Scholastic Announces Fiscal 2006 Results and Fiscal 2007 Outlook

For the fiscal year ended May 31, 2006, revenue increased 10% to$2,283.8 million, from $2,079.9 million in the prior year. Net incomeincreased to $68.6 million or $1.66 per diluted share, from $64.3million or $1.58 per diluted share in the prior year. For the fiscalfourth quarter, revenue was $601.0 million versus $592.1 million, andnet income was $38.4 million or $0.91 per diluted share, compared to$43.1 million or $1.03 per diluted share in the prior year period.Current year results include costs associated with the write-down ofcertain print reference set assets and with the bankruptcy of acustomer, incurred in the Educational Publishing segment, totaling$0.07 and $0.09 per diluted share in the fourth quarter and full year,respectively.

The Company generated Free cash flow (as defined) of $79.1 millionin fiscal 2006.

Richard Robinson, Chairman, CEO and President of Scholastic,commented, "Challenges in fiscal 2006 included higher operating costsand softer than expected revenues, particularly in School Book Clubs,as well as increased costs to support growth in Educational Publishingand to carry out our turn-around plan in the U.K. We believe we willsee stronger results in these businesses in fiscal 2007. Meanwhile,other areas of the business exceeded expectations, with excellentresults in Trade Publishing following the launch of Harry Potter andthe Half-Blood Prince, and continued vitality in other best-sellingseries. We also had healthy growth in School Book Fairs.

"While our top near-term priority is to reduce costs, we areoptimistic about the longer-term growth prospects for the Company. Weare leveraging our publishing strength and global scale in children'sbooks, building on the leading position of READ 180(R) to develop oureducational technology business, growing internationally and furtherexpanding on our position as the world's third largest Internetbookseller to reach more parents, children and educators with booksand learning materials," he continued.

The Company's on-going actions to control costs and improvemargins include (1) reducing overhead spending by $40 million annuallyby fiscal 2008; (2) simplifying School Book Clubs by reducing thenumber of club offers and the level of promotion spending; (3) usingtimely sales information to further improve product selection whilestreamlining operations in School Book Fairs; and (4) more tightlyintegrating editorial and marketing functions across its children'sbook channels.

In fiscal 2007, the Company expects total revenues ofapproximately $2.1 to $2.2 billion, earnings of $1.55 to $1.85 perdiluted share and Free cash flow of $75 to $85 million based on thefollowing outlook:

1. In Children's Book Publishing and Distribution, modest revenuegrowth and improved results in Trade Publishing (excluding HarryPotter(R) sales), School Book Fairs and Continuities. School Book Clubresults should improve, on a modest decline in revenue, based ongrowth in Scholastic core clubs and cost controls, including thestrategic decision to discontinue the Troll(TM) and Trumpet(TM) bookclubs. Overall segment revenue and profitability are expected todecline, based on lower Harry Potter sales compared to last year, whenthe Company released a new book in the series.

2. Strong growth in Educational Publishing. Last year's investmentin sales and support should drive higher revenues from educationaltechnology, as well as modest growth across the rest of the segment.Profits and operating margins should also benefit.

3. Modest growth in International with higher profits andoperating margins, in particular in the United Kingdom, and a modestdecline in revenues and profits in Media, Licensing and Advertising.

4. Significant progress toward the Company's fiscal 2008 goal ofreducing overhead spending by $40 million annually, with approximatelytwo thirds of the savings expected to be realized in fiscal 2007.

5. Severance and transition expenses related to Company-widemargin improvement efforts, including its overhead cost reductiongoals, of approximately $0.10 to $0.15 per diluted share after tax.

6. Stock option expense as a result of the adoption of SFAS No.123R of approximately $0.05 to $0.08 per diluted share after tax.

Fourth Quarter and Fiscal Year Results

Children's Book Publishing and Distribution. Segment revenue inthe fourth quarter of fiscal 2006 totaled $333.6 million,approximately level with $333.4 million in the prior year period.Solid growth in School Book Fairs and Continuities was offset bydeclines in School Book Club and Trade revenues. Segment operatingprofit in the fourth quarter was $48.5 million, down from $51.9million in the prior year period, primarily reflecting lower revenuesand higher expenses in School Book Clubs, partially offset by improvedprofits in Trade and School Book Fairs.

For the fiscal year, segment revenues were $1,304.0 million, up13% from $1,152.5 million in the prior year reflecting higher HarryPotter revenue of approximately $195 million, principally associatedwith Harry Potter and the Half-Blood Prince, compared to $20 millionin the prior year. School Book Fair revenue rose due to higher revenueper fair. Revenue in both School Book Clubs and Continuities declined.Segment operating profit for the year was $114.2 million, up from$93.5 million in the prior year, primarily reflecting higher HarryPotter sales, partially offset by lower results in School Book Clubs.

Educational Publishing. Segment revenue in the fourth quarter was$115.1 million, up 2% from $112.6 million in the prior year period,primarily from higher sales of educational technology, partiallyoffset by lower library publishing revenue. Segment operating profitwas $24.0 million, down $5.8 million from the prior year period. Thisdecline reflected a write-down of certain reference set assets, basedon the Company's decision not to update print versions of theseproducts, and higher bad debt expense associated with the bankruptcyof a customer.

For the fiscal year, segment revenues were $416.1 million, up 3%from $404.6 million in the prior year, primarily reflecting increasededucational technology revenue, partially offset by lower librarypublishing revenue. Segment operating profit in the year was $69.6million, down $8.9 million from the prior year, primarily due to thecost of additional sales and technical support staff to service alarger educational technology customer base and the effect of thewrite-down of print reference assets and of higher bad debt.

International. Segment revenue in the fourth quarter rose 7% (6%in local currencies) to $117.1 million from $109.7 million in theprior year period, primarily reflecting growth in the United Kingdom,Canada and Asia. Operating profit in the segment rose 18% to $13.1million from $11.1 million a year ago, primarily due to improvedresults in Canada and the United Kingdom.

For the fiscal year, segment revenues were $412.1 million, up 6%(5% in local currencies) from $389.7 million in the prior year, due togrowth in Asia, Australia, and Canada, partially offset by lowerrevenues in the United Kingdom. Segment operating profit in the yearwas $22.7 million, down 25% from $30.3 million in the prior year,principally because of lower results in the United Kingdom, where theCompany has invested in a turn-around plan.

Media, Licensing and Advertising. Segment revenue was down $1.2million to $35.2 million in the fourth quarter, due to lowerproduction revenues. Operating profit in the quarter declined by $2.3million to $2.0 million.

For the fiscal year, segment revenues rose 14% to $151.6 million,from $133.1 million in the prior year, due to growth in all businesslines, including software and multimedia sales, consumer magazines andBack to Basics Toys(R). Operating profit in the segment declined to$10.3 million from $11.0 million in the prior year.

Other Financial Results. The Company's effective tax rate for theyear was 36.25%, compared to 35.5% in the prior year, due to highereffective state and local tax rates. Severance expense after tax inthe fiscal 2006 fourth quarter and full year was $0.05 and $0.19 perdiluted share, respectively, compared to $0.01 and $0.16 per dilutedshare in the prior year period. Free cash flow in excess of net incomewas driven by lower royalty and prepublication spending. Net debt (asdefined) fell by $93.7 million from the prior year.

Conference Call

The Company will hold a conference call to discuss its results at8:00 am ET today, July 20, 2006. Scholastic's Chairman, President andCEO, Richard Robinson, and Executive Vice President and CFO, MaryWinston, will moderate the call.

The conference call and accompanying slides will be webcast andaccessible through the Investor Relations section of Scholastic'swebsite, scholastic.com. Participation by telephone will be availableby dialing 888-338-6461 from within the U.S. or +1-973-935-8510internationally.

Following the call, an audio replay of the call will be availablefrom approximately 10:00 am ET, July 20, 2006 through July 27, 2006 bydialing 877-519-4471 and entering participant code 7553822. Slidesfrom the conference call will be posted in the Investor Relationssection of scholastic.com.

Upcoming Investor Meeting

The Company will hold a meeting for investors and analysts at 9:00am ET on September 27, 2006 in New York City. At the meeting, whichwill be webcast through the Investor Relations section ofscholastic.com, senior management will present the Company's long-termstrategy and will be available for questions. Further details will beannounced closer to that date.

About Scholastic

Scholastic Corporation (NASDAQ: SCHL) is the world's largestpublisher and distributor of children's books and a leader ineducational technology. Scholastic creates quality educational andentertaining materials and products for use in school and at home,including children's books, magazines, technology-based products,teacher materials, television programming, film, videos and toys. TheCompany distributes its products and services through a variety ofchannels, including proprietary school-based book clubs, school-basedbook fairs, and school-based and direct-to-home continuity programs;retail stores, schools, libraries and television networks; and theCompany's Internet site, scholastic.com.

Forward-Looking Statements

This news release contains certain forward-looking statements.Such forward-looking statements are subject to various risks anduncertainties, including the conditions of the children's book andeducational materials markets and acceptance of the Company's productswithin those markets, and other risks and factors identified from timeto time in the Company's filings with the Securities and ExchangeCommission. Actual results could differ materially from thosecurrently anticipated.

SCHOLASTIC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in millions except per share data)

------------------------------------------
THREE MONTHS ENDED
------------------------------------------
05/31/06 05/31/05 Favorable/(Unfavorable)
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Revenues $601.0 $592.1 $8.9 2%

Operating costs and
expenses:
Cost of goods sold 266.4 261.2 (5.2) (2%)
Cost of goods sold - Major
reference sets (1) 3.2 - (3.2) N/A
Selling, general and
administrative
expenses (2) 232.0 228.3 (3.7) (2%)
Bad debt expense 14.3 11.5 (2.8) (24%)
Bad debt expense -
Educational
Publishing (3) 1.4 - (1.4) N/A
Depreciation and
amortization 16.7 16.6 (0.1) (1%)
------------------ ------------
Total operating costs and
expenses 534.0 517.6 (16.4) (3%)

Operating income 67.0 74.5 (7.5) (10%)

Interest expense, net 7.3 7.8 0.5 6%
------------------ ------------

Earnings before income
taxes 59.7 66.7 (7.0) (10%)

Provision for income taxes 21.3 23.6 2.3 10%
------------------ ------------

Net income $38.4 $43.1 ($4.7) (11%)
================== ============

Weighted average shares
outstanding:
Basic 41.8 40.5 (1.3) (3%)
Diluted 42.1 41.6 (0.5) (1%)

Earnings per share:
Basic $0.92 $1.06 ($0.14) (13%)
Diluted $0.91 $1.03 ($0.12) (12%)

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TWELVE MONTHS ENDED
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05/31/06 05/31/05 Favorable/(Unfavorable)
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Revenues $2,283.8 $2,079.9 $203.9 10%

Operating costs and
expenses:
Cost of goods sold 1,099.9 979.0 (120.9) (12%)
Cost of goods sold - Major
reference sets (1) 3.2 0.0 (3.2) N/A
Selling, general and
administrative
expenses (2) 916.5 840.7 (75.8) (9%)
Bad debt expense 56.2 62.2 6.0 10%
Bad debt expense -
Educational
Publishing (3) 2.9 0.0 (2.9) N/A
Depreciation and
amortization 65.8 63.1 (2.7) (4%)
------------------ -------------
Total operating costs and
expenses 2,144.5 1,945.0 (199.5) (10%)

Operating income 139.3 134.9 4.4 3%

Interest expense, net 31.7 35.2 3.5 10%
------------------ -------------

Earnings before income
taxes 107.6 99.7 7.9 8%

Provision for income taxes 39.0 35.4 (3.6) (10%)
------------------ -------------

Net income $68.6 $64.3 $4.3 7%
================== =============

Weighted average shares
outstanding:
Basic 40.8 40.0 (0.8) (2%)
Diluted 41.3 40.8 (0.5) (1%)

Earnings per share:
Basic $1.68 $1.61 $0.07 4%
Diluted $1.66 $1.58 $0.08 5%
------------------------------------------

(1) In the three and twelve months ended May 31, 2006, the Company
recorded pre-tax costs of $3.2, or $0.05 per diluted share,
related to the write-down of certain print reference set assets in
the Educational Publishing segment.

(2) In the three and twelve months ended May 31, 2005, the Company
recorded pre-tax charges of $0.2, or $0.00 per diluted share, and
$3.8, or $0.06 per diluted share, primarily for severance related
to staff reductions implemented in the first quarter of fiscal
2005 in connection with the Company's fiscal 2004 review of its
Continuity business.

(3) In the three and twelve months ended May 31, 2006, the Company
recorded pre-tax bad debt expense of $1.4, or $0.02 per diluted
share, and $2.9, or $0.04 per diluted share, respectively,
associated with the bankruptcy of a customer in the Educational
Publishing segment.

* Percent change not meaningful.



SCHOLASTIC CORPORATION
RESULTS OF OPERATIONS - SEGMENTS
(UNAUDITED)
(Amounts in millions)



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THREE MONTHS ENDED
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05/31/06 05/31/05 Favorable/(Unfavorable)
------------------ -----------------------

Children's Book Publishing
& Distribution
Revenue $333.6 $333.4 $0.2 0%
Operating income (1) 48.5 51.9 (3.4) (7%)
------------------
Operating margin 14.5% 15.6%

Educational Publishing
Revenue 115.1 112.6 2.5 2%
Operating income (2) 24.0 29.8 (5.8) (19%)
------------------
Operating margin 20.9% 26.5%

International
Revenue 117.1 109.7 7.4 7%
Operating income 13.1 11.1 2.0 18%
------------------
Operating margin 11.2% 10.1%

Media, Licensing and
Advertising
Revenue 35.2 36.4 (1.2) (3%)
Operating income 2.0 4.3 (2.3) (53%)
------------------
Operating margin 5.7% 11.8%

Overhead expense 20.6 22.6 2.0 9%
------------------ ------------

Operating income $67.0 $74.5 ($7.5) (10%)
================== ============
------------------------------------------


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TWELVE MONTHS ENDED
------------------------------------------
05/31/06 05/31/05 Favorable/(Unfavorable)
------------------ -----------------------

Children's Book Publishing
& Distribution
Revenue $1,304.0 $1,152.5 $151.5 13%
Operating income (1) 114.2 93.5 20.7 22%
------------------
Operating margin 8.8% 8.1%

Educational Publishing
Revenue 416.1 404.6 11.5 3%
Operating income (2) 69.6 78.5 (8.9) (11%)
------------------
Operating margin 16.7% 19.4%

International
Revenue 412.1 389.7 22.4 6%
Operating income 22.7 30.3 (7.6) (25%)
------------------
Operating margin 5.5% 7.8%

Media, Licensing and
Advertising
Revenue 151.6 133.1 18.5 14%
Operating income 10.3 11.0 (0.7) (6%)
------------------
Operating margin 6.8% 8.3%

Overhead expense 77.5 78.4 0.9 1%
------------------ ------------

Operating income $139.3 $134.9 $4.4 3%
================== ============
------------------------------------------

(1) Results for the three and twelve months ended May 31, 2005 include
pre-tax charges of $0.2 and $3.8, respectively, primarily for
severance related to staff reductions implemented in the first
quarter of fiscal 2005 in connection with the Company's fiscal
2004 review of its Continuity business.

(2) Results for the three and twelve months ended May 31, 2006 include
pre-tax charges of $3.2 related to the write-down of certain print
reference set assets and $1.4 and $2.9, respectively, associated
with the bankruptcy of a customer.




SCHOLASTIC CORPORATION
SUPPLEMENTAL INFORMATION
(UNAUDITED)
(Amounts in millions)


SELECTED BALANCE SHEET ITEMS
------------------------------------------
05/31/06 05/31/05 Favorable/(Unfavorable)
------------------ -----------------------


Cash and cash equivalents $205.3 $110.6 $94.7 86%
Accounts receivable, net 266.8 269.6 (2.8) (1%)
Inventories 431.5 404.9 26.6 7%
Accounts payable 141.7 141.4 (0.3) (0%)
Accrued royalties 36.6 40.1 3.5 9%
Current portion of long-
term debt, lines of credit
and short-term debt 329.2 24.9 (304.3) *
Long-term debt, excluding
current portion 173.2 476.5 303.3 64%
Capital lease obligations 68.9 74.4 5.5 7%
Total stockholders' equity 1,049.3 937.1 112.2 12%
Net debt (1) 297.1 390.8 93.7 24%

------------------------------------------



SELECTED CASH FLOW ITEMS
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THREE MONTHS ENDED
------------------------------------------
05/31/06 05/31/05 Favorable/(Unfavorable)
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Net cash provided by
operating activities $25.5 $134.5 ($109.0) (81%)
Additions to property,
plant and equipment 19.5 18.4 (1.1) (6%)
Pre-publication and
production costs 16.1 22.3 6.2 28%
Royalty advances 6.0 6.2 0.2 3%
------------------ ------------

Free cash flow (use) (2) ($16.1) $87.6 ($103.7) *
================== ============


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TWELVE MONTHS ENDED
------------------------------------------
05/31/06 05/31/05 Favorable/(Unfavorable)
------------------------------------------


Net cash provided by
operating activities $235.8 $246.6 ($10.8) (4%)
Additions to property,
plant and equipment 66.1 49.8 (16.3) (33%)
Pre-publication and
production costs 62.5 76.0 13.5 18%
Royalty advances 28.1 30.9 2.8 9%
------------------ ------------

Free cash flow (use) (2) $79.1 $89.9 ($10.8) (12%)
================== ============

------------------------------------------


(1) Net debt is defined by the Company as lines of credit and
short-term debt plus long-term-debt, net of cash and cash
equivalents. The Company utilizes this non-GAAP financial measure,
and believes it is useful to investors, as an indicator of the
Company's effective leverage and financing needs.

(2) Free cash flow (use) is defined by the Company as net cash
provided by operating activities, less spending on property, plant
and equipment; pre-publication and production costs; and royalty
advances. The Company utilizes this non-GAAP financial measure,
and believes it is useful to investors, as an indicator of cash
flow available for debt repayment and other investing activities,
such as acquisitions. The Company utilizes free cash flow as a
further indicator of operating performance and for planning
investing activities.

* Percent change not meaningful.