluted earnings (loss) per share (in millions) 33.7 34.6 35.1 35.6
Earnings (loss) per share of Class A Stock and Common Stock:
Basic $ (0.57) $ (0.44) $ 0.31 $ 0.83
Diluted $ (0.57) $ (0.44) $ 0.30 $ 0.80
Anti-dilutive shares pursuant to stock-based compensation plans 0.7 0.8 0.6 1.8
ACQUISITIONS

On June 1, 2023, the Company acquired the remaining shares of Make Believe Ideas Limited, a UK-based children's book publishing company for $2.1, increasing the Company's total ownership from 95.0% to 100%. The ~~following table sets forth options outstanding pursuant to stock-based compensation plans~~acquisition was accounted for as an equity transaction as there was no change in control. The carrying value of the ~~dates indicated:~~

February 28, 2023 February 28, 2022
Options outstanding pursuant to stock-based compensation plans (in millions) 3.3 4.6

Asnoncontrolling interest at the acquisition date was $1.6. The difference between the fair value of ~~February 28, 2023, $28.2 remained available for future purchases~~consideration paid and the carrying value was recognized as an adjustment to Additional paid-in capital of common shares under the repurchase authorization of the Board of Directors (the "Board") in effect on that date. See Note 13, Treasury Stock, and Note 20, Subsequent Events, for a more complete description of the Company’s share buy-back program.$0.5.

8. ~~ACQUISITIONS~~

On September 1, 2022, the Company acquired 100% of the share capital of Learning Ovations, Inc., a U.S.-based education technology business and developer of a literacy assessment and instructional system, for $11.1, net of cash acquired. The Company accounted for the acquisition as a business combination under the acquisition method of accounting. Fair values were assigned to the assets and liabilities acquired, including cash, receivables, and technology/know-how. The receivables acquired had a fair value of $0.1 and have been substantially collected as of February 28, 2023. The Company utilized internally-developed discounted cash flow forecasts to determine the fair value of the technology/know-how using a discount rate of 17.5% to account for the relative risks of the estimated future cash flows. The Company classified this as a Level 3 fair value measurement due to the use of these significant unobservable inputs. The fair values of the net assets were $4.2 which included $4.1 of amortizable intangible assets attributable to the technology/know-how. This acquisition resulted in $7.0 of goodwill that was assigned to the Company's ~~Education Solutions~~ ~~segment and is not deductible for tax purposes. The results of operations of this business subsequent to the acquisition are included in the~~ ~~Education Solutions~~ ~~segment. The transaction was not determined to be material to the Company's results and therefore pro forma financial information is not presented.~~


SCHOLASTIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (Dollar amounts in millions, except per share data)

9. GOODWILL AND OTHER INTANGIBLES

The Company assesses goodwill and other intangible assets with indefinite lives for impairment annually or more frequently if indicators arise. The Company monitors impairment indicators in light of changes in market conditions, near and long-term demand for the Company’s products and other relevant factors.

The following table summarizes the activity in Goodwill for the periods indicated:


		February 28, 2023		May 31, 2022		February 28, 2022			August 31, 2023		May 31, 2023		August 31, 2022
Gross beginning balance	Gross beginning balance	$	164.9	$	165.9	$	165.9	Gross beginning balance	$	132.7	$	164.9	$	164.9
Accumulated impairment	Accumulated impairment		(39.6)		(39.6)		(39.6)	Accumulated impairment		—		(39.6)		(39.6)
Beginning balance	Beginning balance	$	125.3	$	126.3	$	126.3	Beginning balance	$	132.7	$	125.3	$	125.3
Additions	Additions		7.0		—		—	Additions		—		7.6		—

Foreign currency translation	Foreign currency translation		(0.4)		(1.0)		(0.6)	Foreign currency translation		0.1		(0.2)		(0.6)

Ending balance	Ending balance	$	131.9	$	125.3	$	125.7	Ending balance	$	132.8	$	132.7	$	124.7

In ~~the second quarter of~~ fiscal 2023, the Company acquired Learning Ovations, Inc, a U.S.-based education technology business, which resulted in the recognition of ~~$7.0~~$7.6 of Goodwill included in the Education Solutions segment. ~~Refer to Note 8, Acquisitions, for further details regarding the acquisition.~~

There were no impairment charges related to Goodwill in any of the periods presented.

The following table summarizes the activity in other intangibles included in Other assets and deferred charges on the Company’s Financial Statements for the periods indicated:


		February 28, 2023		May 31, 2022		February 28, 2022			August 31, 2023		May 31, 2023		August 31, 2022

Beginning balance - Other intangibles subject to amortization	Beginning balance - Other intangibles subject to amortization	$	6.0	$	8.4	$	8.4	Beginning balance - Other intangibles subject to amortization	$	7.8	$	6.0	$	6.0
Additions	Additions		4.1		—		—	Additions		—		4.1		—

Amortization expense	Amortization expense		(1.7)		(2.0)		(1.5)	Amortization expense		(0.5)		(2.2)		(0.5)
Foreign currency translation	Foreign currency translation		(0.1)		(0.4)		(0.2)	Foreign currency translation		0.0		(0.1)		(0.2)

Total other intangibles subject to amortization, net of accumulated amortization of $36.0, $34.3 and $33.8, respectively		$	8.3	$	6.0	$	6.7
Total other intangibles subject to amortization, net of accumulated amortization of $37.0, $36.5 and $34.8, respectively								Total other intangibles subject to amortization, net of accumulated amortization of $37.0, $36.5 and $34.8, respectively	$	7.3	$	7.8	$	5.3

Total other intangibles not subject to amortization	Total other intangibles not subject to amortization	$	2.1	$	2.1	$	2.1	Total other intangibles not subject to amortization	$	2.1	$	2.1	$	2.1
Total other intangibles	Total other intangibles	$	10.4	$	8.1	$	8.8	Total other intangibles	$	9.4	$	9.9	$	7.4

In ~~the second quarter of~~ fiscal 2023, the Company acquired Learning Ovations, Inc., a U.S.-based education technology business, which resulted in the recognition of $4.1 of amortizable intangible assets. These intangible assets ~~will be~~are amortized over the estimated useful life of 7 years. ~~Refer to Note 8, Acquisitions, for further details regarding the acquisition.~~

Intangible assets with indefinite lives consist principally of trademark and tradename rights. Intangible assets with definite lives consist principally of customer lists, intellectual property, tradenames and other agreements. Intangible assets with definite lives are amortized over their estimated useful lives. The weighted-average remaining useful lives of all amortizable intangible assets is approximately ~~5.2~~5.3 years.

There were no impairment charges related to Intangible assets in any of the periods presented.

1512


SCHOLASTIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (Dollar amounts in millions, except per share data)

~~10.~~9. INVESTMENTS

Investments are included in Other assets and deferred charges on the Condensed Consolidated Balance Sheets. The following table summarizes the Company’s investments as of the dates indicated:


		February 28, 2023		May 31, 2022		February 28, 2022		Segment		August 31, 2023		May 31, 2023		August 31, 2022		Segment
Equity method investments	Equity method investments	$	31.1	$	31.0	$	34.0	International	Equity method investments	$	32.3	$	31.6	$	28.7	International
Other equity investments	Other equity investments		6.0		6.0		6.0	Children's Book Publishing & Distribution	Other equity investments		6.0		6.0		6.0	Children's Book Publishing & Distribution
Total Investments	Total Investments	$	37.1	$	37.0	$	40.0		Total Investments	$	38.3	$	37.6	$	34.7

The Company’s 26.2% equity interest in a children’s book publishing business located in the UK is accounted for using the equity method of accounting. Equity method income from this investment is reported in the International segment.

The Company has a 4.6% ownership interest in a financing and production company that makes film, television, and digital programming designed for the youth market. This equity investment does not have a readily determinable fair value and the Company has elected to apply the measurement alternative and report this investment at cost, less impairment on the Company's Condensed Consolidated Balance Sheets. There have been no impairments or adjustments to the carrying value of this investment.

Income from equity investments is reported in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and totaled $0.2 and ~~less than~~ $0.1 for the three months ended ~~February 28,~~August 31, 2023 and ~~February 28, 2022, respectively, and $1.5 and $1.6 for the nine months ended February 28, 2023 and February 28,~~August 31, 2022, respectively.

~~11.~~10. EMPLOYEE BENEFIT PLANS

The following table sets forth the components of net periodic benefit cost for the periods indicated under the Company’s defined benefit pension plan of Scholastic Ltd., an indirect subsidiary of Scholastic Corporation located in the United Kingdom (the “UK Pension Plan”), and the postretirement benefits plan, consisting of certain healthcare and life insurance benefits provided by the Company to its eligible retired United States-based employees (the “US Postretirement Benefits”), for the periods indicated:


		UK Pension Plan				US Postretirement Benefits					UK Pension Plan				US Postretirement Benefits
		Three months ended									Three months ended
		February 28,									August 31,
		2023		2022		2023		2022			2023		2022		2023		2022
Components of net periodic benefit cost:	Components of net periodic benefit cost:									Components of net periodic benefit cost:

Interest cost	Interest cost	$	0.3	$	0.2	$	0.1	$	0.0	Interest cost	$	0.4	$	0.3	$	0.1	$	0.1
Expected return on assets	Expected return on assets		(0.4)		(0.3)		—		—	Expected return on assets		(0.3)		(0.3)		—		—
Amortization of prior service (credit) loss	Amortization of prior service (credit) loss		0.0		0.0		(0.3)		(0.2)	Amortization of prior service (credit) loss		0.0		0.0		(0.2)		(0.2)

Amortization of net actuarial (gain) loss	Amortization of net actuarial (gain) loss		0.2		0.2		—		—	Amortization of net actuarial (gain) loss		0.3		0.1		—		—
Total	Total	$	0.1	$	0.1	$	(0.2)	$	(0.2)	Total	$	0.4	$	0.1	$	(0.1)	$	(0.1)


SCHOLASTIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (Dollar amounts in millions, except per share data)

UK Pension Plan US Postretirement Benefits
Nine months ended Nine months ended
February 28, February 28,
2023 2022 2023 2022
Components of net periodic benefit cost:
Interest cost $ 0.8 $ 0.7 $ 0.3 $ 0.1
Expected return on assets (1.0) (0.9) — —
Amortization of prior service (credit) loss 0.0 0.0 (0.7) (0.6)
Amortization of net actuarial (gain) loss 0.4 0.6 — —
Total $ 0.2 $ 0.4 $ (0.4) $ (0.5)

Actuarial gains and losses are amortized using a corridor approach. The gain or loss corridor is equal to 10% of the greater of the projected benefit obligation and the market-related value of assets. Gains and losses in excess of the corridor are amortized over the future working lifetime.

The Company’s funding practice with respect to the UK Pension Plan is to contribute on an annual basis at least the minimum amounts required by applicable law. For the ~~nine~~three months ended ~~February 28,~~August 31, 2023, the Company contributed ~~$0.9~~$0.3 to the UK Pension Plan. The Company expects, based on actuarial calculations, to contribute cash of approximately ~~$1.1~~$1.2 to the UK Pension Plan for the fiscal year ending May 31, ~~2023.~~2024.

~~12.~~


SCHOLASTIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (Dollar amounts in millions, except per share data)

11. STOCK-BASED COMPENSATION

The following table summarizes stock-based compensation expense included in Selling, general and administrative expenses for the periods indicated:


		Three months ended				Nine months ended					Three months ended
		February 28,									August 31,
		2023		2022		2023		2022			2023		2022
Stock option expense	Stock option expense	$	0.7	$	0.6	$	3.7	$	3.1	Stock option expense	$	0.6	$	0.6
Restricted stock unit expense	Restricted stock unit expense		1.4		0.9		3.7		2.5	Restricted stock unit expense		1.5		1.0
Management stock purchase plan	Management stock purchase plan		0.1		0.0		0.5		0.3	Management stock purchase plan		0.0		0.0
Employee stock purchase plan	Employee stock purchase plan		0.1		0.1		0.3		0.2	Employee stock purchase plan		0.2		0.1
Total stock-based compensation expense	Total stock-based compensation expense	$	2.3	$	1.6	$	8.2	$	6.1	Total stock-based compensation expense	$	2.3	$	1.7

The following table sets forth Common Stock issued pursuant to stock-based compensation plans for the periods indicated:

Three months ended Nine months ended
February 28, February 28,
2023 2022 2023 2022
Common Stock issued pursuant to stock-based compensation plans (in millions) 0.1 0.3 0.7 0.6


	Three months ended
	August 31,
	2023	2022
Common Stock issued pursuant to stock-based compensation plans (in millions)	0.1	0.3

~~13.~~12. TREASURY STOCK

The Board has authorized the Company to repurchase Common Stock, from time to time as conditions allow, on the open market or through privately negotiated transactions.


SCHOLASTIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (Dollar amounts in millions, except per share data)

The table below represents the Board authorization at the dates indicated:

Authorization

Amount

March ~~2020~~2023

50.0

~~December 2022~~July 2023

~~48.8~~100.0

Total current Board authorizations

~~98.8~~150.0

Less repurchases made under these authorizations

~~(70.6)~~(64.3)

Remaining Board authorization at ~~February 28,~~August 31, 2023

~~28.2~~85.7

Remaining Board authorization at ~~February 28,~~August 31, 2023 represents the amount remaining under the current ~~$48.8~~$100.0 Board authorization for Common share repurchases announced on ~~December 14, 2022,~~July 19, 2023, which is available for further repurchases, from time to time as conditions allow, on the open market or through privately negotiated ~~transactions. See Note 20, Subsequent Events, for additional Board authorization for Common share repurchases.~~transactions

Pursuant to a Board authorization on October 19, 2022, the Company commenced a modified Dutch auction tender offer on October 25, 2022, which expired on November 22, 2022. Pursuant to this offer, the Company purchased 533,793 of its common shares at a price of $40.00 per share for a total cost of $23.3, including related fees and expenses. The common shares purchased represented approximately 1.6% of the common shares outstanding as of November 21, 2022. The Company funded the purchase of the shares in the tender offer using cash on hand.

Repurchases of the Company's Common Stock were ~~$46.9 and $78.0~~ $36.2, including excise tax on share repurchases of $0.3, during the three ~~and nine~~ months ~~ended February 28, 2023, respectively, which included shares repurchased through the modified Dutch auction tender offer.~~ended August 31, 2023. The Company's repurchase program may be suspended at any time without prior notice.

~~14. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)~~

~~The following tables summarize the activity in Accumulated other comprehensive income (loss), net of tax, by component, for the periods indicated:~~
Three months ended February 28, 2023
Foreign currency translation adjustments Retirement benefit plans Total
Beginning balance at December 1, 2022 $ (51.2) $ (0.9) $ (52.1)
Other comprehensive income (loss) before reclassifications (1.0) — (1.0)
Less amount reclassified from Accumulated other comprehensive income (loss):
Amortization of net actuarial loss (net of tax of $0.0) — 0.2 0.2
Amortization of prior service (credit) cost (net of tax of $0.1) — (0.2) (0.2)
Other comprehensive income (loss) (1.0) 0.0 (1.0)
Ending balance at February 28, 2023 $ (52.2) $ (0.9) $ (53.1)
Three months ended February 28, 2022
Foreign currency translation adjustments Retirement benefit plans Total
Beginning balance at December 1, 2021 $ (40.3) $ (4.0) $ (44.3)
Other comprehensive income (loss) before reclassifications (net of tax of $0.0) 1.6 — 1.6
Less amount reclassified from Accumulated other comprehensive income (loss):
Amortization of net actuarial loss (net of tax of $0.0) — 0.2 0.2
Amortization of prior service (credit) cost (net of tax of $0.0) — (0.2) (0.2)
Other comprehensive income (loss) 1.6 0.0 1.6
Ending balance at February 28, 2022 $ (38.7) $ (4.0) $ (42.7)

1814


SCHOLASTIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (Dollar amounts in millions, except per share data)

Nine months ended February 28, 2023
Foreign currency translation adjustments Retirement benefit plans Total
Beginning balance at June 1, 2022 $ (44.6) $ (0.8) $ (45.4)
Other comprehensive income (loss) before reclassifications (7.6) — (7.6)
Less amount reclassified from Accumulated other comprehensive income (loss):
Amortization of net actuarial (gain) loss (net of tax of $0.0) — 0.4 0.4
Amortization of prior service (credit) cost (net of tax of $0.2) — (0.5) (0.5)
Other comprehensive income (loss) (7.6) (0.1) (7.7)
Ending balance at February 28, 2023 $ (52.2) $ (0.9) $ (53.1)
Nine months ended February 28, 2022
Foreign currency translation adjustments Retirement benefit plans Total
Beginning balance at June 1, 2021 $ (30.1) $ (4.6) $ (34.7)
Other comprehensive income (loss) before reclassifications (net of tax of $(0.1)) (8.6) 0.5 (8.1)
Less amount reclassified from Accumulated other comprehensive income (loss):
Amortization of net actuarial (gain) loss (net of tax of $0.0) — 0.6 0.6
Amortization of prior service (credit) cost (net of tax of $0.1) — (0.5) (0.5)
Other comprehensive income (loss) (8.6) 0.6 (8.0)
Ending balance at February 28, 2022 $ (38.7) $ (4.0) $ (42.7)
13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following tables summarize the activity in Accumulated other comprehensive income (loss), net of tax, by component, for the periods indicated:


	Three months ended August 31, 2023
	Foreign currency translation adjustments		Retirement benefit plans		Total
Beginning balance at June 1, 2023	$	(50.0)	$	(5.8)	$	(55.8)
Other comprehensive income (loss) before reclassifications		1.8		—		1.8
Less amount reclassified from Accumulated other comprehensive income (loss):
Amortization of net actuarial loss (net of tax of $0.0)		—		0.3		0.3
Amortization of prior service (credit) cost (net of tax of $0.1)		—		(0.1)		(0.1)


Other comprehensive income (loss)		1.8		0.2		2.0
Ending balance at August 31, 2023	$	(48.2)	$	(5.6)	$	(53.8)

	Three months ended August 31, 2022
	Foreign currency translation adjustments		Retirement benefit plans		Total
Beginning balance at June 1, 2022	$	(44.6)	$	(0.8)	$	(45.4)
Other comprehensive income (loss) before reclassifications		(9.6)		—		(9.6)
Less amount reclassified from Accumulated other comprehensive income (loss):
Amortization of net actuarial loss (net of tax of $0.0)		—		0.1		0.1

Amortization of prior service (credit) cost (net of tax of $0.1)		—		(0.1)		(0.1)

Other comprehensive income (loss)		(9.6)		0.0		(9.6)
Ending balance at August 31, 2022	$	(54.2)	$	(0.8)	$	(55.0)

The following table presents the impact on earnings of reclassifications out of Accumulated other comprehensive income (loss) for the periods indicated:


		Three months ended				Nine months ended				Condensed Consolidated Statements of Operations line item		Three months ended				Condensed Consolidated Statements of Operations line item
		February 28,										August 31,
		2023		2022		2023		2022				2023		2022
Employee benefit plans:	Employee benefit plans:										Employee benefit plans:
Amortization of net actuarial loss	Amortization of net actuarial loss	$	0.2	$	0.2	$	0.4	$	0.6	Other components of net periodic benefit (cost)	Amortization of net actuarial loss	$	0.3	$	0.1		Other components of net periodic benefit (cost)
Amortization of prior service (credit) loss	Amortization of prior service (credit) loss		(0.3)		(0.2)		(0.7)		(0.6)	Other components of net periodic benefit (cost)	Amortization of prior service (credit) loss		(0.2)		(0.2)		Other components of net periodic benefit (cost)
Less: Tax effect	Less: Tax effect		0.1		0.0		0.2		0.1	Provision (benefit) for income taxes	Less: Tax effect		0.1		0.1		Provision (benefit) for income taxes
Total cost, net of tax	Total cost, net of tax	$	0.0	$	0.0	$	(0.1)	$	0.1		Total cost, net of tax	$	0.2	$	0.0

~~15.~~14. FAIR VALUE MEASUREMENTS

The Company determines the appropriate level in the fair value hierarchy for each fair value measurement of assets and liabilities carried at fair value on a recurring basis in the Company’s financial statements. The fair value hierarchy prioritizes the inputs, which refer to assumptions that market participants would use in pricing an asset or liability, based upon the highest and best use, into three levels as follows:

•Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.

•Level 2 Observable inputs other than quoted prices included in Level 1, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs derived principally from or corroborated by observable market data.


SCHOLASTIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (Dollar amounts in millions, except per share data)

•Level 3 Unobservable inputs in which there is little or no market data available, which are significant to the fair value measurement and require the Company to develop its own assumptions.


SCHOLASTIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (Dollar amounts in millions, except per share data)

The Company’s financial assets and liabilities measured at fair value consisted of cash and cash equivalents, debt and foreign currency forward contracts. Cash and cash equivalents are comprised of bank deposits and short-term investments, such as money market funds, the fair value of which is based on quoted market prices, a Level 1 fair value measure. The Company employs Level 2 fair value measurements for the disclosure of the fair value of its various lines of credit and long term debt. The fair value of the Company's debt approximates the carrying value for all periods presented. The fair values of foreign currency forward contracts, used by the Company to manage the impact of foreign exchange rate changes, are based on quotations from financial institutions, a Level 2 fair value measure.

Non-financial assets for which the Company employs fair value measures on a non-recurring basis include:

•Long-lived assets, including held for sale

•Operating lease right-of-use (ROU) assets

•Investments

•Assets acquired in a business combination

•Impairment assessment of goodwill and intangible assets

Level 2 and Level 3 inputs are employed by the Company in the fair value measurement of these assets. For the fair value measurements employed by the Company for certain property, plant and equipment, investments and prepublication assets, the Company assessed future expected cash flows attributable to these assets. See Note ~~10,~~9, Investments, for a more complete description of the fair value measurements employed. For the fair value measurements employed by the Company for certain acquired intangible assets, the Company utilized internally-developed discounted cash flow forecasts. See Note 8, Acquisitions, for further details regarding the acquired assets and fair value measurements employed.

~~16.~~15. INCOME TAXES AND OTHER TAXES

~~Tax Legislation Updates~~

In response to the COVID-19 pandemic, the U.S. government enacted the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which, among other things, included provisions related to the carry back of net operating losses and the Employee Retention Credit. The Company applied these provisions as applicable. During the first quarter of fiscal 2022, the Company received a federal tax refund of $63.1 primarily related to the carry back of net operating losses generated in the U.S. In fiscal 2021, the Company applied for employee retention credits in the U.S. and the related receivable was $9.3 as of February 28, 2023.

Income Taxes

In calculating the provision for income taxes on an interim basis, the Company uses an estimate of the annual effective tax rate based upon currently known facts and circumstances and applies that rate to its year-to-date earnings or losses. The Company’s effective tax rate is based on expected income and statutory tax rates and takes into consideration permanent differences between financial statement and tax return income applicable to the Company in the various jurisdictions in which the Company operates. The effect of discrete items, such as changes in estimates, changes in rates or tax status, and unusual or infrequently occurring events, is recognized in the interim period in which the discrete item occurs. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the result of new judicial interpretations or regulatory or tax law changes.

The Company's interim effective tax rate, inclusive of discrete items, for the three ~~and nine~~ month ~~periods~~period ended ~~February 28,~~August 31, 2023 was ~~26.3% and 36.3%~~24.3%, ~~respectively,~~ compared to ~~23.7% and 19.7%~~21.6%, ~~respectively,~~ for the prior fiscal year period. The increase in the interim effective tax rate ~~for the nine months ended February 28, 2023 varied from the prior fiscal year period~~was primarily due to ~~a GILTI inclusion in the period ended February 28, 2023 and the release of reserves related to the IRS examination recognized in the prior period. The interim effective~~an excess tax ~~rate for the nine months ended February 28, 2023 varied from the statutory rate due to tax shortfalls~~benefit related to vested option ~~cancellations~~exercises in the ~~first quarter of fiscal~~three months ended August 31, 2023.

The Company, including its domestic subsidiaries, files a consolidated U.S. income tax return, and also files tax returns in various states and other local jurisdictions. Also, certain subsidiaries of the Company file income tax


SCHOLASTIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (Dollar amounts in millions, except per share data)

returns in foreign jurisdictions. The Company is routinely audited by various tax authorities. The Company was previously under audit for the fiscal 2015 through fiscal 2020 tax years and the examination was completed in ~~the second quarter of~~ fiscal 2023 with no impact to the financial results. ~~During the third quarter of~~The fiscal ~~2023, the Company received a federal~~2021 and fiscal 2022 tax ~~refund of $9.8, inclusive of interest, which was released due~~years remain subject to the completion of the IRS examination. As of February 28, 2023, there was approximately $11.9 in receivables from the IRS related to the years previously under audit included in Income tax receivable in the Company’s Condensed Consolidated Balance Sheet as of that date.audit.


SCHOLASTIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (Dollar amounts in millions, except per share data)

Non-income Taxes

The Company is subject to tax examinations for sales-based taxes. A number of these examinations are ongoing and, in certain cases, have resulted in assessments from taxing authorities. The Company assesses sales tax contingencies for each jurisdiction in which it operates, considering all relevant facts including statutes, regulations, case law and experience. Where a sales tax liability with respect to a jurisdiction is probable and can be reliably estimated for such jurisdiction, the Company has made accruals for these matters which are reflected in the Company’s Condensed Consolidated Financial Statements. These amounts are included in ~~the Financial~~ ~~Statements in~~ Selling, general and administrative expenses. Future developments relating to the foregoing could result in adjustments being made to these accruals. ~~During the third quarter of fiscal 2023, the Company recognized a benefit of $1.8 related to a~~ ~~favorable settlement of certain legacy sales tax matters.~~

~~17.~~16. DERIVATIVES AND HEDGING

The Company enters into foreign currency derivative contracts to economically hedge the exposure to foreign currency fluctuations associated with the forecasted purchase of inventory, the foreign exchange risk associated with certain receivables denominated in foreign currencies and certain future commitments for foreign expenditures. These derivative contracts are economic hedges and are not designated as cash flow hedges.

The Company marks-to-market these instruments and records the changes in the fair value of these items in Selling, general and administrative expenses and recognizes the unrealized gain or loss in Other current assets or Other current liabilities. The notional values of the contracts as of ~~February 28,~~August 31, 2023 and ~~February 28,~~August 31, 2022 were ~~$22.8~~

$22.8 and ~~$21.9,~~$21.3, respectively. A net unrealized gain of $0.4 and $0.6 ~~and $0.3 were~~was recognized for the ~~nine~~three months ended ~~February 28,~~August 31, 2023 and ~~February 28,~~August 31, 2022, respectively.

~~18.~~17. OTHER ACCRUED EXPENSES

Other accrued expenses consisted of the following as of the dates indicated:

February 28, 2023 May 31, 2022 February 28, 2022
Accrued payroll, payroll taxes and benefits $ 31.6 $ 32.2 $ 35.3
Accrued bonus and commissions 21.8 44.2 22.5
Returns liability 44.8 42.2 48.8
Accrued other taxes 20.5 26.8 30.2
Accrued advertising and promotions 8.8 10.3 15.1
Other accrued expenses 36.4 37.6 32.9
Total accrued expenses $ 163.9 $ 193.3 $ 184.8


	August 31, 2023		May 31, 2023		August 31, 2022
Accrued payroll, payroll taxes and benefits	$	34.5	$	29.2	$	36.8
Accrued bonus and commissions		13.0		31.2		12.2
Returns liability		33.1		34.9		41.5
Accrued other taxes		16.0		24.8		21.1
Accrued advertising and promotions		8.5		7.3		9.9
Other accrued expenses		40.8		41.5		41.1
Total accrued expenses	$	145.9	$	168.9	$	162.6

~~19. RELATED PARTY TRANSACTIONS~~

On January 12, 2022, the Company entered into a share repurchase agreement to purchase shares of its common stock from the Estate of M. Richard Robinson, Jr. in a privately negotiated transaction. Pursuant to the repurchase agreement, the Company purchased 300,000 shares of common stock on January 19, 2022 at a price of $40.65 per share, representing an aggregate purchase price of $12.2. The price per share paid represented a 4.2% discount to the closing price of the stock, $42.43, on the date of execution of the repurchase agreement. The repurchase was made pursuant to the Company’s share repurchase program as previously approved by the Board. The aforementioned transaction was approved by the Board upon the recommendation of the Audit Committee.


SCHOLASTIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (Dollar amounts in millions, except per share data)

~~20.~~18. SUBSEQUENT EVENTS

On ~~March 22,~~September 20, 2023, the Board declared a quarterly cash dividend of $0.20 per share on the Company’s Class A and Common Stock for the ~~fourth~~second quarter of fiscal ~~2023.~~2024. The dividend is payable on ~~June~~December 15, 2023 to shareholders of record as of the close of business on ~~April 28, 2023.~~

On March 22, 2023, the Board also authorized an increase of $50.0 for Common share repurchases under the Company's share buy-back program, resulting in a current Board authorization of $75.2, which includes $28.2 remaining from the previous Board authorization less share repurchases of $3.0 subsequent to February 28,October 31, 2023.

2217


SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

Overview and Outlook

Revenues for the ~~third~~first quarter ended ~~February 28,~~August 31, 2023 were ~~$324.9~~$228.5 million, compared to ~~$344.5~~$262.9 million in the prior fiscal year quarter, a decrease of ~~$19.6~~$34.4 million or 6%13%. The Company reported net loss per diluted share of Class A and Common Stock of ~~$0.57~~$2.35 in the ~~third~~first quarter of fiscal ~~2023,~~2024, compared to a net loss per diluted share of ~~$0.44~~$1.33 in the prior fiscal year quarter.

~~During the third~~First quarter ~~of fiscal 2023,~~results reflect the Company's implementation of its newly integrated school reading events strategy while investing in other areas of its business for long-term growth. Within the Children's Book Publishing and Distribution segment, the trade channel ~~continued to be~~was impacted by the ~~softening retail demand for children’s books~~overall softness in the ~~U.S. and major international markets. Despite~~retail book market resulting in lower backlist sales, partly offset by multiple frontlist bestsellers. In Education Solutions, revenues were lower year-over-year, primarily reflecting the ~~foregoing,~~shifting seasonality of this business to the ~~Children’s Book Publishing and Distribution~~ ~~segment revenues grew in the~~fourth fiscal quarter, ~~with continued strong performance in the book fairs channel reflecting investments in innovation and improved fair experiences since the pandemic,~~ as well as ~~Scholastic’s unique and trusted position in schools. Ongoing delays in school and school districts’ purchasing~~the timing of ~~instructional materials as they focus on managing staffing shortages and changes to the methods for literacy instruction contributed to lower~~ revenues in ~~Education Solutions~~.from state-sponsored programs. The International segment ~~experienced trends similar to~~was also impacted by softness in the ~~U.S. markets with~~retail market which resulted in lower trade channel revenues in the trade channels partially offset by improvements in book fairs sales. Operating loss increased $8.2 million, or 42%, from the prior fiscal year quarter primarily driven by the lower revenues and the continued impact of inflationary pressures on costs, in addition to decreased profit contribution from the ~~Education Solutions~~ ~~segment, which included increased spending on long-term strategic investments.~~major markets.

The Company ~~expects continued improvement~~is well-positioned to meet the demand for the current back-to-school season with a fair count goal of 90% of pre-pandemic levels. The integrated school reading events business has completed its reorganization and begun to implement new customer-centric strategies. Although the trade channel may continue to be impacted by softness in the retail book ~~fairs businesses around~~market, it is expected to benefit from the ~~world, most notably in the U.S. which continues to outperform fiscal 2022 with higher fair count and improved revenue-per-fair. The trade channel will continue to~~ release of new titles from ~~bestselling authors, including~~the Dog Man® ~~#11: Twenty Thousand Fleas Under~~, Cat Kid Comic Club®, and HeartstopperTM series, The Harry Potter Wizarding Almanac and the ~~Sea~~ new Goosebumps~~by Dav Pilkey~~® TV series on Disney+® and Hulu®. Within Education Solutions, while the Company expects the continuance of the revenue shift trend centered on the fourth fiscal quarter, it continues to be ~~released at~~well-positioned to meet the ~~end~~customized needs of ~~March 2023, but expects unfavorable economic trends in~~educators throughout the ~~retail book markets to continue to negatively impact~~year. In addition, the ~~channel both domestically and internationally. The~~ ~~Education Solutions~~ ~~segment will continue to focus on integration efforts related to the Learning Ovations acquisition as well as the upcoming launch of Ready4Reading~~TM~~, a new K-3 phonics program. The~~ segment is ~~preparing for the seasonally important fiscal fourth quarter, although the softness in the education instructional materials market could continue. Internationally, margins are~~ expected ~~to continue~~ to benefit from the ~~disposition of~~actions completed to streamline the ~~direct sales business~~organization and adjust the operating model under new leadership. Internationally, the Company expects the recently completed reorganization in ~~Asia, which generated losses in the prior period, despite unfavorable economic conditions in the UK and~~ Canada ~~which are expected~~ to ~~continue to impact revenue growth and~~drive greater operating income, together with unfavorable foreign currency translation as the U.S. dollar remains strong. The Company continues to monitor and control discretionary spending which is expected to continue to help mitigate the impact of inflationary pressures on freight and product costs.efficiencies across North American operations.

Results of Operations

Consolidated

Revenues for the quarter ended ~~February 28,~~August 31, 2023 decreased by ~~$19.6~~$34.4 million to ~~$324.9~~$228.5 million, compared to ~~$344.5~~$262.9 million in the prior fiscal year quarter. The Children's Book Publishing and Distribution segment revenues ~~increased~~decreased by ~~$3.0~~$21.9 million, primarily driven ~~by higher book fairs channel revenues resulting from increased fair count and higher revenue per fair, substantially offset~~ by lower trade channel revenues ~~due to~~which reflect the ~~industry-wide decline~~overall softness in the retail book market ~~for children's books and~~resulting in lower ~~book clubs channel sales due to the timing of revenues in the prior year and a continued decline in order volumes.~~backlist sales. In the Education Solutions segment, revenues decreased by $7.2 million primarily due to ~~lower sales~~the timing of ~~instructional products~~revenues from sponsored programs and ~~programs as a result of purchasing delays by school and district administrators and changes to the methods for literacy instruction.~~summer reading offerings. In local currency, the International segment revenues decreased by ~~$11.9~~$6.4 million, ~~primarily driven by~~reflecting lower sales in Asia as a result of the disposition of the direct sales business, coupled with lower ~~trade channel~~ sales ~~largely~~ in Canada ~~as a result of~~and Australia, primarily from the ~~industry-wide decline~~trade channels, which similar to the U.S., continued to be impacted by the softness in the retail ~~sales as well as lower book clubs channel revenues in Australia and New Zealand.~~market. International segment revenues were also impacted by unfavorable foreign exchange of ~~$3.5~~$1.4 million in the quarter ended ~~February 28,~~August 31, 2023.

Components of Cost of goods sold for the three months ended August 31, 2023 and August 31, 2022 are as follows:


	Three months ended
	August 31,				August 31,
	2023				2022
($ amounts in millions)		$	% of Revenue			$	% of Revenue
Product, service and production costs and inventory reserves	$	72.8	31.8	%	$	82.4	31.4	%
Royalty costs		23.5	10.3	%		27.4	10.4	%
Prepublication amortization		7.0	3.1	%		6.4	2.4	%
Postage, freight, shipping, fulfillment and other		26.7	11.7	%		28.3	10.8	%
Total	$	130.0	56.9	%	$	144.5	55.0	%


SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

Cost of goods sold for the quarter ended August 31, 2023 was $130.0 million, or 56.9% of revenues, compared to $144.5 million, or 55.0% of revenues, in the prior fiscal year quarter. The increase in Cost of goods sold as a percentage of revenues was primarily attributable to higher prepublication amortization as a result of the release of Ready4ReadingTM at the end of fiscal 2023 as well as higher fulfillment costs in Canada and the UK as a result of increased labor costs. Product costs were marginally unfavorable as a result of the higher costs associated with delivering professional learning services within Education Solutions, which were partially offset by lower production costs and favorable product mix in the domestic trade channel.

Selling, general and administrative expenses for the quarter ended August 31, 2023 increased to $184.2 million, compared to $162.8 million in the prior fiscal year quarter. The $21.4 million increase was primarily attributable to higher labor and equipment costs in the U.S. book fairs channel to support the expected increase in fair count for fiscal 2024, in addition to higher severance expense from the Company's restructuring programs of $6.3 million related to reorganization efforts and cost-saving initiatives in the school reading events business, Education Solutions and in Canada. In addition, the Company continued to spend on investments in long-term growth opportunities within the Education Solutions segment.

Depreciation and amortization expenses for the quarter ended August 31, 2023 were $13.4 million compared to $13.7 million in the prior fiscal year quarter. 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 quarter ended August 31, 2023 was relatively consistent with the prior year period. There were no significant assets placed into service during the quarter ended August 31, 2023.

Interest income for the quarter ended August 31, 2023 was $1.7 million compared to $0.6 million in the prior fiscal year quarter. The $1.1 million increase was attributable to higher interest rates earned in the quarter ended August 31, 2023. The Company invests excess cash in short term investments which earn competitive interest rates that change directionally in relation to the Federal Funds rate. Interest expense for the quarter ended August 31, 2023 was $0.3 million compared to $0.4 million in the prior fiscal year quarter. There were no significant changes in average debt borrowings compared to the prior fiscal year quarter.

The Company's interim effective tax rate, inclusive of discrete items, for the quarter ended August 31, 2023 was 24.3%, compared to 21.6% for the prior fiscal year period.

Net loss attributable to Scholastic Corporation for the quarter ended August 31, 2023 increased by $28.7 million to $74.2 million, compared to $45.5 million in the prior fiscal year quarter. Loss per basic and diluted share of Class A and Common Stock was $2.35 and $2.35, respectively, for the fiscal quarter ended August 31, 2023, compared to $1.33 and $1.33, respectively, in the prior fiscal year quarter.

Net income attributable to noncontrolling interest for the quarter ended August 31, 2022 was $0.1 million.

Children’s Book Publishing and Distribution


	Three months ended August 31,
					$		%
($ amounts in millions)	2023		2022		Change		Change
Revenues	$	102.8	$	124.7	$	(21.9)	(17.6)	%
Cost of goods sold		63.3		77.1		(13.8)	(17.9)	%
Other operating expenses (1)		81.0		77.7		3.3	4.2	%

Operating income (loss)	$	(41.5)	$	(30.1)	$	(11.4)	(37.9)	%
Operating margin		NM		NM

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

NM Not meaningful

Revenues for the ~~nine months~~quarter ended ~~February 28,~~August 31, 2023 ~~increased~~decreased by ~~$47.2~~$21.9 million to ~~$1,175.7~~$102.8 million, compared to ~~$1,128.5~~$124.7 million in the prior fiscal year ~~period. The~~ ~~Children's Book Publishing and Distribution~~ ~~segment revenues increased by $77.7 million primarily driven by higher book fairs~~quarter. Trade channel revenues ~~resulting from increased fair count, higher revenue per fair and increased redemptions of book fair incentive program credits, partially offset by lower trade channel revenues due to~~decreased $17.2 million reflecting the ~~industry-wide decline~~overall softness in the retail book market, driving lower revenues for backlist titles and offsetting strong sales from frontlist bestsellers including This Winter by Alice Oseman, The Bad Guys in Let the Games Begin! (The Bad Guys® #17) by Aaron Blabey, The Official Harry Potter Cookbook, and The Ballad of Songbirds and Snakes by

2319


SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

~~children's books and~~Suzanne Collins in paperback. If the retail book market remains soft, the trade channel could continue to be negatively impacted during the remainder of fiscal 2024. In addition, lower ~~book clubs channel sales~~media revenues contributed to the revenue decrease as the Company completed the delivery of episodes associated with the production of the animated series "Eva the Owlet"TM in fiscal 2023. Revenues from school reading events decreased $4.7 million primarily due to ~~the multi-year trend~~lower redemptions of ~~lower sponsor participation. In the~~ ~~Education Solutions~~ ~~segment, revenues decreased by $13.6 million primarily driven by lower sales of instructional products and programs due to purchasing delays by~~book fair incentive program credits. Revenues from school and district administrators and changes to the methods for literacy instruction as well as the shifting of revenues from the fourth quarter of fiscal 2021 due to supply chain constraints at that time intoreading events are generally not significant in the first fiscal quarter ~~of fiscal 2022. In addition, the segment had lower sales of~~ ~~Rising Voices Library~~® ~~products. This was partially offset by revenues from sponsored programs and increased revenues from traditional classroom book collections. In local currency, the~~ ~~International~~ ~~segment revenues increased by $1.4 million primarily driven by increased revenues~~as most schools are not in the Company's Major Markets (Canada, UK, Australia and New Zealand) as a result of the continued recovery of the book fairs channel, partially offset by lower revenues in Asia as a result of the disposition of the direct sales business. ~~International~~ ~~segment revenues were impacted by unfavorable foreign exchange of $18.3 million in the nine months ended February 28, 2023.~~session.

~~Components of~~ Cost of goods sold for the ~~three~~quarter ended August 31, 2023 was $63.3 million, or 61.6% of revenues, compared to $77.1 million, or 61.8% of revenues, in the prior fiscal year quarter. Cost of goods sold benefited from the mix of product sold in the quarter ended August 31, 2023 as compared to the prior fiscal year quarter, coupled with lower production costs.

Other operating expenses for the quarter ended August 31, 2023 increased to $81.0 million, compared to $77.7 million in the prior fiscal year quarter. Other operating expenses increased $3.3 million primarily driven by higher labor and ~~nine months~~equipment costs in the book fairs channel to support the expected increase in fair count for fiscal 2024, coupled with increased rent for warehouse space. This was partially offset by lower book clubs kit costs as a result of a change in the timing of the distribution of kits to schools.

Segment operating loss for the quarter ended ~~February 28,~~August 31, 2023 was $41.5 million, compared to $30.1 million in the prior fiscal year quarter. The $11.4 million increase in operating loss was primarily attributable to lower trade channel revenues reflecting the continued softness in the retail market, coupled with lower redemptions of book fair incentive program credits. In addition, the segment incurred higher labor and ~~February 28, 2022 are~~equipment costs in the book fairs channel to support the expected increase in fair count for fiscal 2024.

Education Solutions


	Three months ended August 31,
					$		%
($ amounts in millions)	2023		2022		Change		Change
Revenues	$	66.0	$	73.2	$	(7.2)	(9.8)	%
Cost of goods sold		32.6		30.4		2.2	7.2	%
Other operating expenses (1)		52.1		47.1		5.0	10.6	%

Operating income (loss)	$	(18.7)	$	(4.3)	$	(14.4)	NM
Operating margin		NM		NM

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

NM Not meaningful

Revenues for the quarter ended August 31, 2023 decreased by $7.2 million to $66.0 million, compared to $73.2 million in the prior fiscal year quarter. The decrease in segment revenues was primarily driven by timing of revenues from sponsored programs and summer learning product offerings as ~~follows:~~

Three months ended Nine months ended
February 28, February 28, February 28, February 28,
2023 2022 2023 2022
($ amounts in millions) $ % of Revenue $ % of Revenue $ % of Revenue $ % of Revenue
Product, service and production costs and inventory reserves $ 96.2 29.6 % $ 93.8 27.2 % $ 337.2 28.7 % $ 306.6 27.2 %
Royalty costs 24.8 7.6 % 30.0 8.7 % 97.6 8.3 % 102.8 9.1 %
Prepublication amortization 6.3 2.0 % 6.8 2.0 % 19.1 1.6 % 20.6 1.8 %
Postage, freight, shipping, fulfillment and other 33.8 10.4 % 39.0 11.3 % 112.1 9.5 % 110.9 9.8 %
Total $ 161.1 49.6 % $ 169.6 49.2 % $ 566.0 48.1 % $ 540.9 47.9 %
the Company continues to experience a shift in sales into the fourth fiscal quarter. Partially offsetting the lower revenues, the segment benefited from increased revenues from the Scholastic Family and Community Engagement (FACE)TM and Literacy Partners initiatives as a result of continued growth in the funding for community and government programs to support childhood literacy, as well as higher revenues from professional learning services delivered during the quarter ended August 31, 2023.

Cost of goods sold for the quarter ended ~~February 28,~~August 31, 2023 was ~~$161.1~~$32.6 million, or ~~49.6%~~49.4% of revenues, compared to ~~$169.6~~$30.4 million, or ~~49.2%~~41.5% of revenues, in the prior fiscal year quarter. Cost of goods sold for the nine months ended February 28, 2023 was $566.0 million, or 48.1% of revenues, compared to $540.9 million, or 47.9% of revenues, in the prior fiscal year period. Cost of goods sold continued to be impacted by inflationary pressures which resulted in increased product costs due to higher print and inbound freight costs, substantially offset by lower royalty costs driven by the increased sales volume in the book fairs channel, which traditionally has a higher mix of non-royalty bearing titles. In addition, the ~~Education Solutions~~ segment recognized higher inventory reserves due to lower utilization of aged inventory. Favorable postage, freight, shipping and fulfillment costs as a percentage of revenue were driven by improved efficiencies at the Company's centralized distribution facility in Missouri which resulted in more units per shipment and fewer shipments to fulfill orders. During fiscal 2023, the Company purchased a substantial amount of inventory at higher costs to mitigate long lead times and these higher costs will be reflectedThe increase in Cost of goods sold ~~and impact margins in~~as a percentage of revenues was primarily attributable to higher prepublication amortization as result of the ~~fourth~~release of Ready4ReadingTM at the end of fiscal 2023. In addition, the segment incurred higher product costs associated with the delivery of professional learning services during the quarter ~~of fiscal~~ended August 31, 2023.

~~Selling, general and administrative~~Other operating expenses for the quarter ended ~~February 28,~~August 31, 2023 ~~decreased to $178.0~~were $52.1 million, compared to ~~$180.8~~$47.1 million in the prior fiscal year ~~quarter.~~quarter, resulting in an increase of $5.0 million. The ~~$2.8 million decrease~~increase in Other operating expenses was primarily attributable to ~~overall lower~~higher labor and outside service costs ~~in Asia~~ as a result of ~~the disposition of the direct sales business, a COVID-related governmental employee retention credit recognized~~increased spending on investments in the book fairs channel in the quarter ended February 28, 2023 and lower severance expense from the Company's restructuring programs of $2.5 million. In addition, the Company received and recognized insurance recoveries of $5.0 million in the quarter ended February 28, 2023 related to photo litigation settlements paid in prior periods and also recognized a benefit related to the favorable settlement of certain legacy sales tax matters. The decrease was partially offset by increased labor costs, largely in the book fairs channel to support the increased fair count and in connection with the digital literacy platform integration efforts related to the Learning Ovations acquisition and the upcoming launch of Ready4Reading, in addition to increased marketing expenses in the book fairs channel associated with the increased fair count.long-term growth opportunities.

2420


SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

Selling, general and administrative expenses for the nine months ended February 28, 2023 increased to $554.4 million, compared to $512.7 million in the prior fiscal year period. The $41.7 million increase was primarily attributable to higher employee-related costs, largely in the book fairs channel to support the increased fair count, coupled with the investment in the ~~Education Solutions~~ segment which included digital literacy platform integration efforts related to the Learning Ovations acquisition and the upcoming launch of Ready4Reading. The increase was also driven by the $6.6 million of insurance recoveries received in the period ended February 28, 2022 related to the intellectual property legal settlement accrued in fiscal 2021 and higher marketing costs associated with sponsored programs. Partially offsetting this increase, the Company incurred lower severance expense from its restructuring programs of $5.7 million, recognized a COVID-related governmental employee retention credit in the book fairs channel in the period ended February 28, 2023 and incurred overall lower costs in Asia during the period ended February 28, 2023 as a result of the disposition of the direct sales business. The Company also received and recognized insurance recoveries of $5.0 million in the period ended February 28, 2023 related to photo litigation settlements paid in prior periods and recognized a benefit related to the favorable settlement of certain legacy sales tax matters.

Depreciation and amortization expenses in the three and nine months ended February 28, 2023 were $13.5 million and $41.0 million, respectively, compared to $13.6 million and $43.0 million, respectively, in the prior fiscal year period. The decrease in depreciation and amortization expenses in the three and nine months ended February 28, 2023 was primarily attributable to a shift towards spending on 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 increased $0.1 million and $1.8 million for the three and nine months ended February 28, 2023, respectively, when compared to the prior period which substantially offset the decrease in Depreciation and amortization as there were no significant assets placed into service during the period ended February 28, 2023. Management expects the Company to continue to utilize more cloud-based software tools.

Interest income in the three and nine months ended February 28, 2023 was $1.7 million and $3.4 million, respectively, compared to less than $0.1 million and $0.4 million, respectively, in the prior fiscal year period. The Company invests excess cash in short term investments which earn competitive interest rates that change directionally in relation to the Federal Funds rate.

Interest expense in the three and nine months ended February 28, 2023 was $0.3 million and $1.1 million, respectively, compared to $0.4 million and $2.6 million, respectively, in the prior fiscal year period. The decrease in interest expense was due to lower average debt borrowings as compared to the prior fiscal year period as the outstanding borrowings on the U.S. credit agreement were paid down during fiscal 2022, resulting in no outstanding borrowings as of the beginning of fiscal 2023.

Gain (loss) on sale of assets and other in the nine months ended February 28, 2022 was $6.2 million. In the prior year period, the Company sold a facility, which included office and warehouse space, located in Lake Mary, Florida, as part of an initiative to rightsize its real estate footprint to reduce occupancy costs, which resulted in a gain on sale.

The Company's interim effective tax rate, inclusive of discrete items, for the three and nine months ended February 28, 2023 was 26.3% and 36.3%, respectively, compared to 23.7% and 19.7%, respectively, for the prior fiscal year periods. The interim effective tax rate for the nine months ended February 28, 2023 varied from the prior fiscal year period primarily due to a GILTI inclusion in the period ended February 28, 2023 and the release of reserves related to the IRS examination recognized in the prior period. The interim effective tax rate for the nine months ended February 28, 2023 varied from the statutory rate due to tax shortfalls related to vested option cancellations in the first quarter of fiscal 2023.

~~Net~~Segment operating loss ~~attributable to Scholastic Corporation~~ for the quarter ended ~~February 28,~~August 31, 2023 ~~increased by $3.9 million to $19.2~~was $18.7 million, compared to ~~$15.3~~$4.3 million in the prior fiscal year quarter. ~~Loss per basic~~The $14.4 million increase in operating loss was primarily driven by the timing of revenues related to sponsored programs and ~~diluted share~~summer learning product offerings, coupled with higher cost of ~~Class A and Common Stock was $0.57 and $0.57, respectively, for~~product due to the ~~fiscal quarter ended February 28, 2023, compared to $0.44 and $0.44, respectively, in the prior fiscal year quarter.~~

Net income attributable to Scholastic Corporation for the nine months ended February 28, 2023 decreased by $18.2 million to $10.6 million, compared to $28.8 million in the prior fiscal year period. Earnings per basic and diluted sharemix of ~~Class A and Common Stock was $0.31 and $0.30, respectively, for the nine months ended February 28, 2023, compared to $0.83 and $0.80, respectively, in the prior fiscal year period.~~


~~SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)~~

~~Net loss attributable to noncontrolling interest for~~product sold during the quarter ended February 28, 2023 was $0.1 million compared to Net income attributable to noncontrolling interest of $0.2 million in the prior fiscal year quarter. Net income attributable to noncontrolling interest for the nine months ended February 28,August 31, 2023 and ~~February 28, 2022 was $0.1 million.~~

higher prepublication amortization. In addition, increased spending on investments in growth opportunities, which is expected to continue during fiscal 2024, contributed to the increase in operating loss.

~~Children’s Book Publishing and Distribution~~International


		Three months ended February 28,										Nine months ended February 28,											Three months ended August 31,
								$		%								$		%							$		%
($ amounts in millions)	($ amounts in millions)	2023			2022			Change		Change			2023			2022		Change		Change		($ amounts in millions)	2023		2022		Change		Change
Revenues	Revenues	$	204.0		$	201.0		$	3.0	1.5	%	$	747.0		$	669.3		$	77.7	11.6	%	Revenues	$	57.2	$	65.0	$	(7.8)	(12.0)	%
Cost of goods sold	Cost of goods sold		103.7			102.5			1.2	1.2	%		361.4			325.4			36.0	11.1	%	Cost of goods sold		35.9		39.5		(3.6)	(9.1)	%
Other operating expenses (1)	Other operating expenses (1)		98.4			93.5			4.9	5.2	%		300.6			275.4			25.2	9.2	%	Other operating expenses (1)		29.5		29.0		0.5	1.7	%

Operating income (loss)	Operating income (loss)	$	1.9		$	5.0		$	(3.1)	(62.0)	%	$	85.0		$	68.5		$	16.5	24.1	%	Operating income (loss)	$	(8.2)	$	(3.5)	$	(4.7)	(134.3)	%
Operating margin	Operating margin		0.9	%		2.5	%						11.4	%		10.2	%					Operating margin		NM		NM

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

NM Not meaningful

Revenues for the quarter ended ~~February 28,~~August 31, 2023 ~~increased~~decreased by ~~$3.0~~$7.8 million to ~~$204.0~~$57.2 million, compared to ~~$201.0~~$65.0 million in the prior fiscal year quarter. Local currency revenues across the Company's ongoing foreign operations decreased by $4.8 million, excluding $1.6 million in lower revenues from the disposition of the direct sales business and unfavorable foreign exchange impact of $1.4 million. In Canada, local currency revenues decreased $2.7 million primarily due to lower trade channel sales reflecting the softness in the retail book market, coupled with lower revenues from the book clubs channel. The ~~increase~~Company has completed the reorganization of book clubs operations in ~~segment~~Canada which is expected to drive greater efficiencies. Local currency revenues ~~was~~in Asia decreased $0.7 million primarily due to lower sales from the trade and Asia export channels as a result of the timing of orders in the prior fiscal year quarter in which shipments shifted in from the fourth quarter of fiscal 2022. In Australia and New Zealand, local currency revenues decreased $1.8 million, primarily driven by lower sales in the Australian trade channel due to the continued softness in the retail market and timing of new releases, partially offset by higher revenues from the book fairs channel driven by higher fair count as the pandemic recovery continued. In the UK, local currency revenues increased $0.2 million, primarily driven by higher revenues from the book fairs channel ~~revenues~~as a result of ~~$27.5 million,~~increased redemptions of incentive credits, partially offset by lower ~~revenues~~sales in the ~~book clubs and~~ trade ~~channels of $12.8~~channel. Export channel sales also increased $0.2 million and $11.7 million, respectively. The improvement in the book fairs channel resulted from increased fair count, coupled with higher revenue per fair and increased redemptions of book fair incentive program credits. In the book clubs channel, decreased revenues resulted from the timing of revenues in the prior year, in which the discrete systems issue in the second quarter caused a backlog and shifted approximately $18 million of revenues into the third quarter of the prior fiscal year, coupled with a continued decline in order volumes. The trade channel continued to be impacted by the industry-wide decline in retail market sales, contributing to lower backlist sales as compared to the prior fiscal year quarter. ~~In the quarter ended February 28, 2023, the trade channel released several new bestselling titles including~~ ~~Wings of Fire~~TM ~~Graphix~~TM ~~#6: Moon Rising~~, ~~The Baby-sitters Club~~® ~~Graphix~~TM ~~#13: Mary Anne’s Bad Luck Mystery~~ ~~and~~ ~~Nick and Charlie, a~~ ~~Heartstopper~~TM~~novella, and benefited from increased media revenue as the Company continued to deliver episodes associated with the production of the animated series "Eva the Owlet"~~TM ~~as well as increased sales in the~~ ~~Make Believe Ideas~~TM ~~business.~~

Revenues for the nine months ended February 28, 2023 increased by $77.7 million to $747.0 million, compared to $669.3 million in the prior fiscal year period. The increase in segment revenues was driven by higher book fairs channel revenues of $104.4 million resulting from increased fair count, which continued to trend at 85% of pre-pandemic levels compared to 70% in the prior fiscal year period, coupled with higher revenue per fair and increased redemptions of book fair incentive program credits. Partially offsetting the improvement in the book fairs channel, the book clubs and trade channels experienced lower revenues of $7.6 million and $19.1 million, respectively. In the book clubs channel, decreased revenues resulted from the multi-year trend of lower sponsor participation and fewer events held in the period ended February 28, 2023. The trade channel was impacted by the industry-wide decline in retail market sales, coupled with the prior fiscal year period release of ~~The Christmas Pig~~ ~~by J.K. Rowling and limited edition foil cover versions of titles in the Dog Man~~® ~~series. In the period ended February 28, 2023, the trade channel released new titles in its bestselling series including the illustrated edition of~~ ~~Harry Potter and the Order of the Phoenix,Cat Kid Comic Club~~®~~: Collaborations~~ ~~by Dav Pilkey and~~ ~~Wings of Fire~~TM ~~Graphix~~TM ~~#6: Moon Rising,~~ ~~and benefited from increased media revenue as the Company continued to deliver episodes associated with the production of the animated series "Eva the Owlet"~~TM~~. The unfavorable economic trends in the retail book markets could continue to negatively impact the trade channel.~~

Cost of goods sold for the quarter ended ~~February 28,~~August 31, 2023 was ~~$103.7~~$35.9 million, or ~~50.8%~~62.8% of revenues, compared to ~~$102.5~~$39.5 million, or ~~51.0%~~60.8% of revenues, in the prior fiscal year quarter. The increase in Cost of goods sold ~~for the nine months ended February 28, 2023 was $361.4, or 48.4% of revenues, compared to $325.4, or 48.6% of revenues, in the prior fiscal year period. The segment benefited from lower royalty costs~~ as a percentage of ~~revenues driven by~~revenue was attributable to higher fulfillment costs, primarily in Canada and the ~~increased sales volume in the book fairs channel, which traditionally has a higher mix of non-royalty bearing titles, substantially offset by increased product costs~~UK, due to ~~higher print and inbound freight costs which continue to be impacted by inflationary pressures.~~increased labor costs.

Other operating expenses for the quarter ended ~~February 28,~~August 31, 2023 ~~increased to $98.4~~were $29.5 million, compared to ~~$93.5~~$29.0 million in the prior fiscal year quarter. Other operating expenses increased ~~$4.9~~$0.5 million primarily driven by ~~higher marketing expenses~~severance expense from restructuring programs within the book clubs channel in Canada of $1.2 million in the ~~book fairs~~quarter ended August 31, 2023, partially offset by favorable foreign exchange impact of $0.6 million.

Segment operating loss for the quarter ended August 31, 2023 was $8.2 million, compared to $3.5 million in the prior fiscal year quarter. The $4.7 million increase in operating loss was primarily driven by lower trade channel ~~associated~~revenues in Canada and Australia, coupled with higher fulfillment costs due to increased labor costs in Canada and the ~~increased fair count.~~UK. In addition, the segment incurred severance expense from restructuring programs in Canada which are expected to drive greater operating efficiencies across North American operations.

2621


SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

increased labor costs, largely in the book fairs channel to support the increased fair count, were partially offset by a COVID-related governmental employee retention credit recognized in the quarter ended February 28, 2023.

Other operating expenses for the nine months ended February 28, 2023 increased to $300.6 million, compared to $275.4 million in the prior fiscal year period. Other operating expenses increased $25.2 million primarily attributable to increased labor costs, largely in the book fairs channel to support the increased fair count, which is expected to continue to trend higher during the remainder of fiscal 2023. The higher labor costs were partially offset by a COVID-related governmental employee retention credit recognized in the quarter ended February 28, 2023. In addition, the book fairs channel incurred higher fuel charges, marketing expenses and bank fees as a result of the increased fair count as well as increased rent for warehouse space.

Segment operating income for the quarter ended February 28, 2023 was $1.9 million, compared to $5.0 million in the prior fiscal year quarter. The $3.1 million decrease in operating income was attributable to the rising costs associated with freight, paper and labor, which continue to be impacted by inflationary pressures. In addition, increased margins from the book fairs channel were offset by lower revenues in the trade and book clubs channels.

Segment operating income for the nine months ended February 28, 2023 was $85.0 million, compared to $68.5 million in the prior fiscal year period. The $16.5 million increase in operating income was driven by higher revenues from the book fairs channel as fair count and revenue per fair continued to exceed the prior period, partially offset by the rising costs associated with freight, paper, labor and fuel, which continue to be impacted by inflationary pressures. In addition, increased margins from the book fairs channel were offset by lower revenues in the trade and book clubs channels.

~~Education Solutions~~

Three months ended February 28, Nine months ended February 28,
$ % $ %
($ amounts in millions) 2023 2022 Change Change 2023 2022 Change Change
Revenues $ 70.0 $ 77.2 $ (7.2) (9.3) % $ 223.2 $ 236.8 $ (13.6) (5.7) %
Cost of goods sold 25.8 26.1 (0.3) (1.1) % 84.8 86.4 (1.6) (1.9) %
Other operating expenses (1)
43.5 38.0 5.5 14.5 % 135.0 114.4 20.6 18.0 %
Operating income (loss) $ 0.7 $ 13.1 $ (12.4) (94.7) % $ 3.4 $ 36.0 $ (32.6) (90.6) %
Operating margin 1.0 % 17.0 % 1.5 % 15.2 %

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

Revenues for the quarter ended February 28, 2023 decreased by $7.2 million to $70.0 million, compared to $77.2 million in the prior fiscal year quarter. The decrease in segment revenues was primarily driven by lower sales of instructional products and programs, largely from the ~~Scholastic Bookroom~~ ~~and~~ ~~Guided Reading~~ offerings, which were impacted by purchasing delays and changes to the methods in which schools approach literacy instruction, as well as lower revenues from Scholastic Literacy Partners, a program that partners with mission-driven organizations to support literacy by increasing children's access to books. Partially offsetting this decrease, the segment had increased sales of products from the Scholastic Family and Community Engagement (FACE)TM ~~initiative. Revenues from Magazines+~~TM, digital subscription products and sponsored programs remained relatively consistent with the prior fiscal year quarter. The delays in school and school districts’ purchasing of instructional materials could continue into the fourth quarter and impact the education channel.

Revenues for the nine months ended February 28, 2023 decreased by $13.6 million to $223.2 million, compared to $236.8 million in the prior fiscal year period. The decrease in segment revenues was largely driven by lower sales of instructional products and programs, primarily early childhood programs, summer learning product offerings, and offerings from the Company's ~~Scholastic Bookroom, Guided Reading~~ ~~and~~ ~~Scholastic Literacy~~ products. A substantial portion of the decrease related to instructional products and programs was due to the timing of revenues in the prior fiscal year period, which benefited from shipments, primarily consisting of summer learning products, that shifted from the fourth quarter of fiscal 2021 due to supply chain constraints at that time. During the fourth quarter of fiscal 2022, orders were shipped more timely with fewer sales shifting into the first quarter of fiscal 2023. Purchasing delays by school and district administrators and changes to the methods in which schools approach literacy instruction also contributed to the lower revenues from


SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

~~instructional products and programs. In addition, the segment had lower sales of~~ ~~Rising Voices Library~~®products, professional books and teaching resource products. The overall decrease was partially offset by revenues from sponsored programs, which did not commence shipping until the third quarter of the prior fiscal year, and increased revenues from traditional classroom book collections, ~~Grab and Go~~ ~~reading packs and products from the Scholastic Family and Community Engagement (FACE)~~TM ~~initiative. Revenues from Magazines+ and digital subscription products remained relatively consistent with the prior fiscal year period.~~

Cost of goods sold for the quarter ended February 28, 2023 was $25.8 million, or 36.9% of revenues, compared to $26.1 million, or 33.8% of revenues, in the prior fiscal year quarter. The increase in Cost of goods sold as a percentage of revenues was primarily attributable to higher inventory reserves due to lower utilization of aged inventory, coupled with increased postage and outbound freight costs as the Company continues to be impacted by inflationary pressures.

Cost of goods sold for the nine months ended February 28, 2023 was $84.8 million, or 38.0% of revenues, compared to $86.4 million, or 36.5% of revenues, in the prior fiscal year period. The increase in Cost of goods sold as a percentage of revenues was primarily attributable to the mix of products sold in the period ended February 28, 2023 which had higher product costs, including higher inbound freight costs, in addition to increased postage and outbound freight costs, as the Company continues to be impacted by inflationary pressures. The segment also recognized higher inventory reserves due to lower utilization of aged inventory.

Other operating expenses for the quarter ended February 28, 2023 were $43.5 million, compared to $38.0 million in the prior fiscal year quarter, resulting in an increase of $5.5 million. The increase in Other operating expenses was primarily related to higher employee-related costs associated with digital literacy platform integration efforts related to the Learning Ovations acquisition and the upcoming launch of Ready4Reading.

Other operating expenses for the nine months ended February 28, 2023 increased to $135.0 million, compared to $114.4 million in the prior fiscal year period. Other operating expenses increased $20.6 million primarily due to higher employee-related costs associated with digital literacy platform integration efforts related to the Learning Ovations acquisition and the upcoming launch of Ready4Reading, as well as increased marketing costs associated with sponsored programs. The Company continues to make strategic investments in the long-term go-to-market capabilities of this segment.

Segment operating income for the quarter ended February 28, 2023 was $0.7 million, compared to income of $13.1 million in the prior fiscal year quarter. The $12.4 million decrease was driven by lower sales of instructional products and programs due to purchasing delays by school and district administrators and changes to the methods for literacy instruction. The Company's continued strategic investments in the segment, which included digital literacy platform integration efforts related to the Learning Ovations acquisition and the upcoming launch of Ready4Reading, coupled with the continued impact of inflationary pressures on freight costs and higher inventory reserves also contributed to the overall decrease in operating income.

Segment operating income for the nine months ended February 28, 2023 was $3.4 million, compared to $36.0 million in the prior fiscal year period. The $32.6 million decrease was driven by the decrease in segment revenues, primarily attributable to lower sales of instructional products and programs due to purchasing delays by school and district administrators and changes to the methods for literacy instruction, coupled with the shift of revenues in the prior fiscal year period. In addition, the Company's continued strategic investments in the segment, in addition to the continued impact of inflationary pressures on product costs and freight and higher inventory reserves contributed to the overall decrease in operating income.


SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

~~International~~

Three months ended February 28, Nine months ended February 28,
$ % $ %
($ amounts in millions) 2023 2022 Change Change 2023 2022 Change Change
Revenues $ 50.9 $ 66.3 $ (15.4) (23.2) % $ 205.5 $ 222.4 $ (16.9) (7.6) %
Cost of goods sold 33.7 38.3 (4.6) (12.0) % 127.0 125.4 1.6 1.3 %
Other operating expenses (1)
26.2 33.0 (6.8) (20.6) % 84.3 95.0 (10.7) (11.3) %
Operating income (loss) $ (9.0) $ (5.0) $ (4.0) (80.0) % $ (5.8) $ 2.0 $ (7.8) NM
Operating margin — % — % — % 0.9 %

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

~~NM Not meaningful~~

Revenues for the quarter ended February 28, 2023 decreased by $15.4 million to $50.9 million, compared to $66.3 million in the prior fiscal year quarter. Local currency revenues across the Company's foreign operations decreased by $11.9 million, coupled with an unfavorable foreign exchange impact of $3.5 million. Local currency revenues in Asia decreased $6.6 million primarily attributable to the disposition of the direct sales business, coupled with lower sales from the trade and Asia export channels. In Canada, local currency revenues decreased $2.6 million due to lower trade channel sales as a result of an industry wide decline in retail sales, coupled with lower book clubs sales, which when combined more than offset the continued improvement in the book fairs channel. In Australia and New Zealand, local currency revenues decreased $1.6 million, primarily driven by lower sales in the book clubs and trade channels, while revenues in the book fairs channels remained relatively consistent with the prior fiscal year quarter. In the UK, local currency revenues decreased $0.3 million due to lower sales in the trade channel, which more than offset higher sales in the book fairs channel driven by increased fair count and revenue per fair. Export channel sales also decreased $0.8 million as compared to the prior fiscal year quarter.

Revenues for the nine months ended February 28, 2023 decreased by $16.9 million to $205.5 million, compared to $222.4 million in the prior fiscal year period. Local currency revenues across the Company's foreign operations increased by $1.4 million, which were more than offset by unfavorable foreign exchange of $18.3 million. The increase in segment revenues was primarily driven by increased revenues in the Company's Major Markets. In Australia and New Zealand, local currency revenues increased $10.0 million as a result of increased sales in the trade and book fairs channels as the additional lockdowns imposed by the COVID variant negatively impacted the prior year period. In the UK, local currency revenues increased $2.8 million driven by higher sales in the book fairs channel which benefited from increased fair count and revenue per fair, partially offset by lower sales in the trade channel despite year-over-year revenue growth for the bestselling title ~~Heartstoppers~~TMby Alice Oseman. In Canada, local currency revenues were relatively consistent with the prior period, increasing $0.2 million. The Canadian book fair channel continued to recover resulting in revenue growth over the prior period, which was substantially offset by lower trade channel sales as a result of an industry wide decline in the retail market, in addition to lower sales in the book clubs channel. The increase in segment revenues from the Company's Major Markets was substantially offset by lower local currency revenues in Asia of $11.5 million primarily attributable to the disposition of the direct sales business as well as lower sales from the Asia export and trade channels. Export channel sales remained relatively consistent with the prior year, decreasing $0.1 million in local currency.

Cost of goods sold for the quarter ended February 28, 2023 was $33.7 million, or 66.2% of revenues, compared to $38.3 million, or 57.8% of revenues, in the prior fiscal year quarter. The increase in Cost of goods sold as a percentage of revenue was impacted by continued inflationary pressures driving an increase in product costs, primarily in Canada and the UK, as a result of higher inbound freight costs as well as increased fulfillment costs due to increased labor costs, primarily in Canada.

Cost of goods sold for the nine months ended February 28, 2023 was $127.0 million, or 61.8% of revenues, compared to $125.4 million, or 56.4% of revenues, in the prior fiscal year period. The increase in Cost of goods sold as a percentage of revenue was impacted by continued inflationary pressures driving an overall increase in product costs as a result of higher inbound freight costs as well as higher outbound postage and freight costs. Fulfillment costs also increased due to higher labor costs, primarily in Canada. In addition, certain foreign operations, primarily Canada, purchase inventory in U.S. dollars and the strengthening of the U.S. dollar unfavorably impacted Cost of goods sold.


SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

Other operating expenses for the quarter ended February 28, 2023 were $26.2 million, compared to $33.0 million in the prior fiscal year quarter. Other operating expenses decreased $6.8 million primarily driven by lower employee-related expenses, general overhead costs and bad debt expense in Asia as a result of the disposition of the direct sales business. In addition, the UK recognized branch consolidation costs of $0.3 million in the quarter ended February 28, 2022 which did not reoccur in the current year.

Other operating expenses for the nine months ended February 28, 2023 were $84.3 million, compared to $95.0 million in the prior fiscal year period. Other operating expenses decreased $10.7 million primarily driven by lower employee-related expenses, general overhead costs and bad debt expense in Asia as a result of the disposition of the direct sales business. In addition, the segment incurred severance expense of $0.7 million related to restructuring programs and UK branch consolidation costs of $0.4 million in the period ended February 28, 2022, both of which did not reoccur in the current year. The discontinuation of government subsidies related to COVID-related governmental retention programs partially offset the decrease in Other operating expenses in which $1.4 million was recognized in the period ended February 28, 2022.

Segment operating loss for the quarter ended February 28, 2023 was $9.0 million, compared to $5.0 million in the prior fiscal year quarter. The decrease was primarily driven by lower revenues in the trade market, primarily in Canada and the UK, as a result of an industry wide decline in the retail market, coupled with higher Cost of goods sold due to the impact of inflationary pressures on product and fulfillment costs. This was partially offset by improved operating margin in Asia as the Company has exited the direct sales business, which generated losses in the prior period.

Segment operating loss for the nine months ended February 28, 2023 was $5.8 million, compared to operating income of $2.0 million in the prior fiscal year period. The decrease was primarily driven by higher Cost of goods sold due to the impact of inflationary pressures on product, freight and fulfillment costs as well as overall unfavorable economic conditions in Canada and the UK. This was partially offset by improved operating margin in Asia of approximately $3.0 million attributable to the exit from the direct sales business, which generated losses in the prior period.

~~Overhead~~

Unallocated overhead expense for the quarter ended ~~February 28,~~August 31, 2023 ~~decreased~~increased by ~~$11.3~~$10.5 million to ~~$21.3~~$30.7 million, from ~~$32.6~~$20.2 million in the prior year quarter. The ~~decrease~~increase was primarily attributable to insurance recoveries received and recognized in the quarter ended February 28, 2023 related to photo litigation settlements paid in prior periods and a benefit related to the favorable settlement of certain legacy sales tax matters. In addition, the Company recognizedhigher employee-related costs, which included severance ~~and related charges~~expense from its restructuring programs of ~~$2.4~~$5.1 million ~~in the prior fiscal year quarter which did not reoccur in the quarter ended February 28, 2023.~~

Unallocated overhead expense for the nine months ended February 28, 2023 decreased by $6.3 million to $68.3 million, from $74.6 million in the prior fiscal year period. The decrease was primarily attributable to insurance recoveries received and recognized in the quarter ended February 28, 2023 related to photo litigation settlements paid in prior periods and a benefit related to the ~~favorable settlement of certain legacy sales tax matters,~~reorganization efforts and cost-saving initiatives in the school reading events division and Education Solutions as well as ~~lower severance and related charges from the Company's restructuring programs of $5.0 million.~~higher medical expense. This was partially offset by ~~$6.6~~higher rental income of $1.0 million as a result of ~~insurance recoveries received and recognized~~a new tenant leasing space in the ~~period ended February 28, 2022 related to the intellectual property legal settlement accrued in fiscal 2021.~~Company's headquarters.

Seasonality


SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

Liquidity and Capital Resources

Cash ~~provided~~used by operating activities was ~~$28.9~~$38.1 million for the ~~nine~~three months ended ~~February 28,~~August 31, 2023, compared to cash ~~provided~~used by operating activities of ~~$178.5~~$60.3 million for the prior fiscal year period, representing a decrease in cash ~~provided~~used by operating activities of ~~$149.6~~$22.2 million. The decrease in cash ~~provided~~used was primarily driven by ~~increased~~lower inventory purchases ~~of approximately $114.0 million to mitigate long~~as lead times ~~related~~have returned to ~~continuing global supply chain challenges~~pre-pandemic levels resulting in ~~order~~a return to ~~meet expected demand. The decrease in cash provided~~historical purchasing patterns. This was ~~also impacted~~partially offset by ~~the $63.1 million federal income tax refund~~lower customer remittances on receivable balances in the ~~prior period,~~quarter ended August 31, 2023. The Company also paid higher severance in the quarter ended August 31, 2023 and increased spending on growth initiatives in Education Solutions as well as increased general expenses in the book fairs channel to support the expected increased fair count and lower cash remittances related to book fairs incentive credits and digital subscriptions. This was partially offset by higher customer remittances on receivable balances in the period ended February 28, 2023 of approximately $80.0 million.for fiscal 2024.

Cash used in investing activities was ~~$65.3~~$21.8 million for the ~~nine~~three months ended ~~February 28,~~August 31, 2023, compared to ~~$30.5~~cash used in investing activities of $16.2 million in the prior fiscal year period, representing an increase in cash used in investing activities of ~~$34.8~~$5.6 million. The increase in cash used was driven by ~~payments related to the Learning Ovations acquisition of $10.7 million,~~ higher capital expenditures of ~~$8.8~~$2.9 million, primarily for new point-of-sale and fleet equipment atfor the ~~Company's Jefferson City, Missouri distribution facility and~~ book fairs ~~warehouses to meet expected demand,~~channel, as well as increased prepublication spending of ~~$4.8~~$0.6 million associated with digital product development in Education Solutions. In addition, the ~~prior period included~~Company acquired the ~~net proceeds from~~remaining shares of Make Believe Ideas Limited for $2.1 million during the ~~sale of the Lake Mary facility of $10.4 million which occurred in the second~~ quarter ~~of fiscal 2022.~~ended August 31, 2023.

Cash used in financing activities was ~~$79.3~~$39.3 million for the ~~nine~~three months ended ~~February 28,~~August 31, 2023, compared to cash ~~used in~~provided by financing activities of ~~$202.9~~$1.6 million for the prior fiscal year period, representing ~~a decrease~~an increase in cash used in financing activities of ~~$123.6~~$40.9 million. The ~~decrease~~increase in cash used was ~~primarily related~~attributable to ~~repayments~~common stock repurchases of ~~borrowings under the U.S. credit agreement~~$35.9 million, compared to repurchases of ~~$175.0~~$4.7 million ~~during~~in the prior ~~period, coupled with an increase~~fiscal year quarter, a decrease in net proceeds from stock option exercises of ~~$8.8~~$8.3 million in the period ended ~~February 28, 2023. Partially offsetting this decrease, the Company repurchased $75.9 million~~August 31, 2023 and higher dividend payments of common stock, which included shares repurchased through a modified Dutch auction tender offer, during the second quarter of fiscal 2023, compared to common stock repurchases of $19.5 million in the prior fiscal year period.$1.4 million.

Cash Position

The Company’s cash and cash equivalents totaled ~~$198.8~~$125.8 million at ~~February 28,~~August 31, 2023, ~~$316.6~~$224.5 million at May 31, ~~2022~~2023 and ~~$308.9~~$239.7 million at ~~February 28,~~August 31, 2022. Cash and cash equivalents held by the Company’s U.S. operations totaled ~~$166.0~~$90.1 million at ~~February 28,~~August 31, 2023, ~~$275.5~~$174.6 million at May 31, ~~2022~~2023 and ~~$266.5~~$202.2 million at ~~February 28,~~August 31, 2022. 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. During the nine months ended February 28, 2023, the Company repurchased $78.0 million of its common stock, which included shares repurchased through a modified Dutch auction tender offer during the second quarter of fiscal 2023 and open-market repurchases. Under the Company's open-market buy-back program, ~~$28.2~~$85.7 million remained available for future purchases of common shares as of February 28, 2023. Subsequent to February 28, 2023, the Board authorized an increase of $50.0 million for common stock repurchases, resulting in a current Board authorization of $75.2 million, which includes the remaining amount from the previous Board authorization less share repurchases of $3.0 million subsequent to February 28,August 31, 2023.


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,~~August 31, 2023, the Company’s primary sources of liquidity consisted of cash and cash equivalents of ~~$198.8~~$125.8 million, cash from operations and the Company's U.S. credit agreement. The Company expects the U.S. credit agreement to provide it with an appropriate level of flexibility to strategically manage its business operations. The Company's U.S. credit agreement, less commitments of $0.4 million, has $299.6 million of availability. Additionally, the Company has short-term credit facilities of ~~$34.3~~$34.7 million, less current borrowings of


SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

~~$5.2~~ $5.9 million and commitments of ~~$3.7~~$3.4 million, resulting in $25.4 million of current availability under these facilities at ~~February 28,~~August 31, 2023. 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 as described in Note 54 of Notes to Condensed Consolidated Financial Statements - unaudited in Item 1, “Financial Statements." The Company had no outstanding borrowings under the U.S. credit agreement as of ~~February 28,~~August 31, 2023.~~On February 28, 2023, the Company entered into the First and Second Amendments to the U.S. credit agreement which adjusted the credit spread adjustment for~~ ~~SOFR (the secured overnight financing rate as administered by the Federal Reserve Bank of New York)~~ ~~to 0.10% and transitioned the reference rate from LIBOR (the~~ ~~London interbank offered rate)~~ ~~to SOFR. Reference is made to Note 1 and Note 5 of Notes to~~ ~~Condensed Consolidated Financial Statements - unaudited in Item 1, “Financial Statements for further details.~~

The Company is party to other loan agreements, notes or other documents or instruments which reference LIBOR as the benchmark interest rate index used to set the borrowing rate on certain short-term and variable-rate loans or advances. The ICE Benchmark Administration (IBA) ceased the publication of 1-week and 2-month USD LIBORs effective December 31, 2021 and will cease overnight, 1-month, 3-month, 6-month and 12-month LIBORs effective June 30, 2023. The Company is working with its financial institutions to replace USD LIBOR with alternative reference rates in financial contracts as they mature or as the Company otherwise requires.

The markets have provided several replacements for USD LIBOR, including the Bloomberg Short-Term Bank Yield Index (BSBY) and the ARRC’s SOFR, either of which will be made available to the Company by its agent banks as a substitute for USD LIBOR. The Company does not believe that the change in reference rates will have any material effect on its ability to access the credit markets under its existing financing agreements, or its ability to modify or amend financial contracts, if required.

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, ~~2022.~~2023.

~~Forward Looking~~Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. Additional written and oral forward-looking statements may be made by the Company from time to time in Securities and Exchange Commission ("SEC") filings and otherwise. The Company cautions readers that results or expectations expressed by forward-looking statements, including, without limitation, those relating to the Company’s future business prospects and strategic plans, ecommerce and digital initiatives, new product introductions, strategies, new education standards, goals, revenues, improved efficiencies, general operating costs, including transportation and labor costs and the extent such costs are impacted by inflationary pressures, manufacturing costs, medical costs, potential cost savings, merit pay, operating margins, working capital, liquidity, capital needs, the cost and timing of capital projects, interest costs, cash flows and income, are subject to risks and uncertainties, which may have an impact on the Company's operations and could cause actual results to differ materially from those indicated in the forward-looking statements, due to factors including those noted in the Annual Report and this Quarterly Report and other risks and factors identified from time to time in the Company’s filings with the SEC. The Company disclaims any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

3223


SCHOLASTIC CORPORATION Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company conducts its business in various foreign countries, and as such, its cash flows and earnings are subject to fluctuations from changes in foreign currency exchange rates. The Company sells products from its domestic operations to its foreign subsidiaries, creating additional currency risk. The Company manages its exposures to this market risk through internally established procedures and, when deemed appropriate, through the use of short-term forward exchange contracts, which were not significant as of ~~February 28,~~August 31, 2023. The Company does not enter into derivative transactions or use other financial instruments for trading or speculative purposes.

Market risks relating to the Company’s operations result primarily from changes in interest rates in its variable-rate borrowings. The Company is subject to the risk that market interest rates and its cost of borrowing will increase and thereby increase the interest charged under its variable-rate debt.

Additional information relating to the Company’s outstanding financial instruments is included in Note 54 of Notes to Condensed Consolidated Financial Statements - unaudited in Item 1, “Financial Statements.”

The following table sets forth information about the Company’s debt instruments as of ~~February 28,~~August 31, 2023:


($ amounts in millions)	($ amounts in millions)	Fiscal Year Maturity																	($ amounts in millions)	Fiscal Year Maturity
		2023(1)			2024		2025		2026		2027		Thereafter		Total		Fair Value at 02/28/2023			2024 (1)			2025		2026		2027		2028		Thereafter		Total		Fair Value at 08/31/2023
Debt Obligations	Debt Obligations																		Debt Obligations
Lines of credit and current portion of long-term debt	Lines of credit and current portion of long-term debt	$	5.2		$	—	$	—	$	—	$	—	$	—	$	5.2	$	5.2	Lines of credit and current portion of long-term debt	$	5.9		$	—	$	—	$	—	$	—	$	—	$	5.9	$	5.9
Average interest rate	Average interest rate	5.0		%	—		—		—		—		—						Average interest rate	4.4		%	—		—		—		—		—

(1) Fiscal ~~2023~~2024 includes the remaining ~~three~~nine months of the current fiscal year ending May 31, ~~2023.~~2024.

3324


SCHOLASTIC CORPORATION Item 4. Controls and Procedures

The Chief Executive Officer and the Chief Financial Officer of the Corporation, after conducting an evaluation, together with other members of the Company’s management, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as of ~~February 28,~~August 31, 2023, have concluded that the Corporation’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Corporation in its reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and accumulated and communicated to members of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. There was no change in the Corporation’s internal control over financial reporting that occurred during the quarter ended ~~February 28,~~August 31, 2023 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

3425

PART II – OTHER INFORMATION

SCHOLASTIC CORPORATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information with respect to repurchases of shares of Common Stock by the Corporation during the three months ended ~~February 28,~~August 31, 2023:

Issuer Purchases of Equity Securities

(Dollars in millions, except per share amounts)
Period Total number of
shares purchased Average
price paid
per share Total number of shares
purchased as part of publicly
announced plans or
programs
Maximum number of shares (or
approximate dollar value) that may yet be purchased under the plans or programs (i)
December 1 through December 31, 2022 202,749 39.25 202,749 $67.0
January 1 through January 31, 2023 472,124 42.10 472,124 47.2
February 1 through February 28, 2023 417,773 45.42 417,773 28.2
Total 1,092,646 1,092,646 $28.2


Period	Total number of shares purchased	Average price paid per share	Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares (or approximate dollar value) that may yet be purchased under the plans or programs (i)
June 1 through June 30, 2023	55,291	$43.39	55,291	$19.2
July 1 through July 31, 2023	136,881	43.81	136,881	113.2
August 1 through August 31, 2023	626,255	43.94	626,255	85.7
Total	818,427		818,427	$85.7

(i) Represents the amount remaining at ~~the respective period end. At February 28,~~August 31, 2023 ~~$28.2 remained~~ under the ~~$48.8~~current $100.0 Board authorization for Common share repurchases announced on ~~December 14, 2022,~~July 19, 2023, which is available for further repurchases, from time to time as conditions allow, on the open market or through privately negotiated transactions. See Note 1312 of Notes to Condensed Consolidated Financial Statements - unaudited in Item 1, “Financial Statements,” for a description of the Company’s share buy-back program and share repurchase authorizations. Subsequent to February 28, 2023, the Board authorized an additional $50.0, resulting in a current authorization of $75.2, for Common share repurchases, which includes the remaining $28.2 from the previous Board authorization less share repurchases of $3.0 subsequent to February 28, 2023.

3526

SCHOLASTIC CORPORATION

Item 6. Exhibits

Exhibits:


~~10.1~~			Amended and Restated Credit Agreement dated as of October 27, 2021 (the “Credit Agreement”) among Scholastic Corporation and Scholastic Inc., as Borrowers, the lenders from time to time party thereto, Wells Fargo Bank, National Association and Truist Bank as Co-Syndication Agents, Fifth Third Bank, National Association, HSBC Bank USA, National Association, and Citibank, N.A. as Co-Agents and Bank of America, N.A., as Administrative Agent (supersedes and replaces Exhibit 10.1 to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on December 17, 2021, SEC File No. 000-19860).

~~10.2~~			~~First Amendment, dated as of February 28,2023to the Amended and Restated Credit Agreement dated as of October 27, 2021 (the “Credit Agreement”)~~ ~~by and between Scholastic Corporation and Scholastic Inc.,~~ ~~the lenders from time to time party thereto,~~ ~~and Bank of America, N.A., as administrative agent.~~

~~10.3~~			~~Second Amendment, dated as of February 28,2023~~ ~~to the Amended and Restated Credit Agreement dated as of October 27, 2021 (the “Credit Agreement”)~~ ~~by and between Scholastic Corporation and Scholastic Inc.,~~ ~~the lenders from time to time party thereto,~~ ~~and Bank of America, N.A., as administrative agent.~~

31.1			Certification of the Chief Executive Officer of Scholastic Corporation filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of the Chief Financial Officer of Scholastic Corporation filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32			Certifications of the Chief Executive Officer and Chief Financial Officer of Scholastic Corporation furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101			Financial Statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended ~~February 28,~~August 31, 2023 formatted in Inline Extensible Business Reporting Language: (i) Condensed Consolidated Statements of Operations; (ii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Changes in Stockholders' Equity; (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements.

104			Cover Page, formatted in Inline Extensible Business Reporting Language and contained in Exhibit 101.

3627

SCHOLASTIC CORPORATION

QUARTERLY REPORT ON FORM 10-Q, DATED ~~February 28,~~August 31, 2023

Exhibits Index


Exhibit Number			Description of Document

~~10.1~~			Amended and Restated Credit Agreement dated as of October 27, 2021 (the “Credit Agreement”) among Scholastic Corporation and Scholastic Inc., as Borrowers, the lenders from time to time party thereto, Wells Fargo Bank, National Association and Truist Bank as Co-Syndication Agents, Fifth Third Bank, National Association, HSBC Bank USA, National Association, and Citibank, N.A. as Co-Agents and Bank of America, N.A., as Administrative Agent (supersedes and replaces Exhibit 10.1 to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on December 17, 2021, SEC File No. 000-19860).

~~10.2~~			First Amendment, dated as of February 28, 2023 to the Amended and Restated Credit Agreement dated as of October 27, 2021 (the “Credit Agreement”) by and between Scholastic Corporation and Scholastic Inc., the lenders from time to time party thereto, and Bank of America, N.A., as administrative agent.

~~10.3~~			Second Amendment, dated as of February 28,2023 to the Amended and Restated Credit Agreement dated as of October 27, 2021 (the “Credit Agreement”) by and between Scholastic Corporation and Scholastic Inc., the lenders from time to time party thereto, and Bank of America, N.A., as administrative agent.

31.1			Certification of the Chief Executive Officer of Scholastic Corporation filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of the Chief Financial Officer of Scholastic Corporation filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32			Certifications of the Chief Executive Officer and Chief Financial Officer of Scholastic Corporation furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101			Financial Statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended ~~February 28,~~August 31, 2023 formatted in Inline Extensible Business Reporting Language: (i) Condensed Consolidated Statements of Operations; (ii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Changes in Stockholders' Equity; (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements.

104			Cover Page, formatted in Inline Extensible Business Reporting Language and contained in Exhibit 101.

3728

SCHOLASTIC CORPORATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		SCHOLASTIC CORPORATION
		(Registrant)

Date: ~~March 24,~~September 22, 2023	By:	/s/ Peter Warwick


		Peter Warwick
		President and Chief Executive Officer (Principal Executive Officer)

Date: ~~March 24,~~September 22, 2023	By:	/s/ Kenneth J. Cleary


		Kenneth J. Cleary
		Chief Financial Officer (Principal Financial Officer)

3829


	Three months ended February 28, 2023
	Foreign currency translation adjustments		Retirement benefit plans		Total
Beginning balance at December 1, 2022	$	(51.2)	$	(0.9)	$	(52.1)
Other comprehensive income (loss) before reclassifications		(1.0)		—		(1.0)
Less amount reclassified from Accumulated other comprehensive income (loss):
Amortization of net actuarial loss (net of tax of $0.0)		—		0.2		0.2
Amortization of prior service (credit) cost (net of tax of $0.1)		—		(0.2)		(0.2)


Other comprehensive income (loss)		(1.0)		0.0		(1.0)
Ending balance at February 28, 2023	$	(52.2)	$	(0.9)	$	(53.1)

	Three months ended February 28, 2022
	Foreign currency translation adjustments		Retirement benefit plans		Total
Beginning balance at December 1, 2021	$	(40.3)	$	(4.0)	$	(44.3)
Other comprehensive income (loss) before reclassifications (net of tax of $0.0)		1.6		—		1.6
Less amount reclassified from Accumulated other comprehensive income (loss):
Amortization of net actuarial loss (net of tax of $0.0)		—		0.2		0.2

Amortization of prior service (credit) cost (net of tax of $0.0)		—		(0.2)		(0.2)

Other comprehensive income (loss)		1.6		0.0		1.6
Ending balance at February 28, 2022	$	(38.7)	$	(4.0)	$	(42.7)


	Nine months ended February 28, 2023
	Foreign currency translation adjustments		Retirement benefit plans		Total
Beginning balance at June 1, 2022	$	(44.6)	$	(0.8)	$	(45.4)
Other comprehensive income (loss) before reclassifications		(7.6)		—		(7.6)
Less amount reclassified from Accumulated other comprehensive income (loss):
Amortization of net actuarial (gain) loss (net of tax of $0.0)		—		0.4		0.4
Amortization of prior service (credit) cost (net of tax of $0.2)		—		(0.5)		(0.5)


Other comprehensive income (loss)		(7.6)		(0.1)		(7.7)
Ending balance at February 28, 2023	$	(52.2)	$	(0.9)	$	(53.1)

	Nine months ended February 28, 2022
	Foreign currency translation adjustments		Retirement benefit plans		Total
Beginning balance at June 1, 2021	$	(30.1)	$	(4.6)	$	(34.7)
Other comprehensive income (loss) before reclassifications (net of tax of $(0.1))		(8.6)		0.5		(8.1)
Less amount reclassified from Accumulated other comprehensive income (loss):
Amortization of net actuarial (gain) loss (net of tax of $0.0)		—		0.6		0.6

Amortization of prior service (credit) cost (net of tax of $0.1)		—		(0.5)		(0.5)

Other comprehensive income (loss)		(8.6)		0.6		(8.0)
Ending balance at February 28, 2022	$	(38.7)	$	(4.0)	$	(42.7)