Scholastic Announces Fiscal 2006 Second Quarter Results

For the quarter ended November 30, 2005, the Company reportedrevenues of $696.7 million, up 2% from $683.3 million in the prioryear period. Net income was $66.9 million, down 8% from $72.5 million,and earnings per diluted share were $1.59 versus $1.80 a year ago.

Higher revenue in the second quarter was driven by growth in theEducational Publishing and Media, Licensing and Advertising segments,as well as favorable foreign exchange effects. Lower profits in thequarter reflected a decline in International results and modestlylower profits in Children's Book Publishing and Distribution, partlyoffset by lower overhead costs.

Free cash flow in the second quarter was $286.2 million comparedto $70.7 million in the prior year period, driven by strong cashreceipts and working capital management. For the first half of theyear, free cash flow was $107.9 million, compared to cash use of $37.5million in the same period last year. These improvements wereprincipally due to the impact of this year's higher Harry Pottersales.

"The impact of hurricanes on the Company, challenges in SchoolBook Clubs and Continuities, and investments to restructure ourbusiness in the United Kingdom were all factors contributing to lowerprofits in the second quarter," commented Richard Robinson, Chairman,CEO and President of Scholastic. "Our business also showed manystrengths, especially in School Book Fairs, Trade and educationaltechnology sales. Significant free cash flow in the quarter alsostrengthened our balance sheet."

Mr. Robinson added, "Responding to the challenges we faced in thesecond quarter, Scholastic's management team is now implementing plansto improve performance in the second half of the year, particularly inthe important fourth quarter. We are accelerating the U.K. turn-aroundefforts, streamlining Club promotions, booking new fairs, introducingnew Continuity programs, trimming marketing costs and reducingoverhead. Notwithstanding the challenges, we believe we will attainour financial goals for the year, based on these actions and strongfirst quarter performance. We expect to achieve revenues for the yearof $2.3 to $2.4 billion, free cash flow of $85 to $95 million andearnings at the bottom end of the previously announced range of $2.30to $2.50 per diluted share."

Second Quarter Results

Children's Book Publishing and Distribution. Segment revenues inthe second quarter of fiscal 2006 were $424.2 million, down slightlyfrom $425.0 million in the prior year period. Trade revenue rose 11%,driven by strong sales of Harry Potter backlist titles. School BookFair revenue rose 7% on higher revenue per fair. School Book Clubrevenue was down 3% from fewer orders, partially offset by higherrevenue per order. Continuities revenue decreased 19%, as a result ofthe Company's continued strategy of focusing on its most productivecustomers. Profit in the segment declined 3% to $88.6 million from$90.9 million, reflecting the negative impact across the Company ofhurricane-related school disruptions and higher fuel prices, as wellas lower revenue and profit in the Clubs and Continuities businesses.

Educational Publishing. Segment revenue rose 5% to $99.2 millioncompared to $94.5 million in the prior year period, driven by a morethan 25% increase in revenues from educational technology sales,partially offset by a decline in classroom magazine revenue from lastyear's election-related increases. Profit in the segment rose slightlyto $21.6 million from $21.5 million a year ago, with higher technologysales more than offsetting lower library and classroom magazineresults.

International. Revenue in the segment rose 4% to $121.4 millionfrom $116.2 million in the prior year period, primarily reflectingforeign exchange benefits of $4.2 million. Profit in the segmentdeclined $6.4 million to $12.8 million from $19.2 million, due in partto lower results in the United Kingdom.

Media, Licensing and Advertising. Revenue in the segment was up 9%to $51.9 million from $47.6 million in the prior year period,primarily due to growth in Back to Basics Toys(R). Sales ofScholastic-produced titles such as I Spy(TM) and Math Missions(TM) forLeapfrog's Leapster and Where the Wild Things Are for Fisher-Price'sRead with Me DVD learning products were also strong. Profit in thequarter fell slightly to $7.7 million from $8.5 million in the priorperiod.

Other Financial Results. Overhead decreased 15% to $15.4 millionfrom $18.2 million, reflecting lower salary-related expenses andexpenses related to Sarbanes-Oxley compliance. The Company's estimatedeffective tax rate in the second quarter rose to 37.0% from 35.5% inthe prior year, primarily due to higher effective tax rates on foreignearnings and a higher state tax provision.

First Half Results

Net income for the first half of fiscal 2006 was $45.7 million or$1.10 per diluted share, up from $22.0 million or $0.55 per dilutedshare in the first half of fiscal 2005, which included $3.6 million or$0.06 per diluted share in severance charges related to areorganization of the Continuities business. Revenues in the periodrose 19% to $1,195.1 million from $1,007.0 million in the first halfof fiscal 2005. The year over year difference in revenue andprofitability primarily reflects higher Harry Potter revenues andeducational technology sales, partially offset by declines in Clubsand International results.

Conference Call

The Company will hold a conference call to discuss its results at8:00 am ET today, December 16, 2005. Scholastic's Chairman, Presidentand CEO, 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, December 16, 2005 through December 23,2005 by dialing 877-519-4471 and entering participant code 6737108.Slides from the conference call will also be posted in the InvestorRelations section of scholastic.com.

Investor Conference

The Company is currently scheduled to make a presentation toinvestors at the Citigroup Salomon Smith Barney Entertainment, Mediaand Telecom Conference on January 10, 2006 in Phoenix, Arizona. MaryWinston, the Company's CFO, is expected to speak. Further details,including information about a webcast, will be posted in the InvestorRelations section of scholastic.com when available.

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
-----------------------------------------
Favorable/
11/30/05 11/30/04 (Unfavorable)
--------------------- ------------------
Restated (1)

Revenues $696.7 $683.3 $13.4 2%

Operating costs and
expenses:
Cost of goods sold 298.3 301.1 2.8 1%
Selling, general and
administrative expenses 251.2 225.6 (25.6) (11%)
Selling, general and
administrative expenses
- Continuity charges (2) - - - -
Bad debt expense 15.1 19.6 4.5 23%
Depreciation and
amortization 16.8 15.1 (1.7) (11%)
--------------------- ---------
Total operating costs and
expenses 581.4 561.4 (20.0) (4%)

Operating income 115.3 121.9 (6.6) (5%)

Interest expense, net 9.1 9.5 0.4 4%
--------------------- ---------
Earnings before income taxes 106.2 112.4 (6.2) (6%)

Tax provision 39.3 39.9 0.6 2%
--------------------- ---------
Net income $66.9 $72.5 ($5.6) (8%)
===================== =========

Weighted average shares
outstanding:
Basic 41.3 39.7 1.6 4%
Diluted 42.0 40.4 1.6 4%

Net income per share:
Basic $1.62 $1.83 ($0.21) (11%)
Diluted $1.59 $1.80 ($0.21) (12%)


-----------------------------------------
SIX MONTHS ENDED
-----------------------------------------
Favorable/
11/30/05 11/30/04 (Unfavorable)
--------------------- ------------------
Restated (1)

Revenues $1,195.1 $1,007.0 $188.1 19%

Operating costs and
expenses:
Cost of goods sold 591.3 477.5 (113.8) (24%)
Selling, general and
administrative expenses 453.6 406.8 (46.8) (12%)
Selling, general and
administrative expenses
- Continuity charges (2) 0.0 3.6 3.6 (a)
Bad debt expense 27.7 35.8 8.1 23%
Depreciation and
amortization 32.4 30.8 (1.6) (5%)
--------------------- ---------
Total operating costs and
expenses 1,105.0 954.5 (150.5) (16%)

Operating income 90.1 52.5 37.6 72%

Interest expense, net 17.6 18.3 0.7 4%
--------------------- ---------
Earnings before income taxes 72.5 34.2 38.3 (a)

Tax provision 26.8 12.2 (14.6) (a)
--------------------- ---------
Net income $45.7 $22.0 $23.7 (a)
===================== =========

Weighted average shares
outstanding:
Basic 40.8 39.7 1.1 3%
Diluted 41.6 40.2 1.4 3%

Net income per share:
Basic $1.12 $0.56 $0.56 (a)
Diluted $1.10 $0.55 $0.55 (a)


(1) In the fourth quarter of fiscal 2005, the Company revised its
accounting for certain leasing transactions and restated its
previously issued annual and interim consolidated financial
statements.

(2) In the six months ended November 30, 2004, the Company recorded
pre-tax charges of $3.6, 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 prior year review by
the Company of its Continuity business.

(a) Percent change not meaningful.


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


-----------------------------------------
THREE MONTHS ENDED
-----------------------------------------
Favorable/
11/30/05 11/30/04 (Unfavorable)
--------------------- ------------------
Restated (1)

Children's Book Publishing &
Distribution
Revenue $424.2 $425.0 ($0.8) 0%
Operating profit (2)(3) 88.6 90.9 (2.3) (3%)
---------------------
Operating margin (3) 20.9% 21.4%

Educational Publishing
Revenue 99.2 94.5 4.7 5%
Operating profit 21.6 21.5 0.1 0%
---------------------
Operating margin 21.8% 22.8%

International
Revenue 121.4 116.2 5.2 4%
Operating profit 12.8 19.2 (6.4) (33%)
---------------------
Operating margin 10.5% 16.5%

Media, Licensing and
Advertising
Revenue 51.9 47.6 4.3 9%
Operating profit (3) 7.7 8.5 (0.8) (9%)
---------------------
Operating margin (3) 14.8% 17.9%

Overhead expense 15.4 18.2 2.8 15%
--------------------- ---------

Operating profit $115.3 $121.9 ($6.6) (5%)
===================== =========


-----------------------------------------
SIX MONTHS ENDED
-----------------------------------------
Favorable/
11/30/05 11/30/04 (Unfavorable)
--------------------- ------------------
Restated (1)

Children's Book Publishing
& Distribution
Revenue $699.5 $546.8 $152.7 28%
Operating profit (2)(3) 68.9 26.9 42.0 (a)
---------------------
Operating margin (3) 9.8% 4.9%

Educational Publishing
Revenue 227.5 212.7 14.8 7%
Operating profit 49.1 43.8 5.3 12%
---------------------
Operating margin 21.6% 20.6%

International
Revenue 198.1 188.0 10.1 5%
Operating profit 7.3 16.2 (8.9) (55%)
---------------------
Operating margin 3.7% 8.6%

Media, Licensing and
Advertising
Revenue 70.0 59.5 10.5 18%
Operating profit (3) 2.0 2.3 (0.3) (13%)
---------------------
Operating margin (3) 2.9% 3.9%

Overhead expense 37.2 36.7 (0.5) (1%)
--------------------- ---------

Operating profit $90.1 $52.5 $37.6 72%
===================== =========


(1) In the fourth quarter of fiscal 2005, the Company revised its
accounting for certain leasing transactions and restated its
previously issued annual and interim consolidated financial
statements.

(2) Results for the six months ended November 30, 2004 include pre-
tax charges of $3.6, or $0.06 per diluted share, recorded in the
Children's Book Publishing and Distribution segment ("CBP&D"),
primarily for severance related to staff reductions implemented
in the first quarter of fiscal 2005 in connection with the prior
year review by the Company of its Continuity business.

(3) In the fourth quarter of fiscal 2005, the Company reviewed the
estimated Cost of goods sold related to Media, Licensing and
Advertising segment ("MLA") products sold through CBP&D. The
Company determined that the actual costs were lower and the
gross margins higher on these products than previously
allocated. Prior period inter-segment allocations were adjusted
accordingly, resulting in higher gross margin in MLA with
offsetting decreases in CBP&D.

(a) Percent change not meaningful.



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


SELECTED BALANCE SHEET ITEMS

-----------------------------------------
Favorable/
11/30/05 11/30/04 (Unfavorable)
--------------------- ------------------
Restated (1)

Cash and cash equivalents $249.3 $27.1 $222.2 (a)
Accounts receivable, net 308.3 321.0 (12.7) (4%)
Inventories 472.3 472.7 (0.4) 0%
Lines of credit and
short-term debt 41.4 34.2 (7.2) (21%)
Long-term debt 473.5 528.5 55.0 10%
Net debt (2) 265.6 535.6 270.0 50%
Capital lease obligations 74.9 75.0 0.1 0%
Total stockholders' equity 1,008.0 881.2 126.8 14%



SELECTED CASH FLOW ITEMS

-----------------------------------------
THREE MONTHS ENDED
-----------------------------------------
Favorable/
11/30/05 11/30/04 (Unfavorable)
--------------------- ------------------
Restated (1)

Net cash provided by
operating activities $324.7 $108.2 $216.5 (a)
Additions to property,
plant and equipment 15.3 11.7 (3.6) (31%)
Pre-publication and
production costs 15.6 18.9 3.3 17%
Royalty advances 7.6 6.9 (0.7) (10%)
--------------------- ---------
Free cash flow (use) (3) $286.2 $70.7 $215.5 (a)
===================== =========


-----------------------------------------
SIX MONTHS ENDED
-----------------------------------------
Favorable/
11/30/05 11/30/04 (Unfavorable)
--------------------- ------------------
Restated (1)

Net cash provided by
operating activities $185.9 $31.7 $154.2 (a)
Additions to property,
plant and equipment 30.7 21.4 (9.3) (43%)
Pre-publication and
production costs 32.5 33.8 1.3 4%
Royalty advances 14.8 14.0 (0.8) (6%)
--------------------- ---------
Free cash flow (use) (3) $107.9 ($37.5) $145.4 (a)
===================== =========


(1) In the fourth quarter of fiscal 2005, the Company revised its
accounting for certain leasing transactions and restated its
previously issued annual and interim consolidated financial
statements.

(2) 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.

(3) Free cash flow 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 believes this measure, which is a non-GAAP
financial measure, 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.

(a) Percent change not meaningful.