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

August 31, ~~2020~~2021

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 August 31, ~~2020~~2021
Common Stock, ~~$.01~~$0.01 par value						~~32,547,090~~32,753,797
Class A Stock, ~~$.01~~$0.01 par value						1,656,200

SCHOLASTIC CORPORATION

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED AUGUST 31, ~~2020~~2021

INDEX

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								Three months ended
		August 31,			August 31,				August 31,			August 31,
		2020			2019				2021			2020
Revenues	Revenues	$	215.2	$	232.6	Revenues	$	259.8		$	215.2
Operating costs and expenses:	Operating costs and expenses:					Operating costs and expenses:
Cost of goods sold	Cost of goods sold		123.2		137.1	Cost of goods sold		133.3			115.0
Selling, general and administrative expenses	Selling, general and administrative expenses		121.5		163.1	Selling, general and administrative expenses		143.6			141.7
Depreciation and amortization	Depreciation and amortization		15.5		15.4	Depreciation and amortization		14.9			15.5
Severance			12.0		4.4

Total operating costs and expenses	Total operating costs and expenses		272.2		320.0	Total operating costs and expenses		291.8			272.2
Operating income (loss)	Operating income (loss)		(57.0)		(87.4)	Operating income (loss)		(32.0)			(57.0)
Interest income (expense), net	Interest income (expense), net		(1.2)		0.7	Interest income (expense), net		(1.3)			(1.2)
Other components of net periodic benefit (cost)	Other components of net periodic benefit (cost)		(0.2)		(0.4)	Other components of net periodic benefit (cost)		0.0			(0.2)
Gain (loss) on sale of assets and other	Gain (loss) on sale of assets and other		6.6		0	Gain (loss) on sale of assets and other		—			6.6
Earnings (loss) before income taxes	Earnings (loss) before income taxes		(51.8)		(87.1)	Earnings (loss) before income taxes		(33.3)			(51.8)
Provision (benefit) for income taxes	Provision (benefit) for income taxes		(12.0)		(28.6)	Provision (benefit) for income taxes		(8.9)			(12.0)
Net income (loss)	Net income (loss)		(39.8)		(58.5)	Net income (loss)		(24.4)			(39.8)
Less: Net income (loss) attributable to noncontrolling interest	Less: Net income (loss) attributable to noncontrolling interest		0.0		0.0	Less: Net income (loss) attributable to noncontrolling interest		(0.2)			0.0
Net income (loss) attributable to Scholastic Corporation	Net income (loss) attributable to Scholastic Corporation	$	(39.8)	$	(58.5)	Net income (loss) attributable to Scholastic Corporation	$	(24.2)		$	(39.8)
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	$	(1.16)	$	(1.68)	Basic	$	(0.70)		$	(1.16)
Diluted	Diluted	$	(1.16)	$	(1.68)	Diluted	$	(0.70)		$	(1.16)

See accompanying notes


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


		Three months ended								Three months ended
		August 31,			August 31,				August 31,			August 31,
		2020			2019				2021			2020
Net income (loss)	Net income (loss)	$	(39.8)	$	(58.5)	Net income (loss)	$	(24.4)		$	(39.8)
Other comprehensive income (loss), net:	Other comprehensive income (loss), net:					Other comprehensive income (loss), net:
Foreign currency translation adjustments	Foreign currency translation adjustments		10.7		(2.0)	Foreign currency translation adjustments		(5.8)			10.7
Pension and postretirement adjustments (net of tax)	Pension and postretirement adjustments (net of tax)		0.1		0.2	Pension and postretirement adjustments (net of tax)		0.1			0.1
Total other comprehensive income (loss), net	Total other comprehensive income (loss), net	$	10.8	$	(1.8)	Total other comprehensive income (loss), net	$	(5.7)		$	10.8
Comprehensive income (loss)	Comprehensive income (loss)	$	(29.0)	$	(60.3)	Comprehensive income (loss)	$	(30.1)		$	(29.0)
Less: Net income (loss) attributable to noncontrolling interest	Less: Net income (loss) attributable to noncontrolling interest		0.0		0.0	Less: Net income (loss) attributable to noncontrolling interest		(0.2)			0.0
Comprehensive income (loss) attributable to Scholastic Corporation	Comprehensive income (loss) attributable to Scholastic Corporation	$	(29.0)	$	(60.3)	Comprehensive income (loss) attributable to Scholastic Corporation	$	(29.9)		$	(29.0)

See accompanying notes


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


									August 31, 2021			May 31, 2021			August 31, 2020
		August 31, 2020 (unaudited)			May 31, 2020 (audited)			August 31, 2019 (unaudited)			(unaudited)			(audited)			(unaudited)
ASSETS	ASSETS							ASSETS
Current Assets:	Current Assets:							Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	355.5	$	393.8	$	199.4	Cash and cash equivalents	$	308.6		$	366.5		$	355.5
Accounts receivable, net	Accounts receivable, net		219.6		239.8		226.1	Accounts receivable, net		244.3			256.1			219.6
Inventories, net	Inventories, net		323.2		270.6		403.6	Inventories, net		298.1			269.7			323.2
Income tax receivable	Income tax receivable		103.2		90.0		39.4	Income tax receivable		35.4			88.8			103.2
Prepaid expenses and other current assets	Prepaid expenses and other current assets		53.7		41.1		70.3	Prepaid expenses and other current assets		71.7			47.2			53.7
Total current assets	Total current assets		1,055.2		1,035.3		938.8	Total current assets		958.1			1,028.3			1,055.2
Noncurrent Assets:	Noncurrent Assets:							Noncurrent Assets:
Property, plant and equipment, net	Property, plant and equipment, net		573.0		576.9		579.9	Property, plant and equipment, net		550.6			556.9			573.0
Prepublication costs, net	Prepublication costs, net		69.7		70.6		71.1	Prepublication costs, net		63.0			65.7			69.7
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net		96.4		95.3		81.7	Operating lease right-of-use assets, net		71.7			78.6			96.4
Royalty advances, net	Royalty advances, net		42.0		39.9		50.0	Royalty advances, net		47.8			43.8			42.0
Goodwill	Goodwill		125.6		124.9		125.0	Goodwill		125.9			126.3			125.6
Noncurrent deferred income taxes	Noncurrent deferred income taxes		19.1		18.6		36.8	Noncurrent deferred income taxes		25.1			25.4			19.1
Other assets and deferred charges	Other assets and deferred charges		75.3		72.1		61.3	Other assets and deferred charges		83.1			83.3			75.3
Total noncurrent assets	Total noncurrent assets		1,001.1		998.3		1,005.8	Total noncurrent assets		967.2			980.0			1,001.1
Total assets	Total assets	$	2,056.3	$	2,033.6	$	1,944.6	Total assets	$	1,925.3		$	2,008.3		$	2,056.3

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	$	19.9	$	7.9	$	13.0	Lines of credit and current portion of long-term debt	$	89.5		$	182.9		$	19.9
Accounts payable	Accounts payable		168.3		153.6		226.4	Accounts payable		185.6			138.0			168.3
Accrued royalties	Accrued royalties		56.2		37.8		63.3	Accrued royalties		65.8			45.5			56.2
Deferred revenue	Deferred revenue		127.6		116.5		142.3	Deferred revenue		125.5			99.1			127.6
Other accrued expenses	Other accrued expenses		166.6		161.5		155.6	Other accrued expenses		168.2			202.0			166.6
Accrued income taxes	Accrued income taxes		1.8		1.4		0.7	Accrued income taxes		3.2			3.0			1.8
Operating lease liabilities	Operating lease liabilities		23.1		22.8		24.1	Operating lease liabilities		23.8			25.0			23.1
Total current liabilities	Total current liabilities		563.5		501.5		625.4	Total current liabilities		661.6			695.5			563.5
Noncurrent Liabilities:	Noncurrent Liabilities:							Noncurrent Liabilities:
Long-term debt	Long-term debt		200.0		210.6		0	Long-term debt		—			7.3			200.0
Operating lease liabilities	Operating lease liabilities		77.1		75.7		61.1	Operating lease liabilities		60.0			67.4			77.1
Other noncurrent liabilities	Other noncurrent liabilities		68.3		65.2		61.4	Other noncurrent liabilities		54.1			55.8			68.3
Total noncurrent liabilities	Total noncurrent liabilities		345.4		351.5		122.5	Total noncurrent liabilities		114.1			130.5			345.4
Commitments and Contingencies (see Note 5)	Commitments and Contingencies (see Note 5)		0		0		0	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, NaN		$	0	$	0	$	0
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, 32.5, 32.5, and 33.1 shares, respectively			0.4		0.4		0.4
Common Stock, $0.01 par value: Authorized, 70.0 shares; Issued, 42.9 shares; Outstanding, 32.8, 32.7, and 32.5 shares, respectively								Common Stock, $0.01 par value: Authorized, 70.0 shares; Issued, 42.9 shares; Outstanding, 32.8, 32.7, and 32.5 shares, respectively		0.4			0.4			0.4
Additional paid-in capital	Additional paid-in capital		622.8		622.4		622.2	Additional paid-in capital		627.6			626.5			622.8
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)		(47.5)		(58.3)		(61.5)	Accumulated other comprehensive income (loss)		(40.4)			(34.7)			(47.5)
Retained earnings	Retained earnings		903.1		948.0		948.9	Retained earnings		887.0			916.4			903.1
Treasury stock, at cost: 10.4, 10.4 and 9.8 shares, respectively			(332.8)		(333.3)		(314.6)
Treasury stock, at cost: 10.2, 10.2 and 10.4 shares, respectively								Treasury stock, at cost: 10.2, 10.2 and 10.4 shares, respectively		(326.3)			(327.8)			(332.8)
Total stockholders’ equity of Scholastic Corporation	Total stockholders’ equity of Scholastic Corporation		1,146.0		1,179.2		1,195.4	Total stockholders’ equity of Scholastic Corporation		1,148.3			1,180.8			1,146.0
Noncontrolling interest	Noncontrolling interest		1.4		1.4		1.3	Noncontrolling interest		1.3			1.5			1.4
Total stockholders’ equity	Total stockholders’ equity		1,147.4		1,180.6		1,196.7	Total stockholders’ equity		1,149.6			1,182.3			1,147.4
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	2,056.3	$	2,033.6	$	1,944.6	Total liabilities and stockholders’ equity	$	1,925.3		$	2,008.3		$	2,056.3

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					Total Stockholders' Equity of Scholastic Corporation										Noncontrolling Interest			Total Stockholders' Equity
Balance at June 1, 2019		1.7	$	0.0	33.4	$	0.4	$	620.8	$	(59.7)								$	1,012.6						$	(302.6)				$	1,271.5			$	1.3			$	1,272.8
Balance at June 1, 2020																										Balance at June 1, 2020		1.7			$	0.0	32.5				$	0.4			$	622.4							$	(58.3)				$	948.0				$	(333.3)				$	1,179.2				$	1.4		$	1,180.6
Net Income (loss)	Net Income (loss)	—	—		—	—		—		—			(58.5)		—		(58.5)				0.0			(58.5)		Net Income (loss)		—			—		—					—				—			—			(39.8)					—					(39.8)					0.0					(39.8)
Foreign currency translation adjustment	Foreign currency translation adjustment	—	—		—	—		—		(2.0)			—		—		(2.0)				—			(2.0)		Foreign currency translation adjustment		—			—		—				—				—		10.7			—					—					10.7					—					10.7
Pension and post-retirement adjustments (net of tax of $0.0)	Pension and post-retirement adjustments (net of tax of $0.0)	—	—		—	—		—		0.2			—		—		0.2				—			0.2		Pension and post-retirement adjustments (net of tax of $0.0)		—			—		—				—				—		0.1			—					—					0.1					—					0.1
Stock-based compensation	Stock-based compensation	—	—		—	—		1.5		—			—		—		1.5				—			1.5		Stock-based compensation		—			—		—				—				0.6		—			—					—					0.6					—					0.6

Purchases of treasury stock at cost		—	—		(0.3)	—		—		—			—		(12.6)		(12.6)				—			(12.6)

Treasury stock issued pursuant to equity-based plans	Treasury stock issued pursuant to equity-based plans	—	—		0.0	—		(0.1)		—			—		0.6		0.5				—			0.5		Treasury stock issued pursuant to equity-based plans		—			—		0.0				—				(0.2)		—			—					0.5					0.3					—					0.3
Dividends ($0.15 per share)	Dividends ($0.15 per share)	—	—		—	—		—		—			(5.2)		—		(5.2)				—			(5.2)		Dividends ($0.15 per share)		—			—		—				—				—		—			(5.1)					—					(5.1)					—					(5.1)

Balance at August 31, 2019		1.7	$	0.0	33.1	$	0.4	$	622.2	$	(61.5)		$	948.9	$	(314.6)	$	1,195.4			$	1.3		$	1,196.7
Balance at August 31, 2020																										Balance at August 31, 2020		1.7			$	0.0	32.5				$	0.4			$	622.8	$	(47.5)		$	903.1				$	(332.8)				$	1,146.0				$	1.4				$	1,147.4

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
Balance at June 1, 2020 1.7 $ 0.0 32.5 $ 0.4 $ 622.4 $ (58.3) $ 948.0 $ (333.3) $ 1,179.2 $ 1.4 $ 1,180.6
Net Income (loss) — — — — — — (39.8) — (39.8) 0.0 (39.8)
Foreign currency translation adjustment — — — — — 10.7 — — 10.7 — 10.7
Pension and post-retirement adjustments (net of tax of $0.0) — — — — — 0.1 — — 0.1 — 0.1
Stock-based compensation — — — — 0.6 — — — 0.6 — 0.6
Purchases of treasury stock at cost — — 0 — — — — 0 0 — 0
Treasury stock issued pursuant to equity-based plans — — 0.0 — (0.2) — — 0.5 0.3 — 0.3
Dividends ($0.15 per share) — — — — — — (5.1) — (5.1) — (5.1)
Balance at August 31, 2020 1.7 $ 0.0 32.5 $ 0.4 $ 622.8 $ (47.5) $ 903.1 $ (332.8) $ 1,146.0 $ 1.4 $ 1,147.4



	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
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
Net Income (loss)	—	—		—	—			—			—		(24.2)			—			(24.2)		(0.2)		(24.4)
Foreign currency translation adjustment	—	—		—	—			—			(5.8)		—			—			(5.8)		—		(5.8)
Pension and post-retirement adjustments (net of tax of $0.1)	—	—		—	—			—			0.1		—			—			0.1		—		0.1
Stock-based compensation	—	—		—	—			1.5			—		—			—			1.5		—		1.5
Proceeds pursuant to stock-based compensation plans	—	—		—	—			0.5			—		—			—			0.5		—		0.5

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

See accompanying notes


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


		Three months ended								Three months ended
		August 31,			August 31,				August 31,			August 31,
		2020			2019				2021			2020
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	$	(39.8)	$	(58.5)	Net income (loss) attributable to Scholastic Corporation	$	(24.2)		$	(39.8)
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		1.4		1.6	Provision for losses on accounts receivable		1.6			1.4
Provision for losses on inventory	Provision for losses on inventory		2.9		4.1	Provision for losses on inventory		4.5			2.9
Provision for losses on royalty advances	Provision for losses on royalty advances		1.3		1.1	Provision for losses on royalty advances		0.9			1.3
Amortization of prepublication costs	Amortization of prepublication costs		6.3		6.4	Amortization of prepublication costs		6.8			6.3
Depreciation and amortization	Depreciation and amortization		16.4		16.1	Depreciation and amortization		16.4			16.4
Amortization of pension and postretirement actuarial gains and losses			0.1		0.2
Amortization of pension and postretirement plans						Amortization of pension and postretirement plans		(0.0)			0.1
Deferred income taxes	Deferred income taxes		0.1		0.1	Deferred income taxes		0.0			0.1
�� Stock-based compensation			0.6		1.5
Stock-based compensation						Stock-based compensation		1.5			0.6
Income from equity-method investments	Income from equity-method investments		(0.8)		(1.0)	Income from equity-method investments		(1.1)			(0.8)

(Gain) loss on sale of assets	(Gain) loss on sale of assets		(6.6)		0	(Gain) loss on sale of assets		—			(6.6)
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		23.3		21.5	Accounts receivable		8.1			23.3
Inventories	Inventories		(50.0)		(85.3)	Inventories		(35.6)			(50.0)
Prepaid expenses and other current assets	Prepaid expenses and other current assets		(12.0)		(28.1)	Prepaid expenses and other current assets		(25.1)			(12.0)
Income tax receivable	Income tax receivable		(13.0)		(29.1)	Income tax receivable		53.4			(13.0)
Royalty advances	Royalty advances		(2.8)		(3.8)	Royalty advances		(5.2)			(2.8)
Accounts payable	Accounts payable		13.9		32.2	Accounts payable		48.9			13.9
Accrued income taxes	Accrued income taxes		0.3		(0.8)	Accrued income taxes		0.3			0.3
Accrued royalties	Accrued royalties		17.5		21.7	Accrued royalties		20.8			17.5
Deferred revenue	Deferred revenue		10.1		11.8	Deferred revenue		26.9			10.1
Other assets and liabilities			4.8		(9.3)
Other accrued expenses						Other accrued expenses		(32.5)			3.9
Other, net						Other, net		(2.8)			0.9
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities		(26.0)		(97.6)	Net cash provided by (used in) operating activities		63.6			(26.0)

Cash flows - investing activities:	Cash flows - investing activities:					Cash flows - investing activities:
Prepublication expenditures	Prepublication expenditures		(5.2)		(7.4)	Prepublication expenditures		(4.3)			(5.2)
Additions to property, plant and equipment	Additions to property, plant and equipment		(16.0)		(13.5)	Additions to property, plant and equipment		(10.2)			(16.0)
Net proceeds from sale of assets	Net proceeds from sale of assets		12.3		0	Net proceeds from sale of assets		—			12.3
Acquisition of land			0		(3.3)
Other investment and acquisition-related payments			0		(0.1)

Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities		(8.9)		(24.3)	Net cash provided by (used in) investing activities		(14.5)			(8.9)

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		2.2		8.1	Borrowings under lines of credit, credit agreement and revolving loan		0.9			2.2
Repayments of lines of credit, credit agreement and revolving loan	Repayments of lines of credit, credit agreement and revolving loan		(3.8)		(1.9)	Repayments of lines of credit, credit agreement and revolving loan		(101.3)			(3.8)
Repayment of capital lease obligations	Repayment of capital lease obligations		(0.5)		(0.4)	Repayment of capital lease obligations		(0.6)			(0.5)
Reacquisition of common stock			0		(12.6)

Proceeds pursuant to stock-based compensation plans						Proceeds pursuant to stock-based compensation plans		0.5			—
Payment of dividends	Payment of dividends		(5.1)		(5.3)	Payment of dividends		(5.2)			(5.1)
Other	Other		1.9		(0.2)	Other		0.1			1.9
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities		(5.3)		(12.3)	Net cash provided by (used in) financing activities		(105.6)			(5.3)

Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents		1.9		(0.5)	Effect of exchange rate changes on cash and cash equivalents		(1.4)			1.9

Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents		(38.3)		(134.7)	Net increase (decrease) in cash and cash equivalents		(57.9)			(38.3)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period		393.8		334.1	Cash and cash equivalents at beginning of period		366.5			393.8
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	355.5	$	199.4	Cash and cash equivalents at end of period	$	308.6		$	355.5

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 ~~2021~~2022 relate to the twelve-month period ending May 31, ~~2021.~~ 2022.

Certain prior period amounts have been reclassified to conform with the current year presentation.

Noncontrolling Interest

The Company owns a 95.0% majority ownership interest in Make Believe Ideas Limited ("MBI"), a UK-based children's book publishing company. The founder and chief executive officer of MBI retains a 5.0% noncontrolling ownership interest in MBI. The Company fully consolidated MBI as of the acquisition date, and the 5.0% noncontrolling interest is 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, ~~2020.~~2021. 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 Solutionsbusinesses 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 first and fourth quarters. Trade sales can vary throughout the year due to varying release dates of published titles. While the Company generally experiences a loss from operations in the first and third quarters of each fiscal year, the second quarter of fiscal 2021, ending November 30, 2020, which is traditionally an income quarter, is expected to be negatively impacted by the COVID-19 pandemic. Presently, there ~~are many~~remain uncertainties concerning the timing of and any patterns which may emerge ~~from,~~with respect to school ~~re-openings~~instruction, whether in-school, remote or hybrid for the ~~new~~ school year, and the nature and continuing magnitude of the negative impact of COVID-19 into and beyond the second quarter of fiscal ~~2021 will depend on the actual timing and emerging patterns of such re-openings throughout the United States.~~2022.

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 ~~doubtful accounts~~credit losses

•Pension and postretirement benefit plans

•Uncertain tax positions

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

•Inventory reserves


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

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

•Sales tax contingencies

•Royalty advance reserves and royalty expense accruals

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


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

During the first quarter of fiscal 2021, the ~~Company sold the~~ company-owned facility located in Danbury, Connecticut was sold and the Company relocated the book fairs warehousing and distribution operations conducted in Danbury to a warehouse in ~~Allentown,~~Easton, Pennsylvania. The long-lived assets related to the Danbury facility, which consisted of land, building, and building improvements, were included in the Overhead segment. These assets had a carrying value of $5.7 and were classified as held for sale ~~for~~as of the fiscal year ended May 31, 2020. The net proceeds from the sale were $12.3 and the Company recognized a gain on sale of $6.6. This amount is included within Gain (loss) on sale of assets and other within the Company's Condensed Consolidated Statements of Operations.

Assets Held For Sale

~~The~~During the third quarter of fiscal 2021, the Company committed to a plan to sell the office building located in Lake Mary, Florida and relocate to a leased office space as part of the initiative to reduce future operating costs. These assets are included in the Children's Book Publishing and Distribution segment. During the third quarter of fiscal 2020, the Company committed to a plan to sell the UK distribution ~~centers~~center located in Witney ~~and Southam~~ to consolidate the operations into a new facility in ~~Warwickshire which is currently under construction.~~Warwickshire. These assets are included in the International segment. The Company expects the sale of these facilities to ~~be completed within one year and to recognize~~result in a gain on sale. The long-lived assets which consist of land, building, and building improvements are classified as held for sale. These assets are carried at the lower of carrying value or fair value less costs to sell and no additional depreciation is being recognized. As of August 31, ~~2020,~~2021, the carrying amounts ~~totaled $3.3~~were $4.1 and $2.2 for the Lake Mary and Witney facilities, respectively, which are included in Property, plant and equipment, net within the Company's Condensed Consolidated Balance Sheets.

New Accounting Pronouncements

There were no new accounting pronouncements issued in the first quarter of fiscal 2022 which would impact the Company. Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2021 for more information on current applicable authoritative guidance and its impact on the Company's financial statements.

Current Fiscal ~~Quarter~~Year Adoptions:

ASU No. ~~2016-13~~2019-12

In June 2016, the FASB issued ASU No. 2016-13, "Measurement of Credit Losses on Financial Instruments" (ASU 2016-13). ASU 2016-13, which was further updated and clarified by the FASB through the issuance of additional related ASUs, amends the guidance surrounding measurement and recognition of credit losses on financial assets measured at amortized cost, including trade receivables and debt securities, by requiring recognition of an allowance for credit losses expected to be incurred over an asset's lifetime based on relevant information about past events, current conditions, and supportable forecasts impacting its ultimate collectability. This "expected loss" model may result in earlier recognition of credit losses than the current "as incurred" model, under which losses were recognized only upon an occurrence of an event that gave rise to the incurrence of a probable loss. The Company adopted ASU ~~2016-13~~No. 2019-12 as of the beginning of the first quarter of fiscal ~~2021~~2022 which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. Most amendments within ASU No. 2019-12 are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company adopted the applicable amendments of the ASU using the modified retrospective basis for those amendments that are not applied on a prospective basis. The adoption of ASU No. 2019-12 did not have a material impact on the ~~Company’s~~Company's Condensed Consolidated Financial Statements. ~~Refer to Note 2, Revenues, for further discussion of the Company's accounting policy and disclosures related to the allowance for credit losses.~~

~~ASU No. 2017-04~~Prior Period Adjustments

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which removes step two from the goodwill impairment test (comparison of implied fair value of goodwill with the carrying amount of that goodwill for a reporting unit). Instead, an entity will measure its goodwill impairment by the amount the carrying value exceeds the fair value of a reporting unit. The Company adopted ASU 2017-04 as of the beginning of

During the first quarter of fiscal 2022, the Company determined that it is more appropriate for certain editorial costs to be included in Selling, general and administrative expenses rather than Cost of goods sold based on the nature of these costs and how management views the business. As a result of this error in classification, Cost of goods sold was overstated and Selling, general and administrative expenses were understated by $37.8 as of May 31, 2021 ~~which~~and $41.7 as of May 31, 2020.


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

In accordance with the provisions of SEC Staff Accounting Bulletin No. 108, the Company assessed the impact of these adjustments on prior period financial statements and concluded that these errors were not material individually or in the aggregate to any of the prior reporting periods.

To conform the prior periods to the current period presentation, the Company has adjusted the statement of operations for the periods ended May 31, 2021 and May 31, 2020 for the correction of the error and will make adjustments for future Form 10-Q and 10-K filings that include financial statements for the periods affected. The adjustment resulted in a decrease in Cost of goods sold and an increase in Selling, general and administrative expenses in each of the periods presented. There was no other impact to the ~~Company's Consolidated Financial Statements.~~financial statements.

The following table shows the adjusted Cost of goods sold and Selling, general and administrative expenses for those periods indicated:


	Fiscal 2021								Fiscal Year Ended May 31, 2021		Fiscal Year Ended May 31, 2020
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Cost of goods sold:
As previously reported	$	123.2	$	199.3	$	146.0	$	198.0	$	666.5	$	751.0
Adjustment		(8.2)		(9.6)		(10.1)		(9.9)		(37.8)		(41.7)
As adjusted	$	115.0	$	189.7	$	135.9	$	188.1	$	628.7	$	709.3

Selling, general and administrative expenses:
As previously reported	$	133.5	$	142.3	$	130.1	$	179.0	$	584.9	$	722.5
Adjustment		8.2		9.6		10.1		9.9		37.8		41.7
As adjusted	$	141.7	$	151.9	$	140.2	$	188.9	$	622.7	$	764.2

910


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

2. REVENUES

Disaggregated Revenue Data

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

Three months ended
August 31, August 31,
2020 2019
U.S. Book Clubs $ 5.8 $ 8.0
U.S. Book Fairs 13.2 27.5
U.S. Trade 65.8 67.7
U.S. Education 53.5 48.4
Non-U.S. Major Markets⁽¹⁾
56.6 56.3
Non-U.S. Other Markets⁽²⁾
20.3 24.7
Total Revenues $ 215.2 $ 232.6


	Three months ended
	August 31,		August 31,
	2021		2020
Book Clubs - U.S.	$	6.8	$	5.8
Book Fairs - U.S.		16.0		13.2
Trade - U.S.		80.1		65.8
Trade - International(1)		12.9		7.5
Total Children's Book Publishing and Distribution	$	115.8	$	92.3

Education Solutions - U.S.	$	80.1	$	53.6

Total Education Solutions	$	80.1	$	53.6

International - Major Markets(2)	$	47.5	$	50.0
International - Other Markets(3)		16.4		19.3
Total International	$	63.9	$	69.3
Total Revenues	$	259.8	$	215.2

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

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

~~(2) -~~(3) Primarily includes markets in Asia.

Estimated Returns

A liability for expected returns of ~~$43.1, $43.5,~~$44.9, $45.2, and ~~$35.5~~$43.1 is recorded within Other accrued expenses as of August 31, ~~2020,~~2021, May 31, ~~2020,~~2021, and August 31, ~~2019,~~2020, respectively. In addition, a return asset of ~~$4.1, $2.7,~~$4.2, $3.4, and ~~$1.8~~$4.1 is recorded within Prepaid expenses and other current assets as of August 31, ~~2020,~~2021, May 31, ~~2020,~~2021, and August 31, ~~2019,~~2020, respectively, for the recoverable cost of product estimated to be returned by customers.

Deferred Revenue

The Company's contract liabilities consist of advance billings and payments received from customers in excess of revenue recognized and revenue allocated to outstanding book fairs incentive credits. These liabilities are recorded within Deferred revenue on the Company's Condensed Consolidated Balance Sheets 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 Company recognized revenue which was included in the opening deferred revenue balance in the amount of ~~$16.9~~$15.3 and ~~$18.8~~$16.9 for the three months ended August 31, ~~2020~~2021 and August 31, ~~2019,~~2020, respectively.

Allowance for Credit Losses

The Company recognizes an allowance for credit losses on trade 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. At the time the Company determines that a receivable


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

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 ~~presented net~~included in Accounts Receivable, net on the Condensed Consolidated Balance ~~Sheets:~~Sheet:


	Allowance for Credit Losses
Balance ~~as of June 1, 2020~~at May 31, 2021	$	~~19.9~~21.4
Current period provision		~~1.4~~1.6
Write-offs and other		~~(0.4)~~(1.2)
Balance ~~as of~~at August 31, ~~2020~~2021	$	~~20.9~~21.8


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

3. SEGMENT INFORMATION

The Company categorizes its businesses into 3 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 in the United States through its book clubs and book fairs in its school channels and through the trade channel. This segment is comprised of 3 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 on-line reference and non-fiction products for grades pre-kindergarten to 12 in the United States. This segment is comprised of 31 operating ~~segments.~~segment.

•International includes the publication and distribution of products and services outside the United States by the Company’s international operations and its export ~~and foreign rights~~ businesses. This segment is comprised of 3 operating segments.


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

The following table sets forth ~~information for~~ the Company's ~~segments~~revenue and operating income (loss) by segment for the fiscal quarters ended August 31, ~~2020~~2021 and August 31, ~~2019:~~

Children’s
Book
Publishing &
Distribution Education
Overhead ⁽¹⁾
Total
Domestic International Total
Three months ended
August 31, 2020
Revenues $ 90.9 $ 53.6 $ 0 $ 144.5 $ 70.7 $ 215.2
Bad debt expense 0.2 0.1 0 0.3 1.1 1.4
Depreciation and amortization ⁽²⁾
6.6 3.1 11.5 21.2 1.5 22.7
Segment operating income (loss) (29.2) (2.2) (30.8) (62.2) 5.2 (57.0)
Segment assets at August 31, 2020 555.4 215.6 985.8 1,756.8 299.5 2,056.3
Goodwill at August 31, 2020 47.4 68.2 0 115.6 10.0 125.6
Expenditures for other noncurrent assets⁽³⁾

12.1 3.1 10.8 26.0 3.5 29.5
Other non-current assets at August 31, 2020 ⁽³⁾
172.6 123.9 491.1 787.6 81.5 869.1
Three months ended
August 31, 2019
Revenues $ 109.6 $ 48.4 $ 0 $ 158.0 $ 74.6 $ 232.6
Bad debt expense 0.5 0.0 0 0.5 1.1 1.6
Depreciation and amortization ⁽²⁾
6.7 3.1 11.0 20.8 1.7 22.5
Segment operating income (loss) (41.7) (13.4) (28.6) (83.7) (3.7) (87.4)
Segment assets at August 31, 2019 651.9 198.7 808.4 1,659.0 285.6 1,944.6
Goodwill at August 31, 2019 46.8 68.2 0 115.0 10.0 125.0
Expenditures for other noncurrent assets ⁽³⁾
14.0 4.6 7.6 26.2 6.9 33.1
Other non-current assets at August 31, 2019 ⁽³⁾
219.2 120.0 520.0 859.2 93.0 952.2
2020:


	Three months ended
	August 31,		August 31,
	2021		2020
Revenues
Children's Book Publishing and Distribution	$	115.8	$	92.3
Education Solutions		80.1		53.6
International		63.9		69.3
Total	$	259.8	$	215.2

Operating income (loss)
Children's Book Publishing and Distribution	$	(21.7)	$	(29.0)
Education Solutions		7.3		(2.4)
International		(1.7)		4.8
Overhead (1)		(15.9)		(30.4)
Total	$	(32.0)	$	(57.0)

(1) Overhead includes all domestic corporate amounts not allocated to segments, including expenses and costs related to the management of corporate assets. Unallocated assets are principally comprised of deferred income taxes and property, plant and equipment related to the Company’s headquarters in the metropolitan New York area, its fulfillment and distribution facilities located in Missouri, and certain technology assets.

~~(2) Includes depreciation of property, plant and equipment and amortization of intangible assets, prepublication costs and cloud computing costs.~~

(3) Other noncurrent assets include property, plant and equipment, prepublication assets, cloud computing costs, royalty advances, goodwill, intangible assets and investments. Expenditures for other noncurrent assets for the International segment include expenditures for long-lived assets of $2.0 and $5.7 for the three months ended August 31, 2020 and August 31, 2019, respectively. Other noncurrent assets for the International segment include long-lived assets of $46.7 and $64.5 as of August 31, 2020 and August 31, 2019, respectively.


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

4. DEBT

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


		August 31, 2020			May 31, 2020			August 31, 2019				August 31, 2021		May 31, 2021		August 31, 2020
US Revolving Loan	US Revolving Loan	$	200.0	$	200.0	$	0		US Revolving Loan	$	75.0	$	175.0	$	200.0
Unsecured lines of credit (weighted average interest rates of 4.2%, 4.6% and 4.1%, respectively)			8.5		7.9		13.0
Unsecured lines of credit									Unsecured lines of credit		7.4		7.9		8.5
UK Loan	UK Loan		11.4		10.6		0		UK Loan		7.1		7.3		11.4
Total debt	Total debt	$	219.9	$	218.5	$	13.0		Total debt	$	89.5	$	190.2	$	219.9
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		(19.9)		(7.9)		(13.0)		Less lines of credit, short-term debt and current portion of long-term debt		(89.5)		(182.9)		(19.9)
Total long-term debt	Total long-term debt	$	200.0	$	210.6	$	0		Total long-term debt	$	—	$	7.3	$	200.0

The ~~following table sets forth the maturities of the carrying values of the Company’s~~Company's debt obligations as of August 31, ~~2020 for the twelve-month periods ended August 31:~~

2021 $ 19.9
2022 200.0
2023 0
2024 0
2025 0
Thereafter 0
Total debt $ 219.9
2021 have maturities of one year or less.

US Loan Agreement

~~On January 5, 2017,~~ Scholastic Corporation and Scholastic Inc. (each, a “Borrower” and together, the “Borrowers”) ~~entered into~~are parties to a 5-year credit facility with certain banks (the “Loan Agreement”)~~. The Loan Agreement replaced the Company's then existing loan agreement and has substantially similar terms, except that:~~

•~~the borrowing limit was reduced to $375.0 from $425.0;~~

•~~the “starter” basket for permitted payments of dividends and other payments in respect of capital stock~~

~~was increased to $275.0 from $75.0; and~~

•~~the maturity date was extended to January 5, 2022.~~

~~The prior loan agreement, which was originally entered into in 2007 and had~~ with a maturity date of ~~December 5, 2017, was terminated on~~ January 5, ~~2017 in connection with the entry into the new Loan Agreement and was treated as a debt modification.~~

2022. The Loan Agreement allows the Company to borrow, repay or prepay and reborrow at any time prior to the ~~January 5, 2022~~ maturity date. On December 16, 2020, the Company entered into an amendment to the Loan Agreement (the "Amendment") with a syndicate of banks and Bank of America, N.A., as administrative agent (the "Agent"). The Amendment was accounted for as a debt modification. The principal terms of the credit agreement, as modified, include the following:

•the aggregate maximum commitments of the lenders is $250.0, a reduction from the $375.0 pre-amendment commitments;

•in addition to the pre-amendment covenants, the Company is subject to a new covenant requiring Consolidated Liquidity (as defined) of a minimum amount of $200.0;

•the securitization of the Company’s inventory and accounts receivable;

•a modified limitation on asset sales (not to exceed 10% of Consolidated Total Assets, as defined, excluding sale of collateral);

•a facility fee rate of 0.40%;

•a limitation on Acquisitions (as defined) to an aggregate amount of $25.0 per fiscal year;

•the interest pricing is dependent upon the Borrower’s election of a rate that is either:

◦a Eurodollar Rate equal to the London interbank offered rate (LIBOR), subject to a minimum of 0.25%, plus a spread equal to 1.60% for any Eurodollar Rate Advance;

- or -

◦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 for a one month interest period plus 1.00% plus, in each case, a spread equal to 0.60% for any Base Rate Advance;

•restricted payments (e.g., for dividends and share repurchases, etc.) are limited to the "builder basket" in the amended credit agreement together with an additional requirement that the Company have Consolidated Liquidity (as defined) not less than $300.0.

•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.

Under the Loan Agreement, as amended, 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~~As of August 31, 2021, the ~~Loan Agreement is dependent upon~~all-in borrowing rate on 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 for a one month interest period plus 1.00% plus, in each case, an applicable spread ranging from 0.175% to 0.60%, as determined by the Company’s prevailing consolidated debt to total capital ratio.

~~- or -~~

•A Eurodollar Rate equal to the London interbank offered rate (LIBOR) plus an applicable spread ranging from 1.175% to 1.60%, as determined by the Company’s prevailing consolidated debt to total capital ratio.


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

outstanding borrowings was 1.85%.

As of August 31, 2020, the indicated spread on Base Rate Advances was 0.175% and the indicated spread on Eurodollar Advances was 1.175%, both based on the Company’s prevailing consolidated debt to total capital ratio.

The Loan Agreement also provides for the payment of a facility fee in respect of the aggregate amount of revolving credit commitments ranging from 0.20% to 0.40% per annum based upon the Company’s prevailing consolidated debt to total capital ratio. At August 31, 2020, the facility 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 Loan 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 August 31, 2020,~~2021, the Company had current outstanding borrowings of ~~$200.0~~$75.0 under the Loan Agreement. The Company incurred this obligation in the fourth quarter of fiscal 2020 as a precautionary measure due to the uncertainty resulting from the COVID-19 pandemic. While this obligation is not due until the January 5, 2022 maturity date, the Company may, from time to time, make payments to reduce this obligation when cash from operations becomes available for this purpose. ~~No borrowings were outstanding under~~During the first quarter of fiscal 2022, the Company paid down $100.0 of the borrowing. The Company intends to amend and extend the current Loan Agreement ~~as of August 31, 2019.~~prior to its expiration on January 5, 2022.

The Company was in compliance with required covenants for all periods presented.

At August 31, ~~2020,~~2021, the Company had open standby letters of credit totaling $4.3 issued under certain credit lines, including $0.4 under the Loan Agreement and $3.9 under the domestic credit lines discussed below. The Loan Agreement contains certain covenants, including interest coverage and leverage ratio tests, and certain limitations on the amount of dividends and other distributions and at August 31, 2020, the Company was in compliance with these covenants.

UK Loan Agreement

On ~~September 23, 2019,~~January 24, 2020, Scholastic Limited UK entered into a term loan ~~agreement~~facility with a borrowing limit of £6.6 to ~~borrow £2.0 to~~ fund ~~a land purchase in connection with~~ the construction of athe new UK ~~facility.~~facility in Warwickshire. The loan ~~has a~~had an original maturity date of July 31, 2021, which was extended to July 31, 2022 in May 2021. Under the agreement, the principal balance is due in full in a single payment on the last day of the term and interest on the amount borrowed is due and payable quarterly. The interest iswas charged at 1.77% per annum over the Base ~~Rate.~~Rate until July 31, 2021 and 2.25% per annum over the Base Rate thereafter. The Base Rate is currently equal to 0.10% per annum and is subject to change. As of August 31, ~~2020,~~2021, the Company had ~~$2.7~~$4.3 outstanding on the ~~loan.~~loan and $4.7 remaining available credit under this facility.

On ~~January 24, 2020,~~September 23, 2019, Scholastic Limited UK entered into a term loan ~~facility with a borrowing limit of £6.6~~agreement to borrow £2.0 to fund a land purchase in connection with the construction of the new UK ~~facility.~~facility in Warwickshire. The loan ~~has a~~had an original maturity date of July 31, 2021, which was extended to July 31, 2022 in May 2021. Under the agreement, the principal balance is due in full in a single payment on the last day of the term and interest on the amount borrowed is due and payable quarterly. The interest iswas charged at 1.77% per annum over the Base ~~Rate.~~Rate until July 31, 2021 and 2.25% per annum over the Base Rate thereafter. The Base Rate is currently equal to 0.10% per annum and is subject to change. As of August 31, ~~2020,~~2021, the Company had ~~$8.7~~$2.8 outstanding on the ~~loan and no remaining available credit under this facility.~~loan.

Lines of Credit

As of August 31, ~~2020,~~2021, the Company’s domestic credit lines available under unsecured money market bid rate credit lines totaled ~~$25.0.~~$10.0. There were 0no outstanding borrowings under these credit lines as of August 31, ~~2020,~~2021, May 31, ~~2020~~2021 and August 31, ~~2019.~~2020. As of August 31, ~~2020,~~2021, availability under these unsecured money market bid rate credit lines totaled ~~$21.1.~~$6.1. 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 August 31, ~~2020,~~2021, the Company had various local currency international credit lines totaling ~~$30.2~~$27.9 underwritten by banks primarily in the United States, Canada and the United Kingdom. Outstanding borrowings under these facilities were $7.4 at August 31, 2021 at a weighted average interest rate of 4.8%, $7.9 at May 31, 2021 at a weighted average interest rate of 4.7%, and $8.5 at August 31, 2020 at a weighted average interest rate of 4.2%~~, $7.9 at May 31, 2020 at a weighted average interest rate of 4.6%, and $13.0 at August 31, 2019 at a weighted average interest rate of 4.1%~~. As of August 31, ~~2020,~~2021, the amounts available under these facilities totaled ~~$21.7.~~$20.5. 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.


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

5. COMMITMENTS AND CONTINGENCIES

COVID-19

The COVID-19 pandemic and actions taken, or which may be taken in the future following any ~~easing of current~~changes in restrictions based on the future course of the pandemic, by governments, businesses and individuals to limit the spread of the virus may continue to have an adverse effect on the Company’s results of operations and financial condition.


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

The Company is not currently aware of any loss contingencies related to the foregoing that would require recognition in the first quarter of fiscal ~~2021.~~2022.

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.

On July 20, 2021, the Company, along with its co-defendants in a certain legal proceeding, executed a settlement agreement regarding certain licenses and trademarks related to intellectual property used in formerly owned products, which were included in the sale of the educational technology and services business that occurred in fiscal 2015. Without admitting to the allegations raised, the agreement requires the Company to pay $20.0 in a one-time cash payment to avoid the uncertainties of trial and the additional costs of preparing for and presenting an on-going legal defense in this matter. The Company recognized an accrual for the settlement amount in fiscal 2021 as the events that gave rise to the litigation had taken place prior to May 31, 2021. As of August 31, 2021, the liability of $20.0 is reflected in Accounts Payable in the Company’s Condensed Consolidated Balance Sheet. The settlement was paid subsequent to quarter end in September 2021. The Company received $6.6 in recoveries from its insurance programs during the first quarter of fiscal 2022 which was recognized as an offset to the legal settlement and is reflected in Selling, general and administrative expenses in the Company's Condensed Consolidated Statement of Operations. While the Company expects to receive additional recoveries from its insurance programs, it is too 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, August 31,
2020 2019
Net income (loss) attributable to Class A and Common Stockholders $ (39.8) $ (58.5)
Weighted average Shares of Class A Stock and Common Stock outstanding for basic earnings (loss) per share (in millions) 34.3 34.9
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) * *
Earnings (loss) per share of Class A Stock and Common Stock:
Basic $ (1.16) $ (1.68)
Diluted $ (1.16) $ (1.68)


	Three months ended
	August 31,		August 31,
	2021		2020
Net income (loss) attributable to Class A and Common Stockholders	$	(24.2)	$	(39.8)
Weighted average Shares of Class A Stock and Common Stock outstanding for basic earnings (loss) per share (in millions)		34.4		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)		34.4		34.3
Earnings (loss) per share of Class A Stock and Common Stock:
Basic	$	(0.70)	$	(1.16)
Diluted	$	(0.70)	$	(1.16)

* 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~~Company experienced a loss for the three month periods ended August 31, 2021 and August 31, 2020 and therefore did not allocate any loss to ~~stock-based compensation plans as of the dates indicated:~~

August 31, 2020 August 31, 2019
Options outstanding pursuant to stock-based compensation plans (in millions) 3.0 3.0
certain participating restricted stock units.

~~There were 3.0 million of potentially anti-dilutive shares pursuant to stock-based compensation plans as of August 31, 2020.~~

1513


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

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


	August 31, 2021	August 31, 2020
Options outstanding pursuant to stock-based compensation plans (in millions)	4.9	3.0

There were 2.1 million of potentially anti-dilutive shares pursuant to stock-based compensation plans as of August 31, 2021.

A portion of the Company’s Restricted Stock Units ("RSUs") which are granted to employees participate in earnings through cumulative dividends which are payable and non-forfeitable to the employees upon vesting of the RSUs. Accordingly, the Company measures earnings per share based upon the lower of the Two-class method or the Treasury Stock method. ~~For the three month periods ended August 31, 2020 and August 31, 2019, the Company experienced a Net loss and did not allocate any losses to the participating securities.~~

As of August 31, ~~2020,~~2021, $67.3 remained available for future purchases of common shares under the repurchase authorization of the Board of Directors (the "Board") in effect on that ~~date.~~date, subject to temporary limitations under the amended credit agreement as defined in Note 4, Debt. See Note 11, Treasury Stock, for a more complete description of the Company’s share buy-back program.

7. 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:


		August 31, 2020			May 31, 2020			August 31, 2019			August 31, 2021		May 31, 2021		August 31, 2020
Gross beginning balance	Gross beginning balance	$	164.5	$	164.8	$	164.8	Gross beginning balance	$	165.9	$	164.5	$	164.5
Accumulated impairment	Accumulated impairment		(39.6)		(39.6)		(39.6)	Accumulated impairment		(39.6)		(39.6)		(39.6)
Beginning balance	Beginning balance	$	124.9	$	125.2	$	125.2	Beginning balance	$	126.3	$	124.9	$	124.9
Additions			0		0		0

Foreign currency translation	Foreign currency translation		0.7		(0.3)		(0.2)	Foreign currency translation		(0.4)		1.4		0.7

Ending balance	Ending balance	$	125.6	$	124.9	$	125.0	Ending balance	$	125.9	$	126.3	$	125.6

There were 0no 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:


		August 31, 2020			May 31, 2020			August 31, 2019			August 31, 2021		May 31, 2021		August 31, 2020

Beginning balance other intangibles subject to amortization		$	10.5	$	12.2	$	12.2
Additions			0		1.6		0
Beginning balance - Other intangibles subject to amortization								Beginning balance - Other intangibles subject to amortization	$	8.4	$	10.5	$	10.5

Adjustments								Adjustments		—		(0.5)		—
Amortization expense	Amortization expense		(0.6)		(3.2)		(0.8)	Amortization expense		(0.5)		(2.2)		(0.6)
Foreign currency translation	Foreign currency translation		0.3		(0.1)		(0.2)	Foreign currency translation		(0.1)		0.6		0.3

Total other intangibles subject to amortization, net of accumulated amortization of $30.7, $30.1 and $27.7, respectively		$	10.2	$	10.5	$	11.2
Total other intangibles subject to amortization, net of accumulated amortization of $32.8, $32.3 and $30.7, respectively								Total other intangibles subject to amortization, net of accumulated amortization of $32.8, $32.3 and $30.7, respectively	$	7.8	$	8.4	$	10.2

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	$	12.3	$	12.6	$	13.3	Total other intangibles	$	9.9	$	10.5	$	12.3

~~In the first quarter of fiscal 2021, there~~There were no additions to intangible ~~assets.~~assets within the three months ended August 31, 2021 and August 31, 2020.

~~In fiscal 2020, the Company purchased a U.S.-based book fair business resulting in $1.6 of amortizable intangible assets.~~


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

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 ~~5.8~~5.0 years.

There were 0no impairment charges related to Intangible assets in any of the periods presented.


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

8. 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:


		August 31, 2020			May 31, 2020			August 31, 2019					Segment	August 31, 2021		May 31, 2021		August 31, 2020	Segment
Equity method investments	Equity method investments	$	27.9	$	25.0	$	22.5		International	Equity method investments	$	34.4		$	34.3	$	27.9	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	$	33.9	$	31.0	$	28.5			Total Investments	$	40.4		$	40.3	$	33.9

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 0no 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 ~~$0.8~~$1.1 and ~~$1.0~~$0.8 for the three months ended August 31, ~~2020~~2021 and August 31, ~~2019,~~2020, respectively.

9. 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							Three months ended
		August 31,			August 31,			August 31,				August 31,			August 31,
		2020			2019			2020				2019			2021		2020		2021		2020
Components of net periodic benefit cost:	Components of net periodic benefit cost:									Components of net periodic benefit cost:

Interest cost	Interest cost	$	0.2	$	0.2	$	0.1	$	0.2	Interest cost	$		0.2	$	0.2	$	0.1	$	0.1
Expected return on assets	Expected return on assets		(0.2)		(0.2)		0		0	Expected return on assets			(0.3)		(0.2)		—		—
Net amortization of prior service (credit) cost			0.0		0		0.0		0.0
Amortization of prior service (credit) loss										Amortization of prior service (credit) loss			0.0		0.0		(0.2)		0.0

Amortization of (gains) losses			0.1		0.2		0		0
Amortization of net actuarial (gain) loss										Amortization of net actuarial (gain) loss			0.2		0.1		0.0		—
Total	Total	$	0.1	$	0.2	$	0.1	$	0.2	Total	$		0.1	$	0.1	$	(0.1)	$	0.1

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.

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

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 three months ended August 31, ~~2020,~~2021, the Company contributed ~~$0.3~~$0.4 to the UK Pension Plan. The Company expects, based on actuarial calculations, to contribute cash of approximately ~~$1.0~~$1.6 to the UK Pension Plan for the fiscal year ending May 31, ~~2021.~~2022.


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

10. 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									Three months ended
		August 31,			August 31,				August 31,
		2020			2019				2021			2020
Stock option expense	Stock option expense	$	0.3	$	0.6	Stock option expense	$	0.7		$	0.3
Restricted stock unit expense	Restricted stock unit expense		0.2		0.8	Restricted stock unit expense		0.7			0.2
Management stock purchase plan	Management stock purchase plan		0		0.0	Management stock purchase plan		0.0			—
Employee stock purchase plan	Employee stock purchase plan		0.1		0.1	Employee stock purchase plan		0.1			0.1
Total stock-based compensation expense	Total stock-based compensation expense	$	0.6	$	1.5	Total stock-based compensation expense	$	1.5		$	0.6

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

Three months ended
August 31, August 31,
2020 2019
Common Stock issued pursuant to stock-based compensation plans (in millions) 0.0 0.0


	Three months ended
	August 31,	August 31,
	2021	2020
Common Stock issued pursuant to stock-based compensation plans (in millions)	0.1	0.0

11. 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 negotiated private transactions.

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


Authorizations	Amount
March 2018	$	50.0
March 2020		50.0
Total current Board authorizations at June 1, ~~2020~~2021	$	100.0
Less repurchases made under these authorizations	$	(32.7)
Remaining Board authorization at August 31, ~~2020~~2021	$	67.3

Remaining Board authorization at August 31, ~~2020~~2021 represents the amount remaining under the Board authorization for Common share repurchases on March 21, 2018 and the current $50.0 Board authorization for Common share repurchases announced on March 18, 2020, which is available for further repurchases, from time to time as conditions allow, on the open market or through negotiated private ~~transactions.~~transactions, subject to temporary limitations under the amended credit agreement as defined in Note 4, Debt.

There were 0no repurchases of the Company's Common Stock for the three months ended August 31, ~~2020. The Company’s repurchase program is suspended at this time due to COVID-19 uncertainties.~~2021.

1816


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

12. 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, 2020
Foreign currency translation adjustments Retirement benefit plans Total
Beginning balance at June 1, 2020 $ (50.0) $ (8.3) $ (58.3)
Other comprehensive income (loss) before reclassifications 10.7 0 10.7
Less amount reclassified from Accumulated other comprehensive income (loss):
Amortization of gains and losses (net of tax of $0.0) 0 0.1 0.1
Amortization of prior service credit (net of tax of $0.0) 0 0.0 0.0
Other comprehensive income (loss) 10.7 0.1 10.8
Ending balance at August 31, 2020 $ (39.3) $ (8.2) $ (47.5)
Three months ended August 31, 2019
Foreign currency translation adjustments Retirement benefit plans Total
Beginning balance at June 1, 2019 $ (47.1) $ (12.6) $ (59.7)
Other comprehensive income (loss) before reclassifications (2.0) 0 (2.0)
Less amount reclassified from Accumulated other comprehensive income (loss):
Amortization of gains and losses (net of tax of $0.0) 0 0.2 0.2
Amortization of prior service credit (net of tax of $0.0) 0 0.0 0.0
Other comprehensive income (loss) (2.0) 0.2 (1.8)
Ending balance at August 31, 2019 $ (49.1) $ (12.4) $ (61.5)


	Three months ended August 31, 2021
	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		(5.8)		—		(5.8)
Less amount reclassified from Accumulated other comprehensive income (loss):
Amortization of net actuarial (gain) loss (net of tax of $0.0)		—		0.2		0.2
Amortization of prior service (credit) cost (net of tax of $0.1)		—		(0.1)		(0.1)


Other comprehensive income (loss)		(5.8)		0.1		(5.7)
Ending balance at August 31, 2021	$	(35.9)	$	(4.5)	$	(40.4)

	Three months ended August 31, 2020
	Foreign currency translation adjustments		Retirement benefit plans		Total
Beginning balance at June 1, 2020	$	(50.0)	$	(8.3)	$	(58.3)
Other comprehensive income (loss) before reclassifications		10.7		—		10.7
Less amount reclassified from Accumulated other comprehensive income (loss):
Amortization of gains and losses (net of tax of $0.0)		—		0.1		0.1

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

Other comprehensive income (loss)		10.7		0.1		10.8
Ending balance at August 31, 2020	$	(39.3)	$	(8.2)	$	(47.5)

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


		Three months ended									Condensed Consolidated Statements of Operations line item				Three months ended				Condensed Consolidated Statements of Operations line item
		August 31,			August 31,					Condensed Consolidated Statements of Operations line item			August 31,					Condensed Consolidated Statements of Operations line item
		2020			2019								2021				2020
Employee benefit plans:	Employee benefit plans:						Employee benefit plans:
Amortization of unrecognized (gain) loss		$	0.1	$	0.2	Other components of net periodic benefit (cost)
Amortization of prior service credit			0.0		0.0	Other components of net periodic benefit (cost)
Amortization of net actuarial (gain) loss							Amortization of net actuarial (gain) loss	$	0.2					$		0.1					Other components of net periodic benefit (cost)
Amortization of prior service (credit) loss							Amortization of prior service (credit) loss		(0.2)						0.0					Other components of net periodic benefit (cost)
Less: Tax effect	Less: Tax effect		0.0		0.0	Provision (benefit) for income taxes	Less: Tax effect		0.1						0.0					Provision (benefit) for income taxes
Total cost, net of tax	Total cost, net of tax	$	0.1	$	0.2		Total cost, net of tax	$	0.1			$			0.1

13. 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.


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

•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.

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. ~~For a more complete description of fair value measurements employed, see Note 4, Debt.~~ 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. ~~See Note 15, Derivatives and Hedging, for a more complete description of the fair value measurements employed.~~

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~~goodwill and intangible assets

•~~Long-lived assets held for sale~~

Level 2 and ~~level~~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 8, Investments, for a more complete description of the fair value measurements employed.

14. INCOME TAXES AND OTHER TAXES

Tax Legislation Updates

In response to the COVID-19 pandemic, many governments have enacted or are contemplating additional measures to provide aid and economic stimulus. These measures may include deferring the due dates of tax payments or other changes to their income and non-income-based tax laws as well as providing direct government assistance through grants and forgivable loans.

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer-side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The Company ~~expects to benefit~~filed its Federal income tax return and benefited from ~~certain~~the provisions in the CARES Act ~~including the provision~~ to carry back net operating losses generated in the U.S. to previous periods which were taxed at the higher 35% federal corporate tax rate. The Company also took advantage of the provisions related to the Employee Retention Credit, which was created by the CARES Act to encourage entities to keep employees on their payroll despite experiencing economic hardship due to the COVID-19 pandemic. The Company has deferred employer-side social security payments which have resulted in a current liability of $2.8 and a non-current liability of $4.8 as of August 31, 2021. In fiscal 2021, the Company applied for employee retention credits in the U.S. and the related receivable was $11.9 as of August 31, 2021. 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.

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. The Tax Cuts and Jobs Act, among other things, reduced the U.S. federal corporate tax rate from 35% to 21% and imposed a new minimum tax on Global Intangible Low-Taxed Income ("GILTI") earned by foreign subsidiaries. On July 20, 2020, final regulations were issued for GILTI which include a high-tax exception for income earned by foreign subsidiaries if the foreign tax rate is in excess of 90% of the U.S. tax rate of 21%. The Company is evaluating the potential impact of these regulations. While the Company does not anticipate a material impact on the overall income tax provision, the regulations may reduce taxable income.


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

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 ~~enacted tax laws or~~ 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


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

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, was ~~23.2%~~26.7% for the three month period ended August 31, ~~2020.~~2021 as compared to 23.2% for the prior fiscal year quarter. The interim effective tax rate was impacted by anticipated higher profitability domestically and internationally.

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 returns in foreign jurisdictions. The Company is routinely audited by various tax ~~authorities and~~authorities. The IRS is currently examining the US income tax returns for the fiscal 2015 through fiscal ~~2019~~2020 tax ~~years remain open. The Company has been notified by the IRS that there will be an examination of the income tax return for fiscal 2015, however the audit had not yet started as of August 31, 2020.~~years.

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.

15. 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 it recognizes the unrealized gain or loss in Other current assets or Other current liabilities. The notional values of the contracts as of August 31, ~~2020~~2021 and August 31, ~~2019~~2020 were $26.8 and $25.5, respectively. Net unrealized losses of less than $0.1 and ~~$28.0, respectively. A net unrealized loss of~~ $1.0 ~~and a net unrealized gain $0.5~~ were recognized for the three months ended August 31, ~~2020~~2021 and August 31, ~~2019,~~2020, respectively.

16. OTHER ACCRUED EXPENSES

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

August 31, 2020 May 31, 2020 August 31, 2019
Accrued payroll, payroll taxes and benefits $ 41.4 $ 38.8 $ 43.6
Accrued bonus and commissions 11.8 12.1 9.3
Returns liability 43.1 43.5 35.5
Accrued other taxes 21.4 22.9 19.4
Accrued advertising and promotions 10.8 9.9 10.2
Other accrued expenses 38.1 34.3 37.6
Total accrued expenses $ 166.6 $ 161.5 $ 155.6


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


	August 31, 2021		May 31, 2021		August 31, 2020
Accrued payroll, payroll taxes and benefits	$	35.1	$	32.4	$	41.4
Accrued bonus and commissions		12.1		23.0		11.8
Returns liability		44.9		45.2		43.1
Accrued other taxes		25.3		31.4		21.4
Accrued advertising and promotions		13.5		12.6		10.8
Other accrued expenses		37.3		57.4		38.1
Total accrued expenses	$	168.2	$	202.0	$	166.6

17. SUBSEQUENT EVENTS

The Board declared a quarterly cash dividend of $0.15 per share on the Company’s Class A and Common Stock for the second quarter of fiscal ~~2021.~~2022. The dividend is payable on December 15, ~~2020~~2021 to shareholders of record as of the close of business on October ~~30, 2020.~~29, 2021.

2219


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

Effective June 1, 2021, the former “Education” reportable segment was renamed as the “Education Solutions” reportable segment, in connection with the consolidation of the segment’s multiple channels into a single Education Solutions group to allow for increased investment in digital learning and greater cross-selling opportunities across the entire segment’s portfolio of print and digital products.

Overview and Outlook

Revenues for the first quarter ended August 31, ~~2020~~2021 were ~~$215.2~~$259.8 million, compared to ~~$232.6~~$215.2 million in the prior fiscal year quarter, ~~a decrease~~an increase of ~~$17.4~~$44.6 million. The Company reported a net loss per diluted share of Class A and Common Stock of ~~$1.16~~$0.70 in the first quarter of fiscal ~~2021,~~2022, compared to a net loss ~~per diluted share~~ of ~~$1.68~~$1.16 in the prior fiscal year quarter.

~~The Company has executed on its cost-saving programs implemented to help mitigate~~During the impact of COVID-19, which improved the Company's quarterly operating loss and cash used in operating activities year-over-year and preserved the Company's capital position. Globally, best-selling titles within the trade channel continued to perform well in the fiscalfirst quarter ended August 31, ~~2020,~~2021, increased revenues were driven by the U.S. education and trade channels. Sales in the education channels were driven by the Company’s newly launched early childhood program, PreK On My WayTM, and summer learning product offerings. Trade publishing revenues grew on the strength of the Company’s series publishing and strong backlist titles, including ~~The Ballad~~Harry Potter® box sets and limited edition foil cover Dogman® books. Partially offsetting the revenue improvements was a reduction in sales in the International segment as countries around the world continued to encounter pandemic-related disruptions in their local markets. Operating loss improved over the prior fiscal year quarter as a result of ~~Songbirds and Snakes, which was released~~the higher sales volume as the Company is beginning to recover from the pandemic, coupled with the continued benefits of the restructuring program executed in the ~~fourth quarter of~~prior fiscal 2020. In addition, the Company benefited from improved results across a number of education business lines, including digital product subscriptions, teaching resources, summer literacy camps and summer reading packs.year.

~~There~~The Company is ~~still uncertainty surrounding the duration~~currently experiencing increased demand for its products and ~~continued severity~~programs as schools begin to re-open this fall with rising book club sponsorship and increased book fair bookings and expects sequential improvements in its school-based distribution channels in each quarter of the ~~COVID-19 pandemic and~~current fiscal year. The Company is well-positioned to meet expected demand in these channels, especially in its ~~forward impact on schools,~~book fairs businesses in the U.S., Canada and the ~~Company has implemented cost-saving programs targeted~~UK. Scholastic properties and titles continue to ~~improve its operations which are expected to help mitigate lower revenue expectations for~~lead the ~~book fairs~~market and ~~book clubs channels as schools adapt to COVID-19 disruptions and delays. A substantial portion of these cost-saving programs are also expected to bring permanent improvements to~~ the ~~Company's cost structure and provide opportunities for profitability as normal sales levels return. The~~ trade channel, including media, is expected to benefit from new ~~titles such as Dav Pilkey's~~ ~~Dog Man: Grime and Punishment, which was released in September, and~~releases including J.K. Rowling's new title, The ~~Ickabog~~Christmas Pig^®, ~~which is~~and the second season of TheBaby-sitters Club®on Netflix, both targeted for release in ~~November, as well as recently announced development deals~~October. In the education channel, the Company continues to closely monitor how federal stimulus funds will impact the overall K-12 education landscape and expects to benefit from a portion of this new spending. Internationally, the Company expects the lockdowns in Australia to lift and continues to explore growth through the expansion of Scholastic’s range of English language learning digital product offerings in Asia. However, inflationary pressures could impact paper, freight and other operating costs, while supply chain issues and potential labor shortages could adversely impact the Company's operating income through higher costs and/or revenue shortfalls. The Company expects positive operating leverage and cash flow generation despite inflationary and execution pressures on its supply chain and labor pools and the discontinuation of certain COVID-related government subsidies. The Company continues to identify further opportunities for ~~live-action feature films~~incremental cost savings through process improvements and automation, consolidation of ~~book series, including Caster~~^™~~, Goosebumps~~^®~~, Animorphs~~^®,functions, and ~~The Magic School Bus~~^®.increased utilization of the Company’s international shared services resources.

Results of Operations –

Consolidated

Revenues for the quarter ended August 31, ~~2020 decreased~~2021 increased to ~~$215.2~~$259.8 million, compared to ~~$232.6~~$215.2 million in the prior fiscal year. The Children's Book Publishing and Distribution segment revenues ~~decreased~~increased by ~~$18.7~~$23.5 million, primarily driven by ~~lower school-based~~higher trade channel revenues ~~resulting~~due to increased sales of backlist titles from ~~COVID-impacted delays~~best-selling series, which benefited from marketing and publicity activities for Harry Potterbox sets and limited edition Dogman foil covers, as well as new releases of several frontlist titles, coupled with an increase in ~~school re-openings.~~revenues in the school-based channels. In the Education Solutions segment, revenues increased by ~~$5.2~~$26.5 million, primarily ~~due to~~driven by higher sales of instructional products and programs, the Company's traditional classroom book collections and digital ~~products in literacy programs and magazines and sales of take-home~~ ~~Grab and Go~~ ~~reading packs.~~products. In local currency, the International segment revenues decreased by ~~$4.3~~$9.0 million, primarily driven by lower revenues in ~~the school-based channels in Canada~~Australia and ~~the direct sales channel in Asia~~New Zealand due to restrictions imposed by the ~~impact of COVID-19, partially offset by increased revenues~~COVID variant which were not in place in the ~~trade channel across all international markets.~~prior fiscal year quarter, coupled with lower direct-to-home sales in Asia. International segment revenues were impacted by favorable foreign exchange of ~~$0.4 million.~~$3.6 million in the quarter ended August 31, 2021.


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

Components of Cost of goods sold for the three months ended August 31, ~~2020~~2021 and August 31, ~~2019~~2020 are as follows:


		Three months ended															Three months ended
		August 31,						August 31,								August 31,			August 31,
		2020						2019								2021			2020
($ amounts in millions)	($ amounts in millions)		$	% of Revenue			$	% of Revenue		($ amounts in millions)		$	% of Revenue			$	% of Revenue
Product, service and production costs	Product, service and production costs	$	60.9	28.3	%	$	68.2	29.3	%	Product, service and production costs	$	76.3	29.4	%	$	61.1	28.4	%
Royalty costs	Royalty costs		23.4	10.9	%		22.3	9.6	%	Royalty costs		27.8	10.6	%		23.4	10.9	%
Prepublication amortization	Prepublication amortization		6.5	3.0	%		6.6	2.8	%	Prepublication amortization		6.9	2.7	%		6.5	3.0	%
Postage, freight, shipping, fulfillment and other	Postage, freight, shipping, fulfillment and other		32.4	15.0	%		40.0	17.2	%	Postage, freight, shipping, fulfillment and other		22.3	8.6	%		24.0	11.1	%
Total	Total	$	123.2	57.2	%	$	137.1	58.9	%	Total	$	133.3	51.3	%	$	115.0	53.4	%

Cost of goods sold for the quarter ended August 31, ~~2020~~2021 was ~~$123.2~~$133.3 million, or ~~57.2%~~51.3% of revenues, compared to ~~$137.1~~$115.0 million, or ~~58.9%~~53.4% of revenues, in the prior fiscal year quarter. The decrease in Cost of goods sold as a percentage of ~~revenue~~revenues was primarily driven by ~~favorable product cost due to~~lower fixed costs on a higher revenue base in the ~~sales mix within the education business,~~domestic channels, partially offset by higher ~~royalty~~inventory reserves recognized in Canada, primarily in the book fairs channel. During fiscal 2022, Cost of goods sold will be negatively impacted by inflationary pressures such as higher costs due to ~~the product mix of titles sold within the trade channel~~shortages in labor and transportation and supply chain issues impacting paper and printing costs.

Selling, general and administrative expenses in the quarter ended August 31, ~~2020.~~2021 increased to $143.6 million, compared to $141.7 million in the prior fiscal year quarter. The $1.9 million increase was primarily attributable to higher employee related costs as the prior fiscal year quarter benefited from the temporary closure of book fair distribution facilities and employee furlough and reduced work week programs, which did not reoccur in the current fiscal year quarter. In addition, the Company recognized lower subsidies from COVID-related governmental retention programs in Canada, the UK, Australia and New Zealand which decreased by $4.3 million to $1.2 million as compared to $5.5 million in the prior fiscal year quarter. Partially offsetting this increase, the Company received $6.6 million of insurance recoveries in the current fiscal year quarter related to an intellectual property legal settlement accrued in fiscal 2021 and recognized lower severance expense, which included charges of $2.4 million and $12.0 million for the quarters ended August 31, 2021 and August 31, 2020, respectively, related to cost-reduction and restructuring programs.

Depreciation and amortization expenses in the quarter ended August 31, 2021 were $14.9 million which were relatively consistent to $15.5 million in the prior fiscal year quarter. There were no significant changes to the assets in service in the first quarter of fiscal 2022.

Net interest expense in the quarter ended August 31, 2021 was $1.3 million compared to $1.2 million in the prior fiscal year quarter. Net interest expense was relatively consistent as the Company had lower average debt borrowings with higher interest rates as compared to the prior fiscal year quarter. The Company expects Net interest expense to decline in future periods as a result of the lower debt balance resulting from the $100.0 million repayment at the end of the first fiscal year quarter and expected lower interest rates.

Gain (loss) on sale of assets and other in the prior fiscal year quarter ended August 31, 2020 was $6.6 million. The company-owned facility located in Danbury, Connecticut was sold in the prior fiscal quarter which resulted in a gain on sale.

The Company’s effective tax rate for the quarter ended August 31, 2021 was 26.7%, compared to 23.2% in the prior fiscal year quarter.

Net loss attributable to Scholastic Corporation for the quarter ended August 31, 2021 decreased by $15.6 million to $24.2 million, compared to Net loss of $39.8 million in the prior fiscal year quarter. Loss per basic and diluted share of Class A and Common Stock was $0.70 and $0.70, respectively, for the fiscal quarter ended August 31, 2021, compared to loss per basic and diluted share of Class A and Common Stock of $1.16 and $1.16, respectively, in the prior fiscal year quarter.

Net loss attributable to noncontrolling interest for the quarter ended August 31, 2021 was $0.2 million compared to net income attributable to noncontrolling interest of less than $0.1 million in the prior fiscal year quarter.

2321


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

Selling, general and administrative expenses in the quarter ended August 31, 2020 decreased to $121.5 million, compared to $163.1 million in the prior fiscal year quarter. The $41.6 million decrease was due to the Company's COVID-related cost-saving initiatives, which included employee furlough and reduced work week programs and restructuring resulting in lower employee-related expenses, reduced technology-related spending, improvements in operating and financial processes, and other efforts to lower the Company's overall cost base. A substantial portion of these cost-saving programs are expected to bring permanent improvements to the Company's cost structure to meet the current economic environment and provide opportunities for profitability as normal sales levels return. The employee short-term furlough and reduced work week programs have been discontinued as of the second quarter of fiscal 2021.

~~Depreciation and amortization expenses in the quarter ended August 31, 2020 were $15.5 million, which is comparable to $15.4 million in the prior fiscal year quarter.~~

Severance expense in the quarter ended August 31, 2020 was $12.0 million, compared to $4.4 million in the prior fiscal year quarter, which included charges of $12.0 million and $2.8 million for the three months ended August 31, 2020 and August 31, 2019, respectively, related to cost-reduction and restructuring programs.

Net interest expense in the quarter ended August 31, 2020 was $1.2 million compared to Net interest income of $0.7 million in the prior fiscal year quarter. The increase in Net interest expense is primarily due to interest expense on long-term debt borrowings.

~~The Company’s effective tax rate for the quarter ended August 31, 2020 was 23.2%, compared to 32.8% in the prior fiscal year quarter.~~

Net loss for the quarter ended August 31, 2020 decreased by $18.7 million to $39.8 million, compared to Net loss of $58.5 million in the prior fiscal year quarter. Net loss per basic and diluted share of Class A and Common Stock was $1.16 and $1.16, respectively, for the fiscal quarter ended August 31, 2020, compared to a net loss per basic and diluted share of Class A and Common Stock of $1.68 and $1.68, respectively, in the prior fiscal year quarter.

~~Results of Operations~~

Children’s Book Publishing and Distribution

Three months ended
August 31, August 31, $ %
($ amounts in millions) 2020 2019 change change
Revenues $ 90.9 $ 109.6 $ (18.7) (17.1) %
Cost of goods sold 54.6 65.5 (10.9) (16.6) %
Other operating expenses ⁽¹⁾
65.5 85.8 (20.3) (23.7) %
Operating income (loss) $ (29.2) $ (41.7) $ 12.5 30.0 %
Operating margin — % — %


	Three months ended
	August 31,			August 31,			$		%
($ amounts in millions)	2021			2020			Change		Change
Revenues	$	115.8		$	92.3		$	23.5	25.5	%
Cost of goods sold		66.1			56.1			10.0	17.8	%
Other operating expenses (1)		71.4			65.2			6.2	9.5	%

Operating income (loss)	$	(21.7)		$	(29.0)		$	7.3	25.2	%
Operating margin		—	%		—	%

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

Revenues for the quarter ended August 31, ~~2020 decreased~~2021 increased by ~~$18.7~~$23.5 million to ~~$90.9~~$115.8 million, compared to ~~$109.6~~$92.3 million in the prior fiscal year quarter. The increase in segment revenues was primarily driven by higher trade channel revenues of $19.7 million due to increased sales of backlist titles from best-selling series, which benefited from marketing and publicity activities for Harry Potterbox sets and limited edition Dogman foil covers, and new releases from the Company's popular series, including The Baby-sitters Club® GraphixTM and Baby-sitters Little Sisters® GraphixTM, Five Nights at Freddy’sTM, The Bad GuysTM and Nat EnoughTM, coupled with the continued success of Alan Gratz’s Refugee and Ground Zero and Pam Munoz Ryan’s Esperanza Rising. In addition, sales increased for specialty products within the Company's Klutz division, as well as the Make Believe IdeasTM business, which included the launch of a plush product line, Sensory SnuggablesTM. Book fairs channel revenues ~~decreased $14.3~~increased $2.8 million ~~primarily driven by lower~~as a result of higher revenue per fair ~~count,~~ and book clubs channel revenues ~~decreased $2.2~~increased $1.0 million ~~due to declines in sponsor engagement, both largely attributable to COVID-impacted school re-openings. Trade channel revenues decreased~~driven by ~~$2.2 million, primarily due to a shift~~an increase in the ~~timing~~number of teacher sponsors. Book fair bookings are expected to improve each sequential season as schools re-open, with bookings for the ~~release~~current fall season substantially ahead of ~~a new title in~~last spring.

Cost of goods sold for the ~~popular Dog Man~~^® ~~book series to the second~~ quarter ended August 31, 2021 was $66.1 million, or 57.1% of ~~fiscal 2021~~revenues, compared to ~~a first quarter release~~$56.1 million, or 60.8% of revenues, in the prior fiscal year quarter. The decrease in Cost of Goods sold as a percentage of revenue was primarily attributable to lower fixed costs on a higher revenue base, partially offset by higher royalty costs associated with increased trade channel revenues.

Other operating expenses for the quarter ended August 31, 2021 increased to $71.4 million, compared to $65.2 million in the prior fiscal year quarter. The $6.2 million increase was primarily attributable to higher employee related costs as the prior fiscal year quarter benefited from the employee furlough and reduced work week programs as well as the temporary closure of book fair distribution facilities, all of which did not reoccur in the current fiscal year quarter.

Segment operating loss for the quarter ended August 31, 2021 was $21.7 million, compared to $29.0 million in the prior fiscal year quarter. The $7.3 million improvement was primarily driven by the increased revenues across all channels, primarily in the trade channel, partially offset by higher employee-related costs due to the absence of furlough and reduced work week programs that benefited the prior fiscal year quarter.

Education Solutions


	Three months ended
	August 31,			August 31,			$		%
($ amounts in millions)	2021			2020			Change		Change
Revenues	$	80.1		$	53.6		$	26.5	49.4	%
Cost of goods sold		32.8			22.8			10.0	43.9	%
Other operating expenses (1)		40.0			33.2			6.8	20.5	%

Operating income (loss)	$	7.3		$	(2.4)		$	9.7	NM
Operating margin		9.1	%		—	%

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

NM Not meaningful

Revenues for the quarter ended August 31, 2021 increased to $80.1 million, compared to $53.6 million in the prior fiscal year quarter, resulting in an increase of $26.5 million. The increase in segment revenues was primarily driven by higher sales of instructional products and programs, including the newly launched

PreK On My Way,

2422


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

~~This decrease~~an early childhoodprogram, and the Company's summer learning product offerings and Leveled Bookroom, coupled with increased sales of the Company's traditional classroom book collections and digital products. The revenue increase was partially offset by ~~sales of frontlist titles including~~ ~~The Ballad of Songbirds and Snakes~~ ~~(A Hunger Games Novel),~~ ~~Logan Likes Mary Anne!~~ ~~(The Baby-Sitters Club~~^® ~~Graphix #8), Captain Underpants and~~lower revenues from the ~~Revolting Revenge of the Radioactive Robo-Boxers~~ ~~(Color Edition),~~ ~~The Bad Guys~~Company's teaching resources business, which benefited in the ~~Dawn of~~prior fiscal year quarter as parents used these products to supplement remote and hybrid learning resulting from COVID-19. The Company anticipates federal stimulus funds to be utilized by schools during the ~~Underlord~~ ~~(The Bad Guys~~^® ~~#11),~~ ~~Karen's Roller Skates~~ ~~(Baby-Sitters Little Sister~~^® ~~Graphic Novel #2);~~ ~~Forget Me Nat~~ ~~(Nat Enough #2), and~~ ~~You Should See Me in a Crown~~ ~~by best-selling author Leah Johnson, as well as increased sales of workbooks within the Company's Scholastic Early Learners~~^TM~~and BOB Books~~^® ~~lines and higher audio book sales.~~2021/2022 school year to help students accelerate their learning post-pandemic.

Cost of goods sold for the quarter ended August 31, ~~2020~~2021 was ~~$54.6~~$32.8 million, or ~~60.1%~~40.9% of revenues, compared to ~~$65.5~~$22.8 million, or 59.8% of revenues, in the prior fiscal year quarter. The increase in Cost of goods sold as a percentage of revenues was primarily driven by higher royalty costs associated with the product mix within the trade channel.

Other operating expenses for the quarter ended August 31, 2020 decreased to $65.5 million, compared to $85.8 million in the prior fiscal year quarter. The decrease was attributable to cost-saving measures, which primarily resulted in a reduction in employee-related costs across all channels in the segment, as well as the temporary closure of book fair distribution facilities.

Segment operating loss for the quarter ended August 31, 2020 was $29.2 million, compared to an operating loss of $41.7 million in the prior fiscal year quarter. The $12.5 million improvement was primarily driven by cost-saving measures, which resulted in a decrease in employee-related costs and warehouse and distribution center costs. The Company expects continued impact from COVID-19 and related school re-opening issues, and continues to monitor costs in the school channels, while simultaneously preparing itself to be in a position to respond to varied customer requirements which may emerge as a result of the pandemic.

~~Education~~

Three months ended
August 31, August 31, $ %
($ amounts in millions) 2020 2019 change change
Revenues $ 53.6 $ 48.4 $ 5.2 10.7 %
Cost of goods sold 22.6 20.9 1.7 8.1 %
Other operating expenses ⁽¹⁾
33.2 40.9 (7.7) (18.8) %
Operating income (loss) $ (2.2) $ (13.4) $ 11.2 83.6 %
Operating margin — % — %

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

Revenues for the quarter ended August 31, 2020 increased to $53.6 million, compared to $48.4 million in the prior fiscal year quarter. The $5.2 million increase was primarily due to higher sales of instructional programs, including programs provided through the Company's Summer LitCamp^® ~~partnership with~~ ~~BellXcell~~^®~~Summer, as well as the Company’s line of~~ ~~Grab and Go~~ ~~summer reading packs. Digital revenues also increased in the quarter ended August 31, 2020, which included a large school district sale of~~ ~~Scholastic Literacy Pro~~^®~~and~~ ~~F.I.R.S.T.~~^®, digital programs for independent reading and foundational reading skills, respectively. The Company's teaching resources business revenues increased from sales of products such as First Little Readers^™ ~~packs and teaching guides and Jumbo and Summer Express activity books.~~

~~Cost of goods sold for the quarter ended August 31, 2020 was $22.6 million, or 42.2% of revenues, compared to $20.9 million, or 43.2%~~42.5% of revenues, in the prior fiscal year quarter. The decrease in Cost of goods sold as a percentage of revenues was primarily ~~due~~attributable to lower fixed costs on a higher revenue base, coupled with favorable product mix from higher digital ~~sales and take-home packs, partially offset by higher postage costs.~~sales.

Other operating expenses for the quarter ended August 31, ~~2020 decreased~~2021 increased to ~~$33.2~~$40.0 million, compared to ~~$40.9~~$33.2 million in the prior fiscal year quarter. The ~~$7.7 million decrease~~increase in Other operating expenses was primarily related to ~~a decrease~~higher employee-related costs as the prior fiscal year quarter benefited from employee furlough and reduced work week programs that did not reoccur in the current fiscal year quarter.

Segment operating income for the quarter ended August 31, 2021 was $7.3 million, compared to an operating loss of $2.4 million in the prior fiscal year quarter. The $9.7 million improvement was primarily driven by higher revenues of instructional products and programs, traditional classroom book collections and digital products, partially offset by increased employee-related costs due to the absence of furlough and reduced work week programs that benefited the prior fiscal year quarter.

International


	Three months ended
	August 31,			August 31,			$		%
($ amounts in millions)	2021			2020			Change		Change
Revenues	$	63.9		$	69.3		$	(5.4)	(7.8)	%
Cost of goods sold		36.1			37.1			(1.0)	(2.7)	%
Other operating expenses (1)		29.5			27.4			2.1	7.7	%

Operating income (loss)	$	(1.7)		$	4.8		$	(6.5)	NM
Operating margin		—	%		6.9	%

(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 August 31, 2021 decreased to $63.9 million, compared to $69.3 million in the prior fiscal year quarter. Local currency revenues across the Company's foreign operations decreased by $9.0 million, partially offset by favorable foreign exchange of $3.6 million. Australia and New Zealand local currency revenues decreased $4.4 million, primarily in the trade and book clubs channels, due to restrictions from the COVID variant which were not in place in the prior fiscal year quarter. In Asia, local currency revenues decreased $2.9 million primarily driven by lower direct-to-home sales as a result of ~~cost-saving measures implemented to mitigate~~ the continued impact of ~~COVID-19.~~the pandemic. In Canada, local currency revenues decreased $0.9 million primarily due to lower trade channel revenues. In the UK, local currency revenues decreased by $0.5 million primarily due to lower co-edition and specialty sales. In addition, export channel revenues decreased $0.3 million as compared to the prior fiscal year quarter.

Cost of goods sold for the quarter ended August 31, 2021 was $36.1 million, or 56.5% of revenues, compared to $37.1 million, or 53.5% of revenues, in the prior fiscal year quarter. The increase in cost of goods sold as a percentage of revenue was driven by higher inventory reserves recognized in Canada, primarily in the book fairs channel.

Other operating expenses for the quarter ended August 31, 2021 were $29.5 million, compared to $27.4 million in the prior fiscal year quarter. Other operating expenses increased $2.1 million primarily driven by lower government subsidies related to COVID-related governmental retention programs in Canada, the UK, Australia and New Zealand which decreased by $4.3 million to $1.2 million as compared to $5.5 million in the prior fiscal year quarter. This increase was partially offset by lower severance expense related to restructuring programs which decreased by $0.6 million to $0.4 million compared to $1.0 million in the prior fiscal year quarter.

2523


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

Segment operating loss for the quarter ended August 31, ~~2020~~2021 was ~~$2.2~~$1.7 million, compared to an operating loss of $13.4 million in the prior fiscal year quarter. The $11.2 million improvement was primarily driven by revenue increases in a number of education business lines, including digital product subscriptions, teaching resources, summer literacy camps and summer reading programs, coupled with cost-saving measures taken to mitigate the impact of COVID-19.

~~International~~

Three months ended
August 31, August 31, $ %
($ amounts in millions) 2020 2019 change change
Revenues $ 70.7 $ 74.6 $ (3.9) (5.2) %
Cost of goods sold 37.6 38.7 (1.1) (2.8) %
Other operating expenses ⁽¹⁾
27.9 39.6 (11.7) (29.5) %
Operating income (loss) $ 5.2 $ (3.7) $ 8.9 240.5 %
Operating margin 7.4 % — %

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

Revenues for the quarter ended August 31, 2020 decreased to $70.7 million, compared to $74.6 million in the prior fiscal year quarter. Local currency revenues across the Company's foreign operations decreased by $4.3 million partially offset by favorable foreign exchange of $0.4 million. In Canada, local currency revenues decreased $1.5 million, primarily driven by lower school-based channel sales resulting from the impact of COVID-19, partially offset by increased sales of best-selling trade titles. In the UK, local currency revenues decreased $0.2 million, primarily due to lower volumes in the book fairs channel, partially offset by increased book clubs sales from parent-to-home orders and demand for digital product, as well as increased sales of the ~~Hunger Games~~^® titles within the trade channel. Australia and New Zealand local currency revenues increased $1.5 million, primarily on higher revenue from the trade and book clubs channels, partially offset by lower volumes in the book fairs channel. In Asia, local currency revenues decreased $4.9 million primarily related to lower revenues from the direct sales channel due in part to the adverse impact of COVID-19. In addition, revenues from the export and foreign rights channels increased a total of $0.8 million compared to the prior fiscal year quarter.

Cost of goods sold for the quarter ended August 31, 2020 was $37.6 million, or 53.2% of revenues, compared to $38.7 million, or 51.9% of revenues, in the prior fiscal year quarter. The higher cost of goods sold as a percentage of revenue was driven by higher royalty costs due to a sales shift to trade titles with higher royalty rates.

Other operating expenses for the quarter ended August 31, 2020 were $27.9 million, compared to $39.6 million in the prior fiscal year quarter. Other operating expenses decreased $11.7 million primarily driven by COVID-related governmental employee retention programs in Australia, Canada, and the UK, which are expected to cease in fiscal 2021, in addition to lower employee-related expenses as a result of cost-saving programs implemented by the Company. This decrease was partially offset by severance expense of $1.0 million in the quarter ended August 31, 2020 related to the cost-reduction measures.

~~Segment~~ operating income ~~for the quarter ended August 31, 2020 was $5.2 million, compared to segment operating loss~~ of ~~$3.7~~$4.8 million in the prior fiscal year quarter. Total local currency operating results across the Company's foreign operations ~~increased $8.7~~decreased $6.4 million, primarily driven by lower revenues, coupled with lower subsidies from COVID-related governmental employee retention programs and lower employee-related costs as a result of cost-saving measures, in addition to increased trade channel revenues, partially offset by lower revenues in the book fairs and direct sales channels.programs.

Overhead

Unallocated overhead expense for the quarter ended August 31, ~~2020 increased~~2021 decreased by ~~$2.2~~$14.5 million to ~~$30.8~~$15.9 million, from ~~$28.6~~$30.4 million in the prior fiscal year quarter. ~~Severance~~The decrease was primarily attributable to lower severance expense related to ~~cost-reduction~~restructuring programs, ~~increased~~which decreased by ~~$8.2~~$9.0 million to ~~$11.0~~$2.0 million, compared to ~~$2.8~~$11.0 million in the prior fiscal year ~~quarter.~~


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

quarter, coupled with $6.6 million of insurance recoveries received in the current fiscal year quarter related to the intellectual property legal settlement accrued in fiscal 2021. The ~~increase~~decrease was partially offset by ~~lower~~higher employee-related costs ~~and technology-related spending in an effort to mitigate the impact on operating income of lower sales volumes due to COVID-19, as well~~ as the ~~absence of a $1.5 million settlement, without admission of liability, for an alleged patent infringement~~prior fiscal year quarter benefited from employee furlough and reduced work week programs that ~~occurred~~did not reoccur in the ~~prior~~current fiscal year ~~fiscal~~ quarter.

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 first and fourth quarters. Trade sales can vary throughout the year due to varying release dates of published titles. While the Company generally experiences a loss from operations in the first and third quarters of each fiscal year, the second quarter of fiscal 2021, ending November 30, 2020, which is traditionally an income quarter, is expected to be negatively impacted by the COVID-19 pandemic. Presently, there ~~are many~~remain uncertainties concerning the timing of and any patterns which may emerge ~~from,~~with respect to school ~~re-openings~~instruction, whether in-school, remote or hybrid for the ~~new~~ school year, and the nature and continuing magnitude of the negative impact of COVID-19 into and beyond the second quarter of fiscal ~~2021 will depend on the actual timing and emerging patterns of such re-openings throughout the United States.~~2022.

Liquidity and Capital Resources

Cash ~~used~~provided by operating activities was ~~$26.0~~$63.6 million for the three months ended August 31, ~~2020,~~2021, compared to cash used byin operating activities of ~~$97.6~~$26.0 million for the prior fiscal year ~~quarter,~~period, representing ~~a decrease~~an increase in cash ~~used~~provided by operating activities of ~~$71.6~~$89.6 million. ~~While there were lower revenues~~The increase in cash provided was primarily driven by the federal income tax refund of $63.1 million and $6.6 million of insurance recoveries related to the intellectual property legal settlement, both received in the ~~quarter ended August 31, 2020, the cost-saving measures taken by the Company resulted in a decrease in cash used compared to the prior~~current fiscal year ~~quarter. The Company modified~~quarter, coupled with lower inventory ~~procurement and other activities, which usually ramp up in advance~~purchases as a result of the back-to-school selling season, to adapt to the anticipated impact of the COVID-related delays in school re-openings. In addition, there was an overall reduction in general spending as part of the cost-saving programs, such as lower payroll spending due to employee furlough programs, lower spending on non-essential projects, and limitations on expenditures related to travel, events, and conferences. The Company intends to continue to limit spending in view of the economic uncertainty brought on by the global pandemic.improved inventory management.

Cash used in investing activities was ~~$8.9~~$14.5 million for the three months ended August 31, ~~2020,~~2021, compared to cash used in investing activities of ~~$24.3~~$8.9 million in the prior fiscal year ~~quarter,~~period, representing ~~a decrease~~an increase in cash used in investing activities of ~~$15.4~~$5.6 million. The ~~decrease~~increase in cash used was ~~primarily~~ driven by the net proceeds from the sale of the Danbury facility of $12.3 million ~~and the absence of the UK land acquisition of $3.3 million~~ which ~~occurred in~~benefited the prior fiscal year ~~quarter. The~~quarter, partially offset by lower capital expenditures of $5.8 million in the quarter ended August 31, 2021 as the Company ~~intends to continue~~continued to limit ~~investment~~ spending to strategic investments in ~~view~~key growth areas of the ~~economic uncertainty brought on by the global pandemic.~~business and in technology, both internal and customer-facing, to allow it to operate with greater efficiency.

Cash used in financing activities was ~~$5.3~~$105.6 million for the three months ended August 31, ~~2020,~~2021, compared to cash used in financing activities of ~~$12.3~~$5.3 million for the prior fiscal year ~~quarter,~~period, representing ~~a decrease~~an increase in cash used in financing activities of ~~$7.0~~$100.3 million. The ~~decrease~~increase in cash used is primarily related to a repayment of borrowings under the ~~suspension~~U.S. loan agreement of $100.0 million during the Company's share buy back program pursuant to which $12.6 million of common stock was reacquired in the prior fiscal year quarter. This was partially offset by lower short-term credit facility net borrowings of $7.8 million.quarter ended August 31, 2021.

Cash Position

The Company’s cash and cash equivalents totaled $308.6 million at August 31, 2021, $366.5 million at May 31, 2021 and $355.5 million at August 31, ~~2020, $393.8 million at May 31, 2020 and $199.4 million at August 31, 2019.~~2020. Cash and cash equivalents held by the Company’s U.S. operations totaled ~~$323.7~~$271.9 million at August 31, ~~2020, $364.2~~2021, $318.0 million at May 31, 2020 and ~~$177.5~~$323.7 million at August 31, ~~2019.~~2020.

2724


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

Due to the seasonal nature of its business as discussed under “Seasonality” above, the Company usually experiences negative cash flows in the June through October time period. As a result of the Company’s business cycle, borrowings have historically increased during June, July and August, have generally peaked in September or October, and have been at their lowest point in May. The Company expects lower cash receipts from its school channel businesses in the second quarter of fiscal 2021 as a result of the effects of COVID-19 on school re-openings, resulting in lower book fairs and book clubs revenues. As a precautionary measure in the context of the COVID-19 pandemic, the Company accessed its ~~$375.0 million~~ committed bank credit facility in the fourth quarter of fiscal 2020 by taking a U.S. dollar LIBOR-based advance for $200.0 million. During fiscal 2021, the Company paid down $25.0 million ~~although there continues to be~~of the borrowing and, during the first quarter of fiscal 2022, the Company paid down $100.0 million of the borrowing, resulting in $75.0 million outstanding as of August 31, 2021, which is classified as current. There is no immediate working capital ~~requirement.~~requirement, but the Company will continue to evaluate the borrowing position during the fiscal year.

On December 16, 2020, the U.S. loan agreement was amended, which, among other things, included adjustments to certain covenant thresholds and reduced the borrowing limit from $375.0 million to $250.0 million. See Note 4 of Notes to the Financial Statements - Unaudited in Item 1, "Financial Statements" for more information concerning the amended U.S. loan agreement.

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. The ~~Company’s~~Company has lifted the temporary suspension of its open-market buy-back program ~~continues to be suspended in the face~~under which $67.3 million remained available for future purchases of ~~COVID-19 uncertainties.~~common shares as of August 31, 2021.

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 appropriate in the context of COVID-19 considerations. As of August 31, ~~2020,~~2021, the Company’s primary sources of liquidity consisted of cash and cash equivalents of ~~$355.5~~$308.6 million, cash from operations and the Company's loan agreements in the USU.S. and the UK. As indicated above, the U.S. loan agreement was amended on December 16, 2020, which reduced the borrowing limit from $375.0 million to $250.0 million. The Company expects the amended U.S. loan agreement to provide it with an appropriate level of flexibility to strategically manage the business operations. The Company's amended U.S. loan agreement and its loan agreements in the UK ~~totaling $386.4~~total $261.8 million, less borrowings of ~~$211.4~~$82.1 million and commitments of $0.4 million, resulting in ~~$174.6~~$179.3 million of availability. The Company may at any time, but in any event not more than once in any calendar year, request that the aggregate availability of credit under the US Loan Agreement be increased by an amount of $10.0 million or an integral multiple of $10.0 million (but not to exceed $150.0 million). Additionally, the Company has short-term credit facilities of ~~$55.2~~$37.9 million, less current borrowings of ~~$8.5~~$7.4 million and commitments of $3.9 million, resulting in ~~$42.8~~$26.6 million of current availability at August 31, ~~2020.~~2021. 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, taking COVID-19 into consideration.


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

Financing

The Company is party to the ~~US and~~U.S. loan agreement, the UK ~~Loan Agreements~~loan agreements and certain credit lines with various banks as described in Note 4 of Notes to Condensed Consolidated Financial Statements - unaudited in Item 1, “Financial Statements." The Company had ~~$200.0~~$75.0 million in outstanding borrowings under the ~~US Loan Agreement~~U.S. loan agreement as of August 31, ~~2020.~~2021, which are classified as current. As indicated above, on December 16, 2020, the Company entered into the Amendment to the U.S. loan agreement which included temporary covenant relief and a reduction in the maximum commitments. On September 23, 2019, Scholastic Limited UK entered into a term loan agreement to borrow £2.0 million to fund a land purchase in connection with the construction of the new UK ~~facility.~~facility in Warwickshire. The loan has a maturity date of July 31, ~~2021.~~2022. As of August 31, ~~2020,~~2021, the Company had ~~$2.7~~$2.8 million outstanding on the loan. On January 24, 2020, Scholastic Limited UK entered into a term loan facility with a borrowing limit of £6.6 million to fund the construction of the new UK ~~facility.~~facility in Warwickshire. The loan has a maturity date of July 31, ~~2021.~~2022. As of August 31, ~~2020,~~2021, the Company had ~~$8.7~~$4.3 million outstanding on the loan.

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, ~~2020.~~2022.

2826


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

Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. Additional written and oral forward-looking statements may be made by the Company from time to time in Securities and Exchange Commission ("SEC") filings and otherwise. The Company cautions readers that results or expectations expressed by forward-looking statements, including, without limitation, those relating to the Company’s future business prospects and strategic plans, ecommerce and digital initiatives, new product introductions, strategies, new education standards, goals, revenues, improved efficiencies, general costs, 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, including, in particular, how the foregoing may be affected by developments in the context of the current COVID-19 pandemic and measures or responses of governmental authorities, school administrators, business suppliers or customers, 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.

2927



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 August 31, ~~2020.~~2021. 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 4 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 August 31, ~~2020:~~2021:

($ amounts in millions) Fiscal Year Maturity

2021⁽¹⁾
2022 2023 2024 2025 Thereafter Total Fair
Value @
8/31/2020
Debt Obligations
Lines of credit and current
portion of long-term debt $ 8.5 11.4 — — — — $ 19.9 $ 19.9
Average interest rate 4.2 % 1.9 % — — — —
Long-term debt $ — 200.0 $ — $ — $ — $ — $ 200.0 $ 200.0
Average interest rate — 1.4 % — — — —


($ amounts in millions)	Fiscal Year Maturity
	2022(1)			2023			2024		2025		2026		Thereafter		Total		Fair Value @ 08/31/2021
Debt Obligations
Lines of credit and current portion of long-term debt	$	82.4		$	7.1		$	—	$	—	$	—	$	—	$	89.5	$	89.5
Average interest rate	2.1		%	2.4		%	—		—		—		—

(1) Fiscal ~~2021~~2022 includes the remaining nine months of the current fiscal year ending May 31, ~~2021.~~2022.

3028



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 August 31, ~~2020,~~2021, 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 August 31, ~~2020~~2021 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

3129

PART II – OTHER INFORMATION

SCHOLASTIC CORPORATION

Item 6. Exhibits

Exhibits:


10.1*			Employment Agreement between Scholastic Corporation and Peter Warwick, effective August 1, 2021 (incorporated by reference to the Corporation's Form 8-K dated July 19, 2021).

10.2*			Employment Agreement between Scholastic Corporation and Rosamund M. Else-Mitchell, dated September 14, 2020 (executive officer as of June 1, 2021).

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 August 31, 2020 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 Inline Extensible Business Reporting Language and contained in Exhibit 101.~~

~~SCHOLASTIC CORPORATION~~

~~QUARTERLY REPORT ON FORM 10-Q, DATED August 31, 2020~~

~~Exhibits Index~~


~~Exhibit Number~~			~~Description of Document~~
~~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 August 31, 2020~~2021 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 Inline Extensible Business Reporting Language and contained in Exhibit 101.

* The referenced exhibit is a management contract or compensation plan or arrangement described in Item 601(b) (10) (iii) of Regulation S-K.

3330

SCHOLASTIC CORPORATION

QUARTERLY REPORT ON FORM 10-Q, DATED August 31, 2021

Exhibits Index


Exhibit Number			Description of Document
10.1*			Employment Agreement between Scholastic Corporation and Peter Warwick, effective August 1, 2021 (incorporated by reference to the Corporation's Form 8-K dated July 19, 2021).

10.2*			Employment Agreement between Scholastic Corporation and Rosamund M. Else-Mitchell, dated September 14, 2020 (executive officer as of June 1, 2021).

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 August 31, 2021 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 Inline Extensible Business Reporting Language and contained in Exhibit 101.

* The referenced exhibit is a management contract or compensation plan or arrangement described in Item 601(b) (10) (iii) of Regulation S-K.

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: September ~~25, 2020~~24, 2021

By:

/s/ ~~Richard Robinson~~Peter Warwick

~~Richard Robinson~~Peter Warwick

~~Chairman of the Board,~~

President and Chief

Executive Officer

(Principal Executive Officer)

Date: September ~~25, 2020~~24, 2021

By:

/s/ Kenneth J. Cleary

Kenneth J. Cleary

Chief Financial Officer

(Principal Financial Officer)

3432


	Children’s Book Publishing & Distribution			Education			Overhead ⁽¹⁾			Total Domestic		International	Total
Three months ended August 31, 2020
Revenues	$	90.9	$	53.6	$	0	$	144.5	$	70.7	$	215.2
Bad debt expense		0.2		0.1		0		0.3		1.1		1.4
Depreciation and amortization ⁽²⁾		6.6		3.1		11.5		21.2		1.5		22.7

Segment operating income (loss)		(29.2)		(2.2)		(30.8)		(62.2)		5.2		(57.0)
Segment assets at August 31, 2020		555.4		215.6		985.8		1,756.8		299.5		2,056.3
Goodwill at August 31, 2020		47.4		68.2		0		115.6		10.0		125.6
Expenditures for other noncurrent assets⁽³⁾		12.1		3.1		10.8		26.0		3.5		29.5
Other non-current assets at August 31, 2020 ⁽³⁾		172.6		123.9		491.1		787.6		81.5		869.1
Three months ended August 31, 2019
Revenues	$	109.6	$	48.4	$	0	$	158.0	$	74.6	$	232.6
Bad debt expense		0.5		0.0		0		0.5		1.1		1.6
Depreciation and amortization ⁽²⁾		6.7		3.1		11.0		20.8		1.7		22.5

Segment operating income (loss)		(41.7)		(13.4)		(28.6)		(83.7)		(3.7)		(87.4)
Segment assets at August 31, 2019		651.9		198.7		808.4		1,659.0		285.6		1,944.6
Goodwill at August 31, 2019		46.8		68.2		0		115.0		10.0		125.0
Expenditures for other noncurrent assets ⁽³⁾		14.0		4.6		7.6		26.2		6.9		33.1
Other non-current assets at August 31, 2019 ⁽³⁾		219.2		120.0		520.0		859.2		93.0		952.2


2021	$	19.9
2022		200.0
2023		0
2024		0
2025		0
Thereafter		0
Total debt	$	219.9


($ amounts in millions)	Fiscal Year Maturity
	2021⁽¹⁾			2022		2023		2024		2025		Thereafter		Total		Fair Value @ 8/31/2020
Debt Obligations
Lines of credit and current portion of long-term debt	$	8.5		11.4		—		—		—		—		$	19.9	$	19.9
Average interest rate	4.2		%	1.9	%	—		—		—		—

Long-term debt	$	—		200.0		$	—	$	—	$	—	$	—	$	200.0	$	200.0

Average interest rate	—			1.4	%	—		—		—		—