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Item 7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

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

The following discussion and analysis of the Company’s financial position and results of operations should be read in conjunction with the Company’s Consolidated Financial Statements and the related Notes included in Item 8, “Consolidated Financial Statements and Supplementary Data.”

Overview and Outlook

Overview

Revenues from operations for the fiscal year ended May 31, 2024 decreased by $114.3 million, or 6.7%, to $1,589.7 million, compared to $1,704.0 million in the prior fiscal year. The Company reported net income per basic and diluted share of Class A and Common Stock of $0.41 and $0.40, respectively, for the fiscal year ended May 31, 2024, compared to $2.56 and $2.49, respectively, in the prior fiscal year.

The Children's Book Publishing and Distribution segment continued its efforts to reposition the book clubs business to a smaller, more profitable core, which drove a large majority of the segment's decline in revenues. The Company's trade publishing business, however, outperformed the prior year revenues despite modest declines in the retail book market, driven by several new releases from the Company's bestselling series including Hunger Games, Dog Man, Cat Kid Comic Club, Heartstopper,Harry Potter, and Wings of Fire. The Education Solutions segment was impacted by market conditions which drove a decline in supplemental curriculum purchases by schools. Education Solutions continues to make progress in its efforts to develop new literacy products, leveraging the Company’s engaging content and strong brand. International segment revenues were lower in Asia and Australia due to softness in the trade channel in these regions, partially offset by revenue growth in the UK trade channel. The Company took steps to manage and align operating expenses in response, while continuing to invest in long-term growth opportunities, however, these factors caused lower revenues and operating profits.

Operating income in fiscal 2024 was $14.5 million compared to $106.3 million in the prior fiscal year, representing a decrease of $91.8 million. Operating income was impacted by lower revenue per fair in the U.S. book fairs channel, which due to the fixed costs associated with delivering a fair, had a significant impact on operating margins. The decrease was also attributable to restructuring and cost-savings initiatives implemented in fiscal 2024 and costs associated with the early exit of certain leased space, all of which is expected to drive greater operational efficiencies, as well as planned investment costs related to the 9 Story Acquisition and growth initiatives within Education Solutions.

Outlook

On June 20, 2024, the Company completed the 9 Story Acquisition, gaining production, distribution and licensing capabilities, an extensive children’s content library, and a highly talented team. The combined business has already begun and will continue executing on an expanded development and production slate, updating franchise and licensing plans for key Scholastic brands, and planning to leverage 9 Story’s strong YouTube presence and expertise across the Company’s content. The Company will also remain focused on realizing its substantial multi-year opportunity to address the large, broader market for trusted children’s books, reading and media. Though the external environment will continue to pressure results in fiscal 2025, the Company expects to begin seeing the benefit of its strategic investments, especially in children’s intellectual property, as it pursues accelerated growth and margin targets for the next three to five years with continued investment in its key growth initiatives.

Critical Accounting Policies and Estimates

General:

The Company’s discussion and analysis of its financial condition and results of operations is based upon its Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements involves the use of estimates and assumptions by management, which affects the amounts reported in the Consolidated Financial Statements and accompanying notes. The Company bases its estimates on historical experience, current business factors, future expectations 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 assets and liabilities. Actual results may differ from those estimates and assumptions. On an ongoing basis, the Company evaluates the adequacy of its reserves and the estimates used in calculations, including, but not limited to: collectability of accounts receivable; variable consideration related to anticipated returns; allocation of transaction price to contractual performance obligations; amortization periods; stock-based compensation expense; pension and other postretirement obligations; tax rates; recoverability of inventories; deferred income taxes and tax reserves; the timing and amount of future income taxes and related deductions; recoverability of prepublication costs; royalty advance reserves; customer reward programs; and the impairment assessment of long-lived assets, goodwill and other intangibles. For a complete description of the Company’s significant accounting policies, see Note 1, "Description of Business, Basis of Presentation and Summary of Significant Accounting Policies," of Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and Supplementary Data.” The following policies and account descriptions include all those identified by the Company as critical to its business operations and the understanding of its results of operations:

Revenue recognition:

The Company has identified the allocation of the transaction price to contractual performance obligations related to revenues within the school-based book fairs channel, as described below, as a critical accounting estimate.

Revenues associated with school-based book fairs relate to the sale of children's books and other products to book fair sponsors. In addition, the Company employs an incentive program to encourage the sponsorship of book fairs and increase the number of fairs held each school year. The Company identifies two potential performance obligations within its school-based book fair contracts, which include the fulfillment of book fairs product and the fulfillment of product upon the redemption of incentive program credits by customers. The Company allocates the transaction price to each performance obligation and recognizes revenue at a point in time. The Company utilizes certain estimates based on historical experience, redemption patterns and future expectations related to the participation in the incentive program to determine the relative fair value of each performance obligation when allocating the transaction price. Changes in these estimates could impact the timing of the recognition of revenue. Revenue allocated to the book fairs product is recognized at the point at which product is delivered to the customer and control is transferred. The revenue allocated to the incentive program credits is recognized upon redemption of incentive credits and the transfer of control of the redeemed product. Incentive credits are generally redeemed within 12 months of issuance. Payment for school-based book fairs product is due at the completion of a customer's fair. Revenues associated with virtual fairs are recognized upon shipment of the products and related incentive program credits are expensed upon issuance.

Estimated returns:

For sales that include a right of return, the Company estimates the transaction price and records revenues as variable consideration based on the amounts the Company expects to ultimately be entitled. In order to determine estimated returns, the Company utilizes historical return rates, sales patterns, types of products and expectations and recognizes a corresponding reduction to Revenues and Cost of goods sold. Management also considers patterns of sales and returns in the months preceding the fiscal year, as well as actual returns received subsequent to the fiscal year, available customer and market specific data and other return rate information that management believes is relevant. In addition, a refund liability is recorded within Other accrued expenses for the consideration to which the Company believes it will not ultimately be entitled and a return asset is recorded within Prepaid expenses and other current assets for the expected inventory to be returned. Actual returns could differ from the Company's estimate. A one percentage point change in the estimated reserve for returns rate would have resulted in an increase or decrease in operating income for the year ended May 31, 2024 of approximately $4.3 million.

Inventories:

Inventories, consisting principally of books, are stated at the lower of cost, using the first-in, first-out method, or net realizable value. The Company records a reserve for excess and obsolete inventory based upon a calculation using the expected future sales of existing inventory driven by estimates around forecasted purchases, inventory consumption costs, and the sell-through rate of current fiscal year purchases. In accordance with the Company's inventory retention policy, expected future sales of existing inventory are compared against historical usage by channel for reasonableness and any specifically identified excess or obsolete inventory, due to an anticipated lack of demand, will also be reserved. The impact of a one percentage point change in the obsolescence reserve rate would have resulted in an increase or decrease in operating income for the year ended May 31, 2024 of approximately $3.6 million.

Royalty advances:

Royalty advances are initially capitalized and subsequently expensed as related revenues are earned or when the Company determines future recovery through earndowns is not probable. The Company has a long history of providing authors, illustrators, licensors and other publishers with royalty advances, and it tracks each advance earned with respect to the sale of the related publication. Historically, the longer the unearned portion of the advance remains outstanding, the less likely it is that the Company will recover the advance through the sale of the publication, as the related royalties earned are applied first against the remaining unearned portion of the advance. The Company applies this historical experience to its existing outstanding royalty advances to estimate the likelihood of recovery. Additionally, the Company’s editorial staff regularly reviews its portfolio of royalty advances to determine if individual royalty advances are not recoverable through earndowns for discrete reasons, such as the death of an author prior to completion of a title or titles, a Company decision to not publish a title, poor market demand or other relevant factors that could impact recoverability.

Evaluation of Goodwill impairment:

Goodwill is not amortized and is reviewed for impairment annually or more frequently if impairment indicators arise.

The Company compares the estimated fair values of its identified reporting units to the carrying values of their net assets. The Company first performs a qualitative assessment to determine whether it is more likely than not that the fair values of its identified reporting units are less than their carrying values. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company performs the quantitative goodwill impairment test. The Company measures goodwill impairment by the amount the carrying value exceeds the fair value of a reporting unit. For each of the reporting units, the estimated fair value is determined utilizing the expected present value of the projected future cash flows of the reporting unit, in addition to comparisons to similar companies. The Company reviews its definition of reporting units annually or more frequently if conditions indicate that the reporting units may change. The Company evaluates its operating segments to determine if there are components one level below the operating segment level. A component is present if discrete financial information is available and segment management regularly reviews the operating results of the business. If an operating segment only contains a single component, that component is determined to be a reporting unit for goodwill impairment testing purposes. If an operating segment contains multiple components, the Company evaluates the economic characteristics of these components. Any components within an operating segment that share similar economic characteristics are aggregated and deemed to be a reporting unit for goodwill impairment testing purposes. Components within the same operating segment that do not share similar economic characteristics are deemed to be individual reporting units for goodwill impairment testing purposes.

The Company has five reporting units with goodwill subject to impairment testing. The determination of the fair value of the Company’s reporting units involves a number of assumptions, including the estimates of future cash flows, discount rates and market-based multiples, among others, each of which is subject to change. Accordingly, it is possible that changes in assumptions and the performance of certain reporting units could lead to impairments in future periods, which may be material.

Income taxes:

The Company uses the asset and liability method of accounting for income taxes. Under this method, for purposes of determining taxable income, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of such assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to be realized.

The Company believes that its taxable earnings, during the periods when the temporary differences giving rise to deferred tax assets become deductible or when tax benefit carryforwards may be utilized, should be sufficient to realize the related future income tax benefits. For those jurisdictions where the expiration date of the tax benefit carryforwards or the projected taxable earnings indicate that realization is not likely, the Company establishes a valuation allowance.

In assessing the need for a valuation allowance, the Company estimates future taxable earnings, with consideration for the feasibility of ongoing tax planning strategies and the realizability of tax benefit carryforwards, to determine which deferred tax assets are more likely than not to be realized in the future. Valuation allowances related to deferred tax assets can be impacted by changes to tax laws, changes to statutory tax rates and future taxable earnings. In the event that actual results differ from these estimates in future periods, the Company may need to adjust the valuation allowance.

Results of Operations - Consolidated

(Amounts in millions, except per share data)For fiscal years ended May 31,

$ % (1) $ % (1)

Revenues:

Asset impairments and write downs (4) 10.0 0.6 — —

Other components of net periodic benefit (cost) (1.0) (0.1) 0.3 0.0

Provision (benefit) for income taxes (5) 4.1 0.2 25.9 1.5

Less: Net income (loss) attributable to noncontrolling interest — — 0.2 0.0

Net income (loss) attributable to Scholastic Corporation $ 12.1 0.8 $ 86.3 5.1

Basic and diluted earnings (loss) per share of Class A and Common Stock

(1) Represents percentage of total revenues.

(2) Represents rental income related to leased space in the Company's headquarters which was not allocated to a segment. Rental income of $7.1 was recognized as a reduction to Selling, general and administrative expenses for the fiscal year ended May 31, 2023.

(3) In fiscal 2024, the Company recognized pretax costs related to its planned investment in 9 Story Media Group Inc. of $9.3 and pretax expense of $10.9, primarily severance related to restructuring and cost-savings initiatives.

(4) In fiscal 2024, the Company recognized pretax asset impairment of $6.1 related to certain education products and $3.9 related to the early exit of certain leased office space in the U.S. and Canada.

(5) In fiscal 2024, the Company recognized a benefit of $7.7 for income taxes in respect to one-time pretax items.

Results of Operations – Consolidated

The section below is a discussion of the Company's fiscal year 2024 results compared to fiscal year 2023. A discussion of the Company's fiscal year 2023 results compared to fiscal year 2022 is not included in this Form 10-K and can be found in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the year ended May 31, 2023, filed as part of the Company's Form 10-K dated July 21, 2023.

Fiscal 2024 compared to fiscal 2023

Revenues from operations for the fiscal year ended May 31, 2024 decreased by $114.3 million, or 6.7%, to $1,589.7 million, compared to $1,704.0 million in the prior fiscal year. Children’s Book Publishing and Distribution, Education Solutions and International segment revenues decreased $82.8 million, $35.4 million and $5.8 million, respectively.

Within the Children’s Book Publishing and Distribution segment, decreased revenues of $82.8 million were primarily driven by a $55.1 million decline in the book clubs channel sales as efforts to reposition the business to a smaller, more profitable core resulted in a lower number of sponsors and fewer events. Book fairs channel revenues were also lower by $11.5 million primarily due to lower revenue per fair. Excluding entertainment revenues, which benefited from the prior year release of the animated series "Eva the Owlet"TM, trade channel revenues increased $0.9 million, despite modest declines in the retail book market.

Within the Education Solutions segment, decreased revenues of $35.4 million were driven by lower sales of supplemental instructional materials and summer reading products as well as lower revenues from the Magazines+ business. The segment was impacted by market conditions, including declining spending on supplemental curriculum materials, especially those not explicitly aligned with science-based approaches to literacy, as well as increased competition in this segment of the market. The Company continues to adapt its products to align with the prevailing approaches to literacy instruction.

Revenues in the International segment decreased $5.8 million due to lower sales from the trade and education channels in Asia, coupled with lower trade channel sales in Australia, partially offset by increased revenues in the UK from the trade and book fairs channels. International segment revenues were also impacted by unfavorable foreign currency exchange of $1.1 million.

Components of Cost of goods sold for fiscal years 2024 and 2023 are as follows:

($ amounts in millions)

Postage, freight, shipping, fulfillment and all other costs 141.7 8.9 152.4 9.0

Cost of goods sold as a percentage of revenue for the fiscal year ended May 31, 2024 was 44.4%, compared to 46.2% in the prior fiscal year. The improvement in Cost of goods sold as a percentage of revenues was primarily attributable to favorable product expenses due to lower printing and inbound freight costs and decreased production costs due to the prior year release of "Eva the Owlet," in addition to lower royalties as a result of a higher mix of lower-royalty bearing titles sold in the period ended May 31, 2024, primarily in the U.S. trade and book fairs channels. This was partially offset by higher prepublication amortization as a result of the release of Ready4Reading at the end of fiscal 2023. Inbound freight costs have returned to pre-pandemic levels, however, there remains uncertainty regarding increases to inbound shipping costs due to supply chain disruptions, which could result in increased product costs in the near future.

Selling, general and administrative expenses for the fiscal year ended May 31, 2024 were $803.0 million, compared to $756.6 million in the prior fiscal year. The $46.4 million increase was primarily due to costs of $10.9 million related to restructuring and cost-savings initiatives, primarily severance expense, in the U.S., Canada and Asia, $9.3 million of costs associated with the planned investment in 9 Story, as well as higher labor and equipment costs and rent for warehouse space in the U.S. book fairs channel. Additionally, in the prior year the Company benefited from COVID-related subsidies of $3.3 million, an insurance recovery of $5.0 million related to photo litigation settlements accrued and paid in prior periods, and a favorable settlement of $1.8 million related to legacy sales tax matters, all of which did

not repeat in fiscal 2024. These increases were partially offset by lower promotional spending, primarily in the U.S. book clubs and education channels.

Depreciation and amortization expenses for the fiscal year ended May 31, 2024 were $57.1 million, compared to $54.7 million in the prior fiscal year. The $2.4 million increase was primarily driven by certain assets related to the Company's technology systems placed into service during the year ended May 31, 2024. The Company continues to shift to cloud computing arrangements (e.g. software as a service) which results in capitalized software being amortized through Selling, general and administrative expenses rather than Depreciation and amortization. Amortization of capitalized cloud software increased $1.1 million when compared to the prior fiscal year as a result of new assets placed into service.

Asset impairments and write downs for the fiscal year ended May 31, 2024 were $10.0 million. The Company recognized an asset impairment of $6.1 million related to certain education products as a result of the shift to science of reading based approaches to literacy instruction in the education market. In addition, the Company ceased use of certain leased office space in the U.S. and Canada as part of the Company's efforts to rightsize its real estate footprint to reduce occupancy costs, resulting in an impairment expense of $3.9 million related to the right-of-use assets associated with the operating leases.

Interest income for the fiscal year ended May 31, 2024 was $4.6 million, compared to $7.2 million in the prior fiscal year. Approximately $2.0 million of the decrease related to interest income on tax refunds received during fiscal 2023 that did not repeat in fiscal 2024. The remaining decrease in interest income was due to lower average investment balances as compared to the prior fiscal year. The Company invests excess cash in short term investments which earn competitive interest rates that change directionally in relation to the Federal Funds rate.

Interest expense for the fiscal year ended May 31, 2024 was $1.9 million, compared to $1.4 million in the prior fiscal year. The increase in interest expense was due to higher average debt borrowings as compared to the prior fiscal year. Interest expense is expected to significantly increase in fiscal 2025 as a result of additional borrowings associated with the 9 Story Acquisition.

The Company’s effective tax rate for the fiscal year ended May 31, 2024 was a 25.3% tax provision, compared to 23.0% in the prior fiscal year. The fiscal 2024 tax provision was impacted by a permanent item for transaction costs related to the 9 Story Acquisition, partially offset by lower state income taxes due to utilizing net operating losses from prior periods.

Net income for fiscal 2024 was $12.1 million compared to $86.5 million in fiscal 2023, a decrease of $74.4 million. The basic and diluted income per share of Class A Stock and Common Stock was $0.41 and $0.40, respectively, in fiscal 2024, compared to basic and diluted income per share of Class A Stock and Common Stock of $2.56 and $2.49, respectively, in fiscal 2023. Outstanding shares decreased 11% from 31.7 million to 28.2 million as of May 31, 2024 which is expected to benefit earnings per share calculations in fiscal 2025.

Net income attributable to noncontrolling interest for fiscal 2023 was $0.2 million.

Results of Operations – Segments

CHILDREN’S BOOK PUBLISHING AND DISTRIBUTION

($ amounts in millions) 2024 compared to 2023

Asset impairments and write downs 0.5 — 0.5 NM

* Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization.

NM Not meaningful

Fiscal 2024 compared to fiscal 2023

Revenues for the fiscal year ended May 31, 2024 decreased by $82.8 million to $955.2 million, compared to $1,038.0 million in the prior fiscal year. Revenues from school reading events decreased $66.6 million primarily due to lower revenues of $55.1 million from the book clubs channel as efforts to reposition the business to a smaller, more profitable core resulted in a lower number of sponsors and fewer events. Revenues from the book fairs channel decreased $11.5 million due to lower revenue per fair, partially offset by increased fair count. Trade channel revenues decreased $16.2 million as compared to the prior year. Excluding entertainment revenues, which benefited from the prior year release of the animated series "Eva the Owlet", trade channel revenues increased $0.9 million, despite modest declines in the retail book market. The trade channel benefited from sales of the new paperback edition of The Ballad of Songbirds and Snakes in connection with Lionsgate's theatrical release in November 2023 and a related increase in sales of titles from the original Hunger Games trilogy as well as strong sales from numerous best-selling new releases including Dog Man#12: The Scarlett Shedder, Cat Kid Comic Club#5: Influencers, Heartstopper #5, the interactive edition of Harry Potter and the Prisoner of Azkaban, Wings of Fire Graphix #7: Winter Turning, The Baby-Sitters Club Graphic Novel #15: Claudia and the Bad Joke, Amulet #9: Waverider, and Heroes: A Novel of Pearl Harbor.

Cost of goods sold for the fiscal year ended May 31, 2024 was $412.1 million, or 43.1% of revenues, compared to $481.7 million, or 46.4% of revenues, in the prior fiscal year. The improvement in Cost of goods sold as a percentage of revenues was primarily attributable to favorable product costs due to lower printing and inbound freight costs as well as favorable royalty costs as a result of a higher mix of lower-royalty bearing titles sold in the trade and book fairs channels in the year ended May 31, 2024 and lower production costs in the media business.

Other operating expenses were $430.5 million for the fiscal year ended May 31, 2024, compared to $412.9 million in the prior fiscal year. The $17.6 million increase in Other operating expenses was primarily due to $9.3 million of costs associated with the planned investment in 9 Story, coupled with higher labor costs, equipment costs and rent for warehouse space in the book fairs channel to support the increased fair count and a prior year COVID-related governmental employee retention credit of approximately $3.3 million that did not repeat in fiscal 2024. These increases were partially offset by a lower cost base in book clubs, reflecting lower promotional spending related to book clubs kits as a result of a change in the frequency of the distribution of kits to schools.

Asset impairments were $0.5 million for the fiscal year ended May 31, 2024. The Company committed to a plan to cease use of a leased sales office space with minimal use by employees due to a hybrid work environment, as a result of which the Company recognized an impairment expense of $0.5 million, primarily related to the right-of-use asset.

Segment operating income for the fiscal year ended May 31, 2024 was $112.1 million, compared to $143.4 million in the prior fiscal year. The $31.3 million decrease in operating income was attributable to lower revenue per fair in the book fairs channel, which, due to the fixed costs associated with delivering a fair, has a significant impact on operating margins. In addition, the Company incurred costs related to the planned investment in 9 Story as well as higher planned book fairs channel spending around growth initiatives impacting facility, technology and labor costs, which were partially offset by decreased promotional spending in the book clubs channel.

EDUCATION SOLUTIONS

($ amounts in millions) 2024 compared to 2023

Asset impairments 6.1 — 6.1 NM

Operating margin 4.5 % 15.1 %

* Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization.

NM Not meaningful

Fiscal 2024 compared to fiscal 2023

Revenues for the fiscal year ended May 31, 2024 decreased by $35.4 million to $351.2 million, compared to $386.6 million in the prior fiscal year. The decrease in segment revenues was driven by lower sales of supplemental instructional materials and summer reading products as well as lower revenues from the Magazines+ business. The segment was impacted by market conditions, including declining spending on supplemental curriculum materials, especially those not explicitly aligned with science-based approaches to literacy, as well as increased competition in this segment of the market. The Company continues to adapt its products to align with the prevailing approaches to literacy instruction and expects this trend to continue into fiscal 2025. Partially offsetting the lower revenues, the segment benefited from increased revenues from its literacy initiatives, such as the Scholastic Family and Community Engagement (FACE)TM initiative, as a result of continued growth in the funding for community and extended learning programs to support childhood literacy. Revenues from sponsored programs modestly increased year over year and digital subscription revenues remained relatively consistent with the prior fiscal year.

Cost of goods sold for the fiscal year ended May 31, 2024 was $137.6 million, or 39.2% of revenue, compared to $143.0 million, or 37.0% of revenue, in the prior fiscal year. The increase in Cost of goods sold as a percentage of revenues was primarily attributable to higher product costs associated with the mix of product sold during the period ended May 31, 2024, primarily related to literacy initiatives and summer reading products, coupled with increased fulfillment costs. In addition, the segment incurred higher prepublication amortization as result of the release of Ready4ReadingTM at the end of fiscal 2023.

Other operating expenses were $191.7 million for the fiscal year ended May 31, 2024, compared to $185.2 million in the prior fiscal year. The $6.5 million increase in Other operating expenses was primarily attributable to higher costs as a result of increased spending on investments in long-term growth opportunities and higher labor costs, partially offset by lower spending on promotional materials.

Asset impairments were $6.1 million for the fiscal year ended May 31, 2024. The Company recognized an asset impairment of $6.1 million related to certain education products that were not aligned with the science of reading based approach to literacy instruction.

Segment operating income for the fiscal year ended May 31, 2024 was $15.8 million, compared to $58.4 million in the prior fiscal year. The $42.6 million decrease in operating income was attributable to lower revenues, primarily from supplemental instructional materials and summer reading products, coupled with unfavorable cost of product due to product mix and higher prepublication amortization, increased spending on investments in growth opportunities and the impairment of certain education products.

INTERNATIONAL

($ amounts in millions) 2024 compared to 2023

Asset impairments and write downs 1.1 — 1.1 NM

Operating income (loss) $ (6.9) $ (3.6) $ (3.3) (91.7)%

Operating margin NM NM

* Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization.

NM Not meaningful

Fiscal 2024 compared to fiscal 2023

Revenues for the fiscal year ended May 31, 2024 decreased by $5.8 million to $273.6 million compared to $279.4 million in the prior fiscal year. Local currency revenues in the Company's ongoing foreign operations decreased $4.7 million when compared to the prior fiscal year, excluding unfavorable foreign exchange impact of $1.1 million. In the Asia channel, local currency revenues decreased $4.6 million primarily attributable to $1.6 million of lower revenues due to the disposition of the direct sales business in Asia coupled with lower sales from the trade and education channels. In Australia and New Zealand, local currency revenues decreased $4.7 million, driven by lower sales in the trade channel in Australia due to the continued softness in the retail market. In Canada, local currency revenues decreased $0.8 million, primarily due to lower book clubs and trade channel revenues, largely offset by increased

book fairs channel revenues driven by higher revenue per fair and increased redemptions of book fairs incentive credits. The segment revenue decline was partially offset by an increase in local currency revenues in the UK of $4.8 million, primarily driven by higher revenues from the trade and book fairs channels. The UK trade channel benefited from the success of the Dav Pilkey’s Dog Man series. Export channel sales also increased $0.6 million as compared to the prior fiscal year.

Cost of goods sold for the fiscal year ended May 31, 2024 was $162.2 million, or 59.3% of revenues, compared to $169.7 million, or 60.7% of revenues, in the prior fiscal year. The improvement in Cost of goods sold as a percentage of revenues was primarily attributable to overall favorable product costs due to lower print and inbound freight costs, partially offset by higher royalty costs in the UK as a result of increased sales for higher-royalty bearing titles in the year ended May 31, 2024.

Other operating expenses were $117.2 million for the fiscal year ended May 31, 2024, compared to $113.3 million in the prior fiscal year. Other operating expenses increased $3.9 million primarily driven by $2.7 million of costs related to restructuring programs, primarily severance expense, within the book clubs channel in Canada and related to the restructuring of the franchise business in China, coupled with lower equity investment income.

Asset impairments and write downs were $1.1 million for the fiscal year ended May 31, 2024. The Company ceased use of certain leased office space in Canada as part of the Company's efforts to rightsize its real estate footprint to reduce occupancy costs, resulting in an impairment expense related to the right-of-use assets associated with the operating leases.

Segment operating loss for the fiscal year ended May 31, 2024 was $6.9 million, compared to $3.6 million in the prior fiscal year. The $3.3 million increase in operating loss was primarily driven by lower revenues in Australia, reflecting the continued softness in the retail market, and lower revenues in Asia, coupled with higher severance expense from restructuring programs in Canada and Asia and the impairment related to the early exit of leased office space in Canada.

Overhead

Fiscal 2024 compared to fiscal 2023

Unallocated overhead expense for the fiscal year ended May 31, 2024 increased by $14.6 million to $106.5 million, compared to $91.9 million in the prior fiscal year. The increase was primarily attributable to higher employee-related costs, which included severance expense from restructuring programs of $8.2 million related to the reorganization efforts and cost-saving initiatives in the school reading events division and Education Solutions, an insurance recovery of $5.0 million received in fiscal 2023 related to photo litigation settlements accrued and paid in prior periods, and a favorable settlement of $1.8 million related to legacy sales tax matters that benefited the prior year. In addition, the Company ceased use of certain leased office space as part of the Company's efforts to rightsize office space, resulting in an impairment expense of $2.3 million related to the right-of-use assets associated with the operating leases. This was partially offset by higher rental income of $2.6 million as a result of the new tenant leasing space in the Company's headquarters.

Liquidity and Capital Resources

Fiscal 2024 compared to fiscal 2023

Cash provided by operating activities was $154.6 million for the fiscal year ended May 31, 2024, compared to cash provided by operating activities of $148.9 million for the prior fiscal year, representing an increase in cash provided by operating activities of $5.7 million. The increase in cash was primarily driven by approximately $162 million in lower domestic inventory purchases as lead times have returned to pre-pandemic levels resulting in a return to historical purchasing patterns, which also reflected lower inbound freight and manufacturing costs. This was substantially offset by lower customer remittances on receivable balances, increased spending associated with the planned investment in 9 Story and on growth initiatives in Education Solutions, higher planned spending related to facilities and labor in the book fairs channel, and higher severance paid in fiscal 2024. The Company expects cash provided by operating activities to be impacted by higher anticipated inventory purchases in fiscal 2025, primarily related to the U.S. book fairs channel.

Cash used in investing activities was $89.7 million for the fiscal year ended May 31, 2024, compared to cash used in investing activities of $99.6 million for the prior fiscal year, representing a decrease in cash used in investing activities

of $9.9 million. The decrease in cash used was driven by lower capital expenditures of $3.6 million, primarily related to spending on technology systems, and lower prepublication spending of $4.1 million associated with product development in Education Solutions. This was partially offset by lower acquisition‐related payments in fiscal 2024 which included the acquisition of the remaining shares of Make Believe Ideas Limited for $2.1 million and certain amortizable intangible assets related to educational programs for $5.8 million, compared to the acquisition of Learning Ovations for $10.7 million in the prior year.

Cash used by financing activities was $176.1 million for the fiscal year ended May 31, 2024, compared to cash used in financing activities of $139.5 million for the prior fiscal year. The increase in cash used in financing activities of $36.6 million was primarily attributable to common stock purchases of $158.2 million, compared to repurchases of $132.1 million in the prior fiscal year, and a decrease in net proceeds from stock option exercises of $11.6 million, partially offset by lower dividend payments of $0.9 million.

Cash Position

The Company’s cash and cash equivalents totaled $113.7 million at May 31, 2024 and $224.5 million at May 31, 2023. Cash and cash equivalents held by the Company’s U.S. operations totaled $54.9 million at May 31, 2024 and $174.6 million at May 31, 2023.

The Company’s operating philosophy is to use cash provided by operating activities to create value by paying down debt, reinvesting in existing businesses and, from time to time, making acquisitions that will complement its portfolio of businesses or acquiring other strategic assets, as well as engaging in shareholder enhancement initiatives, such as share repurchases or dividend declarations. During fiscal 2024, the Company repurchased $156.8 million of its common stock, which included open-market repurchases and shares repurchased through a privately negotiated transaction for 400,000 shares with a related party at a discount to market price. See Note 14, "Treasury Stock," and Note 21, "Related Party Transactions," of Notes to the Consolidated Financial Statements in Item 8, "Consolidated Financial Statements and Supplementary Data" for further details. Under the Company's open-market buy-back program, $86.6 million remained available for future purchases of common shares as of May 31, 2024.

The Company has maintained, and expects to maintain for the foreseeable future, sufficient liquidity to fund ongoing operations, including working capital requirements, pension contributions, postretirement benefits, debt service, planned capital expenditures and other investments, as well as dividends and share repurchases. As of May 31, 2024, the Company’s primary sources of liquidity consisted of cash and cash equivalents of $113.7 million, cash from operations and the Company's U.S. credit agreement. The Company expects the U.S. credit agreement to provide it with an appropriate level of flexibility to strategically manage its business operations. Subsequent to May 31, 2024, the Company borrowed $200.0 million under the U.S. credit agreement, primarily to fund the 9 Story Acquisition, resulting in approximately $100.0 million of current availability. Additionally, the Company has short-term credit facilities of $26.2 million, less current borrowings of $6.0 million and commitments of $3.6 million, resulting in $16.6 million of current availability under these facilities at May 31, 2024. Accordingly, the Company believes these sources of liquidity are sufficient to finance its currently anticipated ongoing operating needs, as well as its financing and investing activities.

The following table summarizes, as of May 31, 2024, the Company’s contractual cash obligations by future period (see Notes 5, 6, 9 and 15 of Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and Supplementary Data”):

$ amounts in millions

Payments Due By Period

Contractual Obligations 1 Year or Less Years 2-3 Years 4-5 After Year 5 Total

Minimum print quantities $ 0.7 $ 0.2 $ — $ — $ 0.9

Lines of credit and short-term debt 6.0 — — — 6.0

(1) Includes principal and interest.

(2) Excludes expected Medicare Part D subsidy receipts.

Financing

Loan Agreement

The Company is party to the U.S. credit agreement, as well as certain credit lines with various banks. For a more complete description of the U.S. credit agreement, as well as the Company's other debt obligations, reference is made to Note 5, "Debt," of Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and Supplementary Data.” The Company had no outstanding borrowings under the U.S. credit agreement as of May 31, 2024. Subsequent to May 31, 2024, the Company borrowed $200.0 million under the U.S. credit agreement primarily to fund the 9 Story Acquisition. The interest rate is floating and is based on the 1-month Term SOFR, plus the applicable margin per the agreement. Interest expense related to these borrowings is expected to be approximately $13 to $14 million in fiscal 2025. Reference is made to Note 1, Note 5 and Note 22 of Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and Supplementary Data" for further details.

Acquisitions

In the ordinary course of business, the Company explores domestic and international expansion opportunities, including potential niche and strategic acquisitions. As part of this process, the Company engages with interested parties in discussions concerning possible transactions. The Company will continue to evaluate such expansion opportunities and prospects. Subsequent to May 31, 2024, the Company completed the 9 Story Acquisition. See Note 10, "Acquisitions," and Note 22, "Subsequent Events," of Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and Supplementary Data.”

Item 7A | 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 May 31, 2024. The Company does not enter into derivative transactions or use other financial instruments for trading or speculative purposes.

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 derivative transactions and outstanding financial instruments is included in Note 19, "Derivatives and Hedging," and Note 5, "Debt," respectively, of Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and Supplementary Data,” which is included herein.

The following table sets forth information about the Company’s debt instruments as of May 31, 2024:

$ amounts in millions

Fiscal Year Maturity Fair Value

Debt Obligations

Average interest rate 4.5 % — — — — —

Item 8 | Consolidated Financial Statements and Supplementary Data

Page

Notes to Consolidated Financial Statements 40

Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42) 76

Schedule II — Valuation and Qualifying Accounts and Reserves S-1

All other schedules have been omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements or the Notes thereto.

Consolidated Statements of Operations

(Amounts in millions, except per share data)For fiscal years ended May 31,

Operating costs and expenses

Selling, general and administrative expenses 803.0 756.6 722.8

Asset impairments and write downs 10.0 — 0.4

Interest expense (1.9) (1.4) (2.9)

Other components of net periodic benefit (cost) (1.0) 0.3 0.1

Gain (Loss) on assets held for sale — — (15.1)

Gain (loss) on sale of assets and other — — 9.7

Earnings (loss) before income taxes 16.2 112.4 89.7

Provision (benefit) for income taxes 4.1 25.9 8.7

Less: Net income (loss) attributable to noncontrolling interest — 0.2 0.1

Net income (loss) attributable to Scholastic Corporation $ 12.1 $ 86.3 $ 80.9

Basic and diluted earnings (loss) per share of Class A and Common Stock

Basic:

Net Income (loss) attributable to Scholastic Corporation $ 0.41 $ 2.56 $ 2.33

Diluted:

Net Income (loss) attributable to Scholastic Corporation $ 0.40 $ 2.49 $ 2.27

Dividends declared per share of Class A and Common Stock $ 0.80 $ 0.80 $ 0.60

See accompanying notes

Consolidated Statements of Comprehensive Income (Loss)

(Amounts in millions)For fiscal years ended May 31,

Other comprehensive income (loss), net:

Foreign currency translation adjustments 3.1 (5.4) (14.5)

Pension and postretirement adjustments, net of tax 0.2 (5.0) 3.8

Total other comprehensive income (loss) $ 3.3 $ (10.4) $ (10.7)

Less: Net income (loss) attributable to noncontrolling interest — 0.2 0.1

See accompanying notes

Consolidated Balance Sheets

(Amounts in millions)Balances at May 31,

Current Assets:

Cash and cash equivalents $ 113.7 $ 224.5

Income tax receivable 15.2 8.9

Prepaid expenses and other current assets 48.8 47.0

Noncurrent Assets:

Property, plant and equipment, net 511.9 521.4

Prepublication costs, net 49.5 56.4

Operating lease right-of-use assets, net 99.1 85.7

Royalty advances, net 57.8 56.8

Noncurrent deferred income taxes 23.1 21.0

Other assets and deferred charges 120.1 99.8

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

Lines of credit and current portion of long-term debt $ 6.0 $ 6.0

Accrued income taxes 1.9 13.4

Operating lease liabilities 22.4 21.2

Noncurrent Liabilities:

Long-term debt — —

Operating lease liabilities 89.2 73.8

Other noncurrent liabilities 29.2 26.1

Total noncurrent liabilities 118.4 99.9

Commitments and Contingencies: — —

Stockholders’ Equity:

Accumulated other comprehensive income (loss) (52.5) (55.8)

Total stockholders' equity of Scholastic Corporation 1,018.1 1,162.9

Noncontrolling interest — 1.6

Total liabilities and stockholders’ equity $ 1,671.2 $ 1,866.7

See accompanying notes

Consolidated Statement of Changes in Stockholders’ Equity

(Amounts in millions)

Shares Amount Shares Amount

Foreign currency translation adjustment — — — — — (14.5) — — (14.5) — (14.5)

Stock-based compensation — — — — 7.8 — — — 7.8 — 7.8

Purchases of treasury stock at cost — — (0.9) — — — — (33.4) (33.4) — (33.4)

Dividends — — — — — — (20.8) — (20.8) — (20.8)

Other (Noncontrolling Interest) — — — — — — — — — (0.2) (0.2)

Foreign currency translation adjustment — — — — — (5.4) — (5.4) — (5.4)

Stock-based compensation — — — — 10.5 — — — 10.5 — 10.5

Purchases of treasury stock at cost — — (3.3) — — — — (135.1) (135.1) — (135.1)

Dividends — — — — — — (27.2) — (27.2) — (27.2)

Net Income (loss) — — — — — — 12.1 — 12.1 — 12.1

Foreign currency translation adjustment — — — — — 3.1 — — 3.1 — 3.1

Stock-based compensation — — — — 11.0 — — — 11.0 — 11.0

Proceeds pursuant to stock-based compensation plans — — — — 6.5 — — — 6.5 — 6.5

Purchases of treasury stock at cost — — (4.0) — — — — (156.8) (156.8) — (156.8)

Dividends — — — — — — (24.0) — (24.0) — (24.0)

Other (share conversion) (0.9) — 0.9 — (28.6) — — 28.6 — — —

Other (noncontrolling interest) — — — — (0.5) — — — (0.5) (1.6) (2.1)

See accompanying notes

Consolidated Statements of Cash Flows

(Amounts in millions)Years ended May 31,

Cash flows - operating activities:

Net income (loss) attributable to Scholastic Corporation $ 12.1 $ 86.3 $ 80.9

Provision for losses on accounts receivable 5.2 3.3 15.2

Provision for losses on inventory 20.4 26.5 27.7

Provision for losses on royalty advances 2.7 4.2 4.1

Amortization of prepublication costs 26.2 25.1 26.4

Amortization of pension and postretirement plans 0.4 (0.4) 0.0

Deferred income taxes (1.9) (0.7) 3.2

Income from equity investments (0.5) (0.9) (2.0)

Non cash write off related to asset impairments and write downs 10.0 — 0.4

Non cash write off related to assets held for sale — — 11.6

(Gain) loss on sale of assets and other — — (9.7)

Changes in assets and liabilities, net of amounts acquired:

Prepaid expenses and other current assets (1.7) 21.5 (22.2)

Assets held for sale — — (3.7)

Liabilities related to assets held for sale — — 3.5

Other accrued expenses (10.3) (15.3) (6.8)

Net cash provided by (used in) operating activities 154.6 148.9 226.0

Cash flows - investing activities:

Prepublication expenditures (22.8) (26.9) (17.2)

Additions to property, plant and equipment (58.4) (62.0) (42.0)

Proceeds from sale of assets — — 16.0

Acquisition-related payments (8.5) (10.7) —

Net cash provided by (used in) investing activities (89.7) (99.6) (43.2)

See accompanying notes

Consolidated Statements of Cash Flows

(Amounts in millions)Years ended May 31,

Cash flows - financing activities:

Repayment of capital lease obligations (2.3) (2.3) (2.3)

Proceeds pursuant to stock-based compensation plans 9.1 20.7 10.2

Net cash provided by (used in) financing activities (176.1) (139.5) (229.2)

Effect of exchange rate changes on cash and cash equivalents 0.4 (1.9) (3.5)

Net increase (decrease) in cash and cash equivalents (110.8) (92.1) (49.9)

Cash and cash equivalents at beginning of period 224.5 316.6 366.5

Cash and cash equivalents at end of period $ 113.7 $ 224.5 $ 316.6

Supplemental Information:

Income tax payments (refunds) $ 23.7 $ 2.5 $ (48.8)

See accompanying notes

Notes to Consolidated Financial Statements

(Amounts in millions, except share and per share data)

1. DESCRIPTION OF THE BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of the business

Scholastic Corporation (the “Corporation” and together with its subsidiaries, “Scholastic” or the “Company”) is the world’s largest publisher and distributor of children’s books, a leading provider of print and digital instructional materials for grades pre-kindergarten ("pre-K") to grade 12 and a producer of educational and entertaining children’s media. The Company creates quality books and ebooks, print and technology-based learning materials and programs, classroom magazines and other products that, in combination, offer schools, as well as parents and children, customized and comprehensive solutions to support children’s learning and reading both at school and at home. Since its founding in 1920, Scholastic has emphasized quality products and a dedication to reading, learning and literacy. The Company is the leading operator of school-based book club and book fair proprietary channels. It distributes its products and services through these channels, as well as directly to schools and libraries, through retail stores and through the internet. The Company’s website, scholastic.com, is a leading site for teachers, classrooms and parents and an award-winning destination for children. Scholastic has operations in the United States and throughout the world including Canada, the United Kingdom, Australia, New Zealand and Asia and, through its export business, sells products in approximately 120 international locations.

Basis of presentation

Principles of consolidation

The Consolidated Financial Statements include the accounts of the Corporation and all wholly-owned and majority-owned subsidiaries. All significant intercompany transactions are eliminated in consolidation.

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

Noncontrolling Interest

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

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

Use of estimates

The Company’s Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The preparation of these financial statements involves the use of estimates and assumptions by management, which affects the amounts reported in the Consolidated 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 assets and liabilities. Actual results may differ from those estimates and assumptions. On an ongoing basis, the Company evaluates the adequacy of its reserves and the estimates used in calculations, including, but not limited to:

•Accounts receivable allowance for credit losses

•Pension and postretirement benefit plans

•Uncertain tax positions

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

•Inventory reserves

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

•Sales tax contingencies

•Royalty advance reserves and royalty expense accruals

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

•Assets and liabilities acquired in business combinations

•Variable consideration related to anticipated returns

•Allocation of transaction price to contractual performance obligations

Summary of Significant Accounting Policies

Revenue recognition

The Company’s revenue recognition policies for its principal businesses are as follows:

School-Based Book Clubs– Revenue from school-based book clubs is recognized upon shipment of the products.

School-Based Book Fairs – Revenues associated with school-based book fairs relate to the sale of children's books and other products to book fair sponsors. In addition, the Company employs an incentive program to encourage the sponsorship of book fairs and increase the number of fairs held each school year. The Company identifies two potential performance obligations within its school-based book fair contracts, which include the fulfillment of book fairs product and the fulfillment of product upon the redemption of incentive program credits by customers. The Company allocates the transaction price to each performance obligation and recognizes revenue at a point in time. The Company utilizes certain estimates based on historical experience, redemption patterns and future expectations related to the participation in the incentive program to determine the relative fair value of each performance obligation when allocating the transaction price. Changes in these estimates could impact the timing of the recognition of revenue. Revenue allocated to the book fairs product is recognized at the point at which product is delivered to the customer and control is transferred. The revenue allocated to the incentive program credits is recognized upon redemption of incentive credits and the transfer of control of the redeemed product. Incentive credits are generally redeemed within 12 months of issuance. Payment for school-based book fairs product is due at the completion of a customer's fair. Revenues associated with virtual fairs are recognized upon shipment of the products and related incentive program credits are expensed upon issuance.

Trade – Revenue from the sale of children’s books for distribution in the retail channel is primarily recognized when performance obligations are satisfied and control is transferred to the customer, or when the product is on sale and available to the public. For newly published titles, the Company, on occasion, contractually agrees with its customers when the publication may be first offered for sale to the public, or an agreed upon “Strict Laydown Date." For such titles, the control of the product is not deemed to be transferred to the customer until such time that the publication can contractually be sold to the public, and the Company defers revenue on sales of such titles until such time as the customer is permitted to sell the product to the public. Revenue for ebooks, which is generally the net amount received from the retailer, is recognized upon electronic delivery to the customer by the retailer. The sale of trade product generally includes a right of return.

Education – Revenue from the sale of educational materials is recognized upon shipment of the products, or upon acceptance of product by the customer, depending on individual contractual terms. Revenue from digital products is deferred and recognized ratably over the subscription period. Revenue from professional development services is recognized when the services have been provided to the customer. Revenue from contracts with multiple deliverables are recognized as each performance obligation is satisfied in which the transaction price is allocated on a relative standalone selling price basis.

Film Production and Licensing – Revenue from the sale of film rights, principally for the home video, streaming and domestic and foreign television markets, is deferred during production and recognized when the film or episodes have been delivered and are available for showing or exploitation. Licensing revenue is recognized in accordance with royalty agreements at the time the licensed materials are available to the licensee and collections are reasonably assured.

Magazines – Revenue is deferred and recognized ratably over the subscription period, as the magazines are delivered.

Export – Revenue from the export channel is recognized upon acceptance of the physical product by the customer.

The Company has elected to present sales and other related taxes on a net basis, excluded from revenues, and as such, these are included within Other accrued expenses until remitted to taxing authorities.

Cash equivalents

Cash equivalents consist of short-term investments with original maturities of three months or less.

Accounts receivable

Accounts receivable are recognized net of an allowance for credit losses. In the normal course of business, the Company extends credit to customers that satisfy predefined credit criteria. 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 balance, or any portion thereof, is deemed to be permanently uncollectible, the balance is then written off. Accounts receivable allowance for credit losses was $14.9 and $16.7 as of May 31, 2024 and 2023, respectively.

Estimated returns

Inventories

Property, plant and equipment

Property, plant and equipment are stated at cost. Depreciation and amortization are recognized on a straight-line basis over the estimated useful lives of the assets. Buildings have an estimated useful life, for purposes of depreciation, of forty years. Building improvements are depreciated over the life of the improvement which typically does not exceed twenty-five years. Capitalized software, net of accumulated amortization, was $54.6 and $62.7 at May 31, 2024 and 2023, respectively. Capitalized software is amortized over a period of three to ten years. Amortization expense for capitalized software was $25.1, $25.3 and $26.4 for the fiscal years ended May 31, 2024, 2023 and 2022, respectively. Furniture, fixtures and equipment are depreciated over periods not exceeding ten years. Leasehold improvements are amortized over the life of the lease or the life of the assets, whichever is shorter. The Company evaluates the depreciation periods of property, plant and equipment to determine whether events or circumstances indicate that the asset’s carrying value is not recoverable or warrant revised estimates of useful lives.

Cloud Computing Arrangements

The Company incurs costs to implement cloud computing arrangements that are hosted by a third party vendor. Implementation costs incurred during the application development stage are capitalized and amortized over the term of the hosting arrangement on a straight-line basis. The Company capitalized $14.4 and $6.2 of costs incurred in fiscal 2024 and 2023, respectively, to implement cloud computing arrangements, primarily related to digital and consumer data platforms. These amounts are included within Other assets and deferred charges on the Company's Consolidated Balance Sheets.

Leases

The Company's lease arrangements primarily relate to corporate offices and warehouse facilities, and to a lesser

extent, certain equipment and other assets. The Company's leases generally have initial terms ranging from 3 to 10 years and certain leases include renewal or early-termination options, rent escalation clauses, and/or lease incentives. Lease renewal rent payment terms generally reflect adjustments for market rates prevailing at the time of renewal. The

Company's leases require fixed minimum rent payments and also often require the payment of certain other costs that do not relate specifically to its right to use an underlying leased asset, but are associated with the asset, such as real estate taxes, insurance, common area maintenance fees and/or certain other costs (referred to collectively herein as "non-lease components"), which may be fixed or variable in amount depending on the terms of the respective lease agreement. The Company's leases do not contain significant residual value guarantees or restrictive covenants.

The Company determines whether an arrangement contains a lease at the inception of the arrangement. If a lease is determined to exist, the term of such lease is assessed based on the date on which the underlying asset is made available for the Company's use by the lessor. The Company's assessment of the lease term reflects the non-cancelable term of the lease, inclusive of any rent-free periods and/or periods covered by early-termination options which the Company is reasonably certain of not exercising, as well as periods covered by renewal options which the Company is reasonably certain of exercising. The Company also determines lease classification as either operating or finance at lease commencement, which governs the pattern of expense recognition and the presentation reflected in the Consolidated Statements of Operations over the lease term.

For leases with a term exceeding 12 months, a lease liability is recorded on the Company's Consolidated Balance Sheet at lease commencement reflecting the present value of its fixed minimum payment obligations over the lease term. A corresponding right-of-use ("ROU") asset equal to the initial lease liability is also recorded, adjusted for any prepaid rent and/or initial direct costs incurred in connection with execution of the lease and reduced by any lease incentives received. The Company includes fixed payment obligations related to non-lease components in the measurement of ROU assets and lease liabilities, as it elects to account for lease and non-lease components together as a single lease component. ROU assets associated with finance leases are presented separate from ROU assets associated with operating leases and are included within Property, plant and equipment, net on the Company's Consolidated Balance Sheet. For purposes of measuring the present value of its fixed payment obligations for a given lease, the Company uses its incremental borrowing rate, determined based on information available at lease commencement, as rates implicit in its leasing arrangements are typically not readily determinable. The Company's incremental borrowing rate reflects the rate it would pay to borrow on a secured basis, and incorporates the term and economic environment of the associated lease.

For operating leases, fixed lease payments are recognized as lease expense on a straight-line basis over the lease term. For finance leases, the initial ROU asset is depreciated on a straight-line basis over the lease term, along with recognition of interest expense associated with accretion of the lease liability, which is ultimately reduced by the related fixed payments. For leases with a term of 12 months or less, any fixed lease payments are recognized on a straight-line basis over the lease term, and are not recognized on the Company's Consolidated Balance Sheet. Variable lease costs for both operating and finance leases, if any, are recognized as incurred.

Sublease rental income is recognized on a straight-line basis over the duration of each lease term. To the extent expected sublease income is less than expected rental payments, the Company recognizes a loss on the difference based on the present value of the minimum lease payments under each lease.

Lease payments received are presented as Revenues for fiscal 2024 and as a reduction to rent expense in Selling, general and administrative expenses in fiscal years 2023 and 2022 in the Consolidated Statement of Operations.

Prepublication costs

Prepublication costs are incurred in all of the Company’s reportable segments. Prepublication costs include costs incurred to create the art, prepress, editorial, digital conversion and other content required for the creation of the master copy of a book or other media. Prepublication costs are amortized on a straight-line basis over a two-to-five-year period based on expected future revenues. The Company regularly reviews the recoverability of these capitalized costs based on expected future cash flows.

Long-lived assets

Long-lived assets, including operating lease right-of-use assets, property, plant, and equipment, prepublication costs and definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. For the purposes of impairment testing, long-lived assets are grouped at the lowest level of identifiable cash flows. If impairment indicators are present, the Company performs a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to the asset to its carrying amount. If it is determined that a long-lived asset is not recoverable, an impairment loss is recognized based on the excess of the carrying amount over the fair value of the asset. The fair values determined by the Company require significant judgment and include certain assumptions regarding future sales and expenses, discount rates and real estate market conditions.

Royalty advances

Royalty advances are incurred in all of the Company’s reportable segments, but are most prevalent in the Children’s Book Publishing and Distribution segment and enable the Company to obtain contractual commitments from authors, illustrators, licensors and other publishers to produce content. The Company regularly provides these content providers advances against expected future royalty payments, often before the books are written. Upon publication and sale of the books or other media, the content providers will not receive further royalty payments until the contractual royalties earned from sales of such books or other media exceed such advances.

Royalty advances are initially capitalized and subsequently expensed as related revenues are earned or when the Company determines future recovery through earndowns is not probable. The Company has a long history of providing authors, illustrators, licensors and other publishers with royalty advances and it tracks each advance earned with respect to the sale of the related publication. The royalties earned are applied first against the remaining unearned portion of the advance. Historically, the longer the unearned portion of the advance remains outstanding, the less likely it is that the Company will recover the advance through the sale of the publication. The Company applies this historical experience to its existing outstanding royalty advances to estimate the likelihood of recoveries through earndowns. Additionally, the Company’s editorial staff regularly reviews its portfolio of royalty advances to determine if individual royalty advances are not recoverable through earndowns for discrete reasons, such as the death of an author prior to completion of a title or titles, a Company decision to not publish a title, poor market demand or other relevant factors that could impact recoverability. The reserve for royalty advances was $83.2 and $79.1 as of May 31, 2024 and 2023, respectively.

Goodwill and intangible assets

The Company records intangible assets based on their fair value on the date of acquisition. Goodwill is recorded as the difference between the fair value of the purchase consideration and the fair value of the net identifiable tangible and intangible assets acquired.

Goodwill and other intangible assets with indefinite lives are not amortized and are reviewed for impairment annually as of May 31 or more frequently if impairment indicators arise.

With regard to goodwill, the Company compares the estimated fair values of its identified reporting units to the carrying values of their net assets. The Company first performs a qualitative assessment to determine whether it is more likely than not that the fair values of its identified reporting units are less than their carrying values. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company performs the quantitative goodwill impairment test. The Company measures goodwill impairment by the amount the carrying value exceeds the fair value of a reporting unit. For each of the reporting units, the estimated fair value is determined utilizing the expected present value of the projected future cash flows of the reporting unit, in addition to comparisons to similar companies. The Company reviews its definition of reporting units annually or more frequently if conditions indicate that the reporting units may change. The Company evaluates its operating segments to determine if there are components one level below the operating segment level. A component is present if discrete financial information is available and segment management regularly reviews the operating results of the business. If an operating segment only contains a single component, that component is determined to be a reporting unit for goodwill impairment testing purposes. If an operating segment contains multiple components, the Company evaluates the economic characteristics of these components. Any components within an operating segment that share similar economic characteristics are aggregated and deemed to be a reporting unit for goodwill impairment testing purposes. Components within the same operating segment that do not share similar economic characteristics are deemed to be individual reporting units for goodwill impairment testing purposes. The Company has five reporting units with goodwill subject to impairment testing.

With regard to other intangibles with indefinite lives, the Company first performs a qualitative assessment to determine whether it is more likely than not that the fair value of the identified asset is less than its carrying value. If it is more likely than not that the fair value of the asset is less than its carrying amount, the Company performs a quantitative test. The estimated fair value is determined utilizing the expected present value of the projected future cash flows of the asset.

Intangible assets with definite lives consist principally of customer lists, intellectual property and other agreements and are amortized over their expected useful lives. Customer lists are amortized on a straight-line basis over five to ten years, while other agreements are amortized on a straight-line basis over their contractual term. Intellectual property assets are amortized over their remaining useful lives, which is approximately five years.

Income taxes

The Company uses the asset and liability method of accounting for income taxes. Under this method, for purposes of determining taxable income, deferred tax assets and liabilities are determined based on differences between the financial reporting and the tax basis of such assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to be realized.

The Company believes that its taxable earnings, during the periods when the temporary differences giving rise to deferred tax assets become deductible or when tax benefit carryforwards may be utilized, should be sufficient to realize the related future income tax benefits. For those jurisdictions where the expiration date of the tax benefit carryforwards or the projected taxable earnings indicates that realization is not likely, the Company establishes a valuation allowance.

The Company accounts for uncertain tax positions using a two-step method. Recognition occurs when an entity concludes that a tax position, based solely on technical merits, is more likely than not to be sustained upon examination. If a tax position is more likely than not to be sustained upon examination, the amount recognized is the largest amount of benefit, determined on a cumulative probability basis, which is more likely than not to be realized upon settlement. The Company assesses all income tax positions and adjusts its reserves against these positions periodically based upon these criteria. The Company also assesses potential penalties and interest associated with these tax positions, and includes these amounts as a component of income tax expense.

The Company assesses foreign investment levels periodically to determine if all or a portion of the Company’s investments in foreign subsidiaries are indefinitely invested. Any required adjustment to the income tax provision would be reflected in the period that the Company changes this assessment. The Company elects to recognize the tax on Global Intangible Low-Taxed Income (GILTI) earned by foreign subsidiaries as a period expense in the period the tax is incurred.

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. Where a sales tax liability with respect to a jurisdiction is probable and can be reliably estimated, the Company has made accruals for these matters which are reflected in the Company’s Consolidated Financial Statements. These amounts are included in the Consolidated Financial Statements in Selling, general and administrative expenses. Future developments relating to the foregoing could result in adjustments being made to these accruals.

Employee Benefit Plan Obligations

The rate assumptions discussed below impact the Company’s calculations of its UK pension and U.S. postretirement obligations. The rates applied by the Company are based on the UK pension plan asset portfolio's past average rates of return, discount rates and actuarial information. Any change in market performance, interest rate performance, assumed health care cost trend rate and compensation rates could result in significant changes in the Company’s UK pension plan and U.S. postretirement obligations.

Pension obligations – Scholastic Corporation's UK subsidiary has a defined benefit pension plan covering the majority of its employees who meet certain eligibility requirements. The Company’s pension plan and other postretirement benefits are accounted for using actuarial valuations.

The Company’s UK Pension Plan calculations are based on three primary actuarial assumptions: the discount rate, the long-term expected rate of return on plan assets and the anticipated rate of compensation increases. The discount rate is used in the measurement of the projected, accumulated and vested benefit obligations and interest cost component of net periodic pension costs. The long-term expected return on plan assets is used to calculate the expected earnings from the investment or reinvestment of plan assets. The anticipated rate of compensation increase is used to estimate the increase in compensation for participants of the plan from their current age to their assumed retirement age. The estimated compensation amounts are used to determine the benefit obligations.

Other postretirement benefits – The Company provides postretirement benefits, consisting of healthcare and life insurance benefits, to eligible retired United State-based employees. The postretirement medical plan benefits are funded on a pay-as-you-go basis, with the employee paying a portion of the premium and the Company paying the remainder. The existing benefit obligation is based on the discount rate and the assumed health care cost trend rate. The discount rate is used in the measurement of the projected and accumulated benefit obligations and the interest cost component of net periodic postretirement benefit cost. The assumed health care cost trend rate is used in the measurement of the long-term expected increase in medical claims.

Foreign currency translation

The Company’s non-United States dollar-denominated assets and liabilities are translated into United States dollars at prevailing rates at the balance sheet date and the revenues, costs and expenses are translated at the weighted average rates prevailing during each reporting period. Net gains or losses resulting from the translation of the foreign financial statements and the effect of exchange rate changes on long-term intercompany balances are accumulated and charged directly to the foreign currency translation adjustment component of stockholders’ equity until such time as the operations are substantially liquidated or sold. The Company assesses foreign investment levels periodically to determine if all or a portion of the Company’s investments in foreign subsidiaries are indefinitely invested.

Shipping and handling costs

Amounts billed to customers for shipping and handling are classified as revenue. Costs incurred in shipping and handling are recognized in Cost of goods sold.

Advertising costs

Advertising costs are expensed by the Company as incurred. Total advertising expense was $61.7, $76.9 and $69.5 for the twelve months ended May 31, 2024, 2023 and 2022, respectively.

Stock-based compensation

The Company recognizes the cost of services received in exchange for any stock-based awards. The Company recognizes the cost on a straight-line basis over an award’s requisite service period, which is generally the vesting period, except for the grants to retirement-eligible employees, based on the award’s fair value at the date of grant.

The fair values of stock options granted by the Company are estimated at the date of grant using the Black-Scholes option-pricing model. The Company’s determination of the fair value of stock-based payment awards using this option-pricing model is affected by the price of the Common Stock as well as by assumptions regarding highly complex and subjective variables, including, but not limited to, the expected price volatility of the Common Stock over the terms of the awards, the risk-free interest rate, and actual and projected employee stock option exercise behaviors. Estimates of fair value are not intended to predict actual future events or the value that may ultimately be realized by those who receive these awards.

Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates, in order to derive the Company’s best estimate of awards ultimately expected to vest. In determining the estimated forfeiture rates for stock-based awards, the Company annually conducts an assessment of the actual number of equity awards that have been forfeited previously. When estimating expected forfeitures, the Company considers factors such as the type of award, the employee class and historical experience. The estimate of stock-based awards that will ultimately be forfeited requires significant judgment and, to the extent that actual results or updated estimates differ from current estimates, such amounts will be recognized as a cumulative adjustment in the period such estimates are revised.

The table set forth below provides the estimated fair value of options granted by the Company during fiscal years 2024, 2023 and 2022 and the significant weighted average assumptions used in determining such fair value under the Black-Scholes option-pricing model. The average expected life represents an estimate of the period of time stock options are expected to remain outstanding based on the historical exercise behavior of the option grantees. The risk-free interest rate was based on the U.S. Treasury yield curve corresponding to the expected life in effect at the time of the grant. The volatility was estimated based on historical volatility corresponding to the expected life.

Estimated fair value of stock options granted $ 11.53 $ 11.62 $ 8.04

Assumptions:

Expected dividend yield 2.2 % 1.9 % 1.8 %

Expected stock price volatility 37.4 % 32.8 % 31.9 %

Risk-free interest rate 4.7 % 3.8 % 0.9 %

Average expected life of options 4 years 5 years 5 years

New Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, “Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures.” This ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU will be effective for the Company's fiscal year 2025, and interim periods starting in fiscal year 2026. Early adoption is permitted. The amendments in this ASU are to be applied retrospectively to all prior periods presented in the financial statements. The Company is currently assessing the impact of the disclosure requirements on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740)." The amendments in this update enhance the transparency and decision usefulness of income tax disclosures to provide information to better assess how an entity’s operations and related tax risks and tax planning and operational opportunities affect its tax rate andprospects for future cash flows. The amendments in this ASUrequire more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This ASU will be effective for the Company's fiscal year 2026. Early adoption is permitted. The amendments are to be applied prospectively, but may be applied retrospectively to all prior periods presented in the financial statements. The Company is currently assessing the impact of the disclosure requirements on its consolidated financial statements.

2. REVENUES

Disaggregated Revenue Data

The following table presents the Company’s segment revenues disaggregated by region and domestic channel during the year ended May 31:

Total Children's Book Publishing and Distribution 955.2 1,038.0 946.5

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

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

(3) Primarily includes markets in Asia.

(4) Total revenues of $1,589.7 for fiscal year ended May 31, 2024 included rental income of $9.7 related to leased space in the Company's headquarters which was not allocated to a segment. Rental income of $7.1 and $6.1was recognized as a reduction to Selling, general and administrative expenses for fiscal years ended May 31, 2023 and 2022, respectively.

Estimated Returns

A liability for expected returns of $33.1 and $34.9 was recorded within Other accrued expenses on the Company's Consolidated Balance Sheets as of May 31, 2024 and 2023, respectively. In addition, a return asset of $4.2 and $4.7 was recorded within Prepaid expenses and other current assets as of May 31, 2024 and 2023, respectively, for the recoverable cost of product estimated to be returned by customers.

Contract Liabilities

The following table presents further detail regarding the Company's contract liabilities balance for the years ended May 31:

Book fairs incentive credits $ 114.2 $ 110.8

Magazines+ subscriptions 4.6 5.0

U.S. digital subscriptions 15.6 22.8

U.S. education-related (1) 10.1 9.8

Stored value programs 16.7 12.4

Total contract liabilities $ 167.6 $ 169.1

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

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

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. As of May 31, 2024, contract liabilities of $161.1 are recorded within Deferred revenue on the Company's Consolidated Balance Sheet and are classified as short term, as substantially all of the associated performance obligations are expected to be satisfied, and related revenue recognized, within one year. The remaining $6.5 of contract liabilities, as of May 31, 2024, are recorded within Other noncurrent liabilities on the Company's Consolidated Balance Sheet as the associated performance obligations are expected to be satisfied, and related revenue recognized, in excess of one year. Contract liabilities of $169.1, as of May 31, 2023, are recorded within Deferred revenue on the Company's Consolidated Balance Sheets. The amount of revenue recognized during the years ended May 31, 2024 and 2023 included within the opening Deferred revenue balance was $138.0 and $146.4, respectively.

Allowance for Credit Losses

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

Allowance for Credit Losses

Current period provision 5.2

Write-offs and other (7.0)

3. SEGMENT INFORMATION

The Company categorizes its businesses into three reportable segments: Children’s Book Publishing and Distribution and Education Solutions, which comprise the Company's domestic operations, 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 school reading events business, which includes the book clubs and book fairs channels and through the trade channel. This segment is comprised of two operating segments.

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

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

The following tables set forth information for the Company’s segments for the three fiscal years ended May 31:

Revenues

Children's Book Publishing and Distribution $ 955.2 $ 1,038.0 $ 946.5

Operating income (loss)

Children's Book Publishing and Distribution $ 112.1 $ 143.4 $ 115.3

Depreciation and amortization (3)

Children's Book Publishing and Distribution $ 22.5 $ 22.9 $ 24.9

Segment assets at May 31

Children's Book Publishing and Distribution $ 565.1 $ 599.9 $ 559.4

4. ASSET WRITE DOWN

During fiscal 2024, the Company identified certain education products that were not recoverable. The estimated future cash flows related to these assets were impacted by the shift to the science of reading based approach to literacy instruction within the education market. The assets consisted primarily of prepublication costs and amortizable intangible assets and were included within the Education Solutions segment. Accordingly, the Company recognized an impairment charge of $6.1 which was included in Asset impairments and write downs within the Company's Consolidated Statement of Operations for the fiscal year ended May 31, 2024. In addition, during fiscal 2024, the

Company ceased use of certain leased office space in the U.S. and Canada as part of the Company's efforts to rightsize its real estate footprint to reduce occupancy costs. A total impairment expense of $3.9 was recognized during fiscal 2024 which was included in Asset impairments and write downs within the Company's Consolidated Statement of Operations for the fiscal year ended May 31, 2024. A right-of-use (ROU) asset of $2.3 was related to leased office space in New York City and included in the Overhead segment, $1.1 was related to leased office space in Canada and included in the International segment, and $0.5 was related to leased sales office space used by the U.S. book fairs business and included in the Children's Book Publishing and Distribution segment. The related impact of the impairments was a loss per basic and diluted share of Class A and Common Stock of $0.25 in the twelve months ended May 31, 2024.

During fiscal 2022, the Company committed to a plan to cease operations and sell the direct sales business in Asia, including the sale of the Malaysia legal entity. The Company wrote down the related assets which were included in the International segment and consisted of accounts receivable, inventory, other current assets and long-lived assets, to their recoverable value which equated to the selling price of $3.7. The remaining assets, consisting of accounts receivable and inventory, were classified as held for sale and recorded as a current asset on the Company's Consolidated Balance Sheet at May 31, 2022. The Company recognized a loss of $15.1 in fiscal 2022 which was included in Gain (Loss) on assets held for sale within the Company's Consolidated Statement of Operations for the fiscal year ended May 31, 2022. The impact of the impairment was a loss per basic and diluted share of Class A and Common Stock of $0.33 and $0.32, respectively, in the twelve months ended May 31, 2022.

5. DEBT

The following table summarizes the Company's debt as of May 31:

CarryingValue FairValue CarryingValue FairValue

Loan Agreement:

Revolving loan $ — $ — $ — $ —

Total long-term debt $ — $ — $ — $ —

The Company's debt obligations as of May 31, 2024 have maturities of one year or less.

U.S. Credit Agreement

On October 27, 2021, Scholastic Corporation and its principal operating subsidiary, Scholastic Inc., entered into an amended and restated 5-year credit agreement with a syndicate of banks and Bank of America, N.A., as administrative agent and Truist Bank and Wells Fargo Bank, National Association, as co-syndication agents (the “Credit Agreement”). The Credit Agreement provides for a $300.0unsecured revolving credit facility and allows the Company to borrow, repay or prepay and reborrow at any time prior to the October 27, 2026 maturity date. The Credit Agreement also provides an unlimited basket for permitted payments of dividends and other distributions in respect of capital stock so long as the Corporation’s pro forma Consolidated Net Leverage Ratio, as defined, is not in excess of 2.75:1.

On February 28, 2023, the Company entered into the First and Second Amendments to the Credit Agreement (collectively the "Amendments"). The Amendments, among other things, (i) adjusted the credit spread adjustment for SOFR (the secured overnight financing rate as administered by the Federal Reserve Bank of New York) to 0.10% (10 basis points) and (ii) transitioned the reference rate under the Credit Agreement for borrowings from LIBOR (the London interbank offered rate) to SOFR, together with various other conforming changes to accommodate such replacement.

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

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

- or -

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

As of May 31, 2024, the applicable margin on Base Rate Advances was 0.35% and the applicable margin on SOFR Advances was 1.35%, both based on the Company’s prevailing Consolidated Leverage Ratio.

The Credit Agreement provides for payment of a commitment fee in respect of the aggregate unused amount of revolving credit commitments ranging from 0.20% to 0.30% per annum based upon the Corporation’s then prevailing Consolidated Leverage Ratio. As of May 31, 2024, the commitment fee rate was 0.20%.

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

As of May 31, 2024, the Company had no outstanding borrowings under the Credit Agreement. Refer to Note 22, "Subsequent Events," for information regarding the borrowings made subsequent to May 31, 2024.

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

At May 31, 2024, the Company had open standby letters of credit totaling $4.0 issued under certain credit lines, including $0.4 under the Loan Agreement and $3.6 under the domestic credit lines discussed below.

Lines of Credit

As of May 31, 2024, the Company’s domestic credit lines available under unsecured money market bid rate credit lines totaled $10.0. There were no outstanding borrowings under these credit lines as of May 31, 2024 and May 31, 2023. As of May 31, 2024, availability under these unsecured money market bid rate credit lines totaled $6.4, excluding commitments of $3.6.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 May 31, 2024, the Company had various local currency international credit lines totaling $16.2, underwritten by banks primarily in the United States, Canada and the United Kingdom. Outstanding borrowings under these facilities were $6.0 at May 31, 2024 at a weighted average interest rate of 4.5%, compared to outstanding borrowings of $6.0 at May 31, 2023 at a weighted average interest rate of 4.9%. As of May 31, 2024, the amounts available under these facilities totaled $10.2. These credit lines are typically available for overdraft borrowings or loans up to 364 days and may be renewed, if requested by the Company, at the sole option of the lender.

6. COMMITMENTS AND CONTINGENCIES

Contractual Commitments

The following table sets forth the aggregate minimum future contractual commitments at May 31, 2024 relating to royalty advances and minimum print quantities for the fiscal years ending May 31:

Royalty Advances Minimum Print Quantities

Thereafter 0.9 —

Total commitments $ 46.4 $ 0.9

The Company had open standby letters of credit of $4.0 and $3.8 issued under certain credit lines as of May 31, 2024 and 2023, respectively, in support of its insurance programs. These letters of credit are scheduled to expire within one year; however, the Company expects that substantially all of these letters of credit will be renewed, at similar terms, prior to their expiration.

Contingencies

Legal Matters

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

During fiscal 2023, the Company received $5.0 in recoveries from its insurance programs related to photo litigation settlements accrued and paid in prior periods. The recoveries were recognized as an offset to the legal settlements and reflected in Selling, general and administrative expenses in the Company's Consolidated Statement of Operations for the year ended May 31, 2023.

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

7. INVESTMENTS

Investments are included in Other assets and deferred charges on the Consolidated Balance Sheets. The following table summarizes the Company’s investments for the fiscal years ended May 31, 2024:

Equity method investments $ 31.5 $ 31.6 International

Other equity investments 6.0 6.0 Children's Book Publishing & Distribution

Total investments $ 37.5 $ 37.6

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 Consolidated Balance Sheets. There have been no impairments or adjustments to the carrying value of this investment.

Income from equity investments reported in Selling, general and administrative expenses in the Consolidated Statements of Operations totaled $0.5 for the year ended May 31, 2024, $0.9 for the year ended May 31, 2023 and $2.0 for the year ended May 31, 2022. The Company received dividends of $1.3 for the year ended May 31, 2024. No dividends were received in the year ended May 31, 2023.

8. PROPERTY, PLANT AND EQUIPMENT

The following table summarizes the major classes of assets at cost and accumulated depreciation for the fiscal years ended May 31:

Furniture, fixtures and equipment 220.7 212.9

Building and leasehold improvements 223.2 218.7

Construction in progress 28.5 46.0

Less: Accumulated depreciation and amortization (523.7) (537.6)

Property, plant and equipment, net $ 511.9 $ 521.4

Included in Other assets and deferred charges 2024 2023

Capitalized Cloud Computing Arrangements $ 51.6 $ 32.2

Depreciation and amortization expense related to property, plant, and equipment was $57.1, $52.5 and $54.8 for the fiscal years ended May 31, 2024, 2023 and 2022, respectively. Amortization expense related to cloud computing arrangements was $7.4, $6.3 and $3.9 for the fiscal years ended May 31, 2024, 2023 and 2022, respectively.

The following table presents long-lived assets and related additions by reportable segment for the fiscal years ended May 31:

Additions Long-lived assets (1)

Children's Book Publishing and Distribution $ 18.2 $ 10.6 $ 44.8 $ 34.4

Sale or Disposal of Long-lived Assets

Refer to Note 4, "Asset Write Down," for details regarding the disposition of the direct sales business in Asia completed during fiscal 2023.

During fiscal 2022, the Company sold the UK distribution center located in Witney to consolidate the operations into a new facility in Warwickshire. The long-lived assets related to the Witney facility, which consisted of building and building improvements, were included in the International segment. These assets had a carrying value of $2.1 and were classified as held for sale during fiscal 2020. The net proceeds from the sale were $5.6 and the Company recognized a gain on sale of $3.5. This amount is included within Gain (loss) on sale of assets and other within the Company's Consolidated Statements of Operations.

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

9. LEASES

The following table summarizes right-of-use assets and lease liabilities recorded on the Company's Consolidated Balance Sheet for the fiscal years ended May 31, 2024 and May 31, 2023:

May 31, 2024 May 31, 2023 Location within Consolidated Balance Sheet

Operating leases $ 99.1 $ 85.7 Operating lease right-of-use assets, net

Finance leases 5.6 6.1 Property, plant and equipment, net

Operating leases:

Current portion $ 22.4 $ 21.2 Current portion of operating lease liabilities

Non-current portion 89.2 73.8 Long-term operating lease liabilities

Total operating lease liabilities $ 111.6 $ 95.0

Finance leases:

Current portion $ 1.7 $ 2.2 Other accrued expenses

Non-current portion 4.5 4.6 Other noncurrent liabilities

Total finance lease liabilities $ 6.2 $ 6.8

In fiscal 2024, the Company recognized a pretax impairment charge of $3.9 related to operating lease right-of-use assets in connection with the cease use of certain leased office space in the U.S. and Canada as part of the Company's efforts to rightsize its real estate footprint to reduce occupancy costs. Refer to Note 4, "Asset Write Down", for further discussion regarding the impairment.

The following table summarizes the lease expense activity for the fiscal years ended May 31:

Location within Consolidated Statements of Operations

Finance lease costs :

Depreciation of leased assets 2.1 2.1 2.2 Depreciation and amortization

Accretion of lease liabilities 0.3 0.3 0.4 Interest expense

The following table summarizes certain cash flows information related to the Company's leases for the fiscal years ended May 31:

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases $ 30.2 $ 25.9 $ 31.4

Operating cash flows from finance leases 0.3 0.3 0.4

Financing cash flows from finance leases 2.3 2.3 2.3

Noncash transactions:

Lease assets obtained in exchange for new lease liabilities 40.4 27.4 31.8

The following table provides the maturities of the Company's lease liabilities recorded on the Company's Consolidated Balance Sheet for the fiscal year ended May 31, 2024:

Operating Leases Finance Leases

Total lease payments $ 132.3 $ 6.9

Less: interest (20.7) (0.7)

Total lease liabilities $ 111.6 $ 6.2

The following table summarizes the weighted-average remaining lease terms and weighted-average discount rates related to the Company's leases recorded on the Company's Consolidated Balance Sheet for the fiscal years ended May 31, 2024 and May 31, 2023:

Weighted-average remaining lease term (years):

Operating Leases 6.0 6.1

Finance Leases 4.5 4.2

Weighted-average discount rate:

Operating Leases 5.6 % 5.1 %

Finance Leases 4.5 % 4.0 %

The Company has leasable space in its headquarters in Soho, New York City. The lease terms with the Company's tenants typically range from 10 to 15 years. The Company recognized rental income of $9.7, $7.1 and $6.1 for the fiscal years ended May 31, 2024, 2023 and 2022, respectively.

The following table summarizes the future rental payments to be received by the Company on an annual basis at May 31, 2024:

Amount

10. ACQUISITIONS

Refer to Note 22, "Subsequent Events," for information regarding the acquisition made subsequent to May 31, 2024.

On June 1, 2023, the Company acquired the remaining shares of Make Believe Ideas Limited, a UK-based children's book publishing company, for $2.1, increasing the Company's total ownership from 95.0% to 100%. The acquisition was accounted for as an equity transaction as there was no change in control. The carrying value of the noncontrolling interest at the acquisition date was $1.6. The difference between the fair value of consideration paid and the carrying value was recognized as an adjustment to Additional paid-in capital of $0.5.

On September 1, 2022, the Company acquired 100% of the share capital of Learning Ovations, Inc., a U.S.-based education technology business and developer of a literacy assessment and instructional system, for $11.1, net of cash acquired. The Company accounted for the acquisition as a business combination under the acquisition method of accounting. Fair values were assigned to the assets and liabilities acquired, including cash, receivables, and technology/know-how. The receivables acquired had a fair value of $0.1 and were collected as of the end of the first quarter of fiscal 2024. The Company utilized internally-developed discounted cash flow forecasts to determine the fair value of the technology/know-how using a discount rate of 17.5% to account for the relative risks of the estimated future cash flows. The Company classified this as a Level 3 fair value measurement due to the use of these significant unobservable inputs. The fair values of the net assets were $3.6, which included $4.1 of amortizable intangible assets attributable to the technology/know-how and a $0.6 deferred tax liability. This acquisition resulted in $7.6 of goodwill that was assigned to the Company's Education Solutions segment and was not deductible for tax purposes. The results of operations of this business subsequent to the acquisition are included in the Education Solutions segment. The transaction was not determined to be material to the Company's results and therefore pro forma financial information has not been presented. During fiscal 2024, the Company assessed the recoverability of the amortizable intangible assets which were impacted by the shift to the science of reading based approach to literacy instruction within the education market. Refer to Note 4, "Asset Write Down," for further details.

11. 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 fiscal years ended May 31:

Accumulated impairment (39.6) (39.6)

Additions — 7.6

Foreign currency translation 0.1 (0.2)

Accumulated impairment (39.6) (39.6)

In fiscal 2023, the Company acquired Learning Ovations, Inc, a U.S.-based education technology business, which resulted in the recognition of $7.6 of Goodwill included in the Education Solutions segment. Refer to Note 10, "Acquisitions," for further details regarding the acquisition.

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

The following table presents Goodwill by segment as of May 31:

Children's Book Publishing and Distribution $ 47.1 $ 46.9

The following table summarizes the activity in other intangibles included in Other assets and deferred charges on the Company’s Financial Statements for the fiscal years ended May 31:

Other intangibles subject to amortization - beginning balance $ 7.8 $ 6.0

Amortization expense (2.6) (2.2)

Foreign currency translation 0.1 (0.1)

Impairments (3.1) —

Total other intangibles not subject to amortization 2.1 2.1

Total other intangibles $ 10.3 $ 9.9

During fiscal 2024, the Company acquired certain amortizable intangible assets related to educational programs for $5.8 and certain amortizable intangible assets of a U.S.- based children's book publishing business for $0.2. These intangible assets are amortized over the estimated useful life of 8 years and 5 years, respectively.

In fiscal 2023, the Company acquired Learning Ovations, Inc., a U.S.-based education technology business, which resulted in the recognition of $4.1 of amortizable intangible assets. Refer to Note 10, "Acquisitions," for further details regarding the acquisition. During fiscal 2024, the Company assessed the recoverability of these assets which was impacted by the shift to the science of reading based approach to literacy instruction within the education market. An asset impairment of $3.1 was recognized in fiscal 2024. Refer to Note 4, "Asset Write Down," for further details.

Amortization expense for Other intangibles totaled $2.6, $2.2 and $2.0 for the fiscal years ended May 31, 2024, 2023 and 2022, respectively.

The following table reflects the estimated amortization expense for intangibles for future fiscal years ending May 31:

Thereafter 1.8

Intangible assets with indefinite lives consist principally of trademark and trade name rights. Intangible assets with definite lives consist principally of customer lists, intellectual property, trade names 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 6.1 years.

12. TAXES

The components of Earnings (loss) before income taxes for the fiscal years ended May 31 were:

The provision (benefit) for income taxes for the fiscal years ended May 31 consisted of the following components:

Current

Deferred

Non-United States (1.2) (1.0) (1.3)

Total Deferred $ (2.0) $ (3.7) $ 7.2

Total Current and Deferred $ 4.1 $ 25.9 $ 8.7

Effective Tax Rate Reconciliation

A reconciliation of the significant differences between the effective income tax rate and the federal statutory rate on Earnings (loss) before income taxes for the fiscal years ended May 31 was as follows:

Computed federal statutory provision 21.0 % 21.0 % 21.0 %

State income tax provision, net of federal income tax benefit (3.0) 4.6 3.1

GILTI inclusion 0.1 0.4 —

Foreign derived intangible income deduction — (1.7) —

Various tax credits (6.6) (1.5) (1.9)

Valuation allowances 2.9 — 0.2

Uncertain positions 0.4 (0.8) (8.1)

Transaction costs 12.0 — —

Equity and other compensation 2.3 2.9 1.2

Return to provision adjustments (5.1) (1.3) (4.4)

Total provision (benefit) for income taxes $ 4.1 $ 25.9 $ 8.7

SCHL US Equity

SCHL · 10-K · period ended 2024-05-31

Item 7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A | Quantitative and Qualitative Disclosures about Market Risk

Item 8 | Consolidated Financial Statements and Supplementary Data

SCHL US Equity☆

SCHL · 10-K · period ended 2024-05-31

Item 7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A | Quantitative and Qualitative Disclosures about Market Risk

Item 8 | Consolidated Financial Statements and Supplementary Data

SCHL US Equity