Scholastic(SCHL) - 2026 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents Scholastic Corporation's unaudited condensed consolidated financial statements, including statements of operations, comprehensive income (loss), balance sheets, changes in stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, segment performance, debt, acquisitions, and other financial disclosures Condensed Consolidated Statements of Operations (Unaudited) Scholastic Corporation reported a Q1 FY26 net loss of $71.1 million, with revenues decreasing to $225.6 million and diluted loss per share at $2.83 Condensed Consolidated Statements of Operations | Metric | August 31, 2025 ($M) | August 31, 2024 ($M) | | :------------------------------------------ | :------------------- | :------------------- | | Revenues | 225.6 | 237.2 | | Operating income (loss) | (92.2) | (88.5) | | Net income (loss) | (71.1) | (62.5) | | Basic and diluted earnings (loss) per share | (2.83) | (2.21) | Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) The comprehensive loss for Q1 FY26 was $67.3 million, an increase from $54.1 million in the prior year, including foreign currency translation and pension adjustments Condensed Consolidated Statements of Comprehensive Income (Loss) | Metric | August 31, 2025 ($M) | August 31, 2024 ($M) | | :-------------------------------- | :------------------- | :------------------- | | Net income (loss) | (71.1) | (62.5) | | Total other comprehensive income (loss), net | 3.8 | 8.4 | | Comprehensive income (loss) | (67.3) | (54.1) | Condensed Consolidated Balance Sheets (Unaudited) As of August 31, 2025, total assets were $1,954.6 million, total liabilities increased, and total stockholders' equity decreased to $878.0 million from $957.3 million in the prior year Condensed Consolidated Balance Sheets - Summary | Metric | August 31, 2025 ($M) | May 31, 2025 ($M) | August 31, 2024 ($M) | | :-------------------------- | :------------------- | :------------------ | :------------------- | | Total assets | 1,954.6 | 1,950.1 | 1,960.0 | | Total liabilities | 1,076.6 | 1,003.6 | 1,002.7 | | Total stockholders' equity | 878.0 | 946.5 | 957.3 | Condensed Consolidated Balance Sheets - Key Items | Asset/Liability | August 31, 2025 ($M) | May 31, 2025 ($M) | August 31, 2024 ($M) | | :-------------------------- | :------------------- | :------------------ | :------------------- |\ | Cash and cash equivalents | 94.3 | 124.0 | 84.1 | | Inventories, net | 322.2 | 250.2 | 310.3 | | Long-term debt | 325.0 | 250.0 | 225.0 | Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) Total stockholders' equity decreased from $946.5 million at June 1, 2025, to $878.0 million at August 31, 2025, primarily due to a net loss of $71.1 million and dividend payments of $5.1 million Condensed Consolidated Statements of Changes in Stockholders' Equity | Metric | June 1, 2025 ($M) | August 31, 2025 ($M) | | :-------------------------------- | :------------------ | :------------------- | | Total Stockholders' Equity (Beginning) | 946.5 | 946.5 | | Net Income (loss) | — | (71.1) | | Foreign currency translation adjustment | — | 3.5 | | Pension and post-retirement adjustments | — | 0.3 | | Stock-based compensation | — | 1.9 | | Proceeds pursuant to stock-based compensation plans | — | 0.5 | | Treasury stock issued pursuant to equity-based plans | — | 1.5 | | Dividends | — | (5.1) | | Total Stockholders' Equity (Ending) | — | 878.0 | Condensed Consolidated Statements of Cash Flows (Unaudited) For Q1 FY26, cash used in operating activities increased to $81.8 million, cash used in investing activities decreased significantly to $14.9 million, and cash provided by financing activities decreased to $66.8 million Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | August 31, 2025 ($M) | August 31, 2024 ($M) | | :-------------------------------- | :------------------- | :------------------- | | Net cash provided by (used in) operating activities | (81.8) | (41.9) | | Net cash provided by (used in) investing activities | (14.9) | (200.8) | | Net cash provided by (used in) financing activities | 66.8 | 211.9 | | Net increase (decrease) in cash and cash equivalents | (29.7) | (29.6) | | Cash and cash equivalents at end of period | 94.3 | 84.1 | Notes to Condensed Consolidated Financial Statements (Unaudited) These notes provide detailed explanations of the financial statements, covering accounting policies, revenue disaggregation, segment performance, debt, acquisitions, goodwill, investments, stock-based compensation, treasury stock, comprehensive income, fair value measurements, income taxes, derivatives, accrued expenses, and subsequent events 1. Basis of Presentation This note outlines the company's consolidation principles, fiscal year, the unaudited nature of interim statements, the highly seasonal nature of its business, and the use of management estimates, along with the assessment of recently issued accounting pronouncements - The company's business is highly seasonal, with revenues in the first and third fiscal quarters generally lower due to its school-year operating cycle[17] - The preparation of financial statements involves significant management estimates and assumptions, including allowances for credit losses, pension benefits, inventory reserves, and impairment testing[18] - The company is currently assessing the impact of new accounting pronouncements ASU 2025-05 (Credit Losses), ASU 2024-03 (Expense Disaggregation), and ASU 2023-09 (Income Taxes) on its consolidated financial statements[19][20][21] 2. Revenues Total revenues decreased to $225.6 million for Q1 FY26 from $237.2 million in the prior year, with Children's Book Publishing and Distribution revenues increasing while Education Solutions and Entertainment revenues decreased, and International revenues showed an increase, with contract liabilities totaling $184.7 million Revenues by Segment/Channel | Segment/Channel | August 31, 2025 ($M) | August 31, 2024 ($M) | Change ($M) | Change (%) | | :-------------------------------- | :------------------- | :------------------- | :---------- | :--------- | | Children's Book Publishing and Distribution | 109.4 | 105.4 | 4.0 | 3.8% | | Education Solutions | 40.1 | 55.7 | (15.6) | (28.0)% | | Entertainment | 13.6 | 16.6 | (3.0) | (18.1)% | | International | 59.4 | 56.8 | 2.6 | 4.6% | | Overhead | 3.1 | 2.7 | 0.4 | 14.8% | | Total Revenues | 225.6 | 237.2 | (11.6) | (4.9)% | Contract Liabilities | Type | August 31, 2025 ($M) | August 31, 2024 ($M) | | :-------------------------- | :------------------- | :------------------- | | Book fairs incentive credits | 104.0 | 99.4 | | Magazines+ subscriptions | 19.3 | 22.2 | | U.S. digital subscriptions | 12.3 | 19.2 | | U.S. education-related | 7.0 | 10.3 | | Entertainment-related | 12.8 | 6.8 | | Stored value programs | 22.8 | 17.3 | | Other | 6.5 | 5.0 | | Total contract liabilities | 184.7 | 180.2 | - The company recognized $37.0 million in revenue from the opening Deferred revenue balance for the three months ended August 31, 2025, an increase from $29.2 million in the prior year[29] 3. Segment Information Scholastic operates in four reportable segments: Children's Book Publishing and Distribution, Education Solutions, Entertainment, and International, with Children's Book Publishing and Distribution improving its operating loss, Education Solutions and Entertainment seeing increased operating losses, and International significantly reducing its operating loss in Q1 FY26 - The company's chief operating decision maker (CODM) uses operating income (loss) to evaluate segment performance and allocate resources[33] Consolidated Operating Income (Loss) by Segment | Segment | August 31, 2025 ($M) | August 31, 2024 ($M) | Change ($M) | Change (%) | | :-------------------------------- | :------------------- | :------------------- | :---------- | :--------- | | Children's Book Publishing and Distribution | (35.1) | (36.6) | 1.5 | 4.1% | | Education Solutions | (21.2) | (17.0) | (4.2) | (24.7)% | | Entertainment | (4.0) | (0.5) | (3.5) | NM | | International | (4.2) | (8.3) | 4.1 | 49.4% | | Overhead | (27.7) | (26.1) | (1.6) | (6.1)% | | Consolidated Operating Income (Loss) | (92.2) | (88.5) | (3.7) | (4.2)% | Total Revenues by Region | Region | August 31, 2025 ($M) | August 31, 2024 ($M) | Change ($M) | Change (%) | | :------------- | :------------------- | :------------------- | :---------- | :--------- | | United States | 141.7 | 149.7 | (8.0) | (5.3)% | | International | 83.9 | 87.5 | (3.6) | (4.1)% | | Total Revenues | 225.6 | 237.2 | (11.6) | (4.9)% | 4. Asset Write Down The company recognized an impairment charge of $0.8 million in Q1 FY26 for capitalized cloud computing arrangement costs in the Children's Book Publishing and Distribution segment, resulting in a $0.02 loss per share due to product discontinuation - An impairment charge of $0.8 million was recognized in Q1 FY26 for unrecoverable capitalized cloud computing arrangement costs in the Children's Book Publishing and Distribution segment, leading to a $0.02 loss per share[41] 5. Debt Total debt increased to $331.2 million as of August 31, 2025, primarily due to increased borrowings under the U.S. Credit Agreement, a $400.0 million unsecured revolving credit facility, with the company remaining in compliance with all debt covenants Total Debt | Debt Type | August 31, 2025 ($M) | May 31, 2025 ($M) | August 31, 2024 ($M) | | :-------------------------- | :------------------- | :------------------ | :------------------- | | U.S. Credit Agreement | 325.0 | 250.0 | 225.0 | | Unsecured lines of credit | 6.2 | 6.2 | 6.1 | | Total debt | 331.2 | 256.2 | 231.1 | - The U.S. Credit Agreement is a $400.0 million unsecured revolving credit facility with a maturity date of November 26, 2029[45] - Outstanding borrowings under the U.S. Credit Agreement were $325.0 million at August 31, 2025, at a weighted average interest rate of 6.1%, compared to $225.0 million at 6.8% in the prior year[49] - Film related obligations decreased to $14.7 million at August 31, 2025, from $34.1 million at August 31, 2024[55] 6. Commitments and Contingencies The company accrues liabilities for probable and estimable legal matters and does not anticipate a material adverse effect on its financial position or results of operations from current claims, with additional insurance recoveries expected from a fiscal 2021 intellectual property legal settlement, though the amount is not yet determinable - The company accrues liabilities for probable and estimable legal matters and does not anticipate a material adverse effect on its financial position or results of operations from current claims[56] - Additional recoveries from insurance programs related to a fiscal 2021 intellectual property legal settlement are expected, but the amount is currently not determinable[57] 7. Earnings (Loss) Per Share Basic and diluted loss per share for Class A and Common Stock was $2.83 for Q1 FY26, compared to $2.21 in the prior year, with no dilutive share impact reported due to the net loss Earnings (Loss) Per Share | Metric | August 31, 2025 | August 31, 2024 | | :---------------------------------------------------------------- | :-------------- | :-------------- | | Net income (loss) attributable to Class A and Common Stockholders | $(71.1) M | $(62.5) M | | Weighted average Shares outstanding for basic EPS (millions) | 25.2 | 28.3 | | Basic EPS | $(2.83) | $(2.21) | | Diluted EPS | $(2.83) | $(2.21) | - Anti-dilutive shares from stock-based compensation plans were 1.6 million for Q1 FY26 and 1.7 million for Q1 FY25, excluded from diluted EPS computation due to net loss[58] 8. Acquisitions On June 20, 2024, Scholastic acquired 9 Story for $193.7 million, expanding its Entertainment segment's IP development and distribution capabilities, resulting in $64.2 million in goodwill and $85.3 million in amortizable intangible assets - Scholastic acquired 9 Story on June 20, 2024, for $193.7 million, expanding its children's content development, production, and licensing interests within the Entertainment segment[60][61][62] - The acquisition resulted in the recognition of $64.2 million in goodwill and $85.3 million in amortizable intangible assets, including existing content/IP, customer contracts/relationships, and trade names[63][67] 9. Goodwill and Other Intangibles Goodwill remained stable at $199.7 million as of August 31, 2025, with no impairment charges, while other intangible assets, net, decreased slightly to $86.6 million, with a weighted-average remaining useful life of approximately 8.2 years for amortizable assets Goodwill | Metric | August 31, 2025 ($M) | May 31, 2025 ($M) | August 31, 2024 ($M) | | :-------------------- | :------------------- | :------------------ | :------------------- | | Beginning balance | 198.9 | 132.8 | 132.8 | | Additions | — | 64.2 | 70.1 | | Foreign currency translation | 0.8 | 1.9 | 1.5 | | Ending balance | 199.7 | 198.9 | 204.4 | Other Intangible Assets, Net | Metric | August 31, 2025 ($M) | May 31, 2025 ($M) | August 31, 2024 ($M) | | :------------------------------------------------------------------------------------------------ | :------------------- | :------------------ | :------------------- | | Total other intangibles subject to amortization, net | 84.5 | 85.8 | 92.6 | | Total other intangibles not subject to amortization | 2.1 | 2.1 | 2.1 | | Total other intangible assets, net | 86.6 | 87.9 | 94.7 | - The weighted-average remaining useful life of all amortizable intangible assets is approximately 8.2 years[69] 10. Investments Total investments remained stable at $40.0 million as of August 31, 2025, including equity method investments in a UK children's book publishing business and a financing/production company, with the company recognizing a loss of $0.1 million from equity investments in Q1 FY26 Total Investments | Metric | August 31, 2025 ($M) | May 31, 2025 ($M) | August 31, 2024 ($M) | | :------------------------ | :------------------- | :------------------ | :------------------- | | Equity method investments | 33.6 | 33.6 | 32.5 | | Equity method and other investments | 6.4 | 6.4 | 7.0 | | Total Investments | 40.0 | 40.0 | 39.5 | - The company recognized a loss of $0.1 million from equity investments for the three months ended August 31, 2025, compared to income of $0.2 million in the prior year[73] 11. Stock-Based Compensation Total stock-based compensation expense decreased to $1.9 million for Q1 FY26 from $2.2 million in the prior year, primarily due to lower stock option expense Stock-Based Compensation Expense | Expense Type | August 31, 2025 ($M) | August 31, 2024 ($M) | | :-------------------------- | :------------------- | :------------------- | | Stock option expense | 0.3 | 0.6 | | Restricted stock unit expense | 1.5 | 1.5 | | Management stock purchase plan | 0.0 | 0.0 | | Employee stock purchase plan | 0.1 | 0.1 | | Total stock-based compensation expense | 1.9 | 2.2 | 12. Treasury Stock As of August 31, 2025, $70.0 million remained available for future common share repurchases under Board authorization, with no repurchases made during Q1 FY26 - $70.0 million remained available for future common share repurchases under Board authorization as of August 31, 2025[76] - No repurchases of the company's Common Stock were made during the three months ended August 31, 2025[77] 13. Accumulated Other Comprehensive Income (Loss) Accumulated other comprehensive loss improved to $(37.7) million at August 31, 2025, from $(44.1) million at August 31, 2024, primarily due to positive foreign currency translation adjustments Accumulated Other Comprehensive Income (Loss) | Component | August 31, 2025 ($M) | August 31, 2024 ($M) | | :-------------------------------- | :------------------- | :------------------- | | Foreign currency translation adjustments | (32.5) | (38.7) | | Retirement benefit plans | (5.2) | (5.4) | | Total | (37.7) | (44.1) | - Other comprehensive income (loss) before reclassifications was $3.5 million for Q1 FY26, compared to $8.2 million for Q1 FY25[78] 14. Fair Value Measurements The company employs a three-level fair value hierarchy for assets and liabilities, classifying cash and cash equivalents as Level 1, debt and foreign currency forward contracts as Level 2, and non-financial assets like long-lived assets and goodwill using Level 2 and Level 3 inputs on a non-recurring basis - The company categorizes fair value measurements into three levels: Level 1 (unadjusted quoted prices in active markets), Level 2 (observable inputs other than Level 1 quoted prices), and Level 3 (unobservable inputs)[82] - Cash and cash equivalents are Level 1, while debt and foreign currency forward contracts are Level 2. Non-financial assets like long-lived assets and goodwill are measured using Level 2 and Level 3 inputs[80][81] 15. Income Taxes and Other Taxes The interim effective tax rate for Q1 FY26 was 26.7%, down from 31.9% in the prior year, primarily due to non-deductible compensation and expected state and local income tax, with the company evaluating the impact of the One Big Beautiful Bill Act (OBBBA) and determining the OECD's Pillar Two global minimum tax framework to be immaterial - The interim effective tax rate for the three months ended August 31, 2025, was 26.7%, compared to 31.9% for the prior fiscal year period[85] - The company does not anticipate a material effect on its consolidated financial statements for FY26 from the recently enacted One Big Beautiful Bill Act (OBBBA)[88] - The impact of the OECD's Pillar Two global minimum tax framework was determined to be immaterial to the company's financial statements[87] 16. Derivatives and Hedging The company uses foreign currency derivative contracts to economically hedge exposure to foreign currency fluctuations, primarily for forecasted inventory purchases and foreign expenditures, with notional values of $22.8 million and a net unrealized loss of $0.3 million recognized in both Q1 FY26 and Q1 FY25 - The company enters into foreign currency derivative contracts to economically hedge foreign currency fluctuations, not for trading or speculative purposes[90] - Notional values of derivative contracts were $22.8 million as of August 31, 2025 and 2024, with a net unrealized loss of $0.3 million recognized in both periods[91] 17. Other Accrued Expenses Total other accrued expenses decreased to $138.5 million at August 31, 2025, from $166.2 million at May 31, 2025, primarily driven by lower accrued bonus and commissions and accrued other taxes Other Accrued Expenses | Expense Type | August 31, 2025 ($M) | May 31, 2025 ($M) | August 31, 2024 ($M) | | :-------------------------------- | :------------------- | :------------------ | :------------------- | | Accrued payroll, payroll taxes and benefits | 35.2 | 35.2 | 30.5 | | Accrued bonus and commissions | 10.5 | 26.6 | 13.0 | | Returns liability | 32.9 | 34.4 | 30.7 | | Accrued other taxes | 11.6 | 22.2 | 13.6 | | Accrued advertising and promotions | 5.8 | 5.1 | 7.3 | | Other accrued expenses | 42.5 | 42.7 | 44.0 | | Total accrued expenses | 138.5 | 166.2 | 139.1 | 18. Subsequent Events On September 17, 2025, the Board declared a quarterly cash dividend of $0.20 per share on the company's Class A and Common Stock, payable on December 15, 2025 - A quarterly cash dividend of $0.20 per share was declared on September 17, 2025, payable on December 15, 2025[93] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and future outlook, detailing consolidated and segment-level results, seasonality, liquidity, capital resources, financing, new accounting pronouncements, and forward-looking statements Overview and Outlook Revenues for Q1 FY26 decreased by 5% to $225.6 million, and net loss per diluted share increased to $2.83, with the company completing the integration of its Children's Book Group, positioning the Entertainment segment for growth, and improving International profitability, while anticipating benefits from new book releases in the remainder of FY26 Overview and Outlook - Key Metrics | Metric | Q1 FY26 (Aug 31, 2025) | Q1 FY25 (Aug 31, 2024) | Change ($M) | Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :---------- | :--------- | | Revenues | $225.6 M | $237.2 M | $(11.6) | (5)% | | Net loss per diluted share | $(2.83) | $(2.21) | $(0.62) | (28.1)% | - The company completed the integration of its Book Fairs, Book Clubs, and Trade Publishing divisions into a new Children's Book Group to strengthen publishing, merchandising, and distribution[96] - International segment results reflected increased profitability, primarily in Asia and Australia, driven by higher revenues and previously implemented cost-savings programs[96] Results of Operations This section details the consolidated and segment-specific financial performance for Q1 FY26 compared to the prior year, covering revenues, cost of goods sold, selling, general and administrative expenses, depreciation and amortization, asset impairments, interest income/expense, and net income/loss Consolidated Results Consolidated revenues decreased by $11.6 million (4.9%) to $225.6 million, with cost of goods sold increasing as a percentage of revenues, SG&A expenses decreasing due to reorganization and cost-saving initiatives despite increased severance, and net loss increasing to $71.1 million Consolidated Financial Performance | Metric | Q1 FY26 (Aug 31, 2025) | Q1 FY25 (Aug 31, 2024) | Change ($M) | Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :---------- | :--------- | | Revenues | $225.6 M | $237.2 M | $(11.6) | (4.9)% | | Net loss | $(71.1) M | $(62.5) M | $(8.6) | (13.8)% | Consolidated Cost of Goods Sold | Component | Q1 FY26 ($M) | % of Revenue | Q1 FY25 ($M) | % of Revenue | | :------------------------------------------ | :----------- | :----------- | :----------- | :----------- | | Product, service and production costs and inventory reserves | $68.6 | 30.4% | $74.2 | 31.3% | | Royalty and participation costs | 24.2 | 10.7% | 22.0 | 9.3% | | Prepublication and production amortization | 7.1 | 3.1% | 6.7 | 2.8% | | Postage, freight, shipping, fulfillment and other | 23.6 | 10.5% | 25.4 | 10.7% | | Total Cost of goods sold | $123.5 | 54.7% | $128.3 | 54.1% | - Selling, general and administrative expenses decreased by $4.9 million to $177.2 million, primarily due to lower employee-related costs and marketing expenses, partially offset by $7.6 million in severance expense[100] - Interest expense increased to $5.0 million from $3.8 million due to increased borrowings under the U.S. Credit Agreement[103] Children's Book Publishing and Distribution Revenues increased by $4.0 million (3.8%) to $109.4 million, driven by increased redemptions of book fair incentive program credits, with operating loss improving by $1.5 million to $35.1 million, and cost of goods sold as a percentage of revenues increasing due to higher royalty and product costs, with newly imposed tariffs expected to further increase costs during peak selling seasons Children's Book Publishing and Distribution Performance | Metric | Q1 FY26 (Aug 31, 2025) | Q1 FY25 (Aug 31, 2024) | Change ($M) | Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :---------- | :--------- | | Revenues | $109.4 M | $105.4 M | $4.0 | 3.8% | | Operating income (loss) | $(35.1) M | $(36.6) M | $1.5 | 4.1% | - Revenues from School Reading Events increased $4.4 million, driven by increased redemptions of book fair incentive program credits[108] - Cost of goods sold as a percentage of revenues increased to 56.9% from 55.9%, driven by higher royalty costs and product costs related to book fair incentives[108] - The company expects newly imposed tariffs to increase Cost of goods sold during its peak selling seasons in the second and fourth fiscal quarters, particularly within the book fairs channel[108] Education Solutions Revenues decreased significantly by $15.6 million (28.0%) to $40.1 million, primarily due to delayed or reduced school funding and lower sales of supplemental programs, with operating loss worsening by $4.2 million to $21.2 million, while cost of goods sold as a percentage of revenues decreased due to a favorable product mix and other operating expenses decreased due to lower employee-related and external labor costs Education Solutions Performance | Metric | Q1 FY26 (Aug 31, 2025) | Q1 FY25 (Aug 31, 2024) | Change ($M) | Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :---------- | :--------- | | Revenues | $40.1 M | $55.7 M | $(15.6) | (28.0)% | | Operating income (loss) | $(21.2) M | $(17.0) M | $(4.2) | (24.7)% | - The decrease in segment revenues was primarily driven by delayed or reduced school funding, resulting in lower sales of supplemental programs, Magazines+, and timing of revenues from sponsored programs[112] - Other operating expenses decreased by $3.3 million, primarily attributable to lower employee-related and external labor costs[114] Entertainment Revenues decreased by $3.0 million (18.1%) to $13.6 million, mainly due to fewer episodic deliveries and delays in production greenlights from major platforms, with operating loss increasing by $3.5 million to $4.0 million, and cost of goods sold as a percentage of revenues increasing due to the timing of distribution and participation expenses and higher costs for production services Entertainment Performance | Metric | Q1 FY26 (Aug 31, 2025) | Q1 FY25 (Aug 31, 2024) | Change ($M) | Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :---------- | :--------- | | Revenues | $13.6 M | $16.6 M | $(3.0) | (18.1)% | | Operating income (loss) | $(4.0) M | $(0.5) M | $(3.5) | NM | - The decrease in segment revenues was primarily driven by lower production revenues due to fewer episodic deliveries and delays in production greenlights from major platforms[118] - Other operating expenses increased by $0.7 million, reflecting a full quarter of expenses in fiscal 2026 compared to a partial quarter in fiscal 2025 due to the 9 Story acquisition[120] International Revenues increased by $2.6 million (4.6%) to $59.4 million, with local currency growth in Australia, New Zealand, Asia (India, Philippines), and the U.K., partially offset by a decrease in Canada, and operating loss significantly improved by $4.1 million to $4.2 million, driven by increased profitability in Asia and Australia due to higher revenues and lower operating costs International Performance | Metric | Q1 FY26 (Aug 31, 2025) | Q1 FY25 (Aug 31, 2024) | Change ($M) | Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :---------- | :--------- | | Revenues | $59.4 M | $56.8 M | $2.6 | 4.6% | | Operating income (loss) | $(4.2) M | $(8.3) M | $4.1 | 49.4% | - Local currency revenues increased by $2.4 million, with growth in Australia, New Zealand, Asia, and the U.K., partially offset by a $1.6 million decrease in Canada[123] - Cost of goods sold as a percentage of revenues decreased due to lower inbound freight and postage costs in Canada and lower fulfillment costs in Australia[124] Overhead Unallocated overhead expense increased by $1.6 million to $27.7 million, primarily due to a $7.5 million increase in severance expense related to cost-savings initiatives, partially offset by lower employee-related costs from previous reorganization efforts - Unallocated overhead expense increased by $1.6 million to $27.7 million, primarily driven by a $7.5 million increase in severance expense related to cost-savings initiatives[127] Seasonality The company's business is highly seasonal, with its Children's Book Publishing and Distribution school-based channels and most Education Solutions businesses operating on a school-year basis, typically resulting in lower revenues in the first and third fiscal quarters - The company's business is highly seasonal, with school-based channels and magazine revenues minimal in the first and third fiscal quarters as schools are not in session[128] Liquidity and Capital Resources Cash used in operating activities increased significantly to $81.8 million in Q1 FY26, primarily due to increased inventory purchases, higher severance and tax payments, and increased interest payments, while cash used in investing activities decreased substantially due to the absence of a large acquisition, and cash provided by financing activities decreased due to lower net borrowings and no common stock repurchases, with the company maintaining sufficient liquidity through cash, operations, and its U.S. Credit Agreement Cash Flow Activities | Cash Flow Activity | Q1 FY26 (Aug 31, 2025) ($M) | Q1 FY25 (Aug 31, 2024) ($M) | Change ($M) | | :-------------------------------- | :-------------------------- | :-------------------------- | :---------- | | Operating activities | $(81.8) | $(41.9) | $(39.9) | | Investing activities | $(14.9) | $(200.8) | $185.9 | | Financing activities | $66.8 | $211.9 | $(145.1) | - Cash used in operating activities increased primarily due to increased inventory purchases (including higher tariff payments), higher severance and tax payments, and increased interest payments[129] - The decrease in cash used in investing activities was primarily driven by the absence of the $176.4 million cash paid for the 9 Story acquisition in the prior fiscal year[130] - The company's primary sources of liquidity include cash and cash equivalents ($94.3 million at August 31, 2025), cash from operations, and its U.S. Credit Agreement, which has $74.6 million of availability[134] Financing The company's financing primarily consists of the U.S. Credit Agreement and various credit lines, including those related to film related obligations, as detailed in Note 5 to the financial statements - The company's financing arrangements include the U.S. Credit Agreement and various credit lines, including film related obligations, as described in Note 5[135] New Accounting Pronouncements Information concerning recent accounting pronouncements and their potential impact on the company's financial statements is referenced in Note 1 of the Notes to Financial Statements - Refer to Note 1 of the Notes to Financial Statements for information concerning recent accounting pronouncements[135] Forward-Looking Statements This section contains cautionary statements regarding forward-looking information, noting that results or expectations expressed by such statements are subject to risks and uncertainties that could cause actual results to differ materially, and the company disclaims any intention or obligation to update or revise these statements - The report contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially. The company disclaims any obligation to update or revise these statements[136] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks primarily from fluctuations in foreign currency exchange rates and changes in interest rates on its variable-rate borrowings, with foreign currency risk managed through internal procedures and short-term forward exchange contracts not used for trading or speculative purposes - The company's cash flows and earnings are subject to fluctuations from changes in foreign currency exchange rates and interest rates on its variable-rate borrowings[138] - Foreign currency risk is managed through internally established procedures and short-term forward exchange contracts, which are not used for trading or speculative purposes[138] Debt Obligations and Fair Value | Debt Obligations | Fiscal Year Maturity 2026 ($M) | Fiscal Year Maturity 2027 ($M) | Fiscal Year Maturity 2028 ($M) | Fiscal Year Maturity 2029 ($M) | Fiscal Year Maturity 2030 ($M) | Total ($M) | Fair Value at 08/31/2025 ($M) | | :-------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :--------- | :---------------------------- | | Lines of credit and current portion of long-term debt | — | 6.2 | — | — | — | 6.2 | 6.2 | | Average interest rate | — | 4.9% | — | — | — | | | | Long-term debt | — | — | — | — | 325.0 | 325.0 | 325.0 | | Average interest rate | — | — | — | — | 6.1% | | | | Film related obligations | 2.5 | 5.5 | 2.9 | 3.8 | — | 14.7 | 14.7 | | Average interest rate | 5.7% | 6.7% | 5.6% | 5.5% | — | | | Item 4. Controls and Procedures The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of August 31, 2025, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of August 31, 2025[142] - No material changes in internal control over financial reporting occurred during the quarter ended August 31, 2025[142] PART II - OTHER INFORMATION Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased under the company's authorized stock repurchase program during Q1 FY26, and no Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during this period - No shares were repurchased under the company's authorized stock repurchase program during the three months ended August 31, 2025[144] - No Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during the three months ended August 31, 2025[145] Item 5. Other Information This section is a placeholder and contains no specific information for the current reporting period Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, and the financial statements formatted in Inline Extensible Business Reporting Language (XBRL) - Exhibits include certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[146][147] - The financial statements are included in Inline Extensible Business Reporting Language (XBRL) format as Exhibit 101[146][147] Signatures The report is duly signed on behalf of Scholastic Corporation by Peter Warwick, President and Chief Executive Officer, and Haji L. Glover, Executive Vice President and Chief Financial Officer, on September 19, 2025 - The report was signed by Peter Warwick (President and Chief Executive Officer) and Haji L. Glover (Executive Vice President and Chief Financial Officer) on September 19, 2025[150]