SCHL 10-K & 10-Q changes, risk factors and insider trading

The Company’s business is affected significantly by changes in customer purchasing patterns or trends in, as well as the underlying strength of, the trade, educational and entertainment markets for children. In particular, the Company’s educational publishing business may be adversely affected by budgetary restraints and other changes in educational funding as a result of new policies which could be implemented at the federal level or otherwise resulting from new legislation or regulatory action at the federal, state or local level, or by changes in the procurement process, to which the Company may be unable to adapt successfully. In addition, there are many competing demands for educational funds, and there can be no guarantee that the Company will be successful in continuing to obtain sales of its educational programs and materials from any available funding. Further, changes in educational practices affecting structure or content of educational materials or requiring adaption to new learning approaches, particularly in grades pre-K through 6, as well as those which may arise from new legislation or policies at the state or local level directed at content or teaching practices and materials, to which the Company is unable to successfully adapt could result in a loss of business adversely affecting the Company's business and financial performance. In addition, in a highly politicized environment, the content of some of the products being sold by the Company could become controversial, negatively impacting sales made to schools, through partnerships with government agencies or through sponsorships and funding programs. Within the children'sSchool bookReading publishingEvents business, the Company's financial performance could be adversely impacted if its U.S. book clubs channel is unable to adapt to internal changes and the external market. The Company has recently taken a new holistic approach to serving its customers through the reorganization of the Company’s businessTrade, conductedBook through the Trade groupFairs and its school book fairs and book clubsClubs businesses previously conducted through its Scholastic Reading Events group into thea newcombined Children’sChildren's Book Group as noted under Item 1 – Business.Group. The Children’s Book Group’s ability to execute on the new customer-centric strategies and obtain the operational improvements expected to be derived from the reorganization, if not aligned with its customer purchasing behaviors, or the benefits expected to be achieved from the reorganization are not otherwise realized, could result in the Company’s results being negatively impacted. In addition, the Company’s trade business depends on successfully developing and commercializing new titles and original intellectual property that resonate with consumers and can be leveraged across multiple lines of business. While the Company continues to invest in new properties and expand its portfolio, changes in consumer preferences or challenges in achieving broad market appeal could affect the performance of these initiatives and, in turn, impact revenues, profitability, and growth prospects.

Increases in certain operating costs and expenses that are beyond our control and can significantly affect our profitability,profitability could adversely affect our operating performance.

The Company continues to explore opportunities to enhance the efficiency of its cost and organizational structure, which includes actions to restructure its cost base. The rapidly changing environment in which the Company operates increases the risk that not all of the Company's strategic initiatives will deliver the expected benefits within the anticipated timeframes. The Company's ability to achieve certain of the anticipated cost savings could be dependent on the use of artificial intelligence ("AI") and other technologies and the Company may not be successful implementing such technologies. In addition, these efforts may disrupt business activities or the ability of the Company to take advantage of potential growth opportunities, which could adversely affect the Company's business prospects, financial condition, and performance.

The Company operates in highly competitive markets that are subject to rapid change, including, in particular, changes in customer preferences and changes and advances in relevant technologies, including rapid advances in artificial intelligence (“AI”).AI. There are substantial uncertainties associated with the Company’s efforts to develop successful trade publishing, educational, and media products and services, including digital products and services, for its customers, as well as to adapt its print and other materials to new digital technologies, such as the internet cloud technologies, tablets, mobile and other devices and school-based technologiestechnologies, andas well as uncertainties involving the use of AI in connection with the foregoing. The Company makes significant investments in new products and services that may not be profitable, or whose profitability may be significantly lower than the Company anticipates or has experienced historically. In particular, in the context of the Company’s current focus on key digital opportunities, the markets are continuing to develop and the Company may be unsuccessful in establishing itself as a significant factor in any relevant market segment which does develop. Many aspects of markets which could develop for children and schools, such as the nature of the relevant software and devices or hardware, the size of the market, relevant methods of delivery and relevant content, as well as pricing models, are still evolving and will, most likely, be subject to change on a recurring basis until a pattern develops and becomes more defined. This could specifically impact the Company's ability to execute on a digital and print literacy solution, which requires a multi-year investment, through internal development, third party providers and/or acquisitions. In addition, the Company faces market risks associated with systems development and service delivery in its evolving school ordering and ecommerce businesses, as well as in responding to changes in how schools plan to utilize technology for virtual or remote learning and the potential impact on the demand for printed materials in schools.

The Company’s distribution channels include online retailers and ecommerce sites, digital delivery platforms and expanding social media and other marketing platforms. An increased concentration of retailer power has also resulted in the increased importance of mass merchandisers as well as of publishing best sellers to meet consumer demand. Currently, the Company’s top five U.S. trade customers make up approximately 75%74% of the Company’s U.S. trade business and 16%15% of the Company’s total revenues. Adverse changes in the mix of the major customers of the trade business, including the type of customer, which may also be engaged in a competitive business, or in their purchasing patterns or financial condition or the nature of their distribution arrangements with the trade business including any requirements related to environmental sustainability with which the Company must comply could negatively affect the profitability of the Company’s trade business and the Company’s financial performance.

In certain of its businesses the Company holds or has access to personal data, including that of customers or received from schools. Adverse publicity stemming from a data breach, whether or not valid, could reduce demand for the Company’s products or adversely affect its relationship with teachers or educators, impacting participation in the book fairs or book clubs components of the Company's reading events business or decisions to purchase educational materials or programs produced by the Company's Education Solutions segment. Further, a failure to adequately protect personal data, including that of customers or children, or other data security failure, such as cyber-attacks from third parties, could lead to legal actions, fines and penalties, significant remediation costs and reputational damage, including loss of future business.

In the ordinary course of our business, we collect and store in our internal and external data centers, cloud services and networks sensitive data, including but not limited to personal information of our customers, including information received from children. The Company is subject to privacy laws and regulations in the conduct of its business in the United States and in other jurisdictions in which it conducts its international operations, many of which vary significantly, relating to the collection and use of personal information,information. includingSignificant regulations include the European Union General Data Protection Regulation, which became enforceable on May 25, 2018, and the California Consumer Privacy Act, which became effective in January 2020. FollowingAs California’sof lead,2026, similarapproximately 20 states have enacted comprehensive consumer data privacy lawslaws, havewith beenadditional passed,amendments and eithernew arerequirements incontinuing effectto ortake will become effective within the next 12 months in 17 other states.effect.

The Company operates in multiple countries and is subject to different regulations throughout the world. In the United States, the Company is regulated by the Internal Revenue Service, the Securities and Exchange Commission, the Federal Trade Commission and other regulating bodies. Failure to comply with these regulators, including providing these regulators with accurate financial and statistical information that often is subject to estimates and assumptions, or the high cost of complying with relevant regulations, including a significant increase in new regulations resulting from changes in the regulatory environment, could negatively impact the Company. The Company is also subject to the risk that it is unable to comply with the unstandardized, rapidly-changing environmental requirements imposed internationally by local governments, including those related to measuring and reporting on the impact its business has on the environment, which could negatively impact the Company's ability to conduct business in the related country if not met.

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

Revenues from operations for the fiscal year ended May 31, 20252026 increaseddecreased by $35.8$43.6 million, or 2.3%,2.7%, to $1,625.5$1,581.9 million, compared to $1,589.7$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 for the fiscal year ended May 31, 2025, compared to net income per basic and diluted share of Class A and Common Stock of $0.41 and $0.40,$0.07, respectively, in the prior fiscal year.

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 allowance for credit losses; 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; taxinventory rates; recoverability of inventoriesreserves; deferred income taxes and tax reserves; the timing and amount of future income taxes and related deductions; recoverabilityuncertain oftax prepublicationpositions; costs;expected economic life and recoverability of investment in film and television programs and prepublication costs; royalty advance reserves; customer reward programs; and royalty expense accruals; the impairment assessment of long-livedgoodwill assets, goodwillintangibles and other intangibles.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:

Revenues from operations for the fiscal year ended May 31, 20252026 increaseddecreased by $35.8$43.6 million, or 2.3%,3%, to $1,625.5$1,581.9 million, compared to $1,589.7$1,625.5 million in the prior fiscal year. Children’s Book Publishing and Distribution, Entertainment and International segment revenues increased $10.6 million, $59.1 million and $6.0 million, respectively, partially offset by lower revenues from the Education Solutions segment of $41.4 million.

Education Solutions segment revenues decreased $41.4by $42.2 million, primarily driven by lower sales of supplemental curriculum products due to the continued impactchallenging offunding marketenvironment conditionsfor asschools and school districtsdistricts, focuscoupled onwith adoptinglower subscription revenues from Magazines+ and implementinglower newrevenues evidence-basedfrom coresponsored programs and decrease spending on supplemental materials.programs.

Entertainment segment revenues increased $59.1by $4.7 million, reflecting theincreased additionrevenues offrom 9production Story.services.

International segment revenues increaseddecreased $6.0by $2.4 million, primarily driven by increasedlower trade channel revenues fromin Canada and the Company'sU.K., Majorpartially Markets,offset whichby benefitedincreased fromtrade theand neweducation releasessales in the Hunger GamesAsia and Doghigher Mantrade series. International segmentchannel revenues werein alsoAustralia, impactedas bywell unfavorableas favorable foreign currency exchange of $1.6$6.3 million.

Depreciation and amortization expenses for the fiscal year ended May 31, 20252026 were $65.7$58.8 million, compared to $57.1$65.7 million in the prior fiscal year. The $8.6$6.9 million increase in Depreciation and amortizationdecrease was primarily drivenattributable byto the intangible assets acquired as a resultsale of the 9Company's Story acquisition. The Company also continues to shift spending to cloud computing arrangementsheadquarters in whichNew theYork amortizationCity expenseand isdistribution includedcenter in Selling,Jefferson generalCity, andMissouri administrativeduring expensesfiscal rather than Depreciation and amortization.2026.

Asset impairments and write downs for the fiscal year ended May 31, 20252026 were $2.9$10.9 million, compared to $10.0$2.9 million in the prior year. In fiscal 2026, the Company recognized impairments of $4.3 million related to certain products within the Education segment and $5.2 million within the Entertainment segment, primarily related to certain film and television programs in development. In addition, the Company recognized impairments of $1.4 million within the Children's Book Publishing and Distribution segment related to a product that is no longer being sold and inventory destroyed in a warehouse fire. In fiscal 2025, the Company recognized asset impairments of $1.2 million related to certain digital products in Children's Book Publishing and Distribution and Education Solutions,Education, $1.1 million related to certain inventory and other assets in Asia, and $0.6 million related to the early exit of leased office space in the U.S., Canada and Ireland. In fiscal 2024, the Company recognized asset impairments of $6.1 million related to certain education products as a result of the shift to evidence-based approaches to literacy instruction in the education market and $3.9 million related to the early exit of leased office space in the U.S. and Canada.

Interest income for the fiscal year ended May 31, 20252026 was $2.2$2.9 million, compared to $4.6$2.2 million in the prior fiscal year. The decrease in interest incomeincrease was attributable to lowerhigher average short term investment balances as compared toduring the prioryear fiscalended year.May 31, 2026, primarily reflecting the net proceeds received from the sale and leaseback transactions. The Company invests excess cash in short term investments whichthat earn competitive interest ratesrates, thatwhich changegenerally directionallymove in relationline towith changes in the Federal Funds rate.

Interest expense for the fiscal year ended May 31, 20252026 was $18.2$14.1 million, compared to $1.9$18.2 million in the prior fiscal year. The increase in interest expensedecrease was due to repayments of borrowings under the U.S. Credit Agreement incurred during the first quarter of fiscal 2025 to fund the 9 Story acquisition. The Company expects to maintain these borrowings into the next fiscal year resultingended inMay comparable to slightly higher interest expense in fiscal31, 2026. Any potential asset monetization strategies executed by the Company could result in repayments of the outstanding borrowings and reduce interest expense.

The Company’s effective tax rate for the fiscal year ended May 31, 20252026 was (46.2)%,33.4%, compared to 25.3%46.2% in the prior fiscal year. The Company's effective tax rate variesdiffered from the statutory rate primarily due to expectedhigher state and local income taxes attributable to the tax gain on the sale-leaseback transactions and non-deductible compensation for covered executive employees. The tax provision on the global consolidated loss before income taxes was due to the Company's domestic taxable income generating tax expense.

Net lossincome for fiscal 20252026 was $1.9$56.7 million compared to net incomeloss of $12.1$1.9 million in fiscal 2024,2025, aan decreaseimprovement of $14.0$58.6 million. The basic and diluted earnings per share of Class A Stock and Common Stock was $2.39 and $2.34, respectively, in fiscal 2026, compared to basic and diluted loss per share of Class A Stock and Common Stock wasof $0.07 in fiscal 2025, compared to basic and diluted income per share of Class A Stock and Common Stock of $0.41 and $0.40,$0.07, respectively, in fiscal 2024.2025. Outstanding shares decreased 11%25% from 28.225.0 million to 25.018.7 million as of May 31, 20252026 which is expected to benefit earnings per share calculations in fiscal 2026.2027.

Cost of goods sold for the fiscal year ended May 31, 20252026 was $410.2$393.5 million, or 42.6%40.8% of revenues, compared to $412.0$410.2 million, or 43.2%42.6% of revenues, in the prior fiscal year. The improvementdecrease in Cost of goods sold as a percentage of revenues was primarily attributable to thelower mixroyalty of product soldcosts in the trade channelchannel, driven by a shift in fiscal 2025, driven in particular by the higher priced hardcover sales ofmix Sunrisetoward ontitles thewith Reaping, partially offset by higherlower royalty costsrates as a result of an increase in the mix of higher-royalty bearing titles sold induring the fiscal year ended May 31, 2025.2026. In addition, theCost bookof fairsgoods channelsold hadwas lowerfavorably excessimpacted by improved inventory reserves as a result of better inventory utilization. The Company expects an increase in cost of product as a result of increased tariffs, especiallyutilization in the book fairsclubs channelchannel, beginningresulting in thelower peakexcess sellingand seasonobsolete ininventory, theas upcomingwell secondas tariff mitigation actions and tariff refunds received during fiscal quarter.2026.

Other operating expenses were $180.1$426.4 million for the fiscal year ended May 31, 2025,2026, compared to $191.7$422.4 million in the prior fiscal year. The $11.6$4.0 million decreaseincrease in Other operating expenses was primarily attributabledue to lowerinflationary commissionpressures on employee-related and general expenses, largely within the book fairs channel. The Company expects Other operating expenses to increase in fiscal 2027 compared to fiscal 2026, primarily due to the recognition of a full year of rental expense drivenassociated bywith the lowerCompany's revenues,leased in addition to lower external laborheadquarters and marketingprimary costs.distribution facilities.

Asset impairments were $0.6$1.4 million for the fiscal year ended May 31, 2025,2026, compared to $6.1$0.6 million in the prior fiscal year. In fiscal 2026, the Company recognized asset impairments of $0.8 million related to a certain product that is no longer being sold and $0.6 million related to inventory destroyed in a warehouse fire. In fiscal 2025, the Company recognized an asset impairment of $0.6 million related to certain digital products. InRefer fiscalto 2024,Note 5, "Asset Write Down," of Notes to the CompanyConsolidated recognizedFinancial anStatements assetin impairmentItem of8, $6.1"Consolidated millionFinancial relatedStatements toand certainSupplementary educationData" productsfor thatfurther were not aligned with evidence-based approaches to literacy instruction.details.

Segment operating income for the fiscal year ended May 31, 20252026 was $6.3$142.9 million, compared to $15.8$130.7 million in the prior fiscal year. The $9.5$12.2 million decreaseincrease in operating income was primarily attributable to favorable cost of goods sold, driven by lower revenues,royalty primarilycosts duein tothe continuedtrade marketchannel conditionsas well as improved inventory utilization in the book clubs channel, which resulted in decreasedlower spendingexcess onand supplementalobsolete materials.inventory. This was partially offset by lowerhigher external laboremployee-related and marketinggeneral costs and lower impairment expenseexpenses in the fiscalbook yearfairs endedchannel Maydue 31,to 2025.inflationary pressures.

The Entertainment segment includes the operations of 9 Story, as acquired on June 20, 2024, and Scholastic Entertainment Inc. ("SEI"). SEI was reported in the Children's Book Publishing and Distribution segment in prior periods. The financial results for SEI for fiscal 2024 have been reclassified to Entertainment to reflect this change. Refer to Note 11,12, "Acquisitions," of Notes to the Consolidated Financial Statements in Item 8, "Consolidated Financial Statements and Supplementary Data" for further details regarding the acquisition of 9 Story.

Segment operating lossRevenues for the fiscal year ended May 31, 20252026 wasincreased $12.1by $4.7 million to $65.7 million, compared to $11.2$61.0 million in the prior fiscal year.year period. The increase in segment revenues was primarily driven by higher revenues from production services.

Revenues for the thirdfirst quarter ended FebruaryAugust 28,31, 2026 were $329.1$216.8 million, compared to $335.4$225.6 million in the prior fiscal year quarter, a decrease of $6.3$8.8 million or 2%.4%. The Company reported net incomeloss per diluted share of Class A and Common Stock of $2.55$3.77 in the thirdfirst quarter of fiscal 2026,2027, compared to net loss per diluted share of $0.13$2.83 in the prior fiscal year quarter.

Revenues for the quarter ended FebruaryAugust 28,31, 2026 decreased by $6.3$8.8 million to $329.1$216.8 million, compared to $335.4$225.6 million in the prior fiscal year quarter. Within the Children's Book Publishing and Distribution segment, revenues decreased by $5.7$3.6 million, primarily driven by lowera tradeco-edition channel revenues reflecting the shift in timing of the Dog Man publication which occurredsale in the secondtrade fiscal quarter compared to the third fiscal quarterchannel in the prior year,fiscal partiallyyear offsetquarter bythat increaseddid revenuesnot fromrepeat Schoolin Readingthe Eventsquarter asended aAugust result31, of higher revenue per fair.2026. In the Education Solutions segment, revenues decreased by $1.1$9.7 million, primarily driven by lower sales of supplemental curriculum products related to continued pressure on school and lowerdistrict subscription revenues from Magazines+, partially offset by increased revenues from sponsored programs.spending. In the Entertainment segment, revenues increased by $3.2$6.5 million, reflecting higher production revenues from episodic deliveries and services. InExcluding localfavorable currency,foreign 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 shiftexchange of the$1.2 Dog Man publication, coupled with lower education sales in New Zealand.million, International segment revenues were impactedconsistent with the prior year, decreasing by favorable$0.1 foreign exchange of $3.5 million in the quarter ended February 28, 2026.million. In addition, rental incomeincome, recorded in the Overhead, decreased $2.1$3.1 million from the prior fiscal year quarter as a result of the sale and leasebacksale-leaseback of the Company's headquarters in New York City ascompleted during fiscal 2026 after which the Company no longer ownsowned the leasable space.

Components of Cost of goods sold for the three and nine monthsquarter ended FebruaryAugust 28,31, 2026 and FebruaryAugust 28,31, 2025 are as follows:

Selling, general and administrative expenses for the quarter ended FebruaryAugust 28,31, 2026 increased to $192.8$178.3 million, compared to $187.5$177.2 million in the prior fiscal year quarter. The $5.3$1.1 million increase was primarily attributable to higher rent expense as a result of the sale and leasebacksale-leaseback of the Company's headquarters inand Newprimary York City, partially offset by lower severance expense of $0.6 million in the quarter ended February 28, 2026 related to cost-saving initiatives.distribution

Depreciation and amortization expense for the nine monthsquarter ended FebruaryAugust 28,31, 2026 decreased by $2.8$3.7 million to $45.7$12.6 million, compared to $48.5$16.3 million in the prior fiscal year period.quarter. The decrease in Depreciation and amortization expense was primarily attributable to the sale of the Company's headquarters inand New York City andprimary distribution center induring Jeffersonthe City.third quarter of fiscal 2026.

Interest expense for the three and nine monthsquarter ended FebruaryAugust 28,31, 2026 was $1.9 million and $12.5$2.3 million, respectively, compared to $4.7$5.0 million and $13.4 million, respectively, in the prior fiscal year periods.quarter. The decrease in interest expense was dueattributable to repaymentslower ofaverage borrowings outstanding under the U.S. Credit Agreement during the period ended FebruaryAugust 28,31, 2026.2026, as the Company used proceeds from the sale-leaseback transactions to repay outstanding borrowings.

Interest income for the three and nine monthsquarter ended FebruaryAugust 28,31, 2026 was $1.1 million and $2.2$0.7 million, compared to $0.4 million and $1.7$0.5 million, respectively, in the prior fiscal year periods.quarter. The increase in interest income was attributable to higher average short term investment balances in the period ended FebruaryAugust 28,31, 2026 resulting from the net proceeds received from the sale and leaseback transactions.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 three and nine monthsquarter ended FebruaryAugust 28,31, 2026 was 31.9% and 33.1%, respectively,24.0%, compared to 87.3% and 65.5%, respectively,26.7% for the prior fiscal year periods.quarter. The interim effective tax rate for the nine monthsquarter ended FebruaryAugust 28,31, 2026 variesvaried from the statutory rate primarily due to non-deductible compensation for covered executive employees andemployees, expected state and local income tax.tax and the Foreign-Derived Intangible Income (FDII) deduction.

Net incomeloss for the quarter ended FebruaryAugust 28,31, 2026 increased by $66.1$0.1 million to $62.5$71.2 million, compared to a net loss of $3.6$71.1 million in the prior fiscal year quarter. EarningsLoss per basic and diluted share of Class A and Common Stock werewas $2.61 and $2.55, respectively,$3.77 for the fiscal quarter ended FebruaryAugust 28,31, 2026, compared to a loss per basic and diluted share of $0.13$2.83 in the prior fiscal year quarter.

Revenues for the quarter ended FebruaryAugust 28,31, 2026 decreased by $5.7$3.6 million to $197.6$105.8 million, compared to $203.3$109.4 million in the prior fiscal year quarter. Trade channel revenues decreased $7.7$3.0 million, primarily duereflecting toa theco-edition shift in timing of the Dog Man publication which occurred in the second fiscal quarter compared to the third fiscal quartersale in the prior year.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 increaseddecreased $2.0$0.6 million,million. drivenRevenues byfrom higherSchool revenueReading perEvents fairare generally not significant in the book fairs channel. Revenues from the book clubs channel were relatively consistent with the priorfirst fiscal yearquarter quarter.as most schools are not in session.

Cost of goods sold for the quarter ended FebruaryAugust 28,31, 2026 was $83.7$55.4 million, or 42.4%52.4% of revenues, compared to $92.0$62.2 million, or 45.3%56.9% of revenues, in the prior fiscal year quarter. The decrease in Cost of goods sold as a percentage of revenues was primarily driven by lowertariff royaltyrefunds costsreceived as a result of a decrease induring the mixquarter ofended higher-royaltyAugust bearing31, titles2026, soldprimarily benefiting the book fairs channel, partially offset by higher postage costs in the trade channel in the quarter ended February 28, 2026, coupled with improved utilization of inventory in the book fairs channel which resulted in less excess and obsolete inventory. This was partially offset by increased tariff charges, primarily in the book fairs channel.

Other operating expenses for the nine monthsquarter ended FebruaryAugust 28,31, 2026 increased by $3.7$7.1 million to $312.1$88.6 million,million compared to $308.4$81.5 million in the prior fiscal year period.quarter. The increase in Other operating expenses was primarily attributabledriven toby inflationaryhigher pressuresrent 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 expectedemployee-related credit losses on customer receivables.expenses.

Asset impairments for the nine monthsquarter ended FebruaryAugust 28,31, 20262025 were $0.8 million. During the first quarter of fiscal 2026, theThe Company recognized an asset impairment of $0.8 million related to a certain product that is no longer being sold. Refer to Note 5, "Asset Write Down," of Notes to the Consolidated Financial Statements in Item 8, "Consolidated Financial Statements and Supplementary Data" for further details.

Segment operating loss for the quarter ended FebruaryAugust 28,31, 2026 decreasedincreased by $1.7$3.1 million to $5.2$38.2 million, compared to an operating loss of $6.9$35.1 million in the prior fiscal year quarter. The improvementincrease was primarily attributable to lowerhigher rent and employee-related andexpenses, externalpartially laboroffset costsby astariff wellrefunds asreceived reducedduring spendingthe onquarter generalended overheadAugust expenses.31, 2026.

Segment operating lossRevenues for the nine monthsquarter ended FebruaryAugust 28,31, 2026 increaseddecreased by $6.7$9.7 million to $31.1$30.4 million, compared to an operating loss of $24.4$40.1 million in the prior fiscal year period.quarter. The overalldecrease declinein segment revenues was primarily driven by lower revenuessales of supplemental curriculum products related to continued pressure on school and thedistrict asset impairments recognized during the period ended February 28, 2026, partially offset by lower employee-related and external labor costs as well as reduced spending on general overhead expenses.spending.

Revenues for the quarter ended FebruaryAugust 28,31, 2026 increased by $3.2$6.5 million to $16.0$20.1 million, compared to $12.8$13.6 million in the prior fiscal year quarter. The increase in segment revenues was primarily driven by higher production revenues from services and an increase in episodic deliveries as compared to the prior fiscal year quarter.

Cost of goods sold for the quarter ended FebruaryAugust 28,31, 2026 was $9.3$12.0 million, or 58.1%59.7% of revenues, compared to $7.2$8.1 million, or 56.3%59.6% of revenues, in the prior fiscal year quarter. TheHigher increaseproduction inamortization Costand ofproduction goodscosts soldwere as a percentage of revenues was primarily drivenoffset by thelower revenuedistribution mix between production services and episodic deliveries as there is a higher cost associated with production services.costs.

Other operating expenses for the three and nine monthsquarter ended FebruaryAugust 28,31, 2026 were $10.2 million and $29.8$9.9 million, respectively, which were comparable to $9.2 million and $28.9$9.5 million, respectively, in the prior fiscal year periods.quarter.

Segment operating loss for the quarter ended FebruaryAugust 28,31, 2026 was $3.5$1.8 million compared to $3.9$4.0 million in the prior fiscal year quarter. The $0.4$2.2 million improvement was primarily driven by the increased revenues during the quarter ended FebruaryAugust 28,31, 2026.