UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended ~~February 29,~~November 30, 2008		Commission File No. 000-19860

SCHOLASTIC CORPORATION

(Exact name of Registrant as specified in its charter)

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

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

Registrant’s telephone number, including area code (212) 343-6100

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YesXx Noo

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filerxX		Accelerated filero
Non-accelerated filero~~(Do~~ (Do not check if a smaller reporting company)		Smaller reporting companyo

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes~~Yes~~o No NoxX

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

~~Title~~
Title		Number of shares outstanding
of each class		as of ~~March~~December 31, 2008


Common Stock, $.01 par value		~~36,648,620~~ 35,392,912
Class A Stock, $.01 par value		1,656,200

~~SCHOLASTIC CORPORATION~~
~~FORM 10-Q FOR THE QUARTERLY PERIOD ENDED FEBRUARY 29, 2008~~
~~INDEX~~

SCHOLASTIC CORPORATION

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2008

INDEX


		Page

Part I - Financial Information		~~Page~~

Item 1.	Financial Statements

	Condensed Consolidated Statements of Operations - Unaudited for the Three and Six months ended November 30, 2008 and 2007	1
	~~Three and Nine months ended February 29, 2008 and February 28, 2007~~	1

	Condensed Consolidated Balance Sheets ~~- February 29,~~– November 30, 2008 and
	~~February 28,~~ 2007 - Unaudited; and May 31, ~~2007~~2008	2

	Consolidated Statements of Cash Flows - Unaudited for the ~~Nine~~Six months ended November 30, 2008 and 2007	3
	~~months ended February 29, 2008 and February 28, 2007~~	3

	Notes to Condensed Consolidated Financial Statements - Unaudited	4

Item 2.	Management’s Discussion and Analysis of Financial Condition
	and Results of Operations	15 19

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22 26

Item 4.	Controls and Procedures	23 27

Part II – Other Information

Item 1.	Legal Proceedings	24 28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25 29

Item 6.4.	~~Exhibits~~Submission of Matters to a Vote of Security Holders	26 30

~~Signatures~~Item 6.	Exhibits	27 31

Signatures		32

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SCHOLASTIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – UNAUDITED

(Dollar amounts in millions, except per share data)


	Three months ended November 30,						Six months ended November 30,


	2008			2007			2008			2007


Revenues	$	661.6		$	687.6		$	944.4		$	1,216.6

Operating costs and expenses:
Cost of goods sold		284.4			291.4			432.7			589.5
Selling, general and administrative expenses		235.0			235.7			412.9			431.6
Bad debt expense		7.4			3.5			8.7			5.3
Depreciation and amortization		15.6			15.5			31.8			31.2
Severance		11.4			2.6			14.4			4.0


Total operating costs and expenses		553.8			548.7			900.5			1,061.6

Operating income		107.8			138.9			43.9			155.0

Interest expense, net		7.0			9.7			12.9			18.4


Earnings from continuing operations before income taxes		100.8			129.2			31.0			136.6
Provision for income taxes		42.4			46.9			16.3			50.3


Earnings from continuing operations		58.4			82.3			14.7			86.3
Loss from discontinued operations, net of tax		(15.3	)		(6.7	)		(20.7	)		(13.5	)


Net income (loss)	$	43.1		$	75.6		$	(6.0	)	$	72.8


Basic and diluted earnings per Share of Class A and Common Stock:

Basic:
Earnings from continuing operations	$	1.55		$	2.13		$	0.39		$	2.21
Loss from discontinued operations, net of tax	$	(0.40	)	$	(0.17	)	$	(0.55	)	$	(0.35	)
Net earnings (loss)	$	1.15		$	1.96		$	(0.16	)	$	1.86
Diluted:
Earnings from continuing operations	$	1.55		$	2.10		$	0.39		$	2.17
Loss from discontinued operations, net of tax	$	(0.40	)	$	(0.17	)	$	(0.55	)	$	(0.34	)
Net earnings (loss)	$	1.15		$	1.93		$	(0.16	)	$	1.83

Dividends declared per common share	$	0.075		$	0.000		$	0.150		$	0.000


See accompanying notes

SCHOLASTIC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollar amounts in millions, except per share data)


	November 30, 2008				May 31, 2008				November 30, 2007 (Restated)

	(Unaudited)								(Unaudited)

ASSETS
*Current Assets:*
Cash and cash equivalents		$	30.8			$	117.6			$	183.3
Accounts receivable, net			269.9				210.7				282.4
Inventories, net			430.3				368.3				426.2
Deferred promotion costs			14.2				5.9				10.6
Deferred income taxes			125.2				116.9				92.0
Prepaid expenses and other current assets			57.5				53.5				55.2
Current assets of discontinued operations			31.6				46.0				238.8



Total current assets			959.5				918.9				1,288.5

Property, plant and equipment, net			341.9				357.8				353.8
Prepublication costs			114.5				110.6				103.1
Royalty advances			45.1				48.6				50.8
Production costs			5.6				4.9				4.8
Goodwill			167.6				172.3				172.9
Other intangibles			47.1				47.5				49.8
Other assets and deferred charges			108.4				101.0				92.8


Total assets		$	1,789.7			$	1,761.6			$	2,116.5


LIABILITIES AND STOCKHOLDERS’ EQUITY
*Current Liabilities:*
Lines of credit, short-term debt and current portion of long-term debt		$	70.2			$	54.6			$	83.3
Capital lease obligations			4.4				4.9				5.2
Accounts payable			121.0				109.6				135.5
Accrued royalties			35.8				46.0				138.6
Deferred revenue			70.2				36.2				63.7
Other accrued expenses			168.3				172.5				182.3
Current liabilities of discontinued operations			16.4				17.9				24.7



Total current liabilities			486.3				441.7				633.3

*Noncurrent Liabilities:*
Long-term debt			318.8				295.1				330.8
Capital lease obligations			55.5				56.7				58.5
Other noncurrent liabilities			109.7				95.0				126.3



Total noncurrent liabilities			484.0				446.8				515.6

*Commitments and Contingencies:*			—				—				—

*Stockholders’ Equity:*
Preferred Stock, $1.00 par value			—				—				—
Class A Stock, $.01 par value			0.0				0.0				0.0
Common Stock, $.01 par value			0.4				0.4				0.4
Additional paid-in capital			548.2				539.1				527.0
Accumulated other comprehensive loss			(65.7	)			(34.7	)			(38.0	)
Retained earnings			576.6				588.3				678.2
Treasury stock at cost			(240.1	)			(220.0	)			(200.0	)


Total stockholders’ equity			819.4				873.1				967.6

Total liabilities and stockholders’ equity		$	1,789.7			$	1,761.6			$	2,116.5

~~Item 1. Financial Statements~~
See accompanying notes
~~SCHOLASTIC CORPORATION~~
~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – UNAUDITED~~
~~(Dollar amounts in millions, except per share data)~~

Three months ended

Nine months ended

February 29, February 28,
February 29,

February 28,

2008
2007

2008

2007

Revenues $       458.4 $       446.0
$
   1,701.4 $    1,421.5

Operating costs and expenses:
Cost of goods sold 225.6 223.0 828.8 680.1
Selling, general and administrative expenses 211.1 201.6 655.9 607.9
Bad debt expense 6.3 8.7 17.9 20.6
Depreciation and amortization 14.8 14.7 46.2 46.0

Total operating costs and expenses 457.8 448.0 1,548.8 1,354.6

Operating income (loss) 0.6 (2.0 ) 152.6 66.9

Other (expense) income (0.9 ) 3.0 (0.9 ) 3.0
Interest expense, net 6.1 7.5 24.4 23.5

(Loss) earnings from continuing operations before income taxes (6.4 ) (6.5 ) 127.3 46.4

(Benefit) provision for income taxes (1.8 ) (2.7 ) 48.5 16.7

(Loss) earnings from continuing operations (4.6 ) (3.8 ) 78.8 29.7

Loss from discontinued operations, net of tax (77.5 ) (3.9 ) (88.1 ) (9.2 )

Net (loss) income $ (82.1 ) $ (7.7 )
$
(9.3 ) $ 20.5

Basic and diluted (loss) earnings per Share of Class A and
      Common Stock:

Basic:
(Loss) earnings from continuing operations $ (0.12 ) $ (0.09 ) $ 2.03 $ 0.70
Loss from discontinued operations, net of tax $ (2.02 ) $ (0.09 ) $ (2.26 ) $ (0.22 )
Net (loss) income $ (2.14 ) $ (0.18 ) $ (0.24 ) $ 0.49
Diluted:
(Loss) earnings from continuing operations $ (0.12 ) $ (0.09 ) $ 2.00 $ 0.69
Loss from discontinued operations, net of tax $ (2.02 ) $ (0.09 ) $ (2.23 ) $ (0.22 )
Net (loss) income $ (2.14 ) $ (0.18 ) $ (0.23 ) $ 0.48

See accompanying notes

SCHOLASTIC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED

(Dollar amounts in millions)


	*Six months ended November 30,*

	2008			2007

Cash flows (used in)/provided by operating activities:
Net (loss) income	$	(6.0	)	$	72.8
Loss from discontinued operations, net of tax		(20.7	)		(13.5	)

Earnings from continuing operations		14.7			86.3

Adjustments to reconcile earnings from continuing operations to net cash used in operating activities of continuing operations:
Provision for losses on accounts receivable and other reserves		27.6			25.8
Amortization of prepublication and production costs		20.7			22.7
Depreciation and amortization		31.8			31.2
Deferred income taxes		7.2			(15.6	)
Changes in assets and liabilities:
Accounts rebceivale		(81.3	)		(63.3	)
Inventories		(96.2	)		(65.8	)
Prepaid expenses and other current assets		(4.7	)		(1.8	)
Deferred promotion costs		(8.4	)		(4.3	)
Royalty advances		(3.6	)		(2.5	)
Accounts payable and other accrued expenses		5.9			50.9
Accrued royalties		(7.8	)		103.9
Deferred revenue		35.2			40.6
Other, net		6.5			7.0

Total adjustments		(67.1	)		128.8

Net cash (used in)/provided by operating activities of continuing operations		(52.4	)		215.1
Net cash (used in)/provided by operating activities of discontinued operations		(10.9	)		3.7

Net cash (used in)/provided by operating activities		(63.3	)		218.8

Cash flows used in investing activities:
Prepublication expenditures		(24.1	)		(23.9	)
Additions to property, plant and equipment		(23.5	)		(20.3	)
Proceeds from sale of business		4.0			—
Production expenditures		(2.5	)		(2.1	)
Repayment of loan from investee		6.0			6.2
Other		(2.3	)		(0.3	)

Net cash used in investing activities of continuing operations		(42.4	)		(40.4	)
Net cash used in investing activities of discontinued operations		(0.6	)		(2.9	)

Net cash used in investing activities		(43.0	)		(43.3	)

Cash flows provided by financing activities:
Borrowings under Term Loan and Revolving Loan		140.0			390.0
Repayment of Term Loan and Revolving Loan		(116.4	)		(190.0	)
Net borrowings/(repayment) under lines of credit		19.4			(27.0	)
Reacquisition of Common Stock		(20.1	)		(200.0	)
Proceeds pursuant to stock-based compensation plans		1.8			30.6
Payment of dividends		(2.8	)		—
Other		(2.5	)		(2.2	)

Net cash provided by financing activities of continuing operations		19.4			1.4
Net cash provided by financing activities of discontinued operations		—			—

Net cash provided by financing activities		19.4			1.4
Effect of exchange rate changes on cash and cash equivalents		(1.8	)		(12.1	)

Net (decrease) increase in cash and cash equivalents		(88.7	)		164.8
Cash and cash equivalents at beginning of period, including cash of discontinued operations of $2.9 and $2.2, 2008 and 2007, respectively		120.5			22.8

*Cash and cash equivalents at end of period, including cash of discontinuedoperations of $1.0 and $4.3, 2008 and 2007, respectively***	$	31.8		$	187.6

~~SCHOLASTIC CORPORATION~~See accompanying notes
~~CONDENSED CONSOLIDATED BALANCE SHEETS~~
~~(Dollar amounts in millions, except per share data)~~

February 29, 2008

May 31, 2007

February 28, 2007

(Unaudited)

(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $       198.4 $ 21.6 $ 26.5
Accounts receivable, net 210.1       228.3       223.7
Inventories 453.2 394.6 460.8
Deferred promotion costs 11.6 8.7 13.7
Deferred income taxes 94.3 71.5 71.8
Prepaid expenses and other current assets 73.5 51.5 65.3
Current assets of discontinued operations 58.5 128.5 138.8

Total current assets 1,099.6 904.7 1,000.6

Property, plant and equipment, net 351.3 358.7 353.4
Prepublication costs 113.2 108.2 103.2
Installment receivables, net 11.7 13.1 9.2
Royalty advances 52.2 50.3 52.1
Production costs 4.8 4.3 4.9
Goodwill 260.4 261.6 249.8
Other intangibles 61.2 61.4 61.5
Other assets and deferred charges 78.0 60.7 65.1
Noncurrent assets of discontinued operations — 54.7 52.6

Total assets
$
2,032.4
$
1,877.7
$
1,952.4

LIABILITIES AND STOCKHOLDERS’ EQUITY
    Current Liabilities:

Lines of credit, short-term debt and current portion of long-term debt $ 53.5 $ 66.2 $ 34.7
Capital lease obligations 4.9 5.5 5.7
Accounts payable 124.4 121.7 108.9
Accrued royalties 153.4 35.0 53.6
Deferred revenue 51.0 24.2 41.2
Other accrued expenses 171.0 138.1 140.8
Current liabilities of discontinued operations 23.4 23.4 24.5

Total current liabilities 581.6 414.1 409.4

    Noncurrent Liabilities:

Long-term debt 320.1 173.4 311.4
Capital lease obligations 57.6 59.8 60.3
Other noncurrent liabilities 120.0 100.1 80.8
Noncurrent liabilities of discontinued operations — 1.3 1.3

Total noncurrent liabilities 497.7 334.6 453.8

Commitments and Contingencies — — —

Stockholders’ Equity:
Preferred Stock, $1.00 par value — — —
Class A Stock, $.01 par value 0.0 0.0 0.0
Common Stock, $.01 par value 0.4 0.4 0.4
Additional paid-in capital 531.9 490.3 483.4
Accumulated other comprehensive loss (30.9 ) (34.5 ) (27.1 )
Retained earnings 657.1 672.8 632.5
Treasury stock at cost (205.4 ) — —
Total stockholders’ equity 953.1 1,129.0 1,089.2
Total liabilities and stockholders’ equity
$
2,032.4
$
1,877.7
$
1,952.4
See accompanying notes

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

~~SCHOLASTIC CORPORATION~~
~~CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED~~
~~(Dollar amounts in millions)~~

Nine months ended

February 29,

February 28,

2008

2007
Cash flows provided by operating activities:
Net (loss) income $ (9.3 ) $ 20.5
Loss from discontinued operations, net of tax (88.1 ) (9.2 )
Earnings from continuing operations 78.8 29.7

Adjustments to reconcile earnings from continuing operations to net cash provided by
operating activities of continuing operations:
Provision for losses on accounts receivable and other reserves 47.7 42.4
Amortization of prepublication and production costs 34.3 43.6
Depreciation and amortization 46.2 46.0
Deferred income taxes 6.5 7.5
Changes in assets and liabilities:
Accounts receivable 9.1 (21.3 )
Inventories (77.9 ) (77.5 )
Prepaid expenses and other current assets (7.6 ) (17.5 )
Deferred promotion costs (2.3 ) (4.2 )
Royalty advances (5.3 ) (9.6 )
Accounts payable and other accrued expenses 34.1 (31.2 )
Accrued royalties 117.6 20.6
Deferred revenue 27.6 21.8
Other, net (0.1 ) 4.0
Total adjustments 229.9 24.6
Net cash provided by operating activities of continuing operations 308.7 54.3
Net cash used in operating activities of discontinued operations (0.2 ) (11.6 )
Net cash provided by operating activities 308.5 42.7

Cash flows used in investing activities:

Prepublication expenditures (37.5 ) (29.1 )
Additions to property, plant and equipment (33.7 ) (28.1 )
Production expenditures (2.8 ) (3.8 )
Repayment of loan from investee 6.2 5.6
Loan to investee (6.1 ) (7.7 )
Other (1.1 ) (0.6 )
Net cash used in investing activities of continuing operations (75.0 ) (63.7 )
Net cash used in investing activities of discontinued operations (5.3 ) (4.2 )
Net cash used in investing activities (80.3 ) (67.9 )

Cash flows used in financing activities:

Borrowings under Credit Agreement, Revolver and Revolving Loan 190.0 277.9
Repayments of Credit Agreement, Revolver and Revolving Loan (190.0 ) (139.9 )
Borrowings under Term Loan 200.0 —
Repayments of Term Loan (10.7 ) —
Repurchase/repayment of 5.75% Notes — (294.0 )
Borrowings under lines of credit 412.5 156.8
Repayments of lines of credit (468.7 ) (156.0 )
Repayment of capital lease obligations (4.2 ) (6.1 )
Reacquisition of Common Stock (205.4 ) —
Proceeds pursuant to stock-based compensation plans 33.3 21.5
Other 0.6 (0.6 )
Net cash used in financing activities of continuing operations (42.6 ) (140.4 )
Net cash used in financing activities of discontinued operations — —
Net cash used in financing activities (42.6 ) (140.4 )
Effect of exchange rate changes on cash and cash equivalents (7.2 ) (10.3 )
Net increase (decrease) in cash and cash equivalents 178.4 (175.9 )
Cash and cash equivalents at beginning of period, including cash of discontinued
operations of $1.2 and $3.6, 2008 and 2007, respectively 22.8 205.3
Cash and cash equivalents at end of period, including cash of discontinued
operations of $2.8 and $2.9
$
201.2
$
29.4

See accompanying notes

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

1. Basis of Presentation

The accompanying condensed consolidated financial statements consist of the accounts of Scholastic Corporation (the “Corporation”) and all wholly-owned and majority-owned subsidiaries (collectively, “Scholastic” or the “Company”). These financial statements have not been audited but reflect those adjustments consisting of normal recurring items that management considers necessary for a fair presentation of financial position, results of operations and cash flows. These financial statements should be read in conjunction with the consolidated financial statements and related notes in the Annual Report on Form 10-K for the fiscal year ended May 31, ~~2007.~~2008.

As more fully described in Note 2,3, “Discontinued Operations,” ~~during the three months ended February 29,~~in August 2008, the Company ~~announced that it intends~~completed the sale of its domestic direct-to-home continuity business (the “DTH business”). The Company expects to ~~sell~~complete the divestiture of the international portion of its direct-to-home continuity businesses ~~(the “DTH business”), including the domestic portion located in the United States and the international portion~~ located in the United Kingdom and Canada (“DTH International”), as well as a ~~related~~ warehousing and distribution facility located in Maumelle, Arkansas (the “Maumelle Facility”)., by the end of the current fiscal year. As previously announced, during the fourth quarter of fiscal 2008, due to the impending sale of the DTH business, it was also determined that the Scholastic school-based continuities business (the “SC business”) would not have an adequate infrastructure and, as a result, the SC business was shut down effective May 31, 2008. The DTH business, DTH International, the Maumelle Facility and the SC business are hereinafter referred to collectively as the “Former Continuities Business.”

In the three months ended November 30, 2008, the Company exited certain unprofitable, non-core businesses including;


	•	its subsidiary in Argentina (“Argentina”), which served multiple distribution channels including Book Fairs, Book Clubs and Trade,

	•	its door-to-door encyclopedia sales business in Puerto Rico (“Caribe”), and

	•	a trade magazine (“Coach”).

The Company will continue to evaluate its portfolio of businesses and expects that it may exit certain additional unprofitable businesses in the ~~planned divestiture,~~current fiscal year.

The remaining assets and liabilities associated with the ~~DTH business that are intended to be disposed of~~Former Continuities Business, Argentina, Caribe and Coach are presented on the Company’s Condensed Consolidated Balance Sheets as ~~"Current~~“Current assets of discontinued ~~operations," “Noncurrent assets of discontinued operations,” ”Current~~operations” and “Current liabilities of discontinued operations” ~~and “Noncurrent liabilities of discontinued operations”,~~ as of ~~February 29, 2008.~~November 30, 2008, May 31, 2008 and November 30, 2007. The results of operations of ~~the DTH business~~these businesses for the three and ~~nine month periods~~six months ended ~~February 29,~~November 30, 2008 and 2007 are included in the Condensed Consolidated Statements of Operations as ~~"Loss~~“Loss from discontinued operations, net of tax."” The cash flows of ~~the discontinued operations~~these businesses are also presented separately in the Company’s Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~February 29, 2008.~~November 30, 2008 and 2007. All corresponding prior year periods presented in the Company’s Condensed Consolidated Financial Statements and accompanying notes have been reclassified to reflect the discontinued operations presentation.

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 ~~closely correlated to~~highly seasonal. As a result, the ~~school year. Consequently,~~Company’s revenues in the ~~results of operations for the three~~first and ~~nine months ended February 29, 2008 and February 28, 2007 are not necessarily indicative~~third quarters of the ~~results expected for~~fiscal year generally are lower than its revenues in the ~~full~~other two fiscal quarters. Typically, school-based book club and book fair revenues are greatest in the second and fourth quarters of the fiscal year, while revenues from the sale of instructional materials and educational technology products are highest in the first and fourth quarters. The Company typically experiences losses from operations in the first and third quarters of each fiscal year. Due to the seasonal fluctuations that occur, the ~~February 28,~~November 30, 2007 ~~condensed consolidated balance sheet~~Condensed Consolidated Balance Sheet is included for comparative purposes.

The Company’s Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States and with the instructions to Form 10-Q and Regulation S-X. The preparation of these financial statements involves the use of estimates and assumptions by management, which ~~affect~~affects the amounts reported in the condensed consolidated financial statements and accompanying notes. The Company bases its estimates on historical experience, current business factors, and various other assumptions believed to be reasonable under the circumstances, all of which are necessary in order to form a basis for determining the carrying values of assets and liabilities. Actual results may differ from those estimates and assumptions. On an ongoing basis, the Company evaluates the adequacy of its reserves and the estimates used in calculations, including, but not limited to: collectability of accounts ~~receivable~~receivable; sales returns; gross margin rates used to determine inventory values and ~~installment receivables; sales returns;~~gross profits for book fair operations during interim periods; amortization periods; pension and other post-retirement obligations; tax ~~rates;~~obligations; and recoverability of inventories, deferred promotion costs, deferred income taxes and tax reserves, prepublication costs, royalty advances, and the fair value of goodwill and other intangibles. ~~In addition, for a description of the significant assumptions and estimates used by management in connection with discontinued operations, see Note 2, “Discontinued Operations.”~~

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

Reclassifications

In addition to the reclassification to reflect the discontinued operations presentation, certain prior year amounts have been reclassified to conform to the current ~~year.~~year presentation. Royalty advances, which were previously reported within “Cash flows used in investing activities” in the Company’s Consolidated Statements of Cash Flows, are now presented as a component of “Changes in assets and liabilities” within “Cash flows ~~provided by~~used in operating activities.” In addition, certain amounts related to the translation of foreign currency amounts, which were previously reported in “Other, net” in the Consolidated Statements of Cash Flows, are now presented as a component of the “Effect of exchange rate changes on cash and cash equivalents.” The prior year reclassifications to the ~~Statement~~Statements of Cash Flows resulted in a ~~$12.7~~$15.9 decrease in “Net cash ~~provided by~~used in operating activities” for the ~~nine~~six months ended ~~February 28, 2007, which was attributable~~November 30, 2007.


As reflected:


Cash flows provided by operating activities:
Royalty advances expensed	$	13.3
Net cash provided by operating activities		13.3


Cash flows used in investing activities:
Royalty advances	$	(15.9	)
Net cash used in investing activities		(15.9	)

Revised to reflect the reclassification of royalty advances:


Cash flows used in operating activities:
Changes in assets and liabilities:
Royalty advances	$	(2.6	)


Net cash used in operating activities of continuing operations		(2.6	)


Net cash used in operating activities	$	(2.6	)

The corresponding subtotals of cash provided by operations and cash used in investing activities have been adjusted to ~~a $23.9~~reflect the change in the classification of royalty ~~advance reclassification, partially offset by a $11.2 foreign currency reclassification.~~advances.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued ~~Statement of Financial Accounting Standards (“SFAS”)~~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. In February 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13,” and FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157.” Collectively, these Staff Positions allow a one-year deferral of adoption of SFAS 157 for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a non-recurring basis and amend SFAS 157 to exclude FASB Statement No. 13 and its related interpretive accounting pronouncements that address leasing transactions.

The Company adopted SFAS 157 beginning June 1, 2008, except for non financial assets and liabilities measured at fair value on a non-recurring basis, which will ~~become~~be effective for the ~~Company’s fiscal year beginning~~Company June 1, ~~2008.~~2009. The impact of the adoption on June 1, 2008 was not material to the Company’s condensed consolidated financial statements. The Company is currently evaluating the impact ~~if any,~~ that the adoption of the deferred portion of SFAS 157 will have on its consolidated financial position, results of operations and cash flows.

SFAS 157 establishes a three-level hierarchy for fair value measurements to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below with Level 1 having the highest priority and Level 3 having the lowest.

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable.

The Company’s assets and liabilities measured at fair value on a recurring basis subject to the presentation requirements of SFAS 157 at November 30, 2008 consisted of cash and cash equivalents and foreign currency forward contracts, neither of which were material as of the reporting date. Cash and cash equivalents are comprised of bank deposits and short-term investments, such as money market funds, the fair value of which is based on quoted market prices, a Level 1 fair value measure. The fair values of foreign currency forward contracts, used by the Company to manage the impact of foreign exchange rate changes to the financial statements, are based on quotations from financial institutions, a Level 2 fair value measure.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”), to provide companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS 159 is to reduce both the complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS 159 ~~will become~~was effective for the ~~Company’s fiscal year~~Company beginning June 1, 2008. The Company ~~is currently evaluating~~has not elected to measure any financial assets and financial liabilities at fair value which were not previously required to be measured at fair value. Therefore, the adoption of this standard has had no impact ~~if any, that SFAS 159 will have~~ on ~~its~~the Company’s consolidated financial position, results of operations and cash flows.

In December 2007, the FASB issued SFAS No. 141 (revised), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an ~~acquiror~~acquirer accounts for business combinations. SFAS 141R includes guidance for the recognition and measurement of the identifiable assets acquired, the liabilities assumed, and any ~~noncontrolling~~non-controlling or minority interest in the acquiree. It also provides guidance for the measurement of goodwill, the recognition of contingent consideration, the accounting for pre-acquisition gain and loss contingencies and acquisition-related transaction costs, and the recognition of changes in the ~~acquiror’s~~acquirer’s income tax valuation allowance. SFAS 141R applies prospectively and is effective for business combinations made by the Company beginning June 1, 2009.

In December 2007, the FASB issued SFAS No. 160, ~~“Noncontrolling~~“Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. ~~51,”~~51” (“SFAS 160”). SFAS 160 amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to establish accounting and reporting standards for any ~~noncontrolling~~non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 clarifies that a ~~noncontrolling~~non-controlling interest in a subsidiary should be reported as a component of equity in the consolidated financial statements and requires disclosure, on the face of the consolidated statement of ~~income,~~operations, of the amounts of consolidated net income attributable to the parent and to the ~~noncontrolled~~non-controlled interest. SFAS 160 is effective for the Company beginning June 1, 2009 and is to be applied prospectively, except for the presentation and disclosure requirements, which upon adoption will be applied retrospectively for all periods presented. The Company is currently evaluating the impact, if any, that SFAS 160 will have on its consolidated financial position, results of operations and cash flows.

In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FAS 142-3”). FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets.” FAS 142-3 is effective for fiscal years beginning after December 15, 2008 and early adoption is prohibited. The Company is currently evaluating the impact, if any, that FAS 142-3 will have on its consolidated financial position, results of operations and cash flows.

In June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP 03-6-1”), which classifies unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents as participating securities and requires them to be included in the computation of earnings per share pursuant to the two-class method described in SFAS No. 128, “Earnings per Share.” FSP 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. It requires all prior period earnings per share data presented to be adjusted retrospectively. The Company is currently evaluating the effect, if any, that the adoption of FSP 03-6-1 will have on its consolidated financial position, results of operations and cash flows.

In September 2008, the FASB issued FSP No. 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161” (“FSP 133-1”). FSP 133-1 requires more extensive disclosure regarding potential adverse effects of changes in credit risk on the financial position, financial performance, and cash flows of sellers of credit derivatives. FSP 133-1 also amends FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others,” to require additional disclosure about the current status of the payment or performance risk of a guarantee. FSP 133-1 also clarifies the effective date of FASB Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” by stating that the disclosures required should be provided for any reporting period (annual or quarterly interim) beginning after November 15, 2008. The Company is currently evaluating the effect, if any, that the adoption of FSP 133-1 will have on its consolidated financial position, results of operations and cash flows.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

2. ~~Discontinued Operations~~Restatement

~~During the three months ended February 29, 2008,~~In previous filings, the Company ~~announced~~treated the Children’s Book Publishing and Distribution (“CBPD”) operating segment as a single reporting unit, which included the DTH business. The Company had determined that ~~it intends~~the components of this segment had similar economic characteristics, and accordingly, the Company annually assessed goodwill for impairment at the CBPD operating segment level, resulting in no impairment of goodwill until the Company decided to ~~sell~~divest certain of its Direct to Home businesses in December 2007. These divestitures include the DTH business, which ~~includes both~~consists of the domestic portion ~~and~~of the ~~international portion~~Company’s Direct to Home business located in the United States, DTH International, which includes the Company’s Direct to Home continuity businesses located in the United Kingdom and Canada, ~~as well as~~and the Maumelle Facility. ~~The assets~~As more fully described in Note 3, “Discontinued Operations,” the Company completed the sale of the DTH business ~~are being classified together~~during the three months ended August 31, 2008. The Company, in ~~one disposal group~~connection with the decision to divest these businesses, determined that they should be accounted for as discontinued operations. Accordingly, the Company allocated $4.3 of goodwill to the DTH business based upon the relative fair values of the DTH business compared to the total CBPD segment. The Company assessed the recoverable value of the discontinued DTH business, and then concluded that the $4.3 of goodwill was fully impaired and recognized this impairment in the third quarter of fiscal 2008.

Subsequently, the Company reassessed its accounting regarding goodwill impairment and concluded that the domestic portion of the DTH business did not have sufficiently similar economic characteristics compared to the other components of the CBPD segment in the current period or in historical periods. For purposes of goodwill testing, the domestic portion of the DTH business had incorrectly been aggregated with the CBPD segment since 2001. Accordingly, the Company determined the domestic portion of the DTH business should have been treated as a reporting unit and goodwill attributable to the domestic portion of the DTH business should have been assessed at the Direct to Home reporting unit level (the “DTH ~~disposal group”~~reporting unit”) ~~because~~which consists of the domestic Direct to Home portion of the DTH business.

The Company determined that goodwill historically attributable to the DTH reporting unit was $92.4 after consideration of the original source of the goodwill within the CBPD segment and other factors. The Company then reapplied the historical annual impairment testing for the goodwill attributed to the DTH reporting unit for prior periods, utilizing internally developed forecasts of the domestic portion of the DTH business available at the time the test would have been performed. Based upon these analyses, the Company ~~currently anticipates~~determined that the carrying value of the DTH reporting unit exceeded the fair value of the DTH reporting unit in 2005. The decline in profitability of the DTH business had been previously publicly disclosed by the Company and was primarily a result of the federal Do Not Call legislation, which negatively impacted the business’ marketing programs. Accordingly, the Company determined that all $92.4 of goodwill ($61.0 after recognition of deferred tax benefits) attributable to the DTH reporting unit was impaired as of May 31, 2005.

As discussed in the Company’s Form 10-K for the fiscal year ended May 31, 2008 and filed July 30, 2008, the Company has restated its previously filed consolidated financial statements and selected financial data for the years ended May 31, 2007, 2006 and 2005 and its previously issued quarterly consolidated financial statements for the three and six month periods ended November 30, 2007.

The Company’s presentations as of November 30, 2007 are restated as follows:


	As Previously Reported		Adjustments		⁽¹⁾	Restated


Goodwill	$	265.3	$	(92.4	)	$	172.9
Other assets and deferred charges (including deferred income taxes)⁽²⁾		61.4		31.4			92.8
Retained earnings		739.2		(61.0	)		678.2


⁽¹⁾	Goodwill amounts above relate to discontinued operations.

⁽²⁾	Includes a reclassification of installment receivables of $0.9 in the “As Previously Reported” and “Restated” amounts in order to conform to the current period presentation in the Condensed Consolidated Balance Sheets.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

3. Discontinued Operations

As previously announced, the Company sold its DTH business in August 2008, has shut down its SC business effective May 31, 2008 and intends to sell its Maumelle Facility. The Company also intends to complete the divestiture of its DTH International business in fiscal 2009. In addition, in the three months ended November 30, 2008, the Company exited certain unprofitable, non-core businesses including Argentina, Caribe and Coach. The results of operations associated with these businesses are presented as discontinued operations for accounting purposes in the fiscal 2009 and prior year periods. The Company’s DTH and SC businesses were formerly included in the Children’s Book Publishing and Distribution segment, DTH International, Caribe and the Argentina business were formerly included in the International segment and Coach was formerly included in the Media, Licensing and Advertising segment. The Company’s Maumelle Facility, which is included in discontinued operations, was formerly included in Overhead. The Company continues to monitor the expected cash proceeds to be realized from the disposition of discontinued operations assets, ~~will be sold together in a single transaction.~~ and adjusts asset values accordingly. During the three months ended November 30, 2008, the Company recognized impairment and other charges related to discontinued operations of $11.3 pretax.

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), the results of operations for the ~~DTH business~~Former Continuities Business, Argentina, Caribe and Coach are presented in the Company’s Condensed Consolidated Financial Statements as discontinued operations. ~~The Company currently anticipates that the sale will be completed during the fourth quarter of fiscal 2008, or the first quarter of fiscal 2009.~~

SFAS 144 requires adjustments to the carrying value of assets held for sale if the carrying value exceeds their estimated fair value, less cost to sell. The calculation of estimated fair value less cost to sell included significant estimates and assumptions, including, but not limited to: operating projections and the discount rate and terminal values developed in connection with the discounted cash flow; excess working capital levels; real estate fair values; and the anticipated costs involved in the selling process. In addition, as a result of the Company's decision to sell the DTH business, the Company prepared separate financial statements reflecting the discontinued operations presentation, which required management to make significant judgments and estimates for purposes of allocating to the discontinued operations certain operating expenses, such as warehousing and distribution expenses, as well as assets, liabilities and other balance sheet items, including accounts payable and certain other noncurrent liabilities. Prior to the decision to sell the DTH business, separate financial statements were not available for the DTH business in the normal course, nor was financial information separately available for management in the normal course of internal financial reporting sufficient to construct separate financial statements. As a result of the analysis made by the Company as required by SFAS No. 144, the Company recorded a non-cash impairment charge of $107.3 and a tax benefit of $34.6, resulting in a charge of $72.7, net of tax, during the quarter ended February 29, 2008 to reflect the DTH disposal group at its estimated fair value less cost to sell. The impairment charge was first applied to the long-lived assets and the deferred promotion costs of the DTH disposal group. The remainder of the impairment charge was then applied on a pro-rata basis to accounts receivable, inventory and other current assets. If a sale is consummated at a selling price lower (or higher) than the estimated fair value less cost to sell, the Company would incur a loss (or gain) on the sale.

The following table summarizes the operating results of the discontinued operations for the periods indicated:

Three months ended

Nine months ended

February 29,

February 28,

February 29,

February 28,

2008

2007

2008

2007
Revenues $ 40.0 $ 51.1 $ 130.1 $ 146.0
Non-cash impairment charge (107.3 ) — (107.3 ) —
Loss before income taxes (114.8 ) (5.5 ) (130.9 ) (13.9 )
Income tax benefit 37.3 1.6 42.8 4.7

Loss from discontinued operations, net of tax
$
(77.5 ) $ (3.9 )
$
(88.1 )
$
(9.2 )

~~The following table sets forth the assets and liabilities of the discontinued operations included in the Condensed Consolidated Balance Sheets of the Company as of the dates indicated:~~

February 29, 2008

May 31, 2007

February 28, 2007
Accounts receivable, net       $       33.1             $       53.3             $       54.4
Inventories, net 19.3 28.3 28.7
Deferred promotion costs — 41.4 49.2
Other assets 6.1 5.5 6.5
Current assets of discontinued operations $ 58.5 $ 128.5 $ 138.8

Property, plant and equipment — 24.6 24.6
Goodwill — 4.3 4.3
Acquired intangible assets, net — 17.1 17.1
Other assets — 8.7 6.6
Noncurrent assets of discontinued operations $ — $ 54.7 $ 52.6

Accounts payable 11.2 13.7 12.3
Accrued expenses and other current liabilities 10.9 9.7 12.2
Other liabilities 1.3 — —
Current liabilities of discontinued operations $ 23.4 $ 23.4 $ 24.5
Other liabilities — 1.3 1.3
Noncurrent liabilities of discontinued operations $ — $ 1.3 $ 1.3


	Three months ended November 30,				Six months ended November 30,


	2008		2007		2008		2007


Revenues	$	10.5	$	58.6	$	47.2	$	116.6
Gain on sale		-0-		-0-		10.5		-0-
Non-cash impairment and other charges		11.3		-0-		16.2		-0-
Loss before income taxes		20.8		8.5		23.8		19.1
Income tax benefit		5.5		1.8		3.1		5.6

Loss from discontinued operations, net of tax	$	15.3	$	6.7	$	20.7	$	13.5

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


The following table sets forth the assets and liabilities of the discontinued operations included in the Condensed Consolidated Balance Sheets of the Company as of the dates indicated:

	*November 30, 2008*			*May 31, 2008*			*November 30, 2007*

Accounts receivable, net			21.0			26.1			72.4
Inventories, net			—			6.5			51.9
Deferred promotion costs			—			—			40.8
Other assets			10.6			13.4			73.7

Current assets of discontinued operations		$	31.6		$	46.0		$	238.8

Accounts payable and accrued expenses			16.4			17.9			23.4
Other current liabilities			—			—			1.3

Current liabilities of discontinued operations		$	16.4		$	17.9		$	24.7

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

3.4. Segment Information

The Company categorizes its businesses into four ~~operating~~reportable segments:Children’s Book Publishing and Distribution; Educational Publishing; Media, Licensing and Advertising (which collectively represent the Company’s domestic operations); and International. 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 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 Distributionincludes the publication and distribution of children’s books in the United States through school-based book clubs and book fairs, ~~school-based continuity programs~~ and the trade channel.

• Educational Publishingincludes 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 Advertisingincludes the production and/or distribution of media and electronic products and programs (including children’s television programming, videos, DVDs, software, feature films, interactive and audio products, 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.

The following tables set forth information for the Company’s segments for the periods indicated and reflect the Company’s continuing operations:

	Children’s Book					Media,
	Publishing and		Educational			Licensing and					Total								Children’s Book Publishing and Distribution⁽¹⁾			Educational Publishing			Media, Licensing and Advertising⁽¹⁾			Overhead⁽¹⁾⁽²⁾				Total Domestic			International⁽¹⁾			Total
	Distribution⁽¹⁾		Publishing			Advertising		Overhead⁽¹⁾⁽²⁾			Domestic			International⁽¹⁾		Total

Three months ended
February 29, 2008
Three months ended November 30, 2008


Revenues	$	229.7	$	78.1		$	42.0	$	0.0		$	349.8		$	108.6	$	458.4			$	381.8		$	92.2		$	63.2		$	0.0			$	537.2		$	124.4	$	661.6
Bad debt		4.4		0.6			0.1		0.0			5.1			1.2		6.3				4.5			0.6			0.4			0.0				5.5			1.9		7.4
Depreciation and amortization⁽³⁾		3.6		0.8			1.8		6.7			12.9			1.9		14.8				2.0			0.7			0.6			10.8				14.1			1.5		15.6
Amortization⁽⁴⁾		3.6		6.3			1.4		0.0			11.3			0.3		11.6				2.9			5.3			2.0			0.0				10.2			0.5		10.7
Royalty advances expensed		4.4		0.3			0.1		0.0			4.8			0.3		5.1				7.6			0.2			0.3			0.0				8.1			1.1		9.2
Operating income (loss)		10.2		(0.6	)		2.2		(16.5	)		(4.7	)		5.3		0.6				99.2			13.2			10.5			(29.1	)			93.8			14.0		107.8
Expenditures for long-lived assets⁽⁵⁾		14.2		8.8			4.5		4.9			32.4			2.9		35.3
Expenditures for long-lived assets																					14.1			9.8			3.3			7.3				34.5			2.7		37.2


Three months ended
February 28, 2007

Three months ended November 30, 2007


Revenues	$	238.8	$	74.6		$	40.8	$	0.0		$	354.2		$	91.8	$	446.0			$	386.9		$	99.6		$	56.3		$	0.0			$	542.8		$	144.8	$	687.6
Bad debt		6.5		0.8			0.1		0.0			7.4			1.3		8.7				2.2			0.4			0.1			0.0				2.7			0.8		3.5
Depreciation and amortization⁽³⁾		3.9		0.8			1.7		7.1			13.5			1.2		14.7				3.9			0.5			0.6			9.3				14.3			1.2		15.5
Amortization⁽⁴⁾		4.1		7.7			2.3		0.0			14.1			0.4		14.5				2.3			5.7			1.6			0.0				9.6			0.6		10.2
Royalty advances expensed		4.2		0.3			0.2		0.0			4.7			0.7		5.4				2.9			0.1			0.2			0.0				3.2			1.4		4.6
Operating income (loss)		9.3		(3.1	)		3.0		(15.6	)		(6.4	)		4.4		(2.0	)			108.8			12.4			10.4			(17.8	)			113.8			25.1		138.9
Expenditures for long-lived assets⁽⁵⁾		18.4		6.2			3.3		1.5			29.0			1.9		31.3
Expenditures for long-lived assets																					8.7			6.8			5.9			5.3				26.7			4.8		31.5

																			Children’s Book Publishing and Distribution⁽¹⁾			Educational Publishing			Media, Licensing and Advertising⁽¹⁾			Overhead⁽¹⁾⁽²⁾				Total Domestic			International⁽¹⁾			Total


Six months ended November 30, 2008


Revenues																				$	442.8		$	208.6		$	82.4		$	0.0			$	733.8		$	210.6	$	944.4
Bad debt																					4.4			1.1			0.3			0.0				5.8			2.9		8.7
Depreciation and amortization⁽³⁾																					8.3			2.0			0.9			17.2				28.4			3.4		31.8
Amortization⁽⁴⁾																					5.5			10.6			3.5			0.0				19.6			1.1		20.7
Royalty advances expensed																					12.2			0.5			0.4			0.0				13.1			2.1		15.2
Operating income (loss)																					43.3			34.2			6.2			(50.3	)			33.4			10.5		43.9
Segment Assets																					595.6			324.0			91.0			469.5				1,480.1			278.0		1,758.1
Goodwill																					38.2			93.0			9.8			0.0				141.0			26.6		167.6
Expenditures for long-lived assets																					24.8			15.4			6.8			12.8				59.8			5.9		65.7
Long-lived Assets⁽⁵⁾																					191.2			193.8			35.2			245.2				665.4			93.7		759.1



Six months ended November 30, 2007


Revenues																				$	683.7		$	227.4		$	72.4		$	0.0			$	983.5		$	233.1	$	1,216.6
Bad debt																					2.4			0.4			0.5			0.0				3.3			2.0		5.3
Depreciation and amortization⁽³⁾																					8.0			1.3			1.6			16.6				27.5			3.7		31.2
Amortization⁽⁴⁾																					6.4			12.1			3.1			0.0				21.6			1.1		22.7
Royalty advances expensed																					12.2			0.6			0.3			0.0				13.1			1.6		14.7
Operating income (loss)																					121.4			42.9			5.1			(38.4	)			131.0			24.0		155.0
Segment Assets																					798.7			352.3			87.1			372.3				1,610.4			267.3		1,877.7
Goodwill																					38.2			92.8			9.8			0.0				140.8			32.1		172.9
Expenditures for long-lived assets																					23.6			11.7			7.4			9.9				52.6			8.4		61.0
Long-lived Assets⁽⁵⁾																					176.0			211.5			37.4			245.1				670.0			105.1		775.1

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

~~(1)~~
(1)	As discussed in Note 2,3, “Discontinued Operations,” the DTH business, consisting of the domestic portion of the ~~DTH~~direct-to-home business, and the SC business, which ~~was~~were formerly included in the Children’s Book Publishing and Distribution segment, ~~the international portion of the~~Argentina, Caribe and DTH ~~business, located~~International, which were formerly included in the ~~United Kingdom and Canada,~~International segment, Coach, which was formerly included in the ~~International~~Media Licensing and Advertising segment, and the Maumelle Facility, which was formerly included in Overhead (with the exception of certain charges allocated to the Company’s segments), were reclassified as discontinued operations and, as such, are not reflected in this table.

(2)	Overhead includes all domestic corporate amounts not allocated to 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, its fulfillment and distribution facilities located in Missouri, and an industrial/office building complex in Connecticut.

(3)	Includes depreciation of property, plant and equipment and amortization of intangible assets, but excludes amortization of promotion costs.

(4)	Includes amortization of prepublication costs and production costs,but excludes amortization of promotion costs.

~~(5)~~	~~Includes expenditures for property, plant and equipment, investments in prepublication and production costs, royalty advances and acquisitions of, and investments in, businesses.~~

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

(5)

Children’s Book

Media,

Publishing and

Educational

Licensing and

Total

Distribution⁽¹⁾

Publishing

Advertising

Overhead⁽¹⁾⁽²⁾

Domestic

International⁽¹⁾

Total

Nine months ended
February 29, 2008
Revenues $ 933.0 $ 305.5 $ 116.7 $ 0.0 $ 1,355.2 $ 346.2 $ 1,701.4
Bad debt 12.7 1.0 0.5 0.0 14.2 3.7 17.9
Depreciation and amortization⁽³⁾ 11.7 2.7 7.6 18.6 40.6 5.6 46.2
Amortization⁽⁴⁾ 10.0 18.4 4.5 0.0 32.9 1.4 34.3
Royalty advances expensed 16.6 0.9 0.4 0.0 17.9 1.9 19.8
Operating income (loss) 127.9 42.2 8.0 (54.1 ) 124.0 28.6 152.6
Segment assets 812.7 340.1 70.6 409.7 1,633.1 340.8 1,973.9
Goodwill⁽⁵⁾ 127.3 92.9 9.8 0.0 230.0 30.4 260.4
Expenditures for long-lived assets⁽⁶⁾ 37.8 20.5 11.9 14.8 85.0 11.6 96.6
Long-lived assets⁽⁷⁾ 272.1 212.1 38.6 242.9 765.7 116.5 882.2

Nine months ended
February 28, 2007
Revenues $ 719.7 $ 299.2 $ 113.1 $ 0.0 $ 1,132.0 $ 289.5 $ 1,421.5
Bad debt 13.8 1.4 1.4 0.0 16.6 4.0 20.6
Depreciation and amortization⁽³⁾ 11.8 2.7 5.7 21.7 41.9 4.1 46.0
Amortization⁽⁴⁾ 11.6 22.7 7.7 0.0 42.0 1.6 43.6
Royalty advances expensed 13.0 1.0 0.8 0.0 14.8 2.0 16.8
Operating income (loss) 48.8 46.5 6.0 (54.9 ) 46.4 20.5 66.9
Segment assets 676.4 332.7 80.2 373.6 1,462.9 298.1 1,761.0
Goodwill⁽⁵⁾ 127.3 82.5 9.8 0.0 219.6 30.2 249.8
Expenditures for long-lived assets⁽⁶⁾ 43.4 16.7 11.4 7.9 79.4 7.8 87.2
Long-lived assets⁽⁷⁾ 269.9 199.6 39.3 247.9 756.7 105.0 861.7

~~(1)~~	As discussed in Note 2, “Discontinued Operations,” the domestic portion of the DTH business, which was formerly included in the Children’s Book Publishing and Distribution segment, the international portion of the DTH business, located in the United Kingdom and Canada, which was formerly included in the International segment, and the Maumelle Facility, which was formerly included in Overhead (with the exception of certain charges allocated to the Company’s segments), were reclassified as discontinued operations and, as such, are not reflected in this table.

~~(2)~~	Overhead includes all domestic corporate amounts not allocated to 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, its fulfillment and distribution facilities located in Missouri, and an industrial/office building complex in Connecticut.

~~(3)~~	~~Includes depreciation of property, plant and equipment and amortization of intangible assets, but excludes amortization of promotion costs.~~

~~(4)~~	~~Includes amortization of prepublication costs and production costs~~,~~but excludes amortization of promotion costs.~~

~~(5)~~	As a result of the planned divesture of the DTH business (discussed in Note 2, “Discontinued Operations”), the Company was required to allocate the Children’s Book Publishing and Distribution and International reporting units’ goodwill between continuing operations and discontinued operations (see Note 8, “Goodwill and Other Intangibles”).

~~(6)~~	~~Includes expenditures for property, plant and equipment, investments in prepublication and production costs, royalty advances and acquisitions of, and investments in, businesses.~~

~~(7)~~	Includes property, plant and equipment, prepublication costs, goodwill, other intangibles, royalty advances, production costs and long-term investments.

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

4.5. Debt

The following table summarizes debt as of the dates indicated:



	*February 29, 2008*			*May 31, 2007*			*February 28, 2007*			*November 30, 2008*			*May 31, 2008*			*November 30, 2007*


Lines of Credit	$	10.7		$	66.2		$	34.7		$	27.4		$	11.8		$	40.5
Loan Agreement:
Revolving Loan		—			—			—			45.0			—			—
Term Loan		189.3			—			—			157.2			178.6			200.0
Credit Agreement and Revolver		—			—			138.0
5% Notes due 2013, net of discount		173.6			173.4			173.4			159.4			159.3			173.6



*Total debt*		373.6			239.6			346.1			389.0			349.7			414.1

Less lines of credit, short-term debt and current portion of long-term debt		(53.5	)		(66.2	)		(34.7	)		(70.2	)		(54.6	)		(83.3	)


Total long-term debt	$	320.1		$	173.4		$	311.4		$	318.8		$	295.1		$	330.8

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 29,~~November 30, 2008 for the remainder of fiscal ~~2008~~2009 and thereafter:

Three-month period ending May 31:
2008	$	21.4



Six-month period ending May 31:
2009			$	48.8
Fiscal years ending May 31:
2009		42.8
2010		42.8		42.8
2011		42.8		42.8
2012		42.8		42.8
2013				211.8
Thereafter		181.0		0.0


Total debt	$	373.6	$	389.0

Loan Agreement

On June 1, 2007, Scholastic Corporation and Scholastic Inc. (each, a “Borrower” and together, the “Borrowers”) elected to replace the Company’s then-existing credit facilities ~~the Credit Agreement and the Revolver (as discussed below),~~ with a new $525.0 credit facility with certain banks (the “Loan Agreement”), consisting of a $325.0 revolving credit component (the “Revolving Loan”) and a $200.0 amortizing term loan component (the “Term Loan”). The Loan Agreement is a contractually committed unsecured credit facility that is scheduled to expire on June 1, 2012. The $325.0 Revolving Loan component allows the Company to borrow, repay or prepay and reborrow at any time prior to the stated maturity date, and the proceeds may be used for general corporate purposes, including financing for acquisitions and share repurchases. The Loan Agreement also provides for an increase in the aggregate Revolving Loan commitments of the lenders of up to an additional $150.0. The $200.0 Term Loan component was established in order to fund the reacquisition by the Corporation of shares of its Common Stock pursuant to an Accelerated Share Repurchase Agreement ~~(see Note 11, “Treasury Stock”)~~ and was fully drawn on June 28, 2007 in connection with that transaction. The Term Loan, which may be prepaid at any time without penalty, requires quarterly principal payments of $10.7, with the first payment on December 31, 2007, and a final payment of $7.4 due on June 1, 2012. Interest on both the Term Loan and Revolving Loan is due and payable in arrears on the last day of the interest period (defined as the period commencing on the date of the advance and ending on the last day of the period selected by the Borrower at the time each advance is made). At the election of the Borrower, the interest rate charged for each loan made under the Loan Agreement is based on (1) a rate equal to the higher of (a) the prime rate or (b) the prevailing Federal Funds rate plus ~~0.5%~~0.500% or (2) an adjusted LIBOR rate plus an applicable margin, ranging from ~~0.50%~~0.500% to ~~1.25%~~1.250% based on the Company’s prevailing consolidated debt to total capital ratio. As of ~~February 29,~~November 30, 2008, the applicable margin onof the Term Loan was 0.875% and the applicable margin on the Revolving Loan was ~~0.70%~~ 0.700%. The Loan Agreement also provides for the payment of a facility fee ranging from 0.125% to ~~0.25%~~0.250% per annum on the Revolving Loan only, which at ~~February 29,~~November 30, 2008 was 0.175%. As of ~~February 29,~~November 30, 2008, ~~$189.3 was outstanding under~~ the Term Loan had an outstanding balance of $157.2, at an interest rate of ~~4.0%~~ 4.7%.; at May 31, 2008 the Term Loan had an outstanding balance of $178.6 at an interest rate of 3.8%; and at November 30, 2007, the Term Loan had an outstanding balance of $200.0 at an interest rate of 5.9%. The Revolving Loan had an outstanding balance of $45.0 as of November 30, 2008 at an interest rate of 2.1%. There were no outstanding borrowings under the Revolving Loan as of ~~February 29, 2008.~~May 31, 2008 or November 30, 2007. The Loan Agreement contains certain covenants, including interest coverage and leverage ratio tests and certain limitations on the amount of dividends and other distributions, and at ~~February 29,~~November 30, 2008 the Company was in compliance with these covenants.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

~~Credit Agreement~~
The Credit Agreement was a $190.0 unsecured revolving credit facility with certain banks that was scheduled to expire in 2009 but was terminated, along with the Revolver, at the election of the Borrowers as of June 1, 2007 and replaced by the Loan Agreement. The interest rate charged for all loans made under the Credit Agreement was, at the election of the Borrower, based on the prime rate or, alternatively, an adjusted LIBOR rate plus an applicable margin, ranging from 0.325% to 0.975% .. The Credit Agreement also provided for the payment of a facility fee in the range of 0.10% to 0.30% and a utilization fee, if total borrowings exceeded 50% of the total facility, in the range of 0.05% to 0.25% . The amounts charged varied based on the Company’s published credit ratings. The margin, facility fee and utilization fee at each of February 28, 2007 and May 31, 2007 were 0.975%, 0.30% and 0.25%, respectively. At February 28, 2007, $98.0 was outstanding under the Credit Agreement at a weighted average interest rate of 6.5% . There were no outstanding borrowings under the Credit Agreement at May 31, 2007.

~~Revolver~~
The Revolver was a $40.0 unsecured revolving loan agreement with a bank that was scheduled to expire in 2009 but was terminated, along with the Credit Agreement, at the election of the Borrowers as of June 1, 2007 and replaced with the Loan Agreement. The interest rate charged for all loans made under the Revolver was set at either (1) the prime lending rate minus 1% or (2) an adjusted LIBOR rate plus an applicable margin, ranging from 0.375% to 1.025% . The Revolver also provided for the payment of a facility fee in the range of 0.10% to 0.30% . The amounts charged varied based on the Company’s published credit ratings. The margin and facility fee at each of February 28, 2007 and May 31, 2007 were 1.025% and 0.30%, respectively. At February 28, 2007, $40.0 was outstanding under the Revolver at a weighted average interest rate of 6.4% . There were no outstanding borrowings under the Revolver at May 31, 2007.

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 through maturity. 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 redemption. In fiscal 2008, the Company repurchased $14.5 of the 5% Notes on the open market.

Lines of Credit

During the fourth quarter of fiscal ~~2007,~~2008, the Company ~~entered into~~renewed unsecured money market bid rate credit lines totaling $50.0 that were originally entered into during the fourth quarter of ~~which $41.0 was outstanding at May 31,~~fiscal 2007. There were no outstanding borrowings under these credit lines at ~~February 29, 2008.~~November 30, 2008, May 31, 2008 and November 30, 2007. All loans made under these credit lines are at the sole discretion of the lender and at an interest rate and term, not to exceed 364 days, agreed to at the time each loan is made. The weighted average interest rate for all money market bid rate loans outstanding on May 31, 2007 was 6.2% . These credit lines are typically available for loans up to 364 days and may be renewed, if requested by the Company, at the sole option of the lender.

As of ~~February 29,~~November 30, 2008, the Company had various local currency credit lines, with maximum available borrowings in amounts equivalent to ~~$74.4,~~$65.2, underwritten by banks primarily in the United States, Canada and the United Kingdom. These credit lines are typically available for overdraft borrowings or loans up to 364 days and may be renewed, if requested by the Company, at the sole option of the lender. There were borrowings outstanding under these facilities equivalent to ~~$10.7~~$27.4 at ~~February 29,~~November 30, 2008 at a weighted average interest rate of ~~7.5%, as compared to the equivalent of $25.2~~4.5%; $11.8 at May 31, 2008 at a weighted average interest rate of 6.4%; and $40.5 at November 30, 2007 at a weighted average interest rate of 7.0% ~~and the equivalent of $34.7 at February 28, 2007 at a weighted average interest rate of 5.9%~~ .

5.6. Comprehensive Income (Loss)

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


	*Three months ended*						*Nine months ended*						Three months ended November 30,					Six months ended November 30,

	February 29,			February 28,			February 29,			February 28,			2008			2007		2008			2007
	2008			2007			2008			2007

Net income (loss)	$	(82.1	)	$	(7.7	)	$	(9.3	)	$	20.5		$	43.1		$	75.6	$	(6.0	)	$	72.8
Other comprehensive income (loss):

Other comprehensive (loss) income
Foreign currency translation adjustments		6.6			(1.8	)		2.7			(7.0	)		(21.2	)		1.2		(33.4	)		(3.9	)
Retirement plans and post-retirement healthcare, net of tax		0.5			—			0.9			—			1.5			0.2		2.2			0.4


Comprehensive income (loss)	$	(75.0	)	$	(9.5	)	$	(5.7	)	$	13.5		$	23.4		$	77.0	$	(37.2	)	$	69.3

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

~~6. Investment~~

The Company has a 12.25% equity interest in the Children’s Network Venture LLC (“Children’s Network”), which produces and distributes educational children’s television programming under the name “Qubo.” Since inception in August 2006, the Company has contributed a total of $3.7 in cash and certain rights to existing television programming to the Children’s Network. The Company’s investment is accounted for using the equity method of accounting and is included in the Other assets and deferred charges section of the Company’s Condensed Consolidated Balance Sheets. As of February 29, 2008, the Company had reduced the balance in the investment account for the Children’s Network by approximately $2.4 to account for the Company’s share of the entity’s losses to date.

7. ~~(Loss)~~ Earnings (loss) Per Share

Basic earnings (loss) ~~earnings~~ per share is computed by dividing net ~~income~~earnings (loss) by the weighted average Shares of Class A Stock and Common Stock outstanding during the period. Diluted earnings (loss) per share is calculated to give effect to potentially dilutive options to purchase Class A and Common Stock and restricted stock units granted pursuant to the Company’s stock-based compensation plans that were outstanding during the period. In accordance with SFAS No. 128, “Earnings Per Share,” in a period in which the Company reports a discontinued operation, income (loss) from continuing operations is used as the “control number” in determining whether potentially dilutive common shares are dilutive or anti-dilutive. The Company calculates per share figures prior to rounding in millions. The weighted average shares of Class A Stock and Common Stock outstanding were lower as of February 29, 2008 as compared to February 28, 2007 primarily due to the Accelerated Share Repurchase described in Note 11, “Treasury Stock.” The following table summarizes the reconciliation of the numerators and denominators for the basic and diluted earnings (loss) per share computation for the periods indicated:

Three months ended

Nine months ended

February 29,

February 28,

February 29,

February 28,

2008

2007

2008

2007
(Loss) earnings from continuing operations $ (4.6 ) $ (3.8 ) $ 78.8 $ 29.7
Loss from discontinued operations $ (77.5 ) $ (3.9 ) $ (88.1 ) $ (9.2 )
Net (loss) income $ (82.1 ) $ (7.7 ) $ (9.3 ) $ 20.5

Weighted average Shares of Class A Stock and Common Stock outstanding for basic
earnings per share (in millions) 38.4 42.6 38.9 42.3

Dilutive effect of Class A Stock and Common Stock potentially issuable pursuant to
stock-based compensation plans (in millions) — — 0.5 0.5

Adjusted weighted average Shares of Class A Stock and Common Stock outstanding
for diluted earnings per share (in millions) 38.4 42.6 39.4 42.8

(Loss) earnings per share of Class A Stock and Common Stock:

Basic (loss) earnings per share:
(Loss) earnings from continuing operations $ (0.12 ) $ (0.09 ) $ 2.03 $ 0.70
Loss from discontinued operations $ (2.02 ) $ (0.09 ) $ (2.26 ) $ (0.22 )
Net (loss) income $ (2.14 ) $ (0.18 ) $ (0.24 ) $ 0.49

Diluted (loss) earnings per share:
(Loss) earnings from continuing operations $ (0.12 ) $ (0.09 ) $ 2.00 $ 0.69
Loss from discontinued operations $ (2.02 ) $ (0.09 ) $ (2.23 ) $ (0.22 )
Net (loss) income $ (2.14 ) $ (0.18 ) $ (0.23 ) $ 0.48


	Three months ended November 30,						Six months ended November 30,


	2008			2007			2008			2007


Earnings from continuing operations	$	58.4		$	82.3		$	14.7		$	86.3
Loss from discontinued operations, net of tax		(15.3	)		(6.7	)		(20.7	)		(13.5	)
Net income (loss)		43.1			75.6			(6.0	)		72.8
Weighted average Shares of Class A Stock and Common Stock outstanding for basic earnings per share (in millions)		37.6			38.5			37.7			39.1
Dilutive effect of Class A Stock and Common Stock potentially issuable pursuant to stock-based compensation plans (in millions)		0.1			0.6			0.2			0.6
Adjusted weighted average Shares of Class A Stock and Common Stock outstanding for diluted earnings per share (in millions)		37.7			39.1			37.9			39.7

Earnings (loss) per share of Class A Stock and Common Stock: Basic earnings (loss) per share:
Earnings from continuing operations	$	1.55		$	2.13		$	0.39		$	2.21
Loss from discontinued operations, net of tax	$	(0.40	)	$	(0.17	)	$	(0.55	)	$	(0.35	)
Net earnings (loss)	$	1.15		$	1.96		$	(0.16	)	$	1.86

Diluted earnings (loss) per share:
Earnings from continuing operations	$	1.55		$	2.10		$	0.39		$	2.17
Loss from discontinued operations, net of tax	$	(0.40	)	$	(0.17	)	$	(0.55	)	$	(0.34	)
Net earnings (loss)	$	1.15		$	1.93		$	(0.16	)	$	1.83

In December 2008, the Company repurchased 426,979 common shares for $5.9 pursuant to share buy-back programs authorized by the board of directors.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

8. Goodwill and Other Intangibles

Goodwill and other intangible assets 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 29, 2008

May 31, 2007

February 28, 2007

Beginning balance       $       261.6             $       248.8             $       248.8
Additions due to acquisitions — 11.7 —
Purchase accounting adjustments (1.3 ) — —
Translation adjustments 0.1 1.1 1.0

Total $ 260.4
$
261.6
$
249.8

~~As a result of the planned divesture of the DTH business (as discussed in Note 2, “Discontinued Operations”), during the quarter ended February 29, 2008, the Company was required to allocate the~~~~Children’s Book Publishing and Distribution~~ ~~and~~~~International~~reporting units’ goodwill between continuing operations and discontinued operations. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company made this allocation based on the relative fair values of the businesses to be disposed of and the portion of the reporting units that are to be retained. The amount of~~Children’s Book Publishing and Distribution~~ ~~reporting unit goodwill allocated to continuing and discontinued operations was $127.3 and $3.3, respectively. The amount of~~~~International~~ reporting unit goodwill allocated to continuing and discontinued operations was $30.4 and $1.0, respectively. The prior year periods shown in the table have been reclassified to reflect this allocation. In connection with the impairment charges recorded in the DTH business during the current year period, the goodwill allocated to discontinued operations was written off in its entirety. The goodwill allocated to continuing operations was reviewed for impairment as of the date of the allocation by comparing the estimated fair value of each of the reporting units to the carrying value of the related net assets. The estimated fair value was primarily determined utilizing the expected present value of the projected future cash flows of the reporting units. The estimated fair value of each of the reporting units exceeded the carrying value of the related net assets, and therefore no impairment was recorded with respect to continuing operations.



	Six months ended November 30, 2008			Twelve months ended May 31, 2008			Six months ended November 30, 2007 (Restated)


Beginning balance	$	172.3		$	173.5		$	173.5
Purchase accounting adjustment		—			—			(1.3	)
Foreign currency translation adjustments		(4.7	)		(1.2	)		0.7

Total	$	167.6		$	172.3		$	172.9

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



										*November 30, 2008*			*May 31, 2008*			*November 30, 2007*
	*February 29, 2008*			*May 31, 2007*			*February 28, 2007*

Customer lists	$	3.2		$	3.2		$	3.2		$	1.0		$	1.0		$	1.0
Accumulated amortization		(3.0	)		(2.9	)		(3.0	)		(0.8	)		(0.8	)		(0.7	)


Net customer lists		0.2			0.3			0.2			0.2			0.2			0.3


Other intangibles		4.1			4.1			4.2			8.7			8.7			4.1
Accumulated amortization		(3.1	)		(3.0	)		(2.9	)		(5.8	)		(5.4	)		(3.1	)


Net other intangibles		1.0			1.1			1.3			2.9			3.3			1.0


Total	$	1.2		$	1.4		$	1.5		$	3.1		$	3.5		$	1.3

During the fourth quarter of fiscal 2008 the Company reviewed its intangible assets with indefinite lives and determined that certain intangible assets not previously subject to amortization should begin being amortized as of that fiscal period. Accordingly, approximately $4.6 of Other intangibles reported as not subject to amortization as of November 30, 2007 are reported as Other intangibles subject to amortization as of November 30, 2008 and May 31, 2008. This reclassification was based on the Company’s analysis of the cash flows related to these assets.

Amortization expense for Other intangibles totaled ~~$0.2~~$0.3 and ~~$0.1~~$0.2 for the ~~nine~~six month periods ended ~~February 29,~~November 30, 2008 and ~~February 28,~~ 2007, ~~respectively,~~ and ~~$0.2~~$2.5 for the twelve months ended May 31, ~~2007.~~2008. Amortization expense for these assets is currently estimated to total ~~$0.2~~$0.6 for ~~each of~~ the fiscal years ending May 31, ~~2008~~2009 through 2011 and ~~$0.1~~$0.5 for the fiscal ~~year~~years ending May 31, ~~2012.~~2012 and 2013. Intangible assets with definite lives consist principally of customer lists and covenants not to compete. ~~Customer lists~~Intangible assets with definite lives are amortized ~~on a straight-line basis over a five-year period, while covenants not to compete are amortized on a straight-line basis~~ over their ~~contractual term.~~estimated useful lives. There were no impairments in the current period.

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

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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



	*February 29, 2008*		*May 31, 2007*		*February 28, 2007*		*November 30, 2008*		*May 31, 2008*		*November 30, 2007*


Net carrying value by major class:
Titles	$	31.0	$	31.0	$	31.0	$	28.7	$	28.7	$	31.0
Major sets		11.4		11.4		11.4
Trademarks and Other		17.6		17.6		17.6		15.3		15.3		17.5


Total	$	60.0	$	60.0	$	60.0	$	44.0	$	44.0	$	48.5

9. Pension and Other Post-Retirement Benefits

The following table sets 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 (the “Canadian Pension Plan” and together with the U. S. Pension Plan and the U. K. Pension Plan, the “Pension Plans”), and the post-retirement benefits provided by the Company to its retired United States-based employees, consisting of certain healthcare and life insurance benefits, including participants associated with both continuing operations and discontinued operations, for the periods indicated:


													Pension Plans Three months ended November 30,						Post-Retirement Benefits Three months ended November 30,


													2008			2007			2008			2007

Components of net periodic benefit costs:
Service cost													$	1.9		$	2.1		$	—		$	—
Interest cost														2.4			2.5			0.4			0.4
Expected return on assets														(2.7	)		(3.0	)		—			—
Net amortization of prior service (credit)/cost														—			—			(0.2	)		(0.2	)
Amortization of loss														0.5			0.6			0.2			0.4

Net periodic benefit costs													$	2.1		$	2.2		$	0.4		$	0.6
	Pension Plans						Post-Retirement Benefits
	*Three months ended*						*Three months ended*
													Pension Plans Six months ended November 30,						Post-Retirement Benefits Six months ended November 30,
	February 29,			February 28,			February 29,			February 28,
	2008			2007			2008			2007
													2008			2007			2008			2007

Components of Net Periodic Benefit Cost:
Components of net periodic benefit costs:
Service cost	$	2.4		$	2.1		$	—		$	—		$	4.0		$	4.3		$	0.1		$	0.1
Interest cost		2.5			2.3			0.5			0.5			5.1			5.0			0.7			0.9
Expected return on assets		(2.9	)		(2.4	)		—			—			(5.6	)		(5.8	)		—			—
Net amortization of prior service (credit)/cost		—			—			(0.2	)		(0.2	)		(0.1	)		(0.1	)		(0.4	)		(0.4	)
Amortization of loss		0.5			0.7			0.4			0.3			1.0			1.0			0.3			0.7

Net periodic benefit costs													$	4.4		$	4.4		$	0.7		$	1.3

Net periodic benefit cost	$	2.5		$	2.7		$	0.7		$	0.6



	Pension Plans						Post-Retirement Benefits
	*Nine months ended*						*Nine months ended*

	February 29,			February 28,			February 29,			February 28,
	2008			2007			2008			2007


Components of Net Periodic Benefit Cost:
Service cost	$	6.7		$	6.1		$	0.1		$	0.1
Interest cost		7.5			6.9			1.4			1.4
Expected return on assets		(8.7	)		(7.0	)		—			—
Net amortization of prior service (credit)/cost		(0.1	)		(0.1	)		(0.6	)		(0.6	)
Amortization of loss		1.5			2.1			1.1			1.0


Net periodic benefit cost	$	6.9		$	8.0		$	2.0		$	1.9

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

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

The Company’s funding practice with respect to the Pension Plans is to contribute on an annual basis at least the minimum amounts required by applicable laws. These contributions are intended to provide for future benefits earned to date and those expected to be earned in the future. For the ~~nine~~six months ended ~~February 29,~~November 30, 2008, the Company contributed ~~$7.8, $1.1 and $0.1~~$8.3 to the U. S. Pension Plan, the U. K. Pension Plan and the Canadian Pension Plan ~~respectively.~~in the aggregate. The Company expects, based on ~~current~~ actuarial calculations, to contribute cash of approximately ~~$13.4~~$14.5 in the aggregate to the Pension Plans in the fiscal year ending May 31, ~~2008.~~2009.

10. Stock-Based Compensation

The following table summarizes stock-based compensation included in Selling, general and administrative expenses for the periods indicated:

	*Three months ended*				*Nine months ended*

	February 29,		February 28,		February 29,		February 28,		Three months ended November 30,				Six months ended November 30,
	2008		2007		2008		2007
										2008		2007		2008		2007

Stock option expense	$	1.1	$	0.8	$	3.0	$	1.3	$	1.3	$	1.0	$	2.8	$	1.9
Restricted stock unit expense		0.8		0.3		1.7		0.8		3.0		0.6		3.7		0.9
Employee stock purchase plan expense		0.2		0.1		0.4		0.3		0.3		0.1		0.3		0.2


Total stock-based compensation	$	2.1	$	1.2	$	5.1	$	2.4	$	4.6	$	1.7	$	6.8	$	3.0

During the ~~nine~~three month periods ended ~~February 29,~~November 30, 2008 and ~~February 28,~~ 2007, ~~the Corporation issued 1.2 million and 0.9 million~~ shares of Common Stock ~~respectively,~~issued by the Corporation pursuant to its stock-based compensation ~~plans.~~plans were not material.

11. Accrued Severance

In the six months ended November 30, 2008, the company initiated certain cost reduction measures, including employee headcount reductions. The below table provides information regarding severance costs appearing on the Company’s Condensed Consolidated Statements of Operations associated with these cost reduction measures. The Company expects to incur additional expenses of approximately $4.8 during the second half of the current fiscal year. The below accrual of $5.7 as of November 30, 2008 is included in Other accrued expenses on the Company’s Condensed Consolidated Balance Sheets. These costs are incurred in Overhead.

Activity for six months ended
November 30, 2008

Balance at May 31, 2008

$
0.4

Accruals

14.4

Payments

(9.1
)

Balance at November 30, 2008

$
5.7

12. Treasury Stock

On June 1, 2007, the Corporation entered into an agreement with a financial institution to repurchase $200.0 of its outstanding Common Stock under an Accelerated Share Repurchase Agreement (the “ASR”). The entire $200.0 repurchase was executed under a “collared” transaction whereby a price range for the shares was established. Under the ASR, the Corporation initially received 5.1 million shares on JuneMay 28, 2007 (the “Initial Execution Date”), representing the minimum number of shares to be received based on a calculation using the “cap” or high-end of the price range collar. On October 29, 2007 (the “Settlement Date” ), the Corporation received an additional 0.7 million shares at no additional cost, bringing the total number of shares repurchased under the ASR to 5.8 million shares, which is reflected in the Treasury Stock component of Stockholders’ Equity. The total number of shares received under the ASR was determined based on the adjusted volume weighted average price of the Common Stock, as defined in the ASR, during the four month period from the Initial Execution Date through the Settlement Date, which was $34.64 per share.

~~On December 20, 2007,~~2008, the Corporation announced that its Board of Directors had authorized a new program to repurchase up to $20.0 of Common Stock ~~from time to time~~ as conditions allow, on the open market or through negotiated private transactions. On November 20, 2008, the Board of Directors authorized a further program to repurchase up to an additional $10.0 of its Common Stock, which will be funded with available cash, pursuant to which the Corporation may purchase shares, from time to time as conditions allow, on the open market. The repurchase program may be suspended at any time without prior notice. During the ~~three~~six months ended ~~February 29,~~November 30, 2008, the Corporation ~~reacquired~~repurchased approximately ~~0.2~~0.8 million shares on the open market for ~~approximately $5.4~~$20.1 at an average cost of ~~$32.53~~$24.83 per share. See Part II, “Other Information, Item 2,2. Unregistered Sales of Equity Securities and Use of Proceeds.”

~~12.~~13. Income Taxes

The Company calculates its interim income tax provision in accordance with Accounting Principles Board Opinion No. 28, “Interim Financial Reporting,” and FASB Interpretation No. 18, “Accounting for Income Taxes in Interim ~~Periods.”~~Periods” (“FIN 18”). In calculating the provision for income taxes on an interim basis, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances known and applies that rate to its ordinary ~~quarterly~~year to date earnings or losses. The Company’s effective tax rate is based on expected income and statutory tax rates and factors into consideration permanent differences between financial statement and tax return income applicable to the Company in the various jurisdictions in which the Company operates. The effect of discrete items, such as changes in estimates, changes in enacted tax laws or rates or tax status, is recognized in the interim period in which the ~~change~~discrete item occurs. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the result of new judicial interpretations or regulatory or tax law changes.

The Company’s provision for income taxes with respect to continuing operations resulted in an effective tax rate of 42.1% for the three months ended November 30, 2008, and a tax provision of $42.4. The effective tax rate for the six months ended November 30, 2008 was 52.6% and the tax provision for the same six month period was $16.3. The Company anticipates a full fiscal year tax rate of approximately 43% for the current fiscal year exclusive of expected discrete items. The Company’s expected full year effective tax rate exceeds statutory rates primarily as a result of net operating losses experienced in foreign operations for which the Company does not expect to realize future tax benefits. Accordingly, valuation allowances are provided for the net operating loss carry forwards of these operations.

In ~~July 2006,~~ the current year, the Company completed the sale of the DTH business (see Note 3, “Discontinued Operations”). In Fiscal Year 2008, the Company recognized significant pretax losses and deferred tax benefits associated with this transaction. The Company expects to realize the majority of these deferred tax assets in the current fiscal year, reducing the Company’s domestic taxable income to levels significantly below the expected pretax income levels. Accordingly, the Company expects reduced federal and state tax payments in the current fiscal year as a result of the realization of these deferred tax assets, and expects a significant reduction in deferred tax assets at the end of the current fiscal year. The Company expects to realize future tax benefits on all domestic net operating losses generated in the current fiscal year.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

The Company recognizes tax benefits of uncertain tax positions in accordance with 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 financial statements uncertain tax positions that a company has taken or expects to file in a tax return. FIN 48 states that a tax benefit from an uncertain tax position may be recognized only if it is “more likely than not” that the position is sustainable, based on its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with a taxing authority having full knowledge of all relevant information. Prior to the issuance of FIN 48, an uncertain tax position would not be recorded unless it was “probable” that a loss or reduction of benefits would occur. Under FIN 48, the liability for unrecognized tax benefits is classified as noncurrent unless the liability is expected to be settled in cash within twelve months of the reporting date. The Company adopted the provisions of FIN 48 effective as of June 1, 2007.

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

Upon adoption, the Company recognized a $34.0 increase in the liability for unrecognized tax benefits, a $27.6 increase in deferred tax assets, and a $6.4 reduction to the June 1, 2007 balance of retained earnings. As of June 1, 2007, the total amount of unrecognized tax benefits was $40.2, of which $5.7 and $0.6 represented accruals for potential payments of interest and penalties, respectively. Of this total, $12.7 represented the total amounts of unrecognized tax benefits that, if recognized, would affect the effective tax rate favorably. There have been no material changes to the liability for uncertain tax positions for the nine months ended February 29, 2008. The Company does not currently anticipate a material change to its unrecognized tax benefits within twelve months of ~~February 29,~~November 30, 2008; however, actual developments can change these ~~expectations. The Company’s policy is to classify potential liabilities for interest and penalties related to unrecognized tax benefits as part~~expectations, including settlement of ~~its income tax provision. During the nine months ended February 29, 2008, the Company recognized $1.4 of income tax expense for accruals for potential payments of interest and penalties.~~

The Company’s provision for income taxes with respect to continuing operations resulted in an effective tax rate of 38.1% and 35.9% for the nine months ended February 29, 2008 and February 28, 2007, respectively. The higher effective tax rate for the nine months ended February 29, 2008 was primarily attributable to the adoption of FIN 48, effective as of June 1, 2007, which increased the tax rate in the current fiscal year period by 110 basis points, or 1.1%, and certain tax credits affecting only the prior fiscal year, which reduced the effective tax rate in that period by 230 basis points, or 2.3% .

As discussed in Note 2, “Discontinued Operations,” the Company recorded tax benefits of $37.3 and $42.8 for each of the three and nine month periods ended February 29, 2008, respectively. The tax benefit recognized was composed primarily of deferred tax assets recorded, or deferred tax liabilities reduced, with respect to the non-cash impairment charge of $107.3.audits.

The Corporation, including its domestic subsidiaries, files a consolidated U.S. income tax return, and also files tax returns in various states and other local jurisdictions. Also, certain subsidiaries of the Corporation file income tax returns in foreign jurisdictions. The Company is routinely audited by various tax authorities. The Company believes it is no longer subject to an income tax assessment by the United States Internal Revenue Service (“IRS”) for the years ended on or before May 31, 2003 due to the expiration of the statute of limitations. The Company has been selected for audit by the IRS for its fiscal years ended May 2004, 2005 and 2006. The ~~Company’s principal operations are located in New York City. The~~ Company is also currently under audit by both New York State and New York City for its fiscal years ended May 2002, 2003 and 2004. It is possible that federal, state and foreign tax examinations will be settled during the next twelve months. If any of these tax examinations are concluded within that period, the Company will make any necessary adjustments to its unrecognized tax benefits.

14. Related Party Transactions

On October 10, 2008, the Company agreed to purchase 100,000 shares of Common Stock from Richard Robinson, Chairman of the Board, President and Chief Executive Officer of the Company, at a price of $20.59 per share, or an aggregate purchase price of $2.1, pursuant to the Company’s previously announced stock repurchase program which had been approved by the Board in May 2008. The purchase price was determined with reference to the last transaction price reported on Nasdaq immediately prior to the purchase. The closing price of the Common Stock on Nasdaq on October 10, 2008 was $23.11 per share. The shares became available for sale due to Mr. Robinson, as a result of current market conditions, being required to sell the shares in order to protect the collateral value underlying a personal loan with a bank secured by the shares.

15. Subsequent Event

On December 18, 2008, the Company announced that the Board had declared a quarterly dividend of $0.075 per share to be paid on March 16, 2009 to shareholders of record of the Corporation’s Common Stock and Class A Stock on January 30, 2009.

SCHOLASTIC CORPORATION

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

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

Overview and Outlook

~~Scholastic’s~~The Company sold its U.S. direct-to-home continuities business (“DTH Business”) in August 2008 and expects to complete the divestiture of its Canadian and U.K. direct-to-home continuities businesses (“DTH International) in the current fiscal year. In addition, the Company shut down its school-based continuities business effective May 31, 2008 and operations in Argentina (“Argentina”), its door-to-door sales operation in Puerto Rico (“Caribe”) and its Coach magazine business (“Coach”) effective November 30, 2008. The Company views the foregoing actions to be consistent with its plan to improve short-term profitability.

Earnings from continuing operations, net of tax, for the quarter ended November 30, 2008 was $58.4 million compared to earnings from continuing operations, net of tax, of $82.3 million in the quarter ended November 30, 2007. Earnings from continuing operations in the current fiscal quarter were lower primarily due to $10.9 million of one-time expenses before taxes associated with the Company’s cost reduction plans as well as an unfavorable foreign exchange impact of $6.7 million before taxes. In addition, higher royalty expense and higher bad debt expense in domestic and international trade publishing operations, totaling $6.3 million before taxes, negatively impacted earnings from continuing operations. Loss from discontinued operations, net of tax, for the quarter ended November 30, 2008 was $15.3 million, compared to a loss of $6.7 million for the quarter ended November 30, 2007.

The Corporation paid its first dividend on September 15, 2008, under its previously announced dividend program established to return value to investors, and has declared quarterly cash dividends for the second and third fiscal quarters of fiscal 2009. Additionally, the Corporation continues to repurchase shares of its Common Stock from time to time under current programs approved by its Board of Directors.

During the second quarter, the Company maintained a strong balance sheet and free cash flow with modest levels of debt and access to over $280.0 million in additional liquidity. Additionally, in the face of cut backs in consumer and educational spending, the Company essentially sustained sales levels in the current quarter compared to the same period in the prior fiscal year in its coreChildren’s Book Publishing and Distribution businesses and educational technology businesses; reduced costs significantly; and maintained a strong balance sheet and financial position. Strong support from its domestic customers was demonstrated by increased orders and unit volumes for school-based book clubs and higher revenue per fair for school-based book fairs, partially offset by fairs being moved to December 2008 as a result of the comparatively late Thanksgiving holiday resulting in fewer fairs held than in November 2007, and a strong list of best sellers sold through trade publishing channels. In its education technology businesses, in addition to sustaining sales levels for the current quarter compared to the same quarter in the prior year, the Company experienced strong presales ofSystem 44,the prequel to the Company’s successfulRead 180 platform.System 44 began shipping in December, and therefore did not impact the quarter ended November 30, 2008, but is ~~historically~~expected to positively impact the Company’s results prospectively.

During the second quarter, the Company also made significant progress by achieving the top end of its current costs savings goal, eliminating approximately $35 million in annualized expenses, including approximately $25 million in salary costs. The Company plans to further increase profitability by reducing spending in the second ~~smallest revenue period. Revenues from~~half of the fiscal year by approximately $20 million by eliminating management bonuses, reducing all categories of discretionary spending and taking steps to make core businesses more efficient. It also intends to continue to review existing unprofitable businesses to determine whether the Company should exit such businesses.

At November 30, 2008, the total market value of the Company’s outstanding Common and Class A shares was less than the carrying value of the Company’s net assets. While the Company remains profitable, and current results are comparable to historical results, the Company anticipates lower earnings for the current fiscal year than previously forecasted. Accordingly, the Company has evaluated these circumstances with regard to the carrying value of goodwill, investments in joint ventures, intangible assets, fixed assets, and other long-lived assets included in the Company’s Condensed Consolidated Balance Sheet as of November 30, 2008. The Company has concluded that there were no impairments of long-lived assets included in continuing operations for the three and six month periods ended November 30, 2008. The Company remains fundamentally sound, with significant available liquidity and capital resources, and believes that the long term prospects of its businesses remain unchanged. The recent decline in the market value of the Company’s outstanding Common and Class A shares is not indicative of the Company’s expected long-term cash flows, and is a function of the current condition of the capital markets. Accordingly, the Company does not believe that the recent decline in share price is reflective of declines in its businesses. However, the Company will continue to monitor its asset base for indicators of impairment, and if recent financial market conditions persist, it is possible that certain assets may become impaired.

Results of Continuing Operations

Revenues for the quarter ended ~~February 29,~~November 30, 2008 ~~increased~~decreased by ~~$12.4~~$26.0 million, or ~~2.8%~~3.8%, ~~over~~to $661.6 million, compared to $687.6 million in the prior fiscal year ~~quarter as a result of higher~~quarter. This decrease related principally to lower revenues in theInternational, Educational Publishingand~~Media, Licensing and Advertising~~ ~~segments, partially offset by lower revenue in~~ theChildren’s Book Publishingand Distribution ~~segment. Operating income from continuing operations for~~segments of $20.4 million, $7.4 million and $5.1 million, respectively.Internationalsegment revenue reflected the ~~quarter~~$21.5 million impact of foreign exchange on the translation of foreign currency denominated revenues to US dollars. For the six months ended ~~February 29,~~November 30, 2008, ~~was $0.6~~revenues decreased $272.2 million, or 22.4%, to $944.4 million compared to ~~an operating loss of $2.0 million from continuing operations in~~ the prior fiscal year ~~quarter. Operating results improved in the Company’s school-based book fair and trade businesses, which are reported within~~period, primarily due to lower revenues from theChildren’s Book Publishing and Distribution segment, ~~and~~which in the ~~Educational Publishing~~ ~~and~~~~International~~ ~~segments. For~~ prior year benefited from the ~~nine months ended February 29, 2008, revenues and operating income from continuing operations increased by $279.9 million and $85.7 million, respectively, primarily due to~~July 2007 release ofHarry Potter and the Deathly Hallows.

~~, the final book~~Cost of ~~the seven book series, which was released on July 21, 2007.~~

During the quarter, the Company moved forward with its previously announced plan to sell its direct-to-home continuities business (the “DTH business”), including the domestic portion and the international portion based in Canada and the United Kingdom, as wellgoods sold as a warehousing and distribution facility located in Maumelle, Arkansas (the “Maumelle Facility”), and the DTH business was reclassified as discontinued operations for accounting purposes. In connection with that reclassification, the Company recorded a non-cash write-downpercentage of long-lived assets as well as certain current assets related to the DTH business of $72.7 million, net of tax, to the respective fair value, less cost to sell. The Company’s goal is to substantially complete the sale of the DTH business by May 31, 2008.

~~With regard to its continuing operations, the Company continues to make progress toward achieving its goals for fiscal 2008, which included making planned investments toward long term~~ revenue ~~growth and margin improvement, particularly in the~~~~Educational Publishing~~ ~~and~~~~Children’s Book Publishing~~~~and~~~~Distribution~~~~segments.~~

~~Results of Continuing Operations~~

~~Revenues~~ for the quarter ended ~~February 29,~~November 30, 2008 increased to ~~$458.4 million,~~43.0%, compared to ~~$446.0~~42.4% in the prior fiscal year quarter, primarily due to increased reserves on royalty advances. For the six months ended November 30, 2008, cost of goods sold decreased to $432.7 million, or 45.8% of revenues, compared to $589.5 million, or 48.5% of revenues, in the prior fiscal year period, primarily due to higher costs related to theHarry Potter release in the prior fiscal year period.

Selling, general and administrative expenses (“SG&A”), combined with severance expenses, increased $8.1 million to $246.4 million, or 37.2% of revenues, for the quarter ended November 30, 2008, compared to $238.3 million, or 34.7% of revenues, in the prior fiscal year quarter. This increase was due to ~~higher revenues in the~~~~International, Educational Publishing~~severance costs associated with cost reduction plans and~~Media, Licensing and Advertising~~ ~~segments, which increased by $16.8 million, $3.5 million and $1.2 million, respectively, partially offset by a $9.1 million decline in revenues from the~~~~Children’s Book Publishing and Distribution~~ ~~segment, as compared~~ costs incurred due to the ~~prior fiscal year quarter.~~accelerated vesting of restricted stock units for employees eligible for retirement totaling $10.9 million. For the ~~nine~~six months ended ~~February 29,~~November 30, 2008, SG&A combined with severance expenses, as a percentage of revenues increased ~~by 19.7%~~ to ~~$1,701.4 million, compared to $1,421.5 million~~45.2% from 35.8% in the prior fiscal year period, primarily due ~~to higher revenues in each of the Company’s four operating segments, led by the~~~~Children’s Book Publishing and Distribution~~ ~~segment, which rose by $213.3 million principally as a result of the July 2007 release of~~~~Harry Potter and the Deathly Hallows~~~~, and the~~~~International~~ ~~segment, which rose by $56.7 million, as compared~~ to the prior ~~fiscal~~ year ~~period.~~benefit ofHarry Potter revenues without a corresponding increase in expense.

~~Cost~~Bad debt expense increased to $7.4 million, or 1.1% of ~~goods sold~~revenues, for the quarter ended ~~February 29,~~November 30, 2008, ~~was $225.6~~compared to $3.5 million, or ~~49.2% of revenues, as compared to $223.0 million, or 50.0%~~0.5% of revenues, in the prior fiscal year quarter. For the ~~nine~~six months ended ~~February 29,~~November 30, 2008, ~~cost of goods sold~~bad debt expense increased to ~~$828.8~~$8.7 million, or ~~48.7%~~0.9% of revenues, ~~compared to $680.1~~from $5.3 million, or ~~47.8%~~0.4% of revenues, in the prior fiscal year ~~period,~~period. These increases were primarily due to ~~costs related to~~increased bad debt reserves in the ~~release of~~~~Harry Potter~~Children’sBook Publishing and ~~the Deathly Hallows~~Distribution. andInternational segments.

~~Selling, general and administrative expenses increased to $211.1 million, or 46.1% of revenues, in~~The resulting operating income for the quarter ended ~~February 29,~~November 30, 2008 asdecreased by $31.1 million, or 22.4%, to $107.8 million, compared to ~~$201.6~~$138.9 million ~~or 45.2% of revenues,~~ in the prior fiscal year quarter, primarily due to higher severance and one-time expenses associated with the ~~planned investments in the sales~~Company’s cost reduction plans and ~~service organizations in the~~~~Educational Publishing~~~~segment.~~unfavorable foreign exchange rates. For the ~~nine~~six months ended ~~February 29,~~November 30, 2008, ~~selling, general and administrative expenses increased~~operating income decreased to ~~$655.9~~$43.9 million, ~~from $607.9~~compared to $155.0 million in the prior ~~fiscal~~ year, ~~period,~~ primarily due to ~~costs related to the~~lower Harry Potter ~~release in July 2007. As a percentage of revenue, selling, general~~revenues and ~~administrative expenses decreased to 38.6% for the nine months ended February 29, 2008 from 42.8% in the prior fiscal year period, primarily due to the revenue benefit from~~~~Harry Potter and the Deathly Hallows~~ ~~without a proportionate increase in expense.~~profits.

~~Bad debt~~Net interest expense decreased $2.7 million to ~~$6.3~~$7.0 million ~~or 1.4% of revenues, for~~in the quarter ended ~~February 29,~~November 30, 2008, compared to $8.7 million, or 1.9% of revenues, in the prior fiscal year quarter. For the nine months ended February 29, 2008, bad debt expense decreased to $17.9 million, or 1.1% of revenues, compared to $20.6 million, or 1.4% of revenues, in the prior fiscal year period.

~~The resulting operating income for the quarter ended February 29, 2008 was $0.6 million, compared to an operating loss of $2.0~~$9.7 million in the prior fiscal year quarter. For the ~~nine~~six months ended ~~February 29,~~November 30, 2008, ~~the resulting operating income increased~~net interest expense decreased by $5.5 million to ~~$152.6~~$12.9 million ~~or 9.0% of revenues,~~as compared to ~~$66.9~~$18.4 million ~~or 4.7% of revenues,~~ in the prior fiscal year ~~period.~~

Other expense was $0.9 million for both the three and nine months ended February 29, 2008, representing expense associated with the early termination of one of the Company’s subleases. Other income was $3.0 million for both the three and nine months ended February 28, 2007, representing a gain from the sale of the Company’s remaining investment in a French publishing company.period, driven by lower borrowing levels.

The Company’s provision for income taxes with respect to continuing operations resulted in an effective tax rate of ~~38.1%~~42.1% and ~~35.9%~~36.3% for the ~~nine~~quarters ended November 30, 2008 and November 30, 2007, respectively. Effective tax rates for the six months ended ~~February 29,~~November 30, 2008 and ~~February 28,~~November 30, 2007 were 52.6% and 36.8%, respectively. The ~~higher~~ effective tax ~~rate~~rates for the ~~nine months ended February 29, 2008 was primarily attributable to the adoption of FIN 48, effective as of June 1, 2007, which increased the tax rate in the~~ current ~~fiscal year~~ period ~~by 110 basis points, or 1.1%, and certain tax credits affecting only~~exceed the prior ~~fiscal year, which reduced the~~period effective tax ~~rate~~rates primarily due to losses in ~~that period~~certain foreign subsidiaries for which the Company does not expect to realize correlative income tax benefits, and reduced domestic tax deductions caused by ~~230 basis points, or 2.3%.~~lower taxable income.

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

~~Loss~~Earnings from continuing operations was ~~$4.6~~$58.4 million, or ~~$0.12~~$1.55 per diluted share, for the quarter ended ~~February 29,~~November 30, 2008, compared to ~~$3.8~~earnings from continuing operations of $82.3 million, or ~~$0.09~~$2.10 per diluted share, in the prior fiscal year quarter. For the ~~nine~~six months ended ~~February 29,~~November 30, 2008, earnings from continuing operations was ~~$78.8~~$14.7 million, or ~~$2.00~~$0.39 per diluted share, compared to ~~$29.7~~$86.3 million, or ~~$0.69~~$2.17 per diluted share, in the prior fiscal year period.

Loss from discontinued operations, net of tax, was $15.3 million, or $0.40 per diluted share, for the quarter ended November 30, 2008, compared to $6.7 million, or $0.17 per diluted share, in the prior fiscal year quarter. For the six months ended November 30, 2008, loss from discontinued operations, net of tax, was $20.7 million, or $0.55 per diluted share, compared to $13.5 million, or $0.34 per diluted share, in the prior fiscal year period.

Net ~~loss~~income was ~~$82.1~~$43.1 million, or ~~$2.14~~$1.15 per diluted share, for the quarter ended ~~February 29,~~November 30, 2008, compared to ~~$7.7~~$75.6 million, or $0.18 per share, in the prior fiscal year quarter, substantially due to the write-down of certain assets associated with the reclassification of the DTH business as discontinued operations. For the nine months ended February 29, 2008, net loss was $9.3 million, or $0.23 per share, compared to net income of $20.5 million, or $0.48$1.93 per diluted share, in the prior fiscal year ~~period. The weighted average shares of Class A Stock and Common Stock outstanding, which is used to calculate earnings~~quarter. For the six months ended November 30, 2008, net loss was $6.0 million, or ~~loss~~$0.16 per diluted share, ~~were lower as of February 29, 2008~~ compared to ~~February 28, 2007 primarily due to an accelerated~~net income of $72.8 million, or $1.83 per diluted share, ~~repurchase agreement entered into by~~in the ~~Corporation on June 1, 2007 (the “ASR”),~~prior fiscal year period, as ~~more fully discussed in Note 11~~the prior fiscal year benefited from the successful release of ~~Notes to Condensed Consolidated Financial Statements – Unaudited in Item 1, “Financial Statements.”~~Harry Potter and the Deathly Hallows.

SCHOLASTIC CORPORATION

Item 2. MD&A

Results of Continuing Operations - Segments

Children’s Book Publishing and Distribution


($ amounts in millions)	*Three months ended*						*Nine months ended*						Three months ended November 30,						Six months ended November 30,

	February 29,			February 28,			February 29,			February 28,
	2008			2007			2008			2007			2008			2007			2008			2007


Revenues	$	229.7		$	238.8		$	933.0		$	719.7		$	381.8		$	386.9		$	442.8		$	683.7
Operating income		10.2			9.3			127.9			48.8			99.2			108.8			43.3			121.4


Operating margin		4.4	%		3.9	%		13.7	%		6.8	%		26.0	%		28.1	%		9.8	%		17.8	%

Revenues in theChildren’s Book Publishing and Distribution segment for the quarter ended ~~February 29,~~November 30, 2008 decreased by ~~$9.1~~$5.1 million, or 1.3%, to ~~$229.7~~$381.8 million, as compared to ~~$238.8~~$386.9 million in the prior fiscal year quarter. Within the segment, revenues from the Company’s school-based continuity business declined by $10.4 million due to lower post-enrollment sales, and revenues from school-based book clubs declined by $7.6 million, primarilyThis decline was due to a ~~lower number of orders, which reflected~~decrease in revenues in the ~~elimination of certain less profitable mailings. These declines were partially offset by a $5.1 million increase in school-based book fair revenues, primarily~~Company’s trade business related to ~~higher fair count,~~lower Harry Potter and ~~a $3.8~~Klutz revenues in the current period. Revenues for the six months ended November 30, 2008 decreased by $240.9 million ~~increase~~to $442.8 million, compared to $683.7 million in ~~trade revenues, primarily~~the prior fiscal year period. This decrease was due to ~~higher~~the unprecedented success ofHarry Potter and the Deathly Hallows, the seventh and final book in the series, in the prior year, which included approximately $250 million of Harry Potter revenues.

Segment operating income for the quarter ended ~~February 29,~~November 30, 2008 decreased by $9.6 million, or 8.8%, to $99.2 million, compared to $108.8 million in the prior fiscal year quarter, principally due to increased promotional costs in school book clubs and lower revenues and an increase in bad debt reserves, due to credit concerns regarding a large retailer, and royalty expense in the Company’s trade business. Segment operating income for the six months ended November 30, 2008 declined by $78.1 million to $43.3 million, compared to $121.4 million in the prior fiscal year period, primarily due to lower operating results in the Company’s trade business resulting from lower Harry Potter revenues.

Educational Publishing


($ amounts in millions)	Three months ended November 30,						Six months ended November 30,

		2008			2007			2008			2007


Revenues	$	92.2		$	99.6		$	208.6		$	227.4
Operating income		13.2			12.4			34.2			42.9


Operating margin		14.3	%		12.4	%		16.4	%		18.9	%

Revenues in theEducational Publishingsegment for the quarter ended November 30, 2008 decreased by $7.4 million, or 7.4%, to $92.2 million, compared to $99.6 million in the prior fiscal year quarter. This decrease partially reflected the earlier timing of certain classroom book revenue in the first quarter of the current fiscal year rather than in the second quarter. Revenues from teaching resources materials also declined. Segment revenues for the six months ended November 30, 2008 decreased by $18.8 million, or 8.3%, to $208.6 million, compared to $227.4 million in the prior fiscal year period. This decrease was principally driven by lower revenues from sales of technology products, primarily due to lower sales of READ180in the first quarter, and a large sale in the prior year period.

Segment operating income for the quarter ended November 30, 2008 increased ~~by $0.9 million~~ to ~~$10.2~~$13.2 million, as compared to ~~$9.3~~$12.4 million in the prior fiscal year quarter, principally driven by lower selling expenses, more than offsetting the impact of lower revenues in the current fiscal year quarter. Segment operating income for the six months ended November 30, 2008 decreased by $8.7 million, or 20.3%, to $34.2 million, compared to $42.9 million in the prior fiscal year period. This decrease is primarily due to lower revenues partially offset by lower selling expenses.

SCHOLASTIC CORPORATION

Item 2. MD&A

Media, Licensing and Advertising


($ amounts in millions)	Three months ended November 30,						Six months ended November 30,

	2008			2007			2008			2007


Revenues	$	63.2		$	56.3		$	82.4		$	72.4
Operating income		10.5			10.4			6.2			5.1


Operating margin		16.6	%		18.5	%		7.5	%		7.0	%

Revenues in the Media, Licensing and Advertising segment for the quarter ended November 30, 2008 increased by $6.9 million, or 12.3%, to $63.2 million, compared to $56.3 million in the prior fiscal year quarter, primarily due to increased sales of software and interactive products and increased advertising revenue in the custom publishing business. Segment revenues for the six months ended November 30, 2008 increased by $10.0 million, or 13.8%, to $82.4 million, compared to $72.4 million in the prior fiscal year period, primarily due to higher revenues from sales of software and interactive products, as well as higher advertising revenue in the custom publishing business.

Segment operating income for the quarter ended November 30, 2008 increased slightly to $10.5 million, compared to $10.4 million in the prior fiscal year quarter. Segment operating income for the six months ended November 30, 2008 increased by $1.1 million, or 21.6%, to $6.2 million, compared to $5.1 million in the prior fiscal year period, primarily due to the higher revenues.

International


($ amounts in millions)	Three months ended November 30,						Six months ended November 30,

	2008			2007			2008			2007


Revenues	$	124.4		$	144.8		$	210.6		$	233.1
Operating income		14.0			25.1			10.5			24.0


Operating margin		11.3	%		17.3	%		5.0	%		10.3	%

Revenues in the Internationalsegment for the quarter ended November 30, 2008 decreased by $20.4 million, or 14.1%, to $124.4 million, compared to $144.8 million in the prior fiscal year quarter, due to the unfavorable impact of foreign currency exchange rates of $21.5 million. Segment revenues for the six months ended November 30, 2008 decreased by $22.5 million, or 9.7%, to $210.6 million, compared to $233.1 million in the prior fiscal year period, primarily due to the unfavorable impact of foreign currency exchange rates of $18.6 million.

Segment operating income for the quarter ended November 30, 2008 decreased by $11.1 million, or 44.2% to $14.0 million, compared to $25.1 million in the prior fiscal year quarter, primarily due to the unfavorable impact of foreign currency exchange rates of $6.7 million and lower operating income in the United Kingdom of $4.9 million, partially offset by higher ~~revenues~~operating income in the Company’s ~~school-based book fairs business.~~

export business of $2.3 million. Segment ~~revenues~~operating income for the ~~nine~~six months ended ~~February 29,~~November 30, 2008 ~~increased~~decreased by ~~$213.3~~$13.5 million, or 56.3%, to ~~$933.0~~$10.5 million, as compared to ~~$719.7~~$24.0 million in the prior fiscal year period. This increase was principally due to higher Harry Potter revenues in the Company’s trade business, which totaled approximately $260 million in the current fiscal year period as compared to approximately $15 million in the prior fiscal year period, partially offset by an $18.9 million decrease in revenues in the Company’s school-based book club business due to the elimination of certain less profitable mailings and a $14.4 million decrease in revenues from the Company’s school-based continuity business due to lower enrollments.

~~Segment operating income for the nine months ended February 29, 2008 improved by $79.1 million to $127.9 million, as compared to $48.8 million in the prior fiscal year period. This improvement~~ was primarily due to the ~~higher Harry Potter revenues in the Company’s trade business.~~

~~Educational Publishing~~

($ amounts in millions)
Three months ended

Nine months ended

February 29,

February 28,

February 29,

February 28,

2008

2007

2008

2007

Revenues       $       78.1             $       74.6             $ 305.5       $ 299.2
Operating (loss) income (0.6 ) (3.1 )       42.2             46.5
Operating margin * * 13.8 % 15.5 %

* not meaningful

~~Revenues in the~~~~Educational Publishing~~ ~~segment for the quarter ended February 29, 2008 increased by $3.5 million, or 4.7%, to $78.1 million, as compared to $74.6 million in the prior fiscal year quarter, primarily~~due to higher revenues from sales of print products. Segment revenues for the nine months ended February 29, 2008 increased by $6.3 million, or 2.1%, to $305.5 million, as compared to $299.2 million in the prior fiscal year period, primarily due to incremental revenues from school consulting and professional development services.

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

Segment operating loss for the quarter ended February 29, 2008 was $0.6 million, as compared to an operating loss of $3.1 million in the prior fiscal year quarter, due to improved product mix. Segment operating income for the nine months ended February 29, 2008 decreased by $4.3 million, or 9.2%, to $42.2 million, compared to $46.5 million in the prior fiscal year period, primarily due to planned investments in the sales and service organizations in the current fiscal year period.

~~Media, Licensing and Advertising~~

($ amounts in millions)
Three months ended

Nine months ended

February 29,

February 28,

February 29,

February 28,

2008

2007

2008

2007
Revenues       $       42.0             $       40.8             $     116.7             $     113.1
Operating income 2.2 3.0 8.0 6.0
Operating margin 5.2 % 7.4 % 6.9 % 5.3 %

~~Revenues in the~~~~Media, Licensing and Advertising~~ segment for the quarter ended February 29, 2008 increased by $1.2 million, or 2.9%, to $42.0 million, compared to $40.8 million in the prior fiscal year quarter, primarily due to an increase in revenues from Back to Basics Toys^®, the Company’s catalog toy business. Segment revenues for the nine months ended February 29, 2008 increased by $3.6 million, or 3.2%, to $116.7 million, as compared to $113.1 million in the prior fiscal year period, primarily due to an increase in revenues from sales of software and interactive products sold through the Company’s school-based book fairs.

Segment operating income decreased by $0.8 million to $2.2 million for the quarter ended February 29, 2008, as compared to $3.0 million in the prior fiscal year quarter, despite the increase in revenues, primarily due to higher fulfillment and shipping costs in the Back to Basics Toys business caused by a third-party operational issue. Segment operating income increased by $2.0 million to $8.0 million for the nine months ended February 29, 2008, as compared to $6.0 million in the prior fiscal year period, primarily due to increased revenues from sales of software and interactive products.

~~International~~

($ amounts in millions)
Three months ended

Nine months ended

February 29,

February 28,

February 29,

February 28,

2008

2007

2008

2007
Revenues       $       108.6                   $        91.8             $       346.2             $       289.5
Operating income 5.3 4.4 28.6 20.5
Operating margin 4.9 % 4.8 % 8.3 % 7.1 %

~~Revenues in the~~~~International~~ ~~segment for the quarter ended February 29, 2008 increased by $16.8 million to $108.6 million, compared to $91.8 million in the prior fiscal year quarter, due to the favorable~~unfavorable impact of foreign currency exchange rates of ~~$10.1~~$6.2 million and ~~local currency revenue growth equivalent to $6.7 million, principally~~lower operating income in the United Kingdom ~~trade business. Segment revenues for the nine months ended February 29, 2008 increased by $56.7~~of $4.2 million, ~~to $346.2 million, as compared to $289.5 million in~~which benefited from the prior ~~fiscal~~ year ~~period, primarily due to the favorable impact~~release of foreign currency exchange rates of $32.0 million, higher revenues from the Company’s export business of $6.8 million, and local currency revenue growth in the United Kingdom and Australia equivalent to $10.4 million and $6.8 million, respectively. The Golden Compass.

Segment operating income for the quarter ended February 29, 2008 increased by $0.9 million to $5.3 million, as compared to $4.4 million in the prior fiscal year quarter, primarily due to higher operating income from the United Kingdom. Segment operating income for the nine months ended February 29, 2008 increased by $8.1 million to $28.6 million, as compared to $20.5 million in the prior fiscal year period, primarily due to higher operating income from Australia and the United Kingdom, which increased by the equivalent of $3.6 million and $3.0 million, respectively.

SCHOLASTIC CORPORATION

Item 2. MD&A

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

Results of Discontinued Operations

As previously announced, the Company sold its DTH business in August 2008, has shut down its SC business effective May 31, 2008 and intends to sell its Maumelle facility. Additionally, the Company intends to complete the divestiture of DTH International in 2009. In the three months ended November 30, 2008, the Company exited certain unprofitable, non-core businesses including Argentina, Caribe and Coach. The results of operations associated with these businesses are presented as discontinued operations for accounting purposes in the fiscal 2009 and prior year periods. The Company’s DTH and SC businesses were formerly included in theChildren’s Book Publishing and Distribution segment; the DTH international business, Caribe and Argentina were formerly included in theInternational segment; and Coach was formerly included in theMedia, Licensing and Advertising segment. The Company’s Maumelle facility, which is included in discontinued operations, was formerly included in Overhead. During the three months ended ~~February 29,~~November 30, 2008, the Company ~~announced that it intends~~recognized impairment and other charges related to sell the DTH business, which includes both the domestic portion and the international portion located in the United Kingdom and Canada, as well as the Maumelle Facility. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), the results of operations for the DTH business are presented separately in the Company’s Condensed Consolidated Financial Statements as discontinued operations, and the assets and liabilities of the DTH business are treated as held for sale. SFAS 144 requires write-downs of the carrying value of assets held for sale if the carrying value exceeds their estimated fair value, less cost to sell. As a result, the Company recorded a non-cash impairment charge of $107.3 million and a tax benefit of $34.6 million, resulting in a charge of $72.7 million, net of tax, ~~during the quarter ended February 29, 2008 to reflect the DTH business at its estimated fair value less cost to sell. The calculation~~ of estimated fair value less cost to sell included significant estimates and assumptions, including, but not limited to: operating projections and the discount rate and terminal values developed in connection with the discounted cash flow; excess working capital levels; real estate fair values; and the anticipated costs involved in the selling process. In addition, as a result of the Company’s decision to sell the DTH business, the Company prepared separate financial statements reflecting the discontinued operations presentation, which required management to make significant judgments and estimates for purposes of allocating to the discontinued operations certain operating expenses, such as warehousing and distribution expenses, as well as assets, liabilities and other balance sheet items, including accounts payable and certain other noncurrent liabilities.$8.4 million.

Loss from discontinued operations, net of tax, was ~~$77.5~~$15.3 million ~~or $2.02 per share,~~ for the quarter ended ~~February 29,~~November 30, 2008, compared to ~~$3.9~~$6.7 million ~~or $0.09 per share,~~ in the prior fiscal year quarter. ~~For the nine months ended February 29, 2008, loss~~Loss from discontinued operations, net of tax, was ~~$88.1~~$20.7 million ~~or $2.23 per share,~~for the six months ended November 30, 2008, compared to ~~$9.2~~$13.5 million ~~or $0.22 per share,~~ in the prior fiscal year. The higher losses in ~~each of~~ the current year periods ~~versus~~are primarily due to costs associated with the ~~comparable prior year periods were substantially related to the write-down~~closure of ~~assets required by SFAS 144.~~Caribe, Argentina and Coach.

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 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~~and fourth quarters of the fiscal year, while revenues from the sale of instructional materials and educational technology products are highest in the first ~~quarter.~~and fourth quarters. The Company ~~generally experiences~~historically has experienced a loss from operations in the first and third quarters of each fiscal year.

Liquidity and Capital Resources

The Company’s cash and cash equivalents, including ~~the~~ cash ~~of the~~from discontinued operations, totaled ~~$201.2~~$31.8 million at ~~February 29,~~November 30, 2008, compared to ~~$22.8~~$120.4 million at May 31, ~~2007~~2008 and ~~$29.4~~$187.6 million at ~~February 28,~~November 30, 2007.

Cash used in operating activities was $63.3 million for the six months ended November 30, 2008, compared to cash provided by operating activities ~~was $308.5 million for the nine months ended February 29, 2008, as compared to $42.7~~of $218.8 million in the prior fiscal year period. ~~This increase was due to a $49.1~~The net decrease of $282.1 million ~~improvement~~consists primarily of the timing of royalty payments accrued in ~~earnings~~the prior year as well as accounts payable and other accrued expenses of $156.7 million, lower net income from continuing operations of $78.8 million and ~~working capital changes between the two periods, substantially due~~$30.4 million related to the higher Harry Potter revenues in the current fiscal year. The most significant of these working capital changes that had a positive effect on cash flows occurred in Accrued royalties, which provided cash of $117.6 millionaccelerated inventory purchases in the current fiscal year period compared to $20.6 million in the prior fiscal year period; Accounts payable and other accrued expenses, which provided cash of $34.1 million in the current fiscal year period compared to a use of cash of $31.2 million in the prior fiscal year period; and Accounts receivable, which provided cash of $9.1 million in the current fiscal year period compared to a use of cash of $21.3 million in the prior fiscal year period. ~~Substantially all accrued expenses associated with Harry Potter revenues are expected to be paid by the Company in the quarter ending May 31, 2008.~~

Cash used in investing activities ~~increased to $80.3~~remained relatively flat at $43.0 million for the ~~nine~~six months ended ~~February 29,~~November 30, 2008, as proceeds from ~~$67.9~~the sale of the DTH business offset higher capital spending.

Cash provided by financing activities was $19.4 million for the six months ended November 30, 2008, compared to $1.4 million for the prior fiscal year period, ~~reflecting increased prepublication expenditures~~representing an $18.0 million increase year over year. The change is primarily due to a higher cash outflow of $179.9 million from the amount of funds expended for ~~new product development~~repurchase of Common Stock in ~~the~~~~Educational Publishing~~ ~~segment.~~

~~Cash used in financing activities was $42.6 million for the nine months ended February 29, 2008, compared to $140.4 million for~~ the prior ~~fiscal year period. This $97.8 million change was due to~~period and higher ~~proceeds pursuant to stock-based compensation plans in the current fiscal year period, which provided $33.3 million~~net borrowings on lines of ~~cash as compared to $21.5~~credit of $46.4 million in the prior ~~fiscal~~ year period,~~and~~ partially offset by reduced net borrowings on the ~~repurchase in the open market and repayment at maturity~~Loan Agreement of ~~an aggregate of $294.0~~$176.4 million ~~of the Corporation’s then-outstanding 5.75% Notes due January 15, 2007 (the “5.75% Notes”) during~~versus the prior ~~fiscal~~ year period, offset by net repayments of revolving credit facilities in the current fiscal year period equal to $56.2 million as compared to net borrowings under revolving credit facilities in the prior fiscal year period equal to $138.8 million. In addition, during the current fiscal year period, the Company used the $200.0 millionand lower proceeds from the ~~Term Loan (as described under “Financing” below) to fund the reacquisition by the Corporation~~exercise of ~~shares~~employee stock options of ~~Common Stock pursuant to the ASR and used an additional $5.4 million for open market reacquisitions of Common Stock, as discussed below.~~$28.8 million.

Due to the seasonal nature of its business as discussed under “Seasonality” above, the Company usually experiences negative cash flows in the June through October time period. As a result of the Company’s business cycle, 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. In the current fiscal year, borrowings peaked in October 2008, and are expected to decline in the second half of the fiscal year. The Company expects to realize the benefit of deferred tax assets related to the DTH business divestiture in the current fiscal year. Accordingly, net tax payments will be lower than historical levels in the current fiscal year.

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, to making acquisitions that will complement its portfolio of ~~businesses.~~businesses, as well as to engage in shareholder enhancement initiatives, such as share repurchases or dividend declarations. The Company believes that funds generated by its operations and funds available under its current credit facilities will be sufficient to finance its short-and long-term capital ~~requirements.~~requirements for the foreseeable future.

SCHOLASTIC CORPORATION

Item 2. MD&A

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

In the current fiscal year, the Company expects higher uses of cash than in previous years for severance payments, pension funding and dividends while continuing modest discretionary common share repurchases. Despite the current economic conditions and the aforementioned uses of cash expected in the current fiscal year, the Company has maintained, and expects to maintain for the foreseeable future, sufficient liquidity to fund ongoing operations (including severance payments and pension contributions), dividends, authorized common share repurchases, debt service, planned capital expenditures and other investments. As of ~~February 29,~~November 30, 2008, the Company’s primary sources of liquidity consisted of cash and cash equivalents ~~including short-term investments,~~ of ~~$201.2~~$31.8 million, cash from operations, and borrowings remaining available under the Revolving Loan (as described under “Financing” below) totaling ~~$325.0~~$280.0 million. Approximately 54% of the Company’s outstanding debt is not due until fiscal year 2013, and the remaining 46% is spread ratably over each preceding period. The Company may at any time, but in any event not more than once in any calendar year, request that the aggregate availability of credit under the Revolving Loan be increased by an amount of $10.0 million or an integral multiple of $10.0 million (but not to exceed $150.0 million).

~~The~~ Accordingly, the Company believes ~~it has adequate access to capital~~these sources of liquidity are sufficient to finance its ongoing operating needs, and ~~to repay~~ its ~~debt obligations as they become due.~~ financing and investing activities.

As of ~~February 29,~~November 30, 2008, the Company was rated BB by Standard & Poor’s Rating Services and Ba1 by Moody’s Investors Service. ~~Under prevailing market conditions,~~If current economic trends cause the Company’s results from operations to decline, combined with the aforementioned uses of cash expected in the current fiscal year, it is possible that the Company’s credit rating could be reduced. In the event the Company’s credit rating is reduced, the Company believes that ~~these ratings afford it adequate access~~existing committed credit lines and other sources of cash will be sufficient to meet the ~~public~~Company’s liquidity needs for the near term, as the Company is currently compliant with its debt covenants and ~~private markets~~expects to remain compliant for ~~debt.~~the foreseeable future. The Company’s interest rates for the Loan Agreement are associated with certain leverage ratios, and, accordingly, a change in the Company’s credit rating does not necessarily result in an increase in interest costs.

Financing

On June 1, 2007, Scholastic Corporation and Scholastic Inc. (each, a “Borrower” and together, the “Borrowers”) elected to replace the Company’s then-existing credit facilities ~~the Credit Agreement and the Revolver (as discussed below),~~ with a new $525.0 million credit facility with certain banks (the “Loan Agreement”), consisting of a $325.0 million revolving credit component (the “Revolving Loan”) and a $200.0 million amortizing term loan component (the “Term Loan”). The Loan Agreement is a contractually committed unsecured credit facility that is scheduled to expire on June 1, 2012. The $325.0 million Revolving Loan component allows the Company to borrow, repay or prepay and reborrow at any time prior to the stated maturity date, and the proceeds may be used for general corporate purposes, including financing for acquisitions and share repurchases. The Loan Agreement also provides for an increase in the aggregate Revolving Loan commitments of the lenders of up to an additional $150.0 million. The $200.0 million Term Loan component was established in order to fund the reacquisition by the Corporation of shares of its Common Stock pursuant to ~~the ASR (as more fully described in Note 11 of Notes to Condensed Consolidated Financial Statements-Unaudited in Item 1, “Financial Statements”)~~an Accelerated Share Repurchase Agreement and was fully drawn on June 28, 2007 in connection with that transaction. The Term Loan, which may be prepaid at any time without penalty, requires quarterly principal payments of $10.7 million, with the first payment made on December 31, 2007, and a final payment of $7.4 million due on June 1, 2012. Interest on both the Term Loan and Revolving Loan is due and payable in arrears on the last day of the interest period (defined as the period commencing on the date of the advance and ending on the last day of the period selected by the Borrower at the time each advance is made). At the election of the Borrower, the interest rate charged for each loan made under the Loan Agreement is based on (1) a rate equal to the higher of (a) the prime rate or (b) the prevailing Federal Funds rate plus ~~0.5%~~0.500% or (2) an adjusted LIBOR rate plus an applicable margin, ranging from ~~0.50%~~0.500% to ~~1.25%~~1.250% based on the Company’s prevailing consolidated debt to total capital ratio. As of ~~February 29,~~November 30, 2008, the applicable margin on the Term Loan was ~~0.875 %~~0.875% and the applicable margin on the Revolving Loan was ~~0.70 %.~~0.700%. The Loan Agreement also provides for the payment of a facility fee ranging from 0.125% to ~~0.25%~~0.250% per annum on the Revolving Loan only, which at ~~February 29,~~November 30, 2008 was ~~0.175 %.~~0.175%. As of ~~February 29,~~November 30, 2008, ~~$189.3~~the term loan had an outstanding balance of $157.2 million ~~was outstanding under the Term Loan~~ at an interest rate of ~~4.0 %.~~4.7%.; at May 31, 3008 the Term Loan had an outstanding balance of $178.6 million at an interest rate of 3.8%; and at November 30, 2007, the Term Loan had an outstanding balance of $200.0 million at an interest rate of 5.9%. The Revolving Loan had an outstanding balance of $45.0 million as of November 30, 2008 at an interest rate of 2.1%. There were no outstanding borrowings under the Revolving Loan as of ~~February 29, 2008.~~May 31, 2008 and November 30, 2007. Interest rates on the Revolving Loan were significantly lower than the interest rates on the Term Loan due to the timing of interest resets on the loans. The Loan Agreement contains certain covenants, including interest coverage and leverage ratio tests and certain limitations on the amount of dividends and other distributions, and at ~~February 29,~~November 30, 2008 the Company was in compliance with these covenants.

The Credit Agreement was a $190.0 million unsecured revolving credit facility with certain banks that was scheduled to expire in 2009 but was terminated, along with the Revolver, at the election of the Borrowers as of June 1, 2007 and replaced by the Loan Agreement. The interest rate charged for all loans made under the Credit Agreement was, at the election of the Borrower, based on the prime rate or, alternatively, an adjusted LIBOR rate plus an applicable margin, ranging from 0.325% to 0.975% . The Credit Agreement also provided for the payment of a facility fee in the range of 0.10% to 0.30% and a utilization fee, if total borrowings exceeded 50% of the total facility, in the range of 0.05% to 0.25% . The amounts charged varied based on the Company’s published credit ratings. The margin, facility fee and utilization fee at each of February 28, 2007 and May 31, 2007 were 0.975%, 0.30% and 0.25%, respectively. At February 28, 2007, $98.0 million was outstanding under the Credit Agreement at a weighted average interest rate of 6.5% . There were no outstanding borrowings under the Credit Agreement at May 31, 2007.

The Revolver was a $40.0 million unsecured revolving loan agreement with a bank that was scheduled to expire in 2009 but was terminated, along with the Credit Agreement, at the election of the Borrowers as of June 1, 2007 and replaced with the Loan Agreement. The interest rate charged for all loans made under the Revolver was set at either (1) the prime lending rate minus 1% or (2) an adjusted LIBOR rate plus an applicable margin, ranging from 0.375% to 1.025% . The Revolver also provided for the payment of a facility fee in the range of 0.10% to 0.30% . The amounts charged varied based on the Company’s published credit ratings. The margin and facility fee at each of February 28, 2007 and May 31, 2007 were 1.025% and 0.30%, respectively. At February 28, 2007, $40.0 million was outstanding under the Revolver at a weighted average of 6.4% . There were no outstanding borrowings under the Revolver at May 31, 2007.

During the fourth quarter of fiscal ~~2007,~~2008, the Company ~~entered into~~renewed unsecured money market bid rate credit lines totaling $50.0 million that were originally entered into during the fourth quarter of ~~which $41.0 million was outstanding at May 31,~~fiscal 2007. Currently, the Company’s credit line under this facility is $45.0 million. There were no outstanding borrowings under these credit lines at ~~February 29, 2008.~~November 30, 2008, May 31, 2008 and November 30, 2007. All loans made under these credit lines are at the sole discretion of the lender and at an interest rate and term, not to exceed 364 days, agreed to at the time each loan is made. ~~The weighted average interest rate for all money market bid rate loans outstanding on May 31, 2007 was 6.2% .~~ These credit lines are typically available for loans up to 364 days and may be renewed, if requested by the Company, at the sole option of the lender.

As of ~~February 29,~~November 30, 2008, the Company had various local currency credit lines, with maximum available borrowings in amounts equivalent to ~~$74.4~~$65.2 million, underwritten by banks primarily in the United States, Canada and the United Kingdom. These credit lines are typically available for overdraft borrowings or loans up to 364 days and may be renewed, if requested by the Company, at the sole option of the lender. There were borrowings outstanding under these facilities equivalent to ~~$10.7~~$27.4 million at ~~February 29,~~November 30, 2008 at a weighted average interest rate of ~~7.5% as~~4.5%, compared to the equivalent of ~~$25.2~~$11.8 million at May 31, 2008 at a weighted average interest rate of 6.4% and to the equivalent of $40.5 million at November 30, 2007 at a weighted average interest rate of 7.0% ~~and~~. In December 2008, the ~~equivalent~~Company recapitalized its United Kingdom operations via a cash contribution from the Company’s domestic operations, due to the cancellation of ~~$34.7 million at February 28, 2007 at a weighted average interest rate of 5.9 %.~~the local currency credit line in the United Kingdom.

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

At ~~February 29,~~November 30, 2008, ~~and May 31, 2007,~~ the Company had open standby letters of credit of ~~$8.4~~$8.1 million issued under certain credit lines, as compared to ~~$13.0~~$8.4 million ~~at February 28,~~as of May 31, 2008 and November 30, 2007. These letters of credit are scheduled to expire within one year; however, the Company expects that substantially all of these letters of credit will be renewed, at similar terms, prior to expiration.

The Company’s total debt obligations were ~~$373.6~~$389.0 million at ~~February 29,~~November 30, 2008, ~~$239.6~~$349.7 million at May 31, ~~2007~~2008 and ~~$346.1~~$414.1 million at ~~February 28,~~November 30, 2007. The higher level of debt at ~~February 29,~~November 30, 2008 as compared to May 31, 2008 was primarily due to higher borrowings against the Revolving Loan and higher borrowings by the foreign subsidiaries. The lower level of debt at November 30, 2008 compared to the levels at both May 31, 2007 and February 28, 2007 was primarily due to the $200.0 million Term Loan drawn to finance the ASR in June 2007, partially offset by the reduced borrowing requirements of the Company in the current fiscal year period resulting from the higher Harry Potter receipts during the period and the favorable timing of the payment of associated accrued royalties. The higher level of debt at February 28, 2007 compared to May 31,November 30, 2007 was due to the repayments made on the Term Loan and the repurchase in fiscal 2008 of the Company’s 5% Notes due 2013 on the open market as well as lower borrowings by the foreign subsidiaries. This was partially offset by higher borrowings ~~under revolving credit facilities in connection with~~against the ~~repayment of the $258.0 million of 5.75% Notes that remained outstanding at maturity in January 2007.~~Revolving Loan.

For a more complete description of the Company’s debt obligations, see Note 45 of Notes to Condensed Consolidated Financial Statements ~~–Unaudited~~– Unaudited in Item 1, “Financial Statements.”

SCHOLASTIC CORPORATION

Item 2. MD&A

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“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 beginning 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.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”), to provide companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS 159 is to reduce both the complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS 159 will become effective for the Company’s fiscal year beginning June 1, 2008. The Company is currently evaluating the impact, if any, that SFAS 159 will have on its consolidated financial position, results of operations and cash flows.

In December 2007, the FASB issued SFAS No. 141 (revised), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an acquiror accounts for business combinations. SFAS 141R includes guidance for the recognition and measurement of the identifiable assets acquired, the liabilities assumed, and any noncontrolling or minority interest in the acquiree. It also provides guidance for the measurement of goodwill, the recognition of contingent consideration, the accounting for pre-acquisition gain and loss contingencies and acquisition-related transaction costs, and the recognition of changes in the acquiror’s income tax valuation allowance. SFAS 141R applies prospectively and is effective for business combinations made by the Company beginning June 1, 2009.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to establish accounting and reporting standards for any noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 clarifies that a noncontrolling interest in a subsidiary should be reported as a component of equity in the consolidated financial statements and requires disclosure, on the face of the consolidated statement of ~~income,~~operations, of the amounts of consolidated net income attributable to the parent and to the noncontrolled interest. SFAS 160 is effective for the Company beginning June 1, 2009 and is to be applied prospectively, except for the presentation and disclosure requirements, which upon adoption will be applied retrospectively for all periods presented. The Company is currently evaluating the impact, if any, that SFAS 160 will have on its consolidated financial position, results of operations and cash flows.

In June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP 03-6-1”), which classifies unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents as participating securities and requires them to be included in the computation of earnings per share pursuant to the two-class method described in SFAS No. 128, “Earnings per Share.” FSP 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. It requires all prior period earnings per share data presented to be adjusted retrospectively. The Company is currently evaluating the effect, if any, that the adoption of FSP 03-6-1 will have on its consolidated financial position, results of operations and cash flows.

Recently Adopted Accounting Pronouncements

In ~~July~~September 2006, the FASB issued ~~FIN 48, which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with~~ SFAS No. ~~109, “Accounting~~157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for ~~Income Taxes.~~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. In February 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” and FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157.” ~~FIN 48 provides guidance on recognizing, measuring, presenting,~~Collectively, these Staff Positions allow a one-year deferral of adoption of SFAS 157 for nonfinancial assets and ~~disclosing~~liabilities that are recognized or disclosed at fair value in the financial statements ~~uncertain tax positions~~on a non-recurring basis and amend SFAS 157 to exclude FASB Statement No. 13 and its related interpretive accounting pronouncements that address leasing transactions.

SCHOLASTIC CORPORATION

Item 2. MD&A

The Company adopted SFAS 157 beginning June 1, 2008, except for nonfinancial assets and liabilities measured at fair value on a ~~company has taken or expects~~non-recurring basis, which will be effective for the Company June 1, 2009. The impact of the adoption on June 1, 2008 was not material to ~~file in a tax return. FIN 48 states that a tax benefit from an uncertain tax position may be recognized only if it~~the Company’s condensed consolidated financial statements. The Company is ~~“more likely than not”~~currently evaluating the impact that the ~~position is sustainable, based~~adoption of the deferred portion of SFAS 157 will have on its ~~technical merits.~~consolidated financial position, results of operations and cash flows.

SFAS 157 establishes a three-level hierarchy for fair value measurements to prioritize the inputs used in the valuation techniques to derive fair values. The ~~tax benefit of~~basis for fair value measurements for each level within the hierarchy is described below with Level 1 having the highest priority and Level 3 having the lowest.

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable.

The Company’s assets and liabilities measured at fair value on a qualifying position is the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with a taxing authority having full knowledge of all relevant information. Priorrecurring basis subject to the ~~issuance~~presentation requirements of ~~FIN 48, an uncertain tax position would not be recorded unless it was “probable” that a loss or reduction~~SFAS 157 at November 30, 2008 consisted of ~~benefits would occur. Under FIN 48, the liability for unrecognized tax benefits is classified~~cash and cash equivalents and foreign currency forward contracts, neither of which were material as ~~noncurrent unless the liability is expected to be settled in cash within twelve months~~ of the reporting date. Cash and cash equivalents are comprised of bank deposits and short-term investments, such as money market funds, the fair value of which is based on quoted market prices, a Level 1 fair value measure. The fair values of foreign currency forward contracts, used by the Company to manage foreign exchange impact to the financial statements, are based on quotations from financial institutions, a Level 2 fair value measure.

Upon adoption of FIN 48, the Company recognized an increase in the liability for unrecognized tax benefits of approximately $34 million, including approximately $6 million accrued for potential payments of interesthas not elected to measure any financial assets and ~~penalties, as more fully described in Note 12 of Notes~~financial liabilities at fair value which were not previously required to ~~Condensed Consolidated Financial Statements — Unaudited in Item 1, “Financial Statements.”~~

~~Other than~~be measured at fair value. Therefore, the adoption of ~~FIN 48, there have been~~this standard has had no ~~material changes to~~impact on the Company’s ~~critical accounting policies as set forth in~~consolidated financial position, results of operations and cash flows.

Since the date of the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, ~~2007~~2008 (the “Annual Report”)., there have been no material changes to the Company’s critical accounting policies and estimates.

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

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 Annual Report 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~~

SCHOLASTIC CORPORATION

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company conducts its business in various foreign countries, and as such, its cash flows and earnings are subject to fluctuations from changes in foreign currency exchange rates. Management believes that the impact of currency fluctuations does not represent a significant risk to the Company given the size and scope of its current international operations. The Company manages its exposures to this market risk through internally established procedures and, when deemed appropriate, through the use of 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 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 ~~54%~~59% of the Company’s debt at ~~February 29,~~November 30, 2008 bore interest at a variable rate and was sensitive to changes in interest rates, compared to approximately ~~28%~~55% at May 31, ~~2007~~2008 and approximately ~~50%~~58% at ~~February 28,~~November 30, 2007. The increase in variable-rate debt as of ~~February 29,~~November 30, 2008 compared to May 31, ~~2007~~2008 was primarily due to higher borrowings against the ~~$200.0 million variable-rate Term~~Revolving Loan ~~drawn to finance~~and higher borrowings by the ~~ASR in June 2007.~~foreign subsidiaries. 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.

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 29,~~November 30, 2008 (see Note 45 of Notes to Condensed Consolidated Financial Statements - Unaudited in Item 1, “Financial Statements”):


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

		2008			2009			2010			2011			2012		Thereafter				Total	2009			2010			2011			2012			2013			Thereafter		Total


Debt Obligations
Lines of credit	$	10.7		$	—		$	—		$	—		$	—		$	—		$	10.7	$	27.4		$	—		$	—		$	—		$	—		$	—	$	27.4
Average interest rate		7.5	%																			4.5	%

Long-term debt including current portion:	$
Fixed-rate debt		—		$	—		$	—		$	—		$	—		$	175.0		$	175.0	$	—		$	—		$	—			—		$	160.5		$	—	$	160.5
Average interest rate																	5.0	%
Interest rate																																		5.0	%

Variable-rate debt	$	10.7		$	42.8		$	42.8		$	42.8		$	42.8		$	7.4	⁽¹⁾	$	189.3	$	21.4		$	42.8		$	42.8		$	42.8		$	52.4	⁽¹⁾	$	—	$	202.2
Average interest rate⁽²⁾		4.0	%		4.0	%		4.0	%		4.0	%		4.0	%		4.0	%
Interest rate⁽²⁾																						4.65	%		4.65	%		4.65	%		4.65	%		2.5	%

~~(1)~~	~~Represents~~
(1)	Includes the final payment of $7.4 million under the Term Loan, which has a final maturity of June 1, 2012 but may be repaid at any time.

(2)	~~Represents~~For periods through 2012, the rate represents the interest rate under the Term Loan at ~~February 29,~~November 30, 2008; the interest rate is subject to change over the life of the Term Loan. For 2013, the rate represents the weighted average interest rate on the $7.4 million Term Loan and the $45 million Revolving Loan at November 30, 2008; this interest rate is subject to change over the life of such loans.

~~SCHOLASTIC CORPORATION~~
~~Item 4. Controls and Procedures~~

SCHOLASTIC CORPORATION

Item 4. Controls and Procedures

The Chief Executive Officer and the Chief Financial Officer of 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 29,~~November 30, 2008, 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 29,~~November 30, 2008 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 1. Legal Proceedings

~~SCHOLASTIC CORPORATION~~
~~Item 1. Legal Proceedings~~

~~For information concerning~~As previously reported in the Company’s Quarterly Report on Form 10-Q for the period ended August 31, 2007 and the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2008, the Company is party to certain actions filed by each of ~~the~~ Alaska Laborers Employee Retirement Fund and Paul Baicu, which were consolidated on November 8, ~~2007 and entitledAlaska Laborers Employment Retirement Fund v. Scholastic Corporation, see “Part II – Other Information, Item 1. Legal Proceedings”~~2007. On September 26, 2008, the plaintiff sought leave of the Court to file a second amended class action complaint, in order to add allegations relating to the Company’s restatement announced in the Company’s ~~Quarterly~~Annual Report on Form ~~10-Q for the period ended August 31, 2007.~~

~~For information concerning a previously reported action entitledRoot v. Scholastic Corporation, see “Part II – Other Information, Item 1. Legal Proceedings” in~~10-K filed on July 30, 2008. The Court thereafter dismissed the Company’s ~~Quarterly Report~~pending motion to dismiss as moot. On October 20, 2008, the plaintiff filed the second amended complaint, and on ~~Form 10-Q for~~October 31, 2008, the ~~period ended November 30, 2007.~~Company filed a motion to dismiss the second amended complaint, which remains pending. The second amended class action complaint continues to allege securities fraud relating to statements made by the Company concerning its operations and financial results between March 2005 and March 2006 and seeks unspecified compensatory damages. The Company continues to believe that the allegations in such complaint are without merit and is vigorously defending the lawsuit.

~~SCHOLASTIC CORPORATION~~PART II – OTHER INFORMATION
~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~

SCHOLASTIC CORPORATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information with respect to repurchases of shares of Common Stock by the Corporation during the ~~quarter~~six months ended ~~February 29,~~November 30, 2008:

Issuer Purchases of Equity Securities

(Dollars in millions except per share amounts)

Total number of shares
            purchased as part of publicly
Maximum number of shares (or
Total number of
Average price
announced plans
approximate dollar value) that may yet be
Period
shares purchased
paid per share
or programs
purchased under the plans or programs
December 1, 2007 through December 31, 2007 None     $ —     None $20.0 ⁽¹⁾
January 1, 2008 through January 31, 2008 167,199 $ 32.53 167,199 $14.6 ⁽¹⁾
February 1, 2008 through February 29, 2008 None $ —     None $14.6 ⁽¹⁾
Total 167,199 $ 32.53 167,199 $14.6 ⁽¹⁾



Period	Total number of shares purchased	Average price paid per share			Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares (or approximate dollar value) that may yet be purchased under the plans or programs


June 1, 2008 through June 30, 2008	151,075		$	28.95	151,075		$	15.6	⁽¹⁾

July 1, 2008 through July 31, 2008	100,713		$	27.36	100,713		$	12.9	⁽¹⁾

August 1, 2008 through August 31, 2008	171,792		$	26.36	171,792		$	8.3	⁽¹⁾

September 1, 2008 through September 30, 2008	33,508		$	25.58	33,508		$	7.4	⁽¹⁾

October 1, 2008 through October 31, 2008	345,380		$	21.67	345,380		$	0	⁽¹⁾

November 1, 2008 through November 30, 2008	6,407		$	13.28	6,407		$	9.9	⁽¹⁾

Total	808,875		$	24.83	808,875		$	9.9	⁽¹⁾


(1)	On ~~December 20, 2007,~~May 28, 2008, the Corporation announced that its Board of Directors had authorized a new program to ~~repurchase~~purchase up to $20.0 million of Common Stock, from time to time as conditions allow, on the open market or through negotiated private transactions. On November 20, 2008, the Board of Directors authorized a further program to repurchase up to an additional $10.0 million of its Common Stock, which will be funded with available cash and pursuant to which the Corporation may purchase shares, from time to time as conditions allow, on the open market.

SCHOLASTIC CORPORATION

Item 4. Submission of Matters to a Vote of Security Holders

~~SCHOLASTIC CORPORATION~~The Annual Meeting of Stockholders of the Corporation was held on September 24, 2008 (the “Annual Meeting”). The following sets forth the results of the proposals presented at the Annual Meeting voted upon by the stockholders of the Corporation entitled to vote thereon:

Holders of the 1,656,200 outstanding shares of the Class A Stock (the “Class A Stockholders”) voted unanimously in favor of electing Richard Robinson, Ramon C. Cortines, John L. Davies, Andrew S. Hedden, Mae C. Jemison, Peter M. Mayer, Augustus K. Oliver and Richard M. Spaulding as directors to serve until the next annual meeting of the Corporation’s stockholders and until their respective successors are duly elected and qualified.

Holders of the Common Stock elected the following nominees as directors to serve until the next annual meeting of the Corporation’s stockholders and until their respective successors are duly elected and qualified. Votes cast by holders of the Common Stock were:

The Class A Stockholders also voted unanimously in favor of the approval of an amendment to the Scholastic Corporation Employee Stock Purchase Plan to increase the number of shares of Common Stock available for issuance thereunder by 500,000 shares and the approval of the Scholastic Corporation 2008 Executive Performance Incentive Plan establishing the performance-based framework pursuant to which certain key employees may receive annual incentive payments.

~~Item 6. Exhibits~~

SCHOLASTIC CORPORATION

Item 6. Exhibits

Exhibits:


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.

~~SCHOLASTIC CORPORATION~~
~~SIGNATURES~~

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~~January 9, ~~2008~~2009	By:	~~By:~~	/s/ Richard Robinson


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



Date: ~~April~~January 9, ~~2008~~2009			/s/ Maureen O’Connell


			Maureen O’Connell
			Executive Vice President,
			Chief Administrative Officer
			and Chief Financial Officer
			(Principal Financial Officer)

SCHOLASTIC CORPORATION

QUARTERLY REPORT ON FORM 10-Q, DATED NOVEMBER 30, 2008

Exhibits Index

~~SCHOLASTIC CORPORATION~~
~~QUARTERLY REPORT ON FORM 10-Q, DATED FEBRUARY 29, 2008~~
~~Exhibits Index~~


Exhibit Number
~~Number~~		Description of Document

~~31.1~~
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.

2833

	February 29, 2008			May 31, 2007			February 28, 2007

	(Unaudited)						(Unaudited)
ASSETS
*Current Assets:*
Cash and cash equivalents	$	198.4		$	21.6		$	26.5
Accounts receivable, net		210.1			228.3			223.7
Inventories		453.2			394.6			460.8
Deferred promotion costs		11.6			8.7			13.7
Deferred income taxes		94.3			71.5			71.8
Prepaid expenses and other current assets		73.5			51.5			65.3
Current assets of discontinued operations		58.5			128.5			138.8


Total current assets		1,099.6			904.7			1,000.6

Property, plant and equipment, net		351.3			358.7			353.4
Prepublication costs		113.2			108.2			103.2
Installment receivables, net		11.7			13.1			9.2
Royalty advances		52.2			50.3			52.1
Production costs		4.8			4.3			4.9
Goodwill		260.4			261.6			249.8
Other intangibles		61.2			61.4			61.5
Other assets and deferred charges		78.0			60.7			65.1
Noncurrent assets of discontinued operations		—			54.7			52.6


Total assets	$	2,032.4		$	1,877.7		$	1,952.4


LIABILITIES AND STOCKHOLDERS’ EQUITY
*Current Liabilities:*
Lines of credit, short-term debt and current portion of long-term debt	$	53.5		$	66.2		$	34.7
Capital lease obligations		4.9			5.5			5.7
Accounts payable		124.4			121.7			108.9
Accrued royalties		153.4			35.0			53.6
Deferred revenue		51.0			24.2			41.2
Other accrued expenses		171.0			138.1			140.8
Current liabilities of discontinued operations		23.4			23.4			24.5


Total current liabilities		581.6			414.1			409.4

*Noncurrent Liabilities:*
Long-term debt		320.1			173.4			311.4
Capital lease obligations		57.6			59.8			60.3
Other noncurrent liabilities		120.0			100.1			80.8
Noncurrent liabilities of discontinued operations		—			1.3			1.3


Total noncurrent liabilities		497.7			334.6			453.8

*Commitments and Contingencies*		—			—			—

*Stockholders’ Equity:*
Preferred Stock, $1.00 par value		—			—			—
Class A Stock, $.01 par value		0.0			0.0			0.0
Common Stock, $.01 par value		0.4			0.4			0.4
Additional paid-in capital		531.9			490.3			483.4
Accumulated other comprehensive loss		(30.9	)		(34.5	)		(27.1	)
Retained earnings		657.1			672.8			632.5
Treasury stock at cost		(205.4	)		—			—

Total stockholders’ equity		953.1			1,129.0			1,089.2

Total liabilities and stockholders’ equity	$	2,032.4		$	1,877.7		$	1,952.4

See accompanying notes

	*Nine months ended*			*Twelve months ended*		*Nine months ended*
	*February 29, 2008*			*May 31, 2007*		*February 28, 2007*


Beginning balance	$	261.6		$	248.8	$	248.8
Additions due to acquisitions		—			11.7		—
Purchase accounting adjustments		(1.3	)		—		—
Translation adjustments		0.1			1.1		1.0


Total	$	260.4		$	261.6	$	249.8


	Activity for six months ended November 30, 2008

Balance at May 31, 2008		$	0.4
Accruals			14.4
Payments			(9.1	)

Balance at November 30, 2008		$	5.7

				Total number of shares
				purchased as part of publicly	Maximum number of shares (or
	Total number of	Average price		announced plans	approximate dollar value) that may yet be
Period	shares purchased	paid per share		or programs	purchased under the plans or programs

December 1, 2007 through December 31, 2007	None	$	—	None	$20.0	⁽¹⁾

January 1, 2008 through January 31, 2008	167,199	$	32.53	167,199	$14.6	⁽¹⁾

February 1, 2008 through February 29, 2008	None	$	—	None	$14.6	⁽¹⁾

Total	167,199	$	32.53	167,199	$14.6	⁽¹⁾

James W. Barge

30,896,726 shares

770,574 shares

John G. McDonald

30,320,236 shares

1,347,064 shares