At August 31, 2006, the Company maintained three stockholder-approved employee stock-based benefit plans with regard to the Common Stock: the Scholastic Corporation 1992 Stock Option Plan (the “1992 Plan”), under which no further awards can be made; the Scholastic Corporation 1995 Stock Option Plan (the “1995 Plan”), under which no further awards can be made; and the Scholastic Corporation 2001 Stock Incentive Plan (the “2001 Plan”). The 2001 Plan provides for the issuance of incentive stock options, which qualify for favorable treatment under the Internal Revenue Code, and options that are not so qualified, called non-qualified options, restricted stock and other stock-based awards.

The Company ~~has revised its accounting~~also maintains the 1997 Outside Directors’ Stock Option Plan (the “1997 Directors’ Plan”), a stockholder-approved stock option plan for ~~these leasing transactions and restated its previously issued annual and interim Consolidated Financial Statements in its Annual Report on Form 10-K~~outside directors. The 1997 Directors’ Plan, as amended, provides for the ~~fiscal~~automatic grant to each non-employee director on the date of each annual stockholders’ meeting of non-qualified stock options to purchase 6,000 shares of Common Stock. At August 31, 2006, options to purchase 376,000 shares of Common Stock were outstanding under the 1997 Directors’ Plan and 144,000 shares of Common Stock were available for additional awards under the 1997 Directors’ Plan.

The Scholastic Corporation 2004 Class A Stock Incentive Plan (the “Class A Plan”) provides for the grant to Richard Robinson, the Chief Executive Officer of the Corporation as of the effective date of the Class A Plan, of options (“Class A Options”) to purchase shares of Class A Stock. At August 31, 2006, there were 666,000 Class A Options outstanding, and 84,000 shares of Class A Stock were available for additional awards, under the Class A Plan.

Generally, options granted under the various plans may not be exercised for a minimum of one year ~~ended~~after the date of grant and expire approximately ten years after the date of grant. As a result of the Acceleration, all unvested stock options outstanding as of May ~~31, 2005 to appropriately classify its leases~~30, 2006 became vested and ~~to appropriately reflect future payment escalation clauses in determining rent expense.~~immediately exercisable.

The following ~~is a summary of~~table sets forth the ~~impact of~~stock option activity for the ~~restatement on the Company’s Condensed Consolidated Statements of Operations~~Class A Stock and Common Stock plans for the three ~~and nine~~ months ended ~~February 28, 2005:~~August 31, 2006:

~~(1)~~Intrinsic value is generally defined as the amount by which the market price of a company’s stock exceeds the exercise price of an option to purchase the company’s stock.

In addition to stock options, the Company hasissued restricted stock units (“RSUs”) to certain officers and key executives under the 2001 Plan. RSUs automatically convert to shares of Common Stock on a one-for-one basis as the award vests, which is typically over a four-year period. The Company measures the value of RSUs at fair value based on the number of shares granted and the price of the Common Stock at the date of grant. The Company amortizes the fair value as stock-based compensation expense over the vesting term on a straight-line basis. Upon settlement of RSUs, the total compensation expense recorded over the vesting period of the awards will equal the settlement amount, which is based on the price of the Common Stock on the settlement date.

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~Certain prior year~~-UNAUDITED
(Dollar amounts in millions, except per share data)

The Company’s Management Stock Purchase Plan (“MSPP”) allows certain members of senior management to defer up to 100% of their annual cash bonus payment in the form of restricted stock units (the “MSPP RSUs”). The MSPP RSUs are purchased by the employee at a 25% discount from the lowest closing price of the Common Stock during the fiscal quarter in which such bonuses are payable and are automatically converted into shares of Common Stock on a one-for-one basis at the end of the applicable deferral period. The Company measures the value of MSPP RSUs at fair value based on the number of shares granted and the price of the Common Stock at the date of grant, giving effect to the 25% discount. The Company amortizes the fair value as stock-based compensation expense over the vesting term on a straight-line basis.

The Company also maintains an Employee Stock Purchase Plan (the “ESPP”), which is offered to eligible United States employees. As amended, the ESPP permits participating employees to purchase Common Stock, with after-tax payroll deductions, on a quarterly basis at a 15% discount from the closing price of the Common Stock on the last business day of each fiscal quarter. The Company measures the value of ESPP stock issuances at fair value based on the number of shares granted and the price of the Common Stock at the date of grant, giving effect to the 15% discount. Prior to June 1, 2006, no compensation expense was recognized with respect to the ESPP under APB No. 25. Upon adoption of SFAS 123R by the Company effective as of June 1, 2006, the Company began recognizing the fair value as stock-based compensation expense for the ESPP in the quarter in which the employees participated in the plan.

If SFAS 123R had been applicable to the Company during the three-month period ended August 31, 2005 and compensation cost for the Company’s stock-based plans had been accounted for in accordance with SFAS 123R, the Company’s net loss and basic and diluted loss per share for the three-month period ended August 31, 2005 would have been ~~reclassified to conform~~changed to the ~~current year presentation.~~

6pro forma amounts in the following table:

Net loss – as reported	$	(21.2	)
Add: Stock-based employee compensation
included in reported net loss, net of tax		0.1
Deduct: Total stock-based employee compensation
expense determined under fair value-based method, net of tax		2.7

Net loss – pro forma	$	(23.8	)


Basic and diluted loss per share – as reported	$	(0.52	)

Basic and diluted loss per share – pro forma	$	(0.58	)

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -UNAUDITED
(~~Amounts~~Dollar amounts in millions, except per share data)

~~The following is~~

As a ~~summary~~result of the ~~impact~~adoption of SFAS 123R, the Company incurred compensation expense of $0.3 in the aggregate for the three months ended August 31, 2006, which is significantly lower than the amount that would have been recorded in that period if the Acceleration had not been implemented.

The total intrinsic value of stock options exercised during the three months ended August 31, 2006 was $1.0. As of August 31, 2006, the total pre-tax compensation cost not yet recognized by the Company with regard to outstanding unvested stock-based awards was $1.9. The weighted average period over which this compensation cost is expected to be recognized is 2.6 years.

On November 10, 2005, the FASB issued Staff Position No. 123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards,” which provides an alternative (and simplified) method to calculate the pool of excess income tax benefits upon the adoption of SFAS 123R. Among other things, Staff Position No. 123(R)-3 provides a specific method for the presentation of excess tax benefits within the statement of cash flows when the alternative pool calculation is used. Although Staff Position No. 123(R)-3 became effective upon its issuance, companies may take up to one year from initial adoption of SFAS 123R to evaluate the available transition alternatives and make a one-time election. The Company is currently in the process of evaluating these alternative methods.

New Accounting Pronouncements

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). Under the previous guidance, most voluntary changes in accounting principle were required to be recognized as the cumulative effect of a change in accounting principle within the net income of the ~~restatement~~period in which the change was made. SFAS 154 requires retrospective application to prior period financial statements of a voluntary change in accounting principle, unless it is impracticable to do so. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS 154 by the Company effective as of June 1, 2006 had no material immediate effect on the Company’s ~~Condensed Consolidated Balance Sheet at February 28, 2005~~consolidated financial position, results of operations or cash flows.

In July 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements in accordance with SFAS No. 109, "Accounting for Income Taxes." FIN 48 provides guidance on recognizing, measuring, presenting, and disclosing in the ~~Consolidated Statement of Cash Flows~~financial statements uncertain tax positions that a company has taken or expects to file in a tax return. FIN 48 will become effective for the ~~nine months ended February 28, 2005:~~
As Previously Reported⁽¹⁾ Adjustments As Restated

Condensed Consolidated Balance Sheet as of

February 28, 2005
Property, plant and equipment, net $ 328.5 $ 62.2 $ 390.7
Other assets and deferred charges 66.3 6.5 72.8
Total assets 1,825.6 68.7 1,894.3

Capital lease obligations - current - 11.6 11.6
Total current liabilities 377.8 11.6 389.4

Capital lease obligations – noncurrent - 63.7 63.7
Other noncurrent liabilities 58.2 4.5 62.7
Total noncurrent liabilities 547.2 68.2 615.4

Retained earnings 511.3 (11.1 ) 500.2
Total stockholders’ equity 900.6 (11.1 ) 889.5

Total liabilities and stockholders’ equity $ 1,825.6 $ 68.7 $ 1,894.3

Consolidated Statement of Cash Flows –
Nine Months Ended February 28, 2005
Net cash provided by operating activities $ 105.0 $ 7.1 $ 112.1
Net cash provided by financing activities 8.6 (7.1 ) 1.5

~~(1)~~ ~~Certain prior~~Company's fiscal year ~~amounts~~beginning June 1, 2007. The Company is currently evaluating the impact, if any, that FIN 48 will have ~~been reclassified to conform to~~on its consolidated financial position, results of operations and cash flows.

In September 2006, the ~~current~~FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and states that a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. SFAS 157 will become effective for the Company’s fiscal year ~~presentation.~~

7beginning June 1, 2008. The Company is currently evaluating the impact, if any, that SFAS 157 will have on its consolidated financial position, results of operations and cash flows.

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -UNAUDITED
(~~Amounts~~Dollar amounts in millions, except per share data)

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). SFAS 158 requires an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS 158 also requires the measurement of defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end statement of financial position (with limited exceptions). Under SFAS 158, the Company will be required to recognize the funded status of its defined benefit postretirement plan and to provide the required disclosures commencing as of May 31, 2007. The Company is currently evaluating the impact, if any, that SFAS 158 will have on its consolidated financial position, results of operations and cash flows.

3.2.Segment Information

Scholastic is a global children’s publishing and media company. The Company distributes its products and services through a variety of channels, including school-based book clubs, school-based book fairs, school-based and direct-to-home continuity programs, retail stores, schools, libraries, the internet and television networks. The Company categorizes its businesses into four operating segments: Children’s Book Publishing and Distribution;Educational Publishing;Media, Licensing and Advertising(which collectively represent the Company’s domestic operations); andInternational. This classification reflects the nature of products and services consistent with the method by which the Company’s chief operating decision-maker assesses operating performance and allocates resources. Revenues and ~~gross~~operating margin related to a segment’s products sold or services rendered through another segment’s distribution channel are reallocated to the segment originating the products or services.

•Children’s Book Publishing and Distribution includes the publication and distribution of children’s books in the United States through school-based book clubs and book fairs, school-based and direct-to-home continuity programs and the trade channel.

•Educational Publishing includes the production and/or publication and distribution to schools and libraries of educational technology products, curriculum materials, children’s books, classroom magazines and print and on-line reference and non-fiction products for grades pre-kindergarten to 12 in the United States.

•Media, Licensing and Advertising includes the production and/or distribution of ~~software in the United States; the production and/or distribution, primarily by~~media and ~~through the Company’s subsidiary, Scholastic Entertainment Inc., of programming~~electronic products and ~~consumer products~~programs (including children’s television programming, videos, DVD’s, software, feature films, interactive programs, promotional activities and non-book merchandise); and advertising revenue, including sponsorship programs.

•Internationalincludes the publication and distribution of products and services outside the United States by the Company’s international operations, and its export and foreign rights businesses.

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -UNAUDITED
(~~Amounts~~Dollar amounts in millions, except per share data)

The following table sets forth information for the Company’s segments for the periods ~~indicated.In the fourth quarter of fiscal 2005, the Company reviewed the estimated Cost of goods sold related to products originated by the~~~~Media, Licensing and Advertising~~~~segment that are sold through channels included in the~~~~Children’s Book Publishing and Distribution~~~~segment. The Company determined that actual costs were lower and gross margins higher on these products than was previously estimated. As a result, the~~indicated.Certain prior ~~period inter-segment allocations were adjusted (the “Segment Reallocation”), resulting in higher gross margin and profits in the~~~~Media, Licensing and Advertising~~~~segment with an offsetting decrease in gross margin and profits in the~~~~Children’s Book Publishing and Distribution~~~~segment. Prior~~ year ~~segment results~~amounts have been reclassified to ~~reflect this reallocation.~~

Children’s Book Media,
Publishing and Educational Licensing and Total
Distribution Publishing Advertising Overhead⁽¹⁾ Domestic International Consolidated
Three months ended
February 28, 2006

Revenues $ 270.9 $ 73.5 $ 46.4 $   0.0 $ 390.8 $    96.9 $ 487.7
Bad debt 11.4 1.5 0.1 0.0 13.0 2.7 15.7
Depreciation and
amortization 3.4 0.6 0.0 11.7 15.7 1.0 16.7
Amortization⁽²⁾ 4.2 6.9 4.8 0.0 15.9 0.5 16.4
Royalty advances
expensed 6.2 0.3 0.2 0.0 6.7 1.0 7.7
Segment profit (loss)⁽³⁾ (3.2 ) (3.5 ) 6.3 (19.7 ) (20.1 ) 2.3 (17.8 )
Expenditures for
long-lived assets⁽⁴⁾
14.0 7.3 2.4 9.7 33.4 3.7 37.1
Three months ended
February 28, 2005 - Restated

Revenues $ 272.3 $ 79.3 $ 37.2 $   0.0 $ 388.8 $    92.0 $ 480.8
Bad debt 11.8 0.6 0.1 0.0 12.5 2.4 14.9
Depreciation and
amortization 4.2 0.8 0.3 8.7 14.0 1.7 15.7
Amortization⁽²⁾ 4.4 8.2 4.2 0.0 16.8 0.1 16.9
Royalty advances
expensed 14.0 0.6 (0.2 ) 0.0 14.4 0.7 15.1
Segment profit (loss)⁽³⁾ 14.7 4.9 4.4 (19.1 ) 4.9 3.0 7.9
Expenditures for
long-lived assets⁽⁴⁾ 18.3 11.0 5.6 5.0 39.9 0.7 40.6
Nine months ended
February 28, 2006

Revenues $ 970.4 $ 301.0 $ 116.4 $   0.0 $ 1,387.8 $ 295.0 $ 1,682.8
Bad debt 33.0 2.9 0.3 0.0 36.2 7.2 43.4
Depreciation and
amortization 12.7 2.7 1.1 28.3 44.8 4.3 49.1
Amortization⁽²⁾ 12.4 22.8 17.2 0.0 52.4 1.5 53.9
Royalty advances
expensed 17.3 1.3 0.6 0.0 19.2 1.7 20.9
Segment profit (loss)⁽³⁾ 65.7 45.6 8.3 (56.9 ) 62.7 9.6 72.3
Segment assets 1,026.3 301.4 68.4 420.3 1,816.4 308.2 2,124.6
Goodwill 130.6 82.5 9.8 0.0 222.9 30.7 253.6
Expenditures for
long-lived assets⁽⁴⁾
51.9 22.0 10.9 23.4 108.2 10.2 118.4
Long-lived assets⁽⁵⁾ 332.4 182.6 31.9 291.5 838.4 104.0 942.4

9conform with the present year presentation.

~~SCHOLASTIC CORPORATION~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ -~~UNAUDITED~~
~~(Amounts in millions, except per share data)~~

									Children’s Book					Media,
	Children’s Book		Media,						Publishing and			Educational		Licensing and						Total
	Publishing and	Educational	Licensing and			Total			Distribution			Publishing		Advertising			Overhead⁽¹⁾			Domestic			International			Consolidated
	Distribution	Publishing	Advertising	Overhead⁽¹⁾		Domestic	International	Consolidated

Nine months ended
February 28, 2005 - Restated
Three months ended
August 31, 2006

Revenues	$ 819.1	$ 292.0	$ 96.7	$ 0.0		$ 1,207.8	$ 280.0	$ 1,487.8	$	112.6		$	127.4	$	15.7		$	0.0		$	255.7		$	79.2		$	334.9
Bad debt	42.1	1.2	0.5	0.0		43.8	6.9	50.7		13.5			0.0		0.1			0.0			13.6			2.1			15.7
Depreciation and
amortization	11.0	2.4	1.2	27.2		41.8	4.7	46.5		4.3			1.0		0.4			9.7			15.4			1.5			16.9
Amortization⁽²⁾	12.5	25.1	11.1	0.0		48.7	0.6	49.3		4.4			7.3		3.1			0.0			14.8			0.7			15.5
Royalty advances
expensed	18.6	0.9	0.1	0.0		19.6	1.7	21.3		4.3			0.3		0.2			0.0			4.8			0.7			5.5
Segment profit (loss)⁽³⁾	41.6	48.7	6.7	(55.8	)	41.2	19.2	60.4
Operating income
(loss)⁽³⁾										(67.3	)		32.7		(6.1	)		(19.9	)		(60.6	)		(5.5	)		(66.1	)
Segment assets	795.6	304.9	64.0	416.4		1,580.9	313.4	1,894.3		814.3			363.4		84.0			417.3			1,679.0			326.0			2,005.0
Goodwill	127.9	82.5	10.7	0.0		221.1	30.4	251.5		130.6			82.5		9.8			0.0			222.9			30.6			253.5
Expenditures for
long-lived assets⁽⁴⁾	49.9	27.9	14.2	13.0		105.0	4.8	109.8		12.5			3.7		3.4			1.9			21.5			2.5			24.0
Long-lived assets⁽⁵⁾	320.5	185.5	37.4	294.3		837.7	105.4	943.1		286.8			199.8		40.5			285.2			812.3			111.8			924.1


									Children’s Book					Media,
									Publishing and			Educational		Licensing and						Total
									Distribution			Publishing		Advertising			Overhead⁽¹⁾			Domestic			International			Consolidated

Three months ended
August 31, 2005


Revenues									$	275.3		$	128.3	$	18.1		$	0.0		$	421.7		$	76.7		$	498.4
Bad debt										9.9			0.6		0.1			0.0			10.6			2.0			12.6
Depreciation and
amortization										3.2			0.8		0.4			9.6			14.0			1.6			15.6
Amortization⁽²⁾										4.1			7.9		5.9			0.0			17.9			0.5			18.4
Royalty advances
expensed										3.8			0.4		0.1			0.0			4.3			0.4			4.7
Operating income
(loss)⁽³⁾										(19.7	)		27.5		(5.7	)		(21.8	)		(19.7	)		(5.5	)		(25.2	)
Segment assets										953.1			366.4		66.7			409.5			1,795.7			315.4			2,111.1
Goodwill										130.6			82.5		9.8			0.0			222.9			31.2			254.1
Expenditures for
long-lived assets⁽⁴⁾										21.4			7.3		6.1			5.2			40.0			2.8			42.8
Long-lived assets⁽⁵⁾										296.8			214.1		37.1			299.2			847.2			107.0			954.2

(1)	Overhead includes all domestic corporate amounts not allocated to reportable segments, including expenses and costs related to the management of corporate assets. Unallocated assets are principally comprised of deferred income taxes and property, plant and equipment related to the Company’s headquarters in the metropolitan New York area, ~~the~~ fulfillment and distribution facilities located in Missouri and Arkansas, and an industrial/office building complex in Connecticut.

(2)	Includes amortization of prepublication costs and production costs.

(3)	~~Segment profit~~Operating income (loss) represents ~~profit~~earnings (loss) before interest ~~net~~ and income taxes. The impact on segment profit (loss) of the Segment Reallocation for the three and nine months ended February 28, 2005 was a decrease in Children’s Book Publishing and Distribution segment profit of $2.6 and $7.6, respectively, and an increase in Media, Licensing and Advertising segment profit of $2.6 and $7.6, respectively. For the nine months ended February 28, 2005 the Children’s Book Publishing and Distribution segment’s operating profit reflects a charge of $3.6, primarily due to severance costs related to the Company’s fiscal 2004 review of its continuity business.

(4)	Includes expenditures for property, plant and equipment, investments in prepublication and production costs, royalty advances and acquisitions of, and investments in, businesses.

(5)	Includes property, plant and equipment, prepublication costs, goodwill, other intangibles, royalty advances, production costs and long-term investments.

¹⁰

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -UNAUDITED
(~~Amounts~~Dollar amounts in millions, except per share data)

The following table separately sets forth information for the periods indicated for the United States direct-to-home portion of the Company’s continuity programs, which consist primarily of the business formerly operated by Grolier Incorporated (“Grolier”) and are included in theChildren’s Book Publishing and Distribution segment, and for all other businesses included in the segment:

Three months ended
February 28,
Direct-to-home All Other Total
2006 2005 2006 2005 2006 2005
Restated Restated Restated
Revenues $ 34.6 $ 32.8 $ 236.3 $ 239.5 $ 270.9 $ 272.3
Bad debt 7.5 7.2 3.9 4.6 11.4 11.8
Depreciation and amortization 0.0 0.1 3.4 4.1 3.4 4.2
Amortization⁽¹⁾ 0.6 0.3 3.6 4.1 4.2 4.4
Royalty advances expensed 1.8 1.2 4.4 12.8 6.2 14.0
Business profit (loss)⁽²⁾ (2.5 ) 0.7 (0.7 ) 14.0 (3.2 ) 14.7
Expenditures for long-lived assets⁽³⁾ 1.7 2.2 12.3 16.1 14.0 18.3

Nine months ended
February 28,
Direct-to-home All Other Total
2006 2005 2006 2005 2006 2005
Restated Restated Restated
Revenues $ 93.0 $ 113.4 $ 877.4 $ 705.7 $ 970.4 $ 819.1
Bad debt 22.0 28.0 11.0 14.1 33.0 42.1
Depreciation and amortization 0.8 0.5 11.9 10.5 12.7 11.0
Amortization⁽¹⁾ 1.2 0.9 11.2 11.6 12.4 12.5
Royalty advances expensed 2.2 2.1 15.1 16.5 17.3 18.6
Business profit (loss)⁽²⁾ (13.3 ) (4.2 ) 79.0 45.8 65.7 41.6
Business assets 241.1 232.9 785.2 562.7 1,026.3 795.6
Goodwill 92.4 92.4 38.2 35.5 130.6 127.9
Expenditures for long-lived assets⁽³⁾ 4.7 6.4 47.2 43.5 51.9 49.9
Long-lived assets⁽⁴⁾ 143.6 145.7 188.8 174.8 332.4 320.5

Three months ended
August 31,

	Direct-to-home						All Other						Total
		2006			2005			2006			2005			2006			2005

Revenues	$	36.3		$	28.4		$	76.3		$	246.9		$	112.6		$	275.3
Bad debt		10.7			6.6			2.8			3.3			13.5			9.9
Depreciation and amortization		0.3			0.2			4.0			3.0			4.3			3.2
Amortization⁽¹⁾		0.3			0.3			4.1			3.8			4.4			4.1
Royalty advances expensed		0.2			(0.4	)		4.1			4.2			4.3			3.8
Business loss⁽²⁾		(6.5	)		(6.2	)		(60.8	)		(13.5	)		(67.3	)		(19.7	)
Business assets		220.9			207.1			593.4			746.0			814.3			953.1
Goodwill		92.4			92.4			38.2			38.2			130.6			130.6
Expenditures for long-lived assets⁽³⁾		1.7			1.4			10.8			20.0			12.5			21.4
Long-lived assets⁽⁴⁾		117.5			116.7			169.3			180.1			286.8			296.8

(1)	Includes amortization of prepublication costs.

(2)	Business ~~profit (loss)~~loss represents ~~profit (loss)~~loss before interest expense ~~net~~ and income taxes. ~~For the nine months ended February 28, 2005, Direct-to-home includes a charge of $3.6, primarily due to severance costs related to the Company’s fiscal 2004 review of its continuity business.~~

(3)	Includes expenditures for property, plant and equipment, investments in prepublication costs, royalty advances and acquisitions of businesses.

(4)	Includes property, plant and equipment, prepublication costs, goodwill, other intangibles and royalty advances.

~~SCHOLASTIC CORPORATION~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED~~
~~(Amounts in millions, except per share data)~~

4.3. Debt

The following table summarizes debt as of the dates indicated:

	*February 28, 2006*			*May 31, 2005*			*February 28, 2005*			*August 31, 2006*			*May 31, 2006*			*August 31, 2005*


Lines of Credit	$	30.6		$	24.7		$	20.8		$	42.2		$	33.8		$	33.7
Credit Agreement and Revolver		-			-			12.0			1.0			-			72.0
5.75% Notes due 2007, net of premium		295.9			303.5			304.0
5.75% Notes due 2007, net of premium/discount											259.3			295.3			301.0
5% Notes due 2013, net of discount		173.2			173.0			173.0			173.3			173.2			173.0
Other debt		0.3			0.2			0.5			-			0.1			0.1

*Total debt*		500.0			501.4			510.3			475.8			502.4			579.8
Less current portion of long-term debt, lines
of credit and short-term debt		(326.8	)		(24.9	)		(21.3	)
Less lines of credit, short-term debt and
current portion of long-term debt											(301.5	)		(329.2	)		(33.8	)

Total long-term debt, excluding current portion	$	173.2		$	476.5		$	489.0
Total long-term debt										$	174.3		$	173.2		$	546.0

¹¹

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(Dollar amounts in millions, except per share data)

The following table sets forth the maturities of the Company’s debt obligations as of ~~February 28,~~August 31, 2006 for the remainder of fiscal ~~2006~~2007 and thereafter:

Three-month period ending May 31:
2006	$	18.7
Nine-month period ending May 31:
2007			$	301.5
Fiscal years ending May 31:
2007		308.1
2008		-		-
2009		-		1.0
2010		-		-
2011				-
Thereafter		173.2		173.3


Total debt	$	500.0	$	475.8

Lines of Credit
Certain of Scholastic Corporation’s international subsidiaries had unsecured lines of credit available in local currencies equivalent to ~~$65.4~~$79.3 in the aggregate at ~~February 28,~~August 31, 2006, as compared to ~~$64.6~~$59.1 at ~~February 28,~~August 31, 2005 and ~~$61.8~~$67.9 at May 31, ~~2005.~~2006. There were borrowings outstanding under these lines of credit equivalent to ~~$30.6~~$42.2 at ~~February 28,~~August 31, 2006, as compared to ~~$20.8~~$33.7 at ~~February 28,~~August 31, 2005 and ~~$24.7~~$33.8 at May 31, ~~2005.~~2006. These lines of credit are considered short-term in nature. The weighted average interest rates on the outstanding amounts were ~~5.7%~~6.0% and ~~6.1%~~5.5% at ~~February 28,~~August 31, 2006 and 2005, respectively, and ~~5.4%~~6.0% at May 31, ~~2005.~~2006.

~~SCHOLASTIC CORPORATION~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED~~
~~(Amounts in millions, except per share data)~~

Credit Agreement
Scholastic Corporation and its principal operating subsidiary, Scholastic Inc., are parties to an unsecured revolving credit agreement with certain banks (the “Credit Agreement”), which expires on March 31, 2009. The Credit Agreement provides for aggregate borrowings of up to $190.0 (with a right in certain circumstances to increase borrowings to $250.0), including the issuance of up to $10.0 in letters of credit. Interest under this facility is either at the prime rate or at a rate equal to 0.325% to 0.975% over LIBOR (as defined). There is a facility fee ranging from 0.10% to 0.30% and a utilization fee ranging from 0.05% to 0.25% if borrowings exceed 50% of the total facility. The amounts charged vary based upon the Company’s credit rating. The interest rate, facility fee and utilization fee (when applicable) as of ~~February 28,~~August 31, 2006 were ~~0.675%~~0.975% over LIBOR, ~~0.20%~~0.30% and ~~0.125%~~0.25%, respectively. The Credit Agreement contains certain financial covenants related to debt and interest coverage ratios (as defined) and limits dividends and other distributions. There were no borrowings outstanding under the Credit Agreement at ~~February 28,~~August 31, 2006 or May 31, ~~2005.~~2006. At ~~February 28,~~August 31, 2005, ~~$12.0~~$35.0 was outstanding under the Credit Agreement at a weighted average interest rate of ~~3.1%~~ 4.3%.

Revolver
Scholastic Corporation and Scholastic Inc. are joint and several borrowers under an unsecured revolving loan agreement with a bank (the “Revolver”). The Revolver provides for unsecured revolving credit of up to $40.0 and expires on March 31, 2009. Interest under this facility is either at the prime rate minus 1%, or at a rate equal to 0.375% to 1.025% over LIBOR (as defined). There is a facility fee ranging from 0.10% to 0.30%. The amounts charged vary based upon the Company’s credit rating. The interest rate and facility fee as of ~~February 28,~~August 31, 2006 were ~~0.725%~~1.025% over LIBOR and ~~0.20%~~0.30%, respectively. The Revolver contains certain financial covenants related to debt and interest coverage ratios (as defined) and limits dividends and other distributions. At August 31, 2006 and 2005, $1.0 and $37.0, respectively, were outstanding under the Revolver at a weighted average interest rate of 7.3% and 5.0%, respectively. There were no borrowings outstanding under the Revolver at ~~February 28, 2006,~~ May 31, ~~2005 or February 28, 2005.~~2006.

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(Dollar amounts in millions, except per share data)

5.75% Notes due 2007
In January 2002, Scholastic Corporation issued $300.0 of 5.75% Notes (the “5.75% Notes”). The 5.75% Notes are senior unsecured obligations that mature on January 15, 2007. Interest on the 5.75% Notes is payable semi-annually on July 15 and January 15 of each ~~year.~~year through maturity. The Company may, at any time, redeem all or a portion of the 5.75% Notes at a redemption price (plus accrued interest to the date of the redemption) equal to the greater of (i) 100% of the principal amount, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest discounted to the date of the redemption. ~~Through February 28,~~In fiscal 2006, the Company ~~had~~ repurchased $6.0 of the 5.75% Notes on the open market. In the quarter ended August 31, 2006, the Company repurchased $35.4 of the 5.75% Notes on the open market. After giving effect to these repurchases, the outstanding 5.75% Notes, net of premium/discount, totaled $259.3.

5% Notes due 2013
In April 2003, Scholastic Corporation issued $175.0 of 5% Notes (the “5% Notes”). The 5% Notes are senior unsecured obligations that mature on April 15, 2013. Interest on the 5% Notes is payable semi-annually on April 15 and October 15 of each year. The Company may at any time redeem all or a portion of the 5% Notes at a redemption price (plus accrued interest to the date of the redemption) equal to the greater of (i) 100% of the principal amount, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest discounted to the date of the redemption.

4. Comprehensive Loss

The following table sets forth comprehensive loss for the periods indicated:

	*Three months ended*
	*August 31,*

	2006			2005



Net loss	$	(46.9	)	$	(21.2	)

Other comprehensive loss -
foreign currency translation adjustment		(7.0	)		(6.3	)


Comprehensive loss	$	(53.9	)	$	(27.5	)

5. Investment

In the quarter ended August 31, 2006, the Company participated in the organization of a new entity, the Children’s Network Venture LLC (“Children’s Network”), that will produce and distribute educational children’s television programming under the name “Qubo.” The Company has contributed a total of $2.4 in cash and certain rights to existing television programming to the Children’s Network. The Company’s investment, which consists of a 12.25% equity interest, is accounted for using the equity method of accounting and is included in the Other assets and deferred charges section of the Company’s consolidated balance sheets.

¹³

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(~~Amounts~~Dollar amounts in millions, except per share data)

~~5. Comprehensive Income (Loss)~~

~~The following table sets forth comprehensive income (loss) for the periods indicated:~~

Three months ended Nine months ended
February 28, February 28,
2006 2005 2006 2005
Restated Restated

Net income (loss) $ (15.5 ) $ (0.8 ) $ 30.2 $ 21.2

Other comprehensive income (loss) -
foreign currency translation adjustment 0.7 (2.4 ) (4.1 ) 6.6

Comprehensive income (loss) $ (14.8 ) $ (3.2 ) $ 26.1 $ 27.8

~~SCHOLASTIC CORPORATION~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED~~
~~(Amounts in millions, except per share data)~~

6. ~~Earnings (Loss)~~Loss Per Share

Basic ~~earnings (loss)~~loss per share is computed by dividing net ~~income (loss)~~loss by the weighted average Shares of Class A Stock and Common Stock outstanding during the period. Diluted ~~earnings (loss)~~loss per share is calculated to give effect to potentially dilutive options to purchase Class A and Common Stock granted pursuant to the Company’s stock-based benefit plans that were outstanding during the period. The diluted loss per share was equal to the basic loss per share for each of the three ~~months~~month periods ended ~~February 28,~~August 31, 2006 and 2005 because such options ~~would have been antidilutive.~~were antidilutive in those periods. The ~~following table summarizes the reconciliation~~weighted average shares of ~~the numerators~~Class A Stock and ~~denominators~~Common Stock outstanding for ~~the~~ basic and diluted ~~earnings (loss)~~loss per share ~~computations~~ for the ~~periods indicated:~~three months ended August 31, 2006 and 2005 were 42.0 and 41.0, respectively.

Three months ended Nine months ended
February 28, February 28,
2006 2005 2006 2005
Restated Restated
Net income (loss) for basic and diluted

earnings (loss) per share $ (15.5 ) $ (0.8 ) $ 30.2 $ 21.2

Weighted average Shares of Class A and
Common Stock outstanding for basic
earnings (loss) per share 41.8 40.0 40.8 39.8

Dilutive effect of Class A and
Common Stock issued pursuant to
stock-based benefit plans - - 0.7 0.7

Adjusted weighted average Shares of
Class A and Common Stock outstanding
for diluted earnings (loss) per share 41.8 40.0 41.5 40.5

Earnings (loss) per share of Class A
and Common Stock:

Basic $ (0.37 ) $ (0.02 ) $ 0.74 $ 0.53
Diluted $ (0.37 ) $ (0.02 ) $ 0.73 $ 0.52

~~SCHOLASTIC CORPORATION~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED~~
~~(Amounts in millions, except per share data)~~

7. Goodwill and Other Intangibles

Goodwill and other intangible assets with indefinite lives are reviewed for impairment annually, or more frequently if impairment indicators arise.

The following table summarizes the activity in Goodwill for the periods indicated:

Nine months ended Twelve months ended Nine months ended
February 28, 2006 May 31, 2005 February 28, 2005
Beginning balance $ 254.2 $ 249.7 $ 249.7
Additions due to acquisitions - 6.0 -
Other adjustments (0.6 ) (1.5 ) 1.8
Total $ 253.6 $ 254.2 $ 251.5

InThe following table summarizes the ~~twelve months ended May 31, 2005, Additions due to acquisitions includes the purchase price~~activity in Goodwill for the ~~acquisition of Chicken House Publishing Ltd. and the accrual for a final payment related to the fiscal 2002 acquisition of Klutz.~~periods indicated:

	*Three months ended*		*Twelve months ended*			*Three months ended*
	*August 31, 2006*		*May 31, 2006*			*August 31, 2005*

Beginning balance	$	253.1	$	254.2		$	254.2
Translation adjustments		0.4		(1.1	)		(0.1	)

Total	$	253.5	$	253.1		$	254.1

The following table summarizes Other intangibles subject to amortization at the dates indicated:

	*February 28, 2006*			*May 31, 2005*			*February 28, 2005*			*August 31, 2006*			*May 31, 2006*			*August 31, 2005*

Customer lists	$	3.0		$	3.0		$	2.9		$	3.0		$	3.0		$	3.0
Accumulated amortization		(2.8	)		(2.8	)		(2.7	)		(2.9	)		(2.9	)		(2.8	)

Net customer lists		0.2			0.2			0.2			0.1			0.1			0.2

Other intangibles		4.0			4.0			4.0			4.0			4.0			4.0
Accumulated amortization		(2.8	)		(2.6	)		(2.6	)		(2.9	)		(2.8	)		(2.7	)

Net other intangibles		1.2			1.4			1.4			1.1			1.2			1.3

Total	$	1.4		$	1.6		$	1.6		$	1.2		$	1.3		$	1.5

Amortization expense for Other intangibles totaled ~~$0.0 and $0.2~~$0.1 for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2006 ~~respectively, $0.1~~ and ~~$0.2 for the three and nine months ended February 28,~~August 31, 2005, ~~respectively,~~ and $0.3 for the twelve months ended May 31, ~~2005.~~2006. Amortization expense for these assets is currently estimated to total ~~$0.3 for the fiscal year ending May 31, 2006 and~~ $0.2 for each of the fiscal years ending May 31, 2007 through ~~2010.~~2010, and $0.1 for the fiscal year ending May 31, 2011. The weighted average amortization periods for these assets by major asset class are two years and twelve years for customer lists and ~~twelve years for~~ other ~~intangibles.~~

~~The following table summarizes Other~~ intangibles, ~~not subject to amortization at the dates indicated:~~respectively.

February 28, 2006 May 31, 2005 February 28, 2005
Net carrying value by major class:
Titles $ 31.0 $ 31.0 $ 31.0
Licenses 17.2 17.2 17.2
Major sets 11.4 11.4 11.4
Trademarks and Other 17.5 17.5 17.5
Total $
77.1
$ 77.1 $
77.1

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(~~Amounts~~Dollar amounts in millions, except per share data)

The following table summarizes Other intangibles not subject to amortization at the dates indicated:

	*August 31, 2006*		*May 31, 2006*		*August 31, 2005*

Net carrying value by major class:
Titles	$	31.0	$	31.0	$	31.0
Licenses		17.2		17.2		17.2
Major sets		11.4		11.4		11.4
Trademarks and Other		17.5		17.5		17.5

Total	$	77.1	$	77.1	$	77.1

8.Pension and Other Post-Retirement Benefits

The following tables set forth components of the net periodic benefit costs under the Company’s cash balance retirement plan for its United States employees meeting certain eligibility requirements (the “U.S. Pension Plan”), the defined benefit pension plan of Scholastic Ltd., an indirect subsidiary of Scholastic Corporation located in the United Kingdom (the “U.K. Pension Plan”), the defined benefit pension plan of Grolier Ltd., an indirect subsidiary of Scholastic Corporation located in Canada, and the post-retirement benefits provided by the Company to its retired United States-based employees, consisting of certain healthcare and life insurance benefits for the periods indicated:

	Pension Plans
													Pension Plans						Post-Retirement Benefits
	*Three months ended*						*Nine months ended*						*Three months ended*						*Three months ended*
	*February 28,*						*February 28,*						*August 31,*						*August 31,*

	*2006*			*2005*			*2006*			*2005*			*2006*			*2005*			*2006*		*2005*

Components of Net Periodic Benefit Cost:
Service cost	$	2.0		$	2.0		$	6.1		$	5.9		$	2.0		$	2.0		$	0.0	$	0.1
Interest cost		2.1			2.1			6.2			6.2			2.3			2.1			0.5		0.5
Expected return on assets		(2.2	)		(2.4	)		(6.6	)		(7.2	)		(2.3	)		(2.2	)		-		-
Net amortization and deferrals		1.0			0.6			2.9			1.9			0.6			1.0			0.1		0.3

Net periodic benefit cost	$	2.9		$	2.3		$	8.6		$	6.8		$	2.6		$	2.9		$	0.6	$	0.9


	Post-Retirement Benefits

	*Three months ended*						*Nine months ended*
	*February 28,*						*February 28,*

	*2006*			*2005*			*2006*			*2005*

Components of Net Periodic Benefit Cost:
Service cost	$	0.1		$	0.1		$	0.4		$	0.3
Interest cost		0.5			0.5			1.4			1.6
Amortization of prior service cost		(0.2	)		(0.2	)		(0.6	)		(0.6	)
Recognized gain or loss		0.5			0.5			1.4			1.3

Net periodic benefit cost	$	0.9		$	0.9		$	2.6		$	2.6

The Company currently estimates that it will contribute ~~$0.6~~$12.3 to the U.S. Pension Plan in the fiscal year ending May 31, ~~2006.~~2007. For the ~~nine~~three months ended ~~February 28,~~August 31, 2006, the Company ~~did not make any contributions~~contributed $4.9 to the U.S. Pension Plan. The Company currently estimates that Scholastic Ltd. will contribute the equivalent of $1.1 to the U.K. Pension Plan in the fiscal year ending May 31, ~~2006.~~2007. For the ~~nine~~three months ended ~~February 28,~~August 31, 2006, Scholastic Ltd. contributed the equivalent of ~~$0.9~~$0.3 to the U.K. Pension Plan.

17¹⁵

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

Overview and Outlook

~~Scholastic’s third fiscal~~The Company’s first quarter is generally its ~~second~~ smallest revenue ~~period. For~~period as most schools are not in session, resulting in a seasonal loss. The net loss in the quarter ended ~~February 28,~~August 31, 2006 ~~revenue increased slightly~~was $46.9 million, compared to a $21.2 million net loss in the quarter ended August 31, 2005. The net loss in the prior fiscal year quarter ~~reflecting increases~~was unusually low due to the benefit of approximately $185 million of revenues related to the release ofHarry Potter and the Half-Blood Prince, the sixth book in the~~Media, Licensing and Advertising~~ ~~and~~~~International~~ ~~segments, partially offset by declines~~ planned seven book series, in July 2005.

In the quarter ended August, 31, 2006, Scholastic made solid initial progress toward achieving its goals for fiscal 2007. Key factors in the quarter included growth in operating profit from the~~Children’s Book Publishing and Distributionand~~Educational Publishing ~~segments. Higher expenses in the~~~~Children’s Book Publishing and Distribution~~ segment, primarily as a result of a 9% increase in ~~the Company’s school-based book club business, and lower~~ educational technology revenues, as well as growth in ~~the~~non-~~Educational Publishing~~Harry Potter ~~segment resulted in a higher net loss for the quarter compared to the prior year period.~~

~~For the nine months ended February 28, 2006,~~ trade revenues, ~~and net income~~which increased ~~over the prior fiscal year period by $195.0 million and $9.0 million, respectively,~~ primarily due to ~~higher~~~~Harry Potter~~~~revenues and profits~~sales of new releases, including the eighth title in the~~Children’s Book Publishing and Distribution~~Captain Underpants~~segment.~~

~~Based on the results for the quarter and their impact on the remainder of the fiscal year ending May 31, 2006,~~ series. In addition, the Company ~~lowered~~is on track to meet its ~~forecasts for profitability for the year.~~previously announced cost savings targets.

~~Scholastic is taking a number of actions intended to improve future profitability, including:~~

~~Accelerating company-wide plans to reduce overhead costs by streamlining centralized functions~~
~~Eliminating two of its smaller, less efficient school-based book clubs, Troll/Carnival and Trumpet, and their associated promotion spending~~
~~Closing an in-house call center in the Continuities business and shifting the related outboundtelemarketing activity to outside vendors~~

Results of Operations –- Consolidated

Revenues for the quarter ended ~~February 28,~~August 31, 2006 ~~increased $6.9~~decreased $163.5 million, or ~~1.4%~~32.8%, to ~~$487.7~~$334.9 million, compared to ~~$480.8~~$498.4 million in the prior fiscal year quarter. ~~The increase was due~~This decrease related primarily to ~~higher revenues in the~~~~Media, Licensing and Advertising~~~~and~~ ~~International~~~~segments of $9.2 million and $4.9 million, respectively,partially offset by lower revenues in the~~ ~~Educational Publishing~~ ~~and~~~~Children’s Book Publishing and Distribution~~~~segments of $5.8 million and $1.4 million, respectively. For the nine months ended February 28, 2006, revenues increased $195.0 million, or 13.1%, to $1,682.8 million, compared to $1,487.8~~$162.7 million in ~~the prior fiscal year period, due to increases in each of the Company’s four operating segments, led by $151.3 million in higher~~lower revenues from theChildren’s Book Publishing and Distribution segment as ~~a result of~~compared to the prior fiscal year quarter, which reflected the July 2005 release ofHarry Potter and the Half-Blood Prince. Revenues increased $2.5 million, or 3.3%, ~~the sixth book~~ in the ~~series.~~Internationalsegment and declined by $2.4 million, or 13.3%, in theMedia, Licensing and Advertising segment.

Cost of goods sold ~~as a percentage~~decreased to $171.8 million in the quarter ended August 31, 2006, or 51.3% of revenues, ~~increased~~compared to ~~49.7%~~$293.0 million, or 58.8% of revenues, in the quarter ended August 31, 2005, primarily due to higher costs related to theHarry Potter release in the prior fiscal year quarter.

Selling, general and administrative expenses for the quarter ended ~~February 28,~~August 31, 2006 asdecreased $5.8 million to $196.6 million, compared to ~~48.6%~~$202.4 million in the prior fiscal year quarter, which included approximately $11 million of costs related to the Harry Potter release in that period. This benefit was partially offset by a $3.1 million increase in promotional expenses primarily in the Company’s continuity businesses and a $1.9 million increase in severance costs related to the Company’s cost savings initiatives.

Bad debt expense totaled $15.7 million for the quarter ended August 31, 2006, compared to $12.6 million in the prior fiscal year quarter, primarily due to ~~the impact of~~ higher ~~sales of lower margin products. For the nine months ended February 28, 2006, Cost of goods sold as a percentage of revenue increased to 49.5%, as compared to 47.8%~~bad debt in the ~~prior fiscal year period, primarily due to costs related to the release of~~~~Harry Potter and the Half-Blood Prince.~~Company’s continuity businesses.

~~SCHOLASTIC CORPORATION~~
~~Item 2. MD&A~~

~~Selling, general and administrative expenses as a percentage of revenue~~The resulting operating loss for the quarter ended ~~February 28,~~August 31, 2006 ~~increased~~was $66.1 million, compared to ~~47.3% from 43.3%~~an operating loss of $25.2 million in the prior fiscal year quarter, primarily due to ~~an increase in promotional expenses~~a $47.6 million operating loss in theChildren’s Book Publishing and Distribution ~~segment. For the nine months ended February 28, 2006, Selling, general and administrative expenses as~~segment, partially offset by a ~~percentage of revenues decreased to 40.7% from 41.5% in the prior fiscal year period, primarily due to the revenue benefit from~~~~Harry Potter and the Half-Blood Prince~~ ~~without a corresponding~~$5.2 million increase in expense. For the nine months ended February 28, 2005, Selling, general and administrative expenses included a charge of $3.6 million, primarily related to severance costs, recorded in connection with the fiscal 2004 review by the Company of its continuity business (the “Continuity Charges”).

Bad debt expense increased to $15.7 million, or 3.2% of revenues, for the quarter ended February 28, 2006, compared to $14.9 million, or 3.1% of revenues, in the prior fiscal year quarter. The higher level of bad debt expense was associated with a large educational services provideroperating income in theEducational Publishing segment. segment. For the nine months ended February 28, 2006, Bad debt expense decreased to $43.4 million, or 2.6% of revenues, compared to $50.7 million, or 3.4% of revenues, in the prior fiscal year period. The lower level of bad debt expense related primarily to lower bad debt in the Company’s continuity business as a result of the Company’s previously announced plan for this business to focus on its more productive customers.

Depreciation and amortization expense for the quarter ended February 28, 2006 increased to $16.7 million, or 3.4% of revenues, compared to $15.7 million, or 3.3% of revenues, in the prior fiscal year quarter. For the nine months ended February 28, 2006, Depreciation and amortization expense increased to $49.1 million, or 2.9% of revenues, compared to $46.5 million, or 3.1% of revenues, in the prior fiscal year period. The increases in expense were principally associated with the depreciation of information technology equipment.

The resulting operating loss for the quarter ended February 28, 2006 was $17.8 million, compared to operating income of $7.9 million in the prior fiscal year quarter. For the nine months ended February 28, 2006, the resulting operating income increased $11.9 million, or 19.7%, to $72.3 million, or 4.3% of revenues, compared to $60.4 million, or 4.1% of revenues, in the prior fiscal year period.

The effective income tax rate for the quarter ended ~~February 28,~~August 31, 2006 ~~increased~~decreased to ~~37.0%,~~36.2% compared to ~~33.3%~~37.1% in the prior fiscal year ~~quarter. For~~quarter, primarily due to higher anticipated tax-exempt interest income. The tax rate for the ~~nine months~~quarter ended ~~February 28,~~August 31, 2006 approximated the effective income tax rate ~~increased to 37.0%, compared to 35.8% in~~for the ~~prior~~ fiscal year ~~period. These increases were primarily due to a higher effective tax rate on foreign earnings and a higher state tax provision.~~ended May 31, 2006.

Net loss was ~~$15.5~~$46.9 million, or ~~$0.37~~$1.12 per diluted share, for the quarter ended ~~February 28,~~August 31, 2006, compared to a net loss of $0.8 million, or $0.02 per diluted share, in the prior fiscal year quarter. For the nine months ended February 28, 2006, net income was $30.2 million, or $0.73 per diluted share, compared to net income of $21.2 million, or $0.52 per diluted share, in the prior fiscal year ~~period.~~quarter.

SCHOLASTIC CORPORATION
Item 2. MD&A

Results of Operations - Segments

~~In the fourth quarter of fiscal 2005, the Company reviewed the estimated Cost of goods sold related to products originated by the~~~~Media, Licensing and Advertising~~~~segment that are sold through channels included in the~~~~Children’s Book Publishing and Distribution~~segment. The Company determined that actual costs were lower and gross margins higher on these products than was previously estimated. As a result, the prior fiscal year quarter inter-segment allocations were adjusted (the “Segment Reallocation”), resulting in higher gross margin and profits in the~~Media, Licensing and Advertisingsegment with an offsetting decrease in gross margin and profits in the~~~~Children’s Book Publishing and Distribution~~~~segment.~~

Children’s Book Publishing and Distribution

	*Three months ended*
($ amounts in millions)	*August 31,*

	2006			2005


Revenue	$	112.6		$	275.3
Operating loss		(67.3	)		(19.7	)

Operating margin		*			*

* not meaningful

~~The Company’s~~Revenues in theChildren’s Book Publishing and Distribution segment includes the publication and distribution of children’s books in the United States through school-based book clubs and book fairs, school-based and direct-to-home continuity programs and the trade channel.

Three months ended Nine months ended
($ amounts in millions) February 28, February 28,
2006 2005 2006 2005
Restated Restated
Revenue $ 270.9 $ 272.3 $ 970.4 $ 819.1
Operating profit (loss) (3.2 ) 14.7 ⁽¹⁾ 65.7 41.6 ⁽¹⁾⁽²⁾
Operating margin * 5.4 %⁽¹⁾ 6.8 % 5.1 %⁽¹⁾

* not meaningful
~~(1)~~	~~Reflects the Segment Reallocation.~~
~~(2)~~	~~Includes Continuity Charges related to this segment of $3.6.~~

~~Revenues in the~~~~Children’s Book Publishing and Distribution~~ segment for the quarter ended ~~February 28,~~August 31, 2006 ~~were down slightly at $270.9~~decreased by $162.7 million to $112.6 million, compared to ~~$272.3~~$275.3 million in the prior fiscal year quarter. ~~For~~This decrease was substantially due to lowerHarry Potter revenues in the current fiscal year quarter, ~~school-based book club revenues were $105.9~~which decreased by approximately $180 million ~~a decrease~~due to the release of ~~$4.0 million, compared to~~Harry Potter and the Half-Blood Prince in the prior fiscal year quarter, ~~due to lower order levels primarily~~partially offset by a $9.6 million increase in ~~the Troll/Carnival~~non-Harry Potter trade revenues and ~~Trumpet clubs, and school-based book fair~~a $6.8 million increase in revenues ~~decreased by $1.2 million to $70.6 million. Revenues~~ from the Company’s ~~trade business were $43.7 million~~continuity businesses. School-based book clubs and book fairs have minimal activity in the Company’s first fiscal quarter, as most schools are not in session.

Segment operating loss for the quarter ended ~~February 28,~~August 31, 2006 ~~an increase of $2.4~~was $67.3 million, compared to $19.7 million in the prior fiscal year quarter, primarily due to ~~higher back list revenues, and revenues from~~ the ~~Company’s continuity business increased by $1.4 million to $50.7 million.~~

~~Segment~~lower operating loss for the quarter ended February 28, 2006 was $3.2 million, compared to an operating profit of $14.7 million in the prior fiscal year quarter, principally related to higher promotion expense in the Company’s school-based book club business.

~~SCHOLASTIC CORPORATION~~
~~Item 2. MD&A~~

Segment revenues for the nine months ended February 28, 2006 increased $151.3 million, or 18.5%, to $970.4 million, compared to $819.1 million in the prior fiscal year period. For the current fiscal year period, the Company’s trade business revenues were $311.2 million, an increase of $175.3 million from the prior fiscal year period, and school-based book fair revenues increased by $12.2 million to $238.2 million. Revenues in the Company’s continuity business were $134.1 million in the nine months ended February 28, 2006, a decrease of $26.7 million compared to the prior fiscal year period, primarily as a result of the Company’s previously announced plan for this business, and revenues from school-based book clubs decreased by $9.5 million to $286.9 million. The increase in trade revenues was principally due to~~Harry Potterrevenues of approximately $195 million, as compared to approximately $15 million of~~~~Harry Potter~~~~revenues in the prior fiscal year period.~~

Segment operating profit for the nine months ended February 28, 2006 improved by $24.1 million to $65.7 million, compared to $41.6 million in the prior fiscal year period. This improvement was primarily due to increased operating profitsresults for the Company’s trade ~~business resulting from the higher~~~~Harry Potter~~ ~~revenues, partially offset by lower operating profits in the Company’s school-based book club business as a result of lower revenues and increased promotion expense.~~business.

The following highlights the results of the direct-to-home portion of the Company’s continuity programs, which ~~consists primarily of the business formerly operated by Grolier and~~ is included in theChildren’s Book Publishing and Distribution segment.

Direct-to-home continuity	*Three months ended*						*Nine months ended*						*Three months ended*
($ amounts in millions)	*February 28,*						*February 28,*						*August 31,*

	2006			2005			2006			2005			2006			2005

				Restated						Restated
Revenue	$	34.6			$ 32.8		$	93.0			$ 113.4		$	36.3		$	28.4
Operating profit (loss)		(2.5	)		0.7			(13.3	)		(4.2	)⁽¹⁾
Operating loss														(6.5	)		(6.2	)

Operating margin		*			2.1	%		*			*			*			*

*not meaningful
~~(1)~~	~~Includes Continuity Charges related to this business of $3.6.~~

* not meaningful

Revenues from the direct-to-home ~~portion of the Company’s~~ continuity business ~~increased by $1.8 million, or 5.5%, to $34.6 million~~ for the quarter ended ~~February 28,~~August 31, 2006 asincreased to $36.3 million, compared to ~~$32.8~~$28.4 million in the prior fiscal year ~~quarter,~~quarter. This increase was primarily attributable to new customers acquired through new product offerings and ~~decreased by $20.4~~web-based sales initiatives. The business operating loss was $6.5 million ~~or 18.0%, to $93.0 million for~~in the ~~nine months ended February 28, 2006, as~~current fiscal year quarter, compared to ~~$113.4~~a $6.2 million operating loss in the prior fiscal year ~~period.~~

Operating losses for the direct-to-home portion of the continuity business were $2.5 million and $13.3 million in the quarter and nine months ended February 28, 2006, respectively, compared to an operating profit of $0.7 million in the prior fiscal year quarter and anquarter. The higher operating loss was due to a $4.1 million increase in bad debt expense, as well as a $3.1 million increase in promotional expense, associated with the Company’s effort to acquire new customers as part of ~~$4.2 million~~its strategy to increase revenues in ~~the nine months ended February 28, 2005, which included $3.6 million of Continuity Charges.~~this business.

¹⁷

SCHOLASTIC CORPORATION
Item 2. MD&A

Excluding the direct-to-home portion of the continuity business, segment revenues ~~decreased by $3.2 million, or 1.3%, to $236.3 million~~ for the quarter ended ~~February 28,~~August 31, 2006 decreased by $170.6 million to $76.3 million, compared to $239.5 million in the prior fiscal year quarter, and increased by $171.7 million, or 24.3%, to $877.4 million for the nine months ended February 28, 2006, compared to $705.7 million in the prior fiscal year period.

~~SCHOLASTIC CORPORATION~~
~~Item 2. MD&A~~

~~Excluding the direct-to-home portion of the continuity business, segment operating loss was $0.7 million in the quarter ended February 28, 2006, compared to an operating profit of $14.0~~$246.9 million in the prior fiscal year quarter, and segment operating ~~profit was $79.0 million~~loss in the ~~nine months~~quarter ended ~~February 28,~~August 31, 2006 increased to $60.8 million, compared to ~~an operating profit of $45.8~~$13.5 million in the prior fiscal year ~~period.~~

quarter.

Educational Publishing

	*Three months ended*
($ amounts in millions)	*August 31,*

	2006			2005



Revenue	$	127.4		$	128.3
Operating income		32.7			27.5

Operating margin		25.7	%		21.4	%

~~The Company’s~~~~Educational Publishing~~ segment includes the production and/or publication and distribution to schools and libraries of educational technology products, curriculum materials, children’s books, classroom magazines and print and on-line reference and non-fiction products for grades pre-K to 12 in the United States.

Three months ended Nine months ended
($ amounts in millions) February 28, February 28,
2006 2005 2006 2005
Restated Restated
Revenue $ 73.5 $ 79.3 $ 301.0 $ 292.0
Operating profit (loss) (3.5 ) 4.9 45.6 48.7
Operating margin * 6.2 % 15.1 % 16.7 %

* not meaningful

~~For the quarter ended February 28, 2006, revenues~~Revenues in theEducational Publishing segment for the quarter ended August 31, 2006 decreased ~~$5.8 million, or 7.3%,~~slightly to ~~$73.5~~$127.4 million, compared to ~~$79.3~~$128.3 million in the prior fiscal year ~~quarter, primarily due to lower~~quarter. Higher revenues from sales of educational technology products, ~~including~~led by the Company’sREAD 180^® reading intervention program, which ~~the Company believes reflects a shift to a more seasonal selling pattern for this business.~~ increased by $5.4 million, were offset by lower revenues from paperback collections and library publishing, which decreased by $3.5 million and $2.5 million, respectively.

Segment ~~revenues~~operating profit for the ~~nine months~~quarter ended ~~February 28,~~August 31, 2006 ~~increased $9.0~~improved by $5.2 million, or ~~3.1%~~18.9%, to ~~$301.0~~$32.7 million, compared to ~~$292.0~~$27.5 million in the prior fiscal year ~~period. The increase~~quarter. This improvement was ~~related primarily to higher revenues from educational technology products.~~

~~Segment operating loss for the quarter ended February 28, 2006 was $3.5 million, compared to segment operating profit of $4.9 million in the prior fiscal year quarter,~~ primarily due to the ~~lower revenues~~revenue growth from sales of educational technology ~~products. Segment operating profit for the nine months ended February 28, 2006 decreased by $3.1 million, or 6.4%, to $45.6 million, compared to $48.7 million in the prior fiscal year period, as~~products, which have higher ~~profits from education technology products were more than offset by the lower results in the balance of the segment.~~gross margins.

~~SCHOLASTIC CORPORATION~~
~~Item 2. MD&A~~

Media, Licensing and Advertising

	*Three months ended*
($ amounts in millions)	*August 31,*

	2006			2005



Revenue	$	15.7		$	18.1
Operating loss		(6.1	)		(5.7	)

Operating margin		*			*

~~The Company’s~~~~Media, Licensing and Advertising~~* segment includes the production and/or distribution of software in the United States; the production and/or distribution, primarily by and through Scholastic Entertainment Inc., of programming and consumer products (including children’s television programming, videos, software, feature films, promotional activities and non-book merchandise); and advertising revenue, including sponsorship programs.not meaningful

Three months ended Nine months ended
($ amounts in millions) February 28, February 28,
2006 2005 2006 2005
Restated Restated
Revenue $ 46.4 $ 37.2 $ 116.4 $ 96.7
Operating profit 6.3 4.4 ⁽¹⁾ 8.3 6.7 ⁽¹⁾
Operating margin 13.6 % 11.8 %⁽¹⁾ 7.1 % 6.9 %⁽¹⁾

~~(1) Reflects the Segment Reallocation.~~

Revenues in the Media, Licensing and Advertising segment for the quarter ended ~~February 28,~~August 31, 2006 ~~increased $9.2~~decreased by $2.4 million, or ~~24.7%~~13.3%, to ~~$46.4~~$15.7 million, compared to $37.2 million in the prior fiscal year quarter, reflecting higher revenues in each of the businesses in the segment, led by an increase in revenues from software and multimedia products. Segment revenues for the nine months ended February 28, 2006 increased $19.7 million, or 20.4%, to $116.4 million, compared to $96.7 million in the prior fiscal year period, reflecting higher revenues in each of the businesses in the segment, led by increases in revenues of $6.7 million from software and multimedia products and $6.4 million from television programming.

Segment operating profit for the quarter ended February 28, 2006 increased $1.9 million to $6.3 million, compared to $4.4 million in the prior fiscal year quarter. Segment operating profit for the nine months ended February 28, 2006 increased $1.6 million to $8.3 million, compared to $6.7 million in the prior fiscal year period. These segment operating profit increases were primarily due to higher revenues.

~~International~~

~~The~~~~International~~~~segment includes the publication and distribution of products and services outside the United States by the Company’s international operations, and its export and foreign rights businesses.~~

Three months ended Nine months ended
($ amounts in millions) February 28, February 28,
2006 2005 2006 2005
Restated Restated
Revenue $ 96.9 $ 92.0 $ 295.0 $ 280.0
Operating profit 2.3 3.0 9.6 19.2
Operating margin 2.4 % 3.3 % 3.3 % 6.9 %

~~SCHOLASTIC CORPORATION~~
~~Item 2. MD&A~~

~~Revenues in the~~~~International~~ segment for the quarter ended February 28, 2006 increased $4.9 million, or 5.3%, to $96.9 million, compared to $92.0 million in the prior fiscal year quarter. This increase reflected higher local currency revenue growth in Canada and Australia, equivalent to $3.0 million and $1.9 million, respectively, partially offset by lower local currency revenue in the United Kingdom equivalent to $1.3 million. Segment revenues for the nine months ended February 28, 2006 increased $15.0 million, or 5.4%, to $295.0 million, as compared to $280.0 million in the prior fiscal year period. This increase reflected revenue growth in the Company’s export business of $5.8 million and local currency revenue growth in Australia and Canada, equivalent to $4.7 million and $1.5 million, respectively, as well as the favorable impact of foreign currency exchange rates of $3.8 million, partially offset by lower local currency revenues in the United Kingdom equivalent to $7.9 million.

~~Segment operating profit for the quarter ended February 28, 2006 decreased $0.7 million to $2.3 million, as compared to $3.0~~$18.1 million in the prior fiscal year quarter. This decrease was primarily due to lower ~~local currency~~television programming revenues caused by the delivery of fewer episodes compared to the prior fiscal year quarter.

Segment operating ~~profits~~loss for the quarter ended August 31, 2006 increased slightly to $6.1 million, compared to $5.7 million in the ~~United Kingdom equivalent~~prior fiscal year quarter.

¹⁸

SCHOLASTIC CORPORATION
Item 2. MD&A

International

	*Three months ended*
($ amounts in millions)	*August 31,*

	2006			2005


Revenue	$	79.2		$	76.7
Operating loss		(5.5	)		(5.5	)

Operating margin		*			*

*not meaningful

Revenues in theInternational segment for the quarter ended August 31, 2006 increased $2.5 million, or 3.3%, to ~~$2.8~~$79.2 million, ~~partially offset by~~compared to $76.7 million in the prior fiscal year quarter, due to the favorable impact of foreign currency exchange rates of $1.2 million. Segment operating profit for the nine months ended February 28, 2006 was $9.6 million, a decrease of $9.6 million from $19.2 million in the prior fiscal year period, primarily due to lower local currency operating profits in the United Kingdom, where the Company is implementing a turn-around plan, and in Canada, equivalent to $9.1 million and $1.6 million, respectively.rates.

Seasonality

The Company’s school-based book clubs, school-based book fairs and most of its magazines operate on a school-year basis. Therefore, the Company’s business is highly seasonal. As a ~~consequence,~~result, the Company’s revenues in the first and third quarters of the fiscal year generally are lower than its revenues in the other two fiscal quarters. Typically, school-based book club and book fair revenues are greatest in the second quarter of the fiscal year, while revenues from the sale of instructional materials are highest in the first quarter. The Company experiences a ~~substantial~~ loss from operations in the first ~~quarter~~and third quarters of each fiscal year.

~~SCHOLASTIC CORPORATION~~
~~Item 2. MD&A~~

Liquidity and Capital Resources

The Company’s cash and cash equivalents were ~~$219.5~~$19.7 million at ~~February 28,~~August 31, 2006, compared to ~~$22.1~~$18.4 million at ~~February 28,~~August 31, 2005 and ~~$110.6~~$205.3 million at May 31, ~~2005.~~2006.

Cash ~~provided by~~used in operating activities was ~~$210.3~~$138.1 million for the ~~nine~~three months ended ~~February 28,~~August 31, 2006 ~~compared to $112.1~~and approximated cash used in operating activities of $138.8 million in the prior fiscal year ~~period. This increase was due to favorable changes in working capital accounts~~period, as the higher net loss in the current fiscal year period ~~and a higher level of~~was offset by favorable net ~~income. Working~~changes in working capital accounts between the two periods. The most significant working capital account ~~changes~~change that had a positive impact on cash flows ~~included: Accrued royalties,~~occurred in Accounts receivable, which ~~increased~~decreased by ~~$89.2~~$2.7 million in the ~~nine~~three months ended ~~February 28,~~August 31, 2006, compared to an increase of ~~$18.5~~$154.5 million in the prior fiscal year period, primarily due to ~~royalties associated with~~the higherHarry Potter revenues that will be paid in the fourth quarter of fiscal 2006; and Accounts payable and other accrued expenses, which increased by $38.1 million during the nine months ended February 28, 2006, compared to a decrease of $26.2 million in the prior fiscal year ~~period, primarily due to accrued expenses associated with~~~~Harry Potter.~~period. Working capital account changes that had a negative impact on cash flows included: ~~Prepaid expenses and other current assets,~~Accrued royalties, which increased ~~$33.9~~by $11.1 million ~~for~~in the ~~nine~~three months ended ~~February 28,~~August 31, 2006 compared to an increase of ~~$4.0~~$87.1 million in the prior year fiscal period, and Accounts payable and other accrued expenses, which increased by $4.2 million in the three months ended August 31, 2006 compared to a $28.2 million increase in the prior fiscal year period, with the changes in both accounts related primarily ~~due~~ to ~~higher income tax payments;~~the lower trade revenues in the current fiscal year period; and Inventories, which increased ~~$73.3~~by $115.9 million ~~during~~for the ~~nine~~three months ended ~~February 28,~~August 31, 2006 compared to an increase of ~~$56.9~~$102.3 million in the prior fiscal year ~~fiscal~~ period, primarily due to ~~earlier~~higher purchases made in connection with new product ~~purchasing in the Company’s school-based book fairs business.~~offerings.

¹⁹

SCHOLASTIC CORPORATION
Item 2. MD&A

Cash used in investing activities was ~~$118.4~~$24.0 million ~~for~~in the ~~nine~~three months ended ~~February 28,~~August 31, 2006, compared to ~~$109.8~~$42.8 million in the prior fiscal year period. This ~~increase~~$18.8 million decrease was due primarily to a $9.2 million decrease in Additions to property, plant and equipment, ~~totaling $46.6~~which totaled $6.2 million for the ~~nine~~three months ended ~~February 28,~~August 31, 2006 ~~an increase of $15.2~~compared to $15.4 million ~~over~~in the prior fiscal year period, principally due to ~~increased~~decreased information technology spending. Acquisition-related payments totaled $3.3 million in the ~~nine~~three months ended ~~February 28, 2006~~August 31, 2005 due to a contingent payment related to the acquisition of Klutz in fiscal 2002.

Cash used in financing activities was $23.7 million in the three months ended August 31, 2006, compared to cash provided by financing activities ~~was $16.8 million in the nine months ended February 28, 2006, compared to $1.5~~of $89.3 million in the prior fiscal year ~~period, an increase of $15.3 million.~~period. This ~~increase~~change was due ~~primarily~~ to ~~proceeds received by~~ the ~~Company under its employee stock-based benefit plans totaling $26.0 million in~~effect of a higher cash position at the ~~current~~beginning of the three months ended August 31, 2006 compared to the beginning of the prior fiscal year period, ~~an increase~~along with the open market repurchase of ~~$11.8~~$35.4 million ~~from $14.2 million in~~of the ~~prior~~Company’s 5.75% Notes due January 15, 2007 (the “5.75% Notes”) during the current fiscal year period.

Due to the seasonality of its business as discussed under “Seasonality” above, the Company experiences negative cash flow in the June through October time period. As a result of the Company’s business cycle, seasonal borrowings have historically increased during June, July and August, have generally peaked in September or October, and have been at their lowest point in May.

~~SCHOLASTIC CORPORATION~~
~~Item 2. MD&A~~

The Company’s operating philosophy is to use cash provided from operating activities to create value by paying down debt, reinvesting in existing businesses and, from time to time, by making acquisitions that will complement its portfolio of businesses. The Company believes that cash generated by its operations and amounts available under its existing ~~cash position, combined with funds generated from operations and available under the Credit Agreement and the Revolver, described in “Financing” below,~~credit facilities will be sufficient to finance ~~its ongoing working~~short- and long-term capital requirements. The Company ~~anticipates refinancing~~also believes it has adequate access to capital to finance its ongoing operating needs and to repay its debt obligations ~~prior to their respective maturity dates,~~as they become due, including its ~~outstanding~~ 5.75% Notes, ~~due in January 2007,~~as discussed under “Financing” below.

During the first quarter, the credit rating of the Company’s senior unsecured debt was downgraded from BB+ to BB by Standard & Poor’s and from Baa3 to Ba1 by Moody’s Investor Service. Under prevailing market conditions, the Company believes that these ratings afford it adequate access to the ~~extent not paid through cash flow.~~

public and private markets for debt.

Financing

Scholastic Corporation and Scholastic Inc. are parties to an unsecured revolving credit agreement with certain banks (the “Credit Agreement”), which expires on March 31, 2009. The Credit Agreement provides for aggregate borrowings of up to $190.0 million (with a right in certain circumstances to increase borrowings to $250.0 million), including the issuance of up to $10.0 million in letters of credit. Interest under this facility is either at the prime rate or a rate equal to 0.325% to 0.975% over LIBOR (as defined). There is a facility fee ranging from 0.10% to 0.30% and a utilization fee ranging from 0.05% to 0.25% if borrowings exceed 50% of the total facility. The amounts charged vary based upon the Company’s credit rating. The interest rate, facility fee and utilization fee (when applicable) as of ~~February 28,~~August 31, 2006 were ~~0.675%~~0.975% over LIBOR, ~~0.20%~~0.30% and ~~0.125%~~0.25%, respectively. The Credit Agreement contains certain financial covenants related to debt and interest coverage ratios (as defined) and limits dividends and other distributions. There were no borrowings outstanding under the Credit Agreement at ~~February 28,~~August 31, 2006 or May 31, ~~2005.~~2006. At ~~February 28,~~August 31, 2005, ~~$12.0~~$35.0 million was outstanding under the Credit Agreement at a weighted average interest rate of ~~3.1%~~ 4.3%.

SCHOLASTIC CORPORATION
Item 2. MD&A

Scholastic Corporation and Scholastic Inc. are joint and several borrowers under an unsecured revolving loan agreement with a bank (the “Revolver”). The Revolver provides for unsecured revolving credit of up to $40.0 million and expires on March 31, 2009. Interest under this facility is either at the prime rate minus 1%, or at a rate equal to 0.375% to 1.025% over LIBOR (as defined). There is a facility fee ranging from 0.10% to 0.30%. The amounts charged vary based upon the Company’s credit rating. The interest rate and facility fee as of ~~February 28,~~August 31, 2006 were ~~0.725%~~1.025% over LIBOR and ~~0.20%~~0.30%, respectively. The Revolver contains certain financial covenants related to debt and interest coverage ratios (as defined) and limits dividends and other distributions. At August 31, 2006 and 2005, $1.0 million and $37.0 million were outstanding under the Revolver at a weighted average interest rate of 7.3% and 5.0%, respectively, with the increase in the weighted average interest rate principally due to higher market interest rates. There were no borrowings outstanding under the Revolver at ~~February 28, 2006,~~ May 31, 2006.

The Credit Agreement and Revolver allow the Company to borrow, repay or, to the extent permitted by the agreements, prepay and re-borrow at any time prior to the stated maturity dates and subject to the terms and conditions of the facilities. The $71 million decrease in aggregate borrowings under these facilities at August 31, 2006 compared to August 31, 2005 ~~or February 28, 2005.~~was primarily due to the higher cash position at the start of the current fiscal year period compared to the start of the prior fiscal year period. At August 31, 2006, the Company was in compliance with its debt covenants under each of these facilities.

Unsecured lines of credit available in local currencies to certain of Scholastic Corporation’s international subsidiaries were, in the aggregate, equivalent to ~~$65.4~~$79.3 million at ~~February 28,~~August 31, 2006, as compared to ~~$64.6~~$59.1 million at ~~February 28,~~August 31, 2005 and ~~$61.8~~$67.9 million at May 31, ~~2005.~~2006. These lines are used primarily to fund local working capital needs. There were borrowings outstanding under these lines of credit equivalent to ~~$30.6~~$42.2 million at ~~February 28,~~August 31, 2006, as compared to ~~$20.8~~$33.7 million at ~~February 28,~~August 31, 2005 and ~~$24.7~~$33.8 million at May 31, ~~2005.~~2006. These lines of credit are considered short-term in nature. The weighted average interest ~~rates~~rate on the outstanding ~~amounts were 5.7%~~borrowings was 6.0% and ~~6.1%~~5.5% at ~~February 28,~~August 31, 2006 and 2005, respectively, and ~~5.4%~~6.0% at May 31, ~~2005.~~2006.

~~SCHOLASTIC CORPORATION~~
~~Item 2. MD&A~~

The Company’s total debt obligations at ~~February 28,~~August 31, 2006 and ~~February 28,~~August 31, 2005 were ~~$500.0~~$475.8 million and ~~$510.3~~$579.8 million, respectively. The Company’s total debt obligations at May 31, ~~2005~~2006 were ~~$501.4~~$502.4 million. ~~Through February 28,~~In the quarter ended August 31, 2006, the Company ~~had~~ repurchased ~~$6.0~~$35.4 million of its 5.75% Notes ~~due 2007~~ on the open market. As of August 31, 2006, the outstanding balance of the 5.75% Notes, net of premium, totaled $259.3 million. For a more complete description of the Company’s debt obligations, see Note 43 of Notes to Condensed Consolidated Financial Statements – Unaudited in Item 1, “Financial Statements.”

Critical Accounting Policies and Estimates

Prior to June 1, 2006, the Company applied the intrinsic value-based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and related interpretations in accounting for its stock-based benefit plans. Under this method, no compensation expense was recognized with respect to options granted under the Company’s stock-based benefit plans, as the exercise price of each stock option issued was equal to the market price of the underlying stock on the date of grant and the exercise price and number of shares subject to grant were fixed.

In May 2006, the Human Resources and Compensation Committee of the Board of Directors of the Corporation, which consists entirely of independent directors, approved the acceleration of the vesting of all of the Company’s unvested options to purchase Class A Stock and Common Stock outstanding as of May 30, 2006 granted to employees (including executive officers) and outside directors of the Corporation (the “Acceleration”). Except for the Acceleration, all other terms and conditions applicable to such stock options were unchanged. Substantially all of these options had exercise prices in excess of the market value of the underlying Common Stock on May 30, 2006. The primary purpose of the Acceleration was to mitigate the future compensation expense that the Company would have otherwise recognized in its financial statements with respect to these options as a result of the June 1, 2006 adoption of Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share Based Payment” (“SFAS 123R”).

Effective June 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123R, which revises SFAS No. 123, “Accounting for Stock-Based Compensation,” using the modified prospective method. SFAS 123R requires the Company to recognize the cost of employee and director services received in exchange for any stock-based awards. Under SFAS 123R, the Company is required to recognize compensation expense over an award’s vesting period, based on the award’s fair value at the date of grant, on a straight-line basis.

SCHOLASTIC CORPORATION
Item 2. MD&A

The fair values of stock options granted by the Company are estimated at the date of grant using the Black-Scholes option-pricing model. The Company’s determination of the fair value of share-based payment awards using this option-pricing model is affected by the price of common stock, par value $.01 per share (the “Common Stock”), of Scholastic Corporation (the “Corporation”), as well as by assumptions regarding highly complex and subjective variables, including, but not limited to, the expected price volatility of the Common Stock over the terms of the awards, the risk-free interest rate, and actual and projected employee stock option exercise behaviors. Estimates of fair value are not intended to predict actual future events or the value that may ultimately be realized by employees or directors who receive these awards.

For a more complete description of the Company’s stock-based compensation plans, see Note 1 of Notes to Condensed Consolidated Financial Statements – Unaudited in Item 1, “Financial Statements.”

Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements are subject to various risks and uncertainties, including the conditions of the children’s book and educational materials markets and acceptance of the Company’s products within those markets, and other risks and factors identified in this Report, in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, ~~2005,~~2006, and from time to time in the Company’s other filings with the Securities and Exchange Commission (the “SEC”). Actual results could differ materially from those currently anticipated.

SCHOLASTIC CORPORATION
Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company ~~has operations~~conducts its business in various foreign ~~countries. In the normal course of business, these operations~~countries, and as such, its cash flows and earnings are ~~exposed~~subject to fluctuations from changes in foreign currency ~~values.~~exchange rates. Management believes that the impact of currency fluctuations does not represent a significant risk into the ~~context~~Company given the size and scope of ~~the Company’s~~its current international operations. InThe Company manages its exposures to this market risk through internally established procedures and, when deemed appropriate, through the ~~normal course~~use of ~~business, the Company’s operations outside the United States periodically~~short-term forward exchange contracts. All foreign exchange hedging transactions are supported by an identifiable commitment or a forecasted transaction. The Company does not enter into ~~short-term forward contracts (generally not exceeding an amount equivalent to $20.0 million in the aggregate) to match selected purchases not denominated in their respective local currencies.~~

derivative transactions or use other financial instruments for trading or speculative purposes.

Market risks relating to the Company’s operations result primarily from changes in interest rates, which are managed through the mix of variable-rate versus fixed-rate borrowings. Additionally, financial instruments, including swap agreements, have been used to manage interest rate exposures. Approximately 6%9% of the Company’s debt at ~~both February 28,~~August 31, 2006 ~~and 2005~~ bore interest at a variable rate and was sensitive to changes in interest rates, compared to approximately 5%7% at May 31, 2006 and approximately 18% at August 31, 2005. The Company is subject to the risk that market interest rates and its cost of borrowing will increase and thereby increase the interest charged under its variable-rate debt, as well as the risk that variable-rate borrowings will represent a larger portion of total debt in the future.

Additional information relating to the Company’s outstanding financial instruments is included in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The following table sets forth information about the Company’s debt instruments as of ~~February 28,~~August 31, 2006 (see Note 43 of Notes to Condensed Consolidated Financial Statements - Unaudited in Item 1, “Financial Statements”):

($ amounts in millions)	Fiscal Year Maturity																	Fiscal Year Maturity

	2006			2007			2008		2009⁽¹⁾		2010		Thereafter			Total		2007			2008			2009	⁽¹⁾	2010		2011		Thereafter			Total

Debt Obligations
Lines of credit	$	18.4		$	12.2		$	-	$	-	$	-	$	-		$	30.6	$	42.2		$	-	$	-		$	-	$	-	$	-		$	42.2
Average interest rate		6.3	%		5.2	%													6.0	%

Long-term debt including
current portion:
Fixed-rate debt	$	0.3		$	294.0		$	-	$	-	$	-	$	175.0		$	469.3	$	258.6		$	-	$	-		$	-	$	-	$	175.0		$	433.6
Average interest rate		5.12	%		5.75	%								5.0	%				5.75	%											5.0	%

Variable-rate debt																		$	-		$	-	$	1.0	⁽¹⁾	$	-	$	-	$	-		$	1.0
Average interest rate																								7.25	%

(1)	~~At February 28, 2006, no borrowings were outstanding under~~ Represents amount drawn on the Revolver. The Revolver and Credit Agreement, ~~or the Revolver, which have~~with credit lines totaling $230.0, ~~million and~~ expire in fiscal 2009.

SCHOLASTIC CORPORATION
Item 4. Controls and Procedures

The Chief Executive Officer and the Chief Financial Officer of ~~Scholastic~~the Corporation, after conducting an evaluation, together with other members of the Company's management, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as of ~~February 28,~~August 31, 2006, have concluded that the Corporation’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Corporation in its reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and accumulated and communicated to members of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. There was no change in the Corporation’s internal control over financial reporting that occurred during the quarter ended ~~February 28,~~August 31, 2006 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II – OTHER INFORMATION
SCHOLASTIC CORPORATION
Item 4. Submission of Matters to a Vote of Security Holders

On July 18, 2006, the holders of the 1,656,200 outstanding shares of the Corporation’s Class A Stock, $0.01 par value (the “Class A Stock”), approved by written consent an action to fix the number of directors constituting the full Board of Directors of the Corporation (the “Board”) at ten. The Corporation’s Amended and Restated Certificate of Incorporation provides that the holders of shares of Class A Stock, voting as a class, have the right to fix the size of the Board so long as it does not consist of less than three nor more than 15 directors.

²⁵

SCHOLASTIC CORPORATION
Item 6. Exhibits

~~Exhibits:~~
Exhibits:

3.1	Amended and Restated Certificate of Incorporation of the Corporation, as amended to date.
10.1	~~10.1~~	Amendment No. 2 to the Scholastic Corporation ~~Directors’ Deferred Compensation~~2004 Class A Stock Incentive Plan (incorporated by reference to Appendix C to the Corporation’s definitive Proxy Statement as ~~amended and~~ filed with the SEC on August 21, 2006 (the “2006 Proxy Statement”)).
10.2		~~restated effective January 1, 2005.~~ Amended and Restated Guidelines for Stock Units granted under the Scholastic Corporation 2001 Stock Incentive Plan.
	~~10.2~~	~~Deferred Compensation Agreement between Scholastic Inc. and Ernest Fleishman,~~
		~~as amended and restated effective January 1, 2005.~~
	31.1	Certification of the Chief Executive Officer of Scholastic Corporation filed pursuant
		to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	~~31.2~~	Certification of the Chief Financial Officer of Scholastic Corporation filed pursuant
		to Section 302 of the Sarbanes-Oxley Act of 2002.
32	32	Certifications of the Chief Executive Officer and Chief Financial Officer of
		Scholastic Corporation furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
			~~of 2002.~~

³⁰²⁶

SCHOLASTIC CORPORATION
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		SCHOLASTIC CORPORATION
		(Registrant)





Date: ~~April 7,~~October 5, 2006		/s/ Richard Robinson

		Richard Robinson
		Chairman of the Board,
		President, and Chief
		Executive Officer





Date: ~~April 7,~~October 5, 2006		s/ Mary A. Winston

		Mary A. Winston
		Executive Vice President and
		Chief Financial Officer

³¹²⁷

SCHOLASTIC CORPORATION
QUARTERLY REPORT ON FORM 10-Q, DATED ~~FEBRUARY 28,~~AUGUST 31, 2006
Exhibits Index


Exhibit
Number		Description of Document

3.1		Amended and Restated Certificate of Incorporation of the Corporation,
	~~10.1~~		~~Scholastic Corporation Directors’ Deferred Compensation Plan,~~ as amended ~~and~~ to date.
			~~restated effective January 1, 2005.~~

	~~10.2~~ 10.1		~~Deferred Compensation Agreement between~~Amendment No. 2 to the Scholastic ~~Inc. and Ernest~~ Corporation 2004 Class A Stock Incentive Plan
			~~Fleishman, as amended and restated effective January 1, 2005.~~ (incorporated by reference to the 2006 Proxy Statement).

10.2		Amended and Restated Guidelines for Stock Units granted under the
		Scholastic Corporation 2001 Stock Incentive Plan.

31.1		Certification of the Chief Executive Officer of Scholastic Corporation filed
			pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2		Certification of the Chief Financial Officer of Scholastic Corporation filed
			pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32		Certifications of the Chief Executive Officer and Chief Financial Officer of
			Scholastic Corporation furnished pursuant to Section 906 of the Sarbanes-Oxley
			Act of 2002.

³²²⁸


Delaware	13-3385513
(State or other jurisdiction of	(IRS Employer Identification No.)
incorporation or organization)

557 Broadway, New York, New York	10012
(Address of principal executive offices)	(Zip Code)

Title		Number of shares outstanding
of each class		as of ~~March 31,~~September 30, 2006

Common Stock, $.01 par value		~~40,215,377~~ 40,589,045
Class A Stock, $.01 par value		1,656,200


Part I - Financial Information		Page

Item 1.	Financial Statements

	Condensed Consolidated Statements of Operations - Unaudited for the
	Three ~~and Nine~~ Months Ended ~~February 28,~~August 31, 2006 and 2005	1

	Condensed Consolidated Balance Sheets - ~~February 28,~~August 31, 2006 and
	2005 - Unaudited; and May 31, ~~2005~~ 2006	2

	Consolidated Statements of Cash Flows - Unaudited for the ~~Nine~~ Three
	Months Ended ~~February 28,~~August 31, 2006 and 2005	3

	Notes to Condensed Consolidated Financial Statements - Unaudited	4

Item 2.	Management’s Discussion and Analysis of Financial Condition
	and Results of Operations	18 16

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28 23

Item 4.	Controls and Procedures	29 24

Part II – Other Information

Item 6. 4.	~~Exhibits~~ Submission of Matters to a Vote of Security Holders	30 25

~~Signatures~~ Item 6.	Exhibits	31 26

Signatures		27


	*Three months ended*						*Nine months ended*
	*February 28,*						*February 28,*

	2006			2005			2006		2005

				Restated					Restated

Revenues	$	487.7		$	480.8		$	1,682.8	$	1,487.8

Operating costs and expenses:
Cost of goods sold		242.2			233.9			833.5		711.4
Selling, general and administrative expenses		230.9			208.4			684.5		618.8
Bad debt expense		15.7			14.9			43.4		50.7
Depreciation and amortization		16.7			15.7			49.1		46.5


Total operating costs and expenses		505.5			472.9			1,610.5		1,427.4

Operating income (loss)		(17.8	)		7.9			72.3		60.4

Interest expense, net		6.8			9.1			24.4		27.4


Earnings (loss) before income taxes		(24.6	)		(1.2	)		47.9		33.0

Provision (benefit) for income taxes		(9.1	)		(0.4	)		17.7		11.8


Net income (loss)	$	(15.5	)	$	(0.8	)	$	30.2	$	21.2


Earnings (loss) per Share of Class A and
Common Stock:
Basic	$	(0.37	)	$	(0.02	)	$	0.74	$	0.53
Diluted	$	(0.37	)	$	(0.02	)	$	0.73	$	0.52


	*Three months ended*
	*August 31,*

	2006			2005


Revenues	$	334.9		$	498.4

Operating costs and expenses:
Cost of goods sold		171.8			293.0
Selling, general and administrative expenses		196.6			202.4
Bad debt expense		15.7			12.6
Depreciation and amortization		16.9			15.6


Total operating costs and expenses		401.0			523.6

Operating loss		(66.1	)		(25.2	)

Interest expense, net		7.4			8.5

Loss before income taxes		(73.5	)		(33.7	)

Benefit from income taxes		26.6			12.5


Net loss	$	(46.9	)	$	(21.2	)


Basic and diluted loss per Share of Class A and
Common Stock	$	(1.12	)	$	(0.52	)


See accompanying notes


For the quarterly period ended ~~February 28,~~August 31, 2006		Commission File No. 000-19860

	February 28, 2006			May 31, 2005			February 28, 2005
										August 31, 2006			May 31, 2006			August 31, 2005
	(Unaudited)						(Unaudited)
ASSETS							Restated			(Unaudited)						(Unaudited)
*Current Assets:*
Cash and cash equivalents	$	219.5		$	110.6		$	22.1		$	19.7		$	205.3		$	18.4
Accounts receivable, net		241.9			269.6			249.1			249.8			266.8			411.7
Inventories		480.7			404.9			468.0			548.0			431.5			509.2
Deferred promotion costs		47.3			38.6			42.7			57.0			49.8			41.8
Deferred income taxes		71.3			71.7			75.9			100.7			73.1			84.5
Prepaid expenses and other current assets		78.9			43.9			48.0			66.6			52.4			53.3

Total current assets		1,139.6			939.3			905.8			1,041.8			1,078.9			1,118.9

Property, plant and equipment, net		395.5			392.7			390.7			387.7			397.0			398.3
Prepublication costs		116.2			120.2			115.5			111.7			115.9			119.4
Installment receivables, net		10.4			10.6			10.2			10.8			11.2			11.2
Royalty advances		55.4			54.4			59.2			46.7			46.0			56.8
Production costs		6.4			9.7			9.9			5.1			5.9			9.3
Goodwill		253.6			254.2			251.5			253.5			253.1			254.1
Other intangibles		78.5			78.7			78.7			78.3			78.4			78.6
Other assets and deferred charges		69.0			71.6			72.8			69.4			65.8			64.5

Total assets	$	2,124.6		$	1,931.4		$	1,894.3		$	2,005.0		$	2,052.2		$	2,111.1

LIABILITIES AND STOCKHOLDERS’ EQUITY
*Current Liabilities:*
Current portion of long-term debt, lines
of credit and short-term debt	$	326.8		$	24.9		$	21.3
Lines of credit, short-term debt and
current portion of long-term debt										$	301.5		$	329.2		$	33.8
Capital lease obligations		9.2			11.0			11.6			6.7			7.5			10.3
Accounts payable		150.1			141.4			127.6			164.3			141.7			179.3
Accrued royalties		129.3			40.1			57.1			47.7			36.6			127.2
Deferred revenue		35.9			22.9			43.4			33.6			19.3			29.7
Other accrued expenses		154.1			134.5			128.4			136.0			154.7			115.9

Total current liabilities		805.4			374.8			389.4			689.8			689.0			496.2

*Noncurrent Liabilities:*
Long-term debt, excluding current portion		173.2			476.5			489.0
Long-term debt											174.3			173.2			546.0
Capital lease obligations		63.1			63.4			63.7			61.0			61.4			67.7
Other noncurrent liabilities		87.8			79.6			62.7			80.0			79.3			75.2

Total noncurrent liabilities		324.1			619.5			615.4			315.3			313.9			688.9

*Commitments and Contingencies*		-			-			-			-			-			-

*Stockholders’ Equity:*
Preferred Stock, $1.00 par value		-			-			-			-			-			-
Class A Stock, $.01 par value		0.0			0.0			0.0			0.0			0.0			0.0
Common Stock, $.01 par value		0.4			0.4			0.4			0.4			0.4			0.4
Additional paid-in capital		455.5			424.0			405.3			461.6			458.7			440.2
Deferred compensation		(1.7	)		(2.1	)		(1.5	)		-			(1.6	)		(1.9	)
Accumulated other comprehensive loss		(32.6	)		(28.5	)		(14.9	)		(27.1	)		(20.1	)		(34.8	)
Retained earnings		573.5			543.3			500.2			565.0			611.9			522.1

Total stockholders’ equity		995.1			937.1			889.5			999.9			1,049.3			926.0

Total liabilities and stockholders’ equity	$	2,124.6		$	1,931.4		$	1,894.3		$	2,005.0		$	2,052.2		$	2,111.1

	As Previously Reported⁽¹⁾			Adjustments			As Restated

Condensed Consolidated Statement of Operations
Three Months Ended February 28, 2005
Selling, general and administrative expenses	$	213.1		$	(4.7	)	$	208.4
Depreciation and amortization		13.1			2.6			15.7
Operating income		5.8			2.1			7.9
Interest expense, net		6.9			2.2			9.1
Loss before income taxes		(1.1	)		(0.1	)		(1.2	)
Benefit for income taxes		(0.4	)		-			(0.4	)
Net loss		(0.7	)		(0.1	)		(0.8	)

Loss per share of Class A and Common Stock:
Basic	$	(0.02	)	$	0.00		$	(0.02	)
Diluted		(0.02	)		0.00			(0.02	)

Condensed Consolidated Statement of Operations
Nine Months Ended February 28, 2005
Selling, general and administrative expenses	$	631.4		$	(12.6	)	$	618.8
Depreciation and amortization		39.1			7.4			46.5
Operating income		55.2			5.2			60.4
Interest expense, net		21.6			5.8			27.4
Earnings before income taxes		33.6			(0.6	)		33.0
Provision for income taxes		11.9			(0.1	)		11.8
Net income		21.7			(0.5	)		21.2

Earnings per share of Class A and Common Stock:
Basic	$	0.55			(0.02	)	$	0.53
Diluted		0.54			(0.02	)		0.52

				Weighted Average	Aggregate
			Weighted	Remaining	Intrinsic
	Shares		Average	Contractual Term	Value
Stock Options	(In thousands)		Exercise Price	(In years)	(In millions)


Outstanding at May 31, 2006	6,885		$30.24
Granted	33		$27.58
Exercised	(170	)	$22.61
Expired or forfeited	(219	)	$30.92

Outstanding at August 31, 2006	6,529		$30.40	5.69	$16.3
Vested and expected to vest
at August 31, 2006	6,529		$30.40	5.69	$16.3
Exercisable at August 31, 2006	6,496		$30.42	5.67	$16.2



Three months ended
February 28,

	Direct-to-home						All Other					Total
		2006			2005			2006			2005		2006			2005
				Restated						Restated					Restated
Revenues	$	34.6		$	32.8		$	236.3		$	239.5	$	270.9		$	272.3
Bad debt		7.5			7.2			3.9			4.6		11.4			11.8
Depreciation and amortization		0.0			0.1			3.4			4.1		3.4			4.2
Amortization⁽¹⁾		0.6			0.3			3.6			4.1		4.2			4.4
Royalty advances expensed		1.8			1.2			4.4			12.8		6.2			14.0
Business profit (loss)⁽²⁾		(2.5	)		0.7			(0.7	)		14.0		(3.2	)		14.7
Expenditures for long-lived assets⁽³⁾		1.7			2.2			12.3			16.1		14.0			18.3



Nine months ended
February 28,

	Direct-to-home						All Other					Total
		2006			2005			2006			2005		2006			2005
				Restated						Restated					Restated
Revenues	$	93.0		$	113.4		$	877.4		$	705.7	$	970.4		$	819.1
Bad debt		22.0			28.0			11.0			14.1		33.0			42.1
Depreciation and amortization		0.8			0.5			11.9			10.5		12.7			11.0
Amortization⁽¹⁾		1.2			0.9			11.2			11.6		12.4			12.5
Royalty advances expensed		2.2			2.1			15.1			16.5		17.3			18.6
Business profit (loss)⁽²⁾		(13.3	)		(4.2	)		79.0			45.8		65.7			41.6
Business assets		241.1			232.9			785.2			562.7		1,026.3			795.6
Goodwill		92.4			92.4			38.2			35.5		130.6			127.9
Expenditures for long-lived assets⁽³⁾		4.7			6.4			47.2			43.5		51.9			49.9
Long-lived assets⁽⁴⁾		143.6			145.7			188.8			174.8		332.4			320.5