SCHOLASTIC CORP (SCHL)

Results of Operations

Consolidated

Revenues for the quarter ended February 28, 2026 decreased by $6.3 million to $329.1 million, compared to $335.4 million in the prior fiscal year quarter. Within the Children's Book Publishing and Distribution segment, revenues decreased by $5.7 million, driven by lower trade channel revenues reflecting the shift in timing of the Dog Man publication which occurred in the second fiscal quarter compared to the third fiscal quarter in the prior year, partially offset by increased revenues from School Reading Events as a result of higher revenue per fair. In the Education Solutions segment, revenues decreased by $1.1 million, primarily driven by lower sales of supplemental curriculum products and lower subscription revenues from Magazines+, partially offset by increased revenues from sponsored programs. In the Entertainment segment, revenues increased by $3.2 million, reflecting higher production revenues from episodic deliveries and services. In local currency, International segment revenues decreased by $4.1 million, primarily driven by lower trade channel sales in the U.K.and Canada due, in part, to the timing shift of the Dog Man publication, coupled with lower education sales in New Zealand. International segment revenues were impacted by favorable foreign exchange of $3.5 million in the quarter ended February 28, 2026. In addition, rental income decreased $2.1 million from the prior fiscal year quarter as a result of the sale and leaseback of the Company's headquarters in New York City as the Company no longer owns the leasable space.

Revenues for the nine months ended February 28, 2026 decreased by $11.4 million to $1,105.8 million, compared to $1,117.2 million in the prior fiscal year period. Revenues in the Children's Book Publishing and Distribution segment increased by $12.2 million, driven by increased revenues from School Reading Events as a result of higher fair count and increased revenue per fair as well as increased redemptions of book fair incentive program credits. In the Education Solutions segment, revenues decreased by $25.7 million, primarily due to the continued challenging funding market for schools and school districts which resulted in lower sales of supplemental curriculum products and lower subscription revenues from Magazines+. In the Entertainment segment, revenues decreased by $1.5 million, primarily reflecting lower production and distribution revenues. In local currency, International segment revenues increased by $1.6 million, primarily driven by higher sales in Australia, Asia and the U.K. International segment revenues were also impacted by favorable foreign exchange of $3.2 million in the period ended February 28, 2026. In addition, rental income decreased $1.2 million from the

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

prior fiscal year period as a result of the sale and leaseback of the Company's headquarters in New York City as the Company no longer owns the leasable space.

Components of Cost of goods sold for the three and nine months ended February 28, 2026 and February 28, 2025 are as follows:

Cost of goods sold for the quarter ended February 28, 2026 was $150.3 million, or 45.7% of revenues, compared to $154.6 million, or 46.1% of revenues, in the prior fiscal year quarter. The decrease in Cost of Goods sold as a percentage of revenues was primarily driven by improved utilization of inventory in the U.S. book fairs channel which resulted in less excess and obsolete inventory, in addition to lower freight costs in the Company's international Major Markets. Royalty costs were also lower as a result of a decrease in the mix of higher-royalty bearing titles sold in the U.S. trade channel in the quarter ended February 28, 2026, partially offset by higher sales of royalty-bearing titles in Australia. This was partially offset by increased tariff charges, primarily in the U.S. book fairs channel, coupled with increased production costs from higher production services revenue in Entertainment and higher shipping and postage costs related to sponsored programs in Education Solutions.

Cost of goods sold for the nine months ended February 28, 2026 was $499.4 million, or 45.2% of revenues, compared to $511.5 million, or 45.8% of revenues, in the prior fiscal year period. The decrease in Cost of goods sold as a percentage of revenues was primarily driven by improved utilization of inventory in the U.S. book fairs and book clubs channels which resulted in less excess and obsolete inventory, in addition to lower freight costs in the Company's international Major Markets. This was partially offset by increased tariff charges, primarily in the U.S. book fairs channel. The Company is evaluating the potential impact of a recent U.S. Supreme Court ruling pertaining to tariffs previously paid on imported products under the International Emergency Economic Powers Act (IEEPA). The Company estimates that approximately $9 million of its tariff payments are subject to this ruling, however, no amounts have been recognized to date. The ultimate timing and amount of any refund remain uncertain.

Selling, general and administrative expenses for the quarter ended February 28, 2026 increased to $192.8 million, compared to $187.5 million in the prior fiscal year quarter. The $5.3 million increase was primarily attributable to higher rent expense as a result of the sale and leaseback of the Company's headquarters in New York City, partially offset by lower severance expense of $0.6 million in the quarter ended February 28, 2026 related to cost-saving initiatives.

Selling, general and administrative expenses for the nine months ended February 28, 2026 decreased to $587.5 million, compared to $594.5 million in the prior fiscal year period. The $7.0 million decrease was primarily attributable to lower employee-related and external labor costs resulting from the Company's previous reorganization efforts and cost-saving initiatives and lower spending on general overhead expenses. This was partially offset by increased severance expense related to cost-saving initiatives of $5.7 million in the period ended February 28, 2026 and higher rent expense as a result of the sale and leaseback of the Company's headquarters in New York City.

Depreciation and amortization expense for the quarter ended February 28, 2026 decreased by $4.0 million to $12.9 million, compared to $16.9 million in the prior fiscal year quarter. Depreciation and amortization expense

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

for the nine months ended February 28, 2026 decreased by $2.8 million to $45.7 million, compared to $48.5 million in the prior fiscal year period. The decrease in Depreciation and amortization expense was primarily attributable to the sale of the Company's headquarters in New York City and distribution center in Jefferson City.

Asset impairments for the nine months ended February 28, 2026 were $9.4 million. The Company recognized asset impairments of $3.4 million related to certain products within the Education Solutions segment, $5.2 million primarily related to certain film and television programs in development within the Entertainment segment and $0.8 million related to a product that is no longer being sold within the Children's Book Publishing and Distribution segment. Asset impairments for the three and nine months ended February 28, 2025 were $0.3 million and $0.4 million, respectively, primarily related to the early exit of leased office space within the Entertainment segment.

Interest expense for the three and nine months ended February 28, 2026 was $1.9 million and $12.5 million, respectively, compared to $4.7 million and $13.4 million, respectively, in the prior fiscal year periods. The decrease in interest expense was due to repayments of borrowings under the U.S. Credit Agreement during the period ended February 28, 2026.

Interest income for the three and nine months ended February 28, 2026 was $1.1 million and $2.2 million, compared to $0.4 million and $1.7 million, respectively, in the prior fiscal year periods. The increase in interest income was attributable to higher average short term investment balances in the period ended February 28, 2026 resulting from the net proceeds received from the sale and leaseback transactions. The Company invests excess cash in short term investments which earn competitive interest rates that change directionally in relation to the Federal Funds rate.

Gain on sale and leaseback transactions for the three and nine months ended February 28, 2026 was $119.8 million and $118.2 million, respectively. During the third quarter of fiscal 2026, the Company completed the sale and leaseback transactions related to its headquarters in New York City and primary distribution center in Jefferson City, Missouri. The Company recognized a pre-tax gain of $118.2 million, which included certain transaction costs of $1.6 million incurred during the second quarter of fiscal 2026.

The Company's interim effective tax rate, inclusive of discrete items, for the three and nine months ended February 28, 2026 was 31.9% and 33.1%, respectively, compared to 87.3% and 65.5%, respectively, for the prior fiscal year periods. The interim effective tax rate for the nine months ended February 28, 2026 varies from the statutory rate primarily due to non-deductible compensation for covered executive employees and expected state and local income tax.

Net income for the quarter ended February 28, 2026 increased by $66.1 million to $62.5 million, compared to a net loss of $3.6 million in the prior fiscal year quarter. Earnings per basic and diluted share of Class A and Common Stock were $2.61 and $2.55, respectively, for the fiscal quarter ended February 28, 2026, compared to a loss per basic and diluted share of $0.13 in the prior fiscal year quarter.

Net income for the nine months ended February 28, 2026 increased by $64.6 million to $47.3 million, compared to a net loss of $17.3 million in the prior fiscal year period. Earnings per basic and diluted share of Class A and Common Stock was $1.91 and $1.87, respectively, for the period ended February 28, 2026, compared to a loss per basic and diluted share of $0.61 in the prior fiscal year period.

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

Children’s Book Publishing and Distribution

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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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