SCHOLASTIC CORP (SCHL)

Results of Operations

Consolidated

Revenues for the quarter ended August 31, 2026 decreased by $8.8 million to $216.8 million, compared to $225.6 million in the prior fiscal year quarter. Within the Children's Book Publishing and Distribution segment, revenues decreased by $3.6 million, primarily driven by a co-edition sale in the trade channel in the prior fiscal year quarter that did not repeat in the quarter ended August 31, 2026. In the Education segment, revenues decreased by $9.7 million, driven by lower sales of supplemental curriculum products related to continued pressure on school and district spending. In the Entertainment segment, revenues increased by $6.5 million, reflecting higher production revenues from episodic deliveries and services. Excluding favorable foreign exchange of $1.2 million, International segment revenues were consistent with the prior year, decreasing by $0.1 million. In addition, rental income, recorded in the Overhead, decreased $3.1 million from the prior fiscal year quarter as a result of the sale-leaseback of the Company's headquarters in New York City completed during fiscal 2026 after which the Company no longer owned the leasable space.

Components of Cost of goods sold for the quarter ended August 31, 2026 and August 31, 2025 are as follows:

Cost of goods sold for the quarter ended August 31, 2026 was $118.1 million, or 54.5% of revenues, compared to $123.5 million, or 54.7% of revenues, in the prior fiscal year quarter. The decrease in Cost of Goods sold as a percentage of revenues was primarily attributable to lower product costs resulting from tariff refunds received during the quarter ended August 31, 2026, largely benefiting the U.S. book fairs channel. This benefit was partially offset by higher product and royalty costs within Education, increased production amortization within Entertainment and higher postage costs in the Major Markets driven by rising fuel prices. Fuel costs are not expected to materially impact the Company’s financial results, although sustained increases in fuel prices could result in higher cost of goods sold in future periods.

Selling, general and administrative expenses for the quarter ended August 31, 2026 increased to $178.3 million, compared to $177.2 million in the prior fiscal year quarter. The $1.1 million increase was primarily attributable to higher rent expense as a result of the sale-leaseback of the Company's headquarters and primary distribution

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

center, partially offset by lower severance expense of $6.3 million in the quarter ended August 31, 2026 related to cost-saving initiatives, coupled with lower marketing expenses related to sponsored programs in Education.

Depreciation and amortization expense for the quarter ended August 31, 2026 decreased by $3.7 million to $12.6 million, compared to $16.3 million in the prior fiscal year quarter. The decrease in Depreciation and amortization expense was primarily attributable to the sale of the Company's headquarters and primary distribution center during the third quarter of fiscal 2026.

Asset impairments for the quarter ended August 31, 2025 were $0.8 million. The Company recognized an asset impairment of $0.8 million related to a product that is no longer being sold within the Children's Book Publishing and Distribution segment.

Interest expense for the quarter ended August 31, 2026 was $2.3 million, compared to $5.0 million in the prior fiscal year quarter. The decrease in interest expense was attributable to lower average borrowings outstanding under the U.S. Credit Agreement during the period ended August 31, 2026, as the Company used proceeds from the sale-leaseback transactions to repay outstanding borrowings.

Interest income for the quarter ended August 31, 2026 was $0.7 million, compared to $0.5 million, in the prior fiscal year quarter. The increase in interest income was attributable to higher average short term investment balances in the period ended August 31, 2026. The Company invests excess cash in short term investments which earn competitive interest rates that change directionally in relation to the Federal Funds rate.

The Company's interim effective tax rate, inclusive of discrete items, for the quarter ended August 31, 2026 was 24.0%, compared to 26.7% for the prior fiscal year quarter. The interim effective tax rate for the quarter ended August 31, 2026 varied from the statutory rate primarily due to non-deductible compensation for covered executive employees, expected state and local income tax and the Foreign-Derived Intangible Income (FDII) deduction.

Net loss for the quarter ended August 31, 2026 increased by $0.1 million to $71.2 million, compared to a net loss of $71.1 million in the prior fiscal year quarter. Loss per basic and diluted share of Class A and Common Stock was $3.77 for the fiscal quarter ended August 31, 2026, compared to a loss per basic and diluted share of $2.83 in the prior fiscal year quarter.

Children’s Book Publishing and Distribution

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

Revenues for the quarter ended August 31, 2026 decreased by $3.6 million to $105.8 million, compared to $109.4 million in the prior fiscal year quarter. Trade channel revenues decreased $3.0 million, primarily reflecting a co-edition sale in the prior fiscal year quarter that did not recur in the quarter ended August 31, 2026, partially offset by higher sales resulting from the release of the paperback edition of Sunrise on the Reaping and foil editions of certain Dog Man® titles. Revenues from School Reading Events decreased $0.6 million. Revenues from School Reading Events are generally not significant in the first fiscal quarter as most schools are not in session.

Cost of goods sold for the quarter ended August 31, 2026 was $55.4 million, or 52.4% of revenues, compared to $62.2 million, or 56.9% of revenues, in the prior fiscal year quarter. The decrease in Cost of goods sold as a percentage of revenues was driven by tariff refunds received during the quarter ended August 31, 2026, primarily benefiting the book fairs channel, partially offset by higher postage costs in the trade channel.

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

Other operating expenses for the quarter ended August 31, 2026 increased by $7.1 million to $88.6 million compared to $81.5 million in the prior fiscal year quarter. The increase in Other operating expenses was primarily driven by higher rent expense associated with the Company's leased headquarters and primary distribution facilities following the sale-leaseback transactions completed in the third quarter of fiscal 2026, as well as higher employee-related expenses.

Asset impairments for the quarter ended August 31, 2025 were $0.8 million. The Company recognized an asset impairment of $0.8 million related to a certain product that is no longer being sold.

Segment operating loss for the quarter ended August 31, 2026 increased by $3.1 million to $38.2 million, compared to $35.1 million in the prior fiscal year quarter. The increase was primarily attributable to higher rent and employee-related expenses, partially offset by tariff refunds received during the quarter ended August 31, 2026.

Education

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

Revenues for the quarter ended August 31, 2026 decreased by $9.7 million to $30.4 million, compared to $40.1 million in the prior fiscal year quarter. The decrease in segment revenues was primarily driven by lower sales of supplemental curriculum products related to continued pressure on school and district spending.

Cost of goods sold for the quarter ended August 31, 2026 was $14.8 million, or 48.7% of revenues, which was comparable to $19.3 million, or 48.1% of revenues, in the prior fiscal year quarter. Cost of goods sold as a percentage of revenues increased due to higher product and royalty costs associated with the mix of products sold during the quarter ended August 31, 2026, partially offset by lower prepublication amortization resulting from certain product impairments recognized in fiscal 2026.

Other operating expenses for the quarter ended August 31, 2026 decreased by $3.1 million to $38.9 million, compared to $42.0 million in the prior fiscal year quarter. The decrease in Other operating expenses was primarily attributable to lower marketing expenses related to sponsored programs, in addition to the benefits from previous reorganizations and cost-savings initiatives.

Segment operating loss for the quarter ended August 31, 2026 increased by $2.1 million to $23.3 million, compared to an operating loss of $21.2 million in the prior fiscal year quarter. The increase was primarily attributable to lower revenues reflecting the continued pressure on school and district spending.

Entertainment

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

Revenues for the quarter ended August 31, 2026 increased by $6.5 million to $20.1 million, compared to $13.6 million in the prior fiscal year quarter. The increase in segment revenues was primarily driven by higher

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

production revenues resulting from an increase in episodic deliveries comp

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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 four reportable segments: Children’s Book Publishing and Distribution; Education; Entertainment; 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, 2026 decreased by $43.6 million, or 2.7%, to $1,581.9 million, compared to $1,625.5 million in the prior fiscal year. The Company reported net income per basic and diluted share of Class A and Common Stock of $2.39 and $2.34, respectively, for the fiscal year ended May 31, 2026, compared to net loss per basic and diluted share of Class A and Common Stock of $0.07 and $0.07, respectively, in the prior fiscal year.

Fiscal 2026 reflected the continued execution of the Company's multi-year transformation strategy, focused on strengthening its organizational structure, enhancing operating efficiency, optimizing its portfolio, and improving capital allocation. Growth in Book Fairs, driven by increases in both fair count and revenue per fair, as well as higher Entertainment revenues, substantially offset declines in trade channel revenues resulting from the challenging prior-year publishing comparisons and lower Education revenues attributable to the continued funding volatility. Despite the overall decline in revenues, operating income remained relatively consistent with the prior year as the Company continued to execute disciplined cost management initiatives and realize operational efficiencies. Additionally, following the completion of the sale-leaseback transactions, the Company returned more than $285 million of capital to shareholders through share repurchases, including a modified Dutch auction tender offer, and the payment of cash dividends.

Outlook

Looking ahead to fiscal 2027, the Company intends to focus its School Reading Events business on increasing fair count, while further simplifying the Book Clubs program and improving execution to enhance engagement with teachers and families. The Company also expects to benefit from a strong global publishing pipeline, including the release of the next title in the best-selling Dog Man series in November and new publishing related to the new Harry Potter series on HBO, as well as new titles in The Baby-Sitters Club, Wings of Fire, and I Survived franchises. In addition, a new Clifford the Big Red Dog animated series is expected to premiere on PBS KIDS in 2027. Within Education, school and district funding conditions are expected to remain volatile, particularly in supplemental curriculum. The Company intends to build on its core literacy strengths to position the business for a return to growth as its strategy advances and market conditions stabilize. Overall, the Company remains focused on executing its strategic priorities, maintaining disciplined cost management, and making targeted investments in areas with the greatest potential to drive long-term growth, strengthen engagement with children, families, and educators, and enhance shareholder value.

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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: accounts receivable allowance for credit losses; variable consideration related to anticipated returns; allocation of transaction price to contractual performance obligations; pension and other postretirement obligations; inventory reserves; deferred income taxes and tax reserves; the timing and amount of future income taxes and related deductions; uncertain tax positions; expected economic life and recoverability of investment in film and television programs and prepublication costs; royalty advance reserves and royalty expense accruals; the impairment assessment of goodwill intangibles and other long-lived assets; and the incremental borrowing rate used to determine the present value of future lease payments and related lease liabilities. 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, 2026 of approximately $5.1 million.

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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, 2026 of approximately $3.5 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

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