(SCHOLASTIC LOGO)

UNITED STATES
~~SECURITIES AND EXCHANGE COMMISSION~~
~~Washington, D.C. 20549~~

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 ~~August 31, 2010~~February 28, 2011	Commission File No. 000-19860

SCHOLASTIC CORPORATION
~~(Exact name of Registrant as specified in its charter)~~

(Exact name of Registrant as specified in its charter)


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

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

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.
Yesx Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx 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 filerx	Accelerated filero
Non-accelerated filero	Smaller reporting companyo

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

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


Title of each class		Number of shares outstanding as of ~~September 27, 2010~~February 28, 2011


Common Stock, $.01 par value		~~34,353,245~~29,272,974
Class A Stock, $.01 par value		1,656,200

~~SCHOLASTIC CORPORATION~~
~~FORM 10-Q FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2010~~
~~INDEX~~

SCHOLASTIC CORPORATION

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2011

INDEX



			Page

Part I - Financial Information

Item 1.		Financial Statements

		Condensed Consolidated Statements of Operations (Unaudited)		1

		Condensed Consolidated Balance Sheets (Unaudited)		2

		Consolidated Statements of Cash Flows (Unaudited)		3

		Notes to Condensed Consolidated Financial Statements (Unaudited)		5

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		2122

Item 3.		Quantitative and Qualitative Disclosures about Market Risk		3032

Item 4.		Controls and Procedures		3133

Part II – Other Information

Item 2.1.	Legal Proceedings		~~Unregistered Sales of Equity Securities and Use of Proceeds~~		3234

Item 6.		Exhibits		3335

Signatures				3436

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
August 31,

2010

2009

Revenues

$
290.9

$
315.6

Operating costs and expenses:

Cost of goods sold (exclusive of depreciation and amortization)

147.7

158.3

Selling, general and administrative expenses (exclusive of depreciation and amortization)

170.6

171.5

Bad debt expense

2.9

2.1

Depreciation and amortization

14.4

14.7

Severance

2.1

4.3

Total operating costs and expenses

337.7

350.9

Operating loss

(46.8
)

(35.3
)

Other income

—

0.9

Interest expense, net

(3.8
)

(3.9
)

Loss from continuing operations before income taxes

(50.6
)

(38.3
)
Benefit from income taxes

(16.4
)

(13.7
)

Loss from continuing operations

(34.2
)

(24.6
)
(Loss) earnings from discontinued operations, net of tax

(1.0
)

1.6

Net loss

$
(35.2
)
$
(23.0
)

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

Basic:

Loss from continuing operations

$
(0.95
)
$
(0.68
)
(Loss) earnings from discontinued operations, net of tax

$
(0.03
)
$
0.05

Net loss

$
(0.98
)
$
(0.63
)
Diluted:

Loss from continuing operations

$
(0.95
)
$
(0.68
)
(Loss) earnings from discontinued operations, net of tax

$
(0.03
)
$
0.05

Net loss

$
(0.98
)
$
(0.63
)

Dividends declared per common share

$
0.075

$
0.075

~~See accompanying notes~~


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

	2011			2010			2011			2010

Revenues	$	393.7		$	398.8		$	1,360.3		$	1,374.5

Operating costs and expenses:
Cost of goods sold (exclusive of depreciation and amortization)		200.2			195.2			644.1			627.1
Selling, general and administrative expenses (exclusive of depreciation and amortization)		203.0			185.1			605.9			577.1
Bad debt expense		6.7			2.9			12.6			9.4
Depreciation and amortization		14.5			14.2			43.4			43.7
Asset impairments		—			—			—			40.1
Severance		1.2			1.9			4.3			7.3

Total operating costs and expenses		425.6			399.3			1,310.3			1,304.7

Operating (loss) income		(31.9	)		(0.5	)		50.0			69.8

Other (expense) income		0.0			0.0			(0.4	)		0.9
Interest expense, net		3.9			4.0			11.7			12.2
Loss on investments		—			1.5			—			1.5


(Loss) earnings from continuing operations before income taxes		(35.8	)		(6.0	)		37.9			57.0

(Benefit) provision for income taxes		(10.5	)		(1.7	)		20.5			29.1


(Loss) earnings from continuing operations		(25.3	)		(4.3	)		17.4			27.9

Earnings (loss) from discontinued operations, net of tax		0.2			(1.3	)		(2.8	)		(1.0	)


Net (loss) earnings	$	(25.1	)	$	(5.6	)	$	14.6		$	26.9


Basic and diluted (loss) earnings per Share of Class A and Common Stock:
Basic:
(Loss) earnings from continuing operations	$	(0.81	)	$	(0.12	)	$	0.51		$	0.76
Earnings (loss) from discontinued operations, net of tax	$	0.00		$	(0.03	)	$	(0.08	)	$	(0.02	)
Net (loss) earnings	$	(0.81	)	$	(0.15	)	$	0.43		$	0.74
Diluted:
(Loss) earnings from continuing operations	$	(0.81	)	$	(0.12	)	$	0.50		$	0.75
Earnings (loss) from discontinued operations, net of tax	$	0.00		$	(0.03	)	$	(0.08	)	$	(0.02	)
Net (loss) earnings	$	(0.81	)	$	(0.15	)	$	0.42		$	0.73

Dividends declared per common share	$	0.100		$	0.075		$	0.275		$	0.225


See accompanying notes

SCHOLASTIC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

(Dollar amounts in millions, except per share data)

August 31, 2010

May 31, 2010

August 31, 2009

ASSETS

Current Assets:

Cash and cash equivalents

$
124.2

$
244.1

$
54.2

Accounts receivable, net

212.4

212.5

228.0

Inventories, net

433.0

315.7

435.0

Deferred income taxes

59.7

59.3

83.8

Other current assets

83.4

42.5

57.8

Current assets of discontinued operations

12.6

12.9

21.9

Total current assets

925.3

887.0

880.7

Property, plant and equipment, net

321.0

316.6

317.4

Prepublication costs

109.1

110.7

119.7

Royalty advances, net

37.9

38.0

41.1

Production costs

7.2

7.1

6.4

Goodwill

156.6

156.6

157.0

Other intangibles

15.4

15.5

51.7

Non current deferred income taxes

33.0

33.6

59.0

Other assets and deferred charges

37.8

35.3

37.8

Total assets

$
1,643.3

$
1,600.4

$
1,670.8

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

Lines of credit, short-term debt and current portion of long-term debt

50.5

50.3

56.2

Capital lease obligations

0.9

0.9

2.6

Accounts payable

178.0

101.0

167.2

Accrued royalties

56.3

42.3

56.8

Deferred revenue

59.8

39.8

55.5

Other accrued expenses

138.9

156.2

160.6

Current liabilities of discontinued operations

2.9

2.9

4.9

Total current liabilities

487.3

393.4

503.8

Noncurrent Liabilities:

Long-term debt

191.8

202.5

234.4

Capital lease obligations

55.1

55.0

54.7

Other noncurrent liabilities

116.8

119.1

110.4

Total noncurrent liabilities

363.7

376.6

399.5

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

574.5

569.2

558.4

Accumulated other comprehensive loss

(81.6
)

(85.4
)

(73.3
)

Retained earnings

569.9

607.8

537.0

Treasury stock at cost

(270.9
)

(261.6
)

(255.0
)

Total stockholders’ equity

792.3

830.4

767.5

Total liabilities and stockholders’ equity

$
1,643.3

$
1,600.4

$
1,670.8

~~See accompanying notes~~


	February 28, 2011				May 31, 2010				February 28, 2010

ASSETS
Current Assets:
Cash and cash equivalents		$	90.7			$	244.1			$	238.9
Accounts receivable, net			193.6				212.5				185.7
Inventories, net			375.8				315.7				374.6
Deferred income taxes			59.7				59.3				65.4
Other current assets			78.7				42.5				45.2
Current assets of discontinued operations			9.2				12.9				16.3


Total current assets			807.7				887.0				926.1

Property, plant and equipment, net			337.5				316.6				308.7
Prepublication costs			113.4				110.7				109.4
Royalty advances, net			37.2				38.0				40.0
Production costs			8.1				7.1				7.0
Goodwill			158.3				156.6				157.0
Other intangibles			20.2				15.5				18.5
Noncurrent deferred income taxes			33.7				33.6				59.4
Other assets and deferred charges			38.1				35.3				36.7

Total assets		$	1,554.2			$	1,600.4			$	1,662.8


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Lines of credit, short-term debt and current portion of long-term debt		$	49.5			$	50.3			$	52.2
Capital lease obligations			0.5				0.9				1.6
Accounts payable			163.0				101.0				126.1
Accrued royalties			62.2				42.3				60.6
Deferred revenue			66.2				39.8				59.0
Other accrued expenses			166.6				156.2				167.7
Current liabilities of discontinued operations			0.6				2.9				1.6


Total current liabilities			508.6				393.4				468.8

Noncurrent Liabilities:
Long-term debt			170.6				202.5				213.1
Capital lease obligations			54.7				55.0				54.7
Other noncurrent liabilities			118.8				119.1				101.2


Total noncurrent liabilities			344.1				376.6				369.0

Commitments and Contingencies:			—				—				—

Stockholders’ Equity:
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			574.1				569.2				566.3
Accumulated other comprehensive loss			(67.6	)			(85.4	)			(70.5	)
Retained earnings			614.2				607.8				581.4
Treasury stock at cost			(419.6	)			(261.6	)			(252.6	)

Total stockholders’ equity			701.5				830.4				825.0

Total liabilities and stockholders’ equity		$	1,554.2			$	1,600.4			$	1,662.8


See accompanying notes

SCHOLASTIC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED

(Dollar amounts in millions, except per share data)

Three months ended
August 31,

2010

2009

Cash flows used in operating activities:

Net loss

$
(35.2
)
$
(23.0
)
(Loss) earnings from discontinued operations, net of tax

(1.0
)

1.6

Loss from continuing operations

(34.2
)

(24.6
)

Adjustments to reconcile loss from continuing operations to net cash used in operating activities of continuing operations:

Provision for losses on accounts receivable

2.9

2.0

Provision for losses on inventory

6.3

5.7

Provision for losses on royalty

1.4

1.5

Amortization of prepublication and production costs

12.1

12.1

Depreciation and amortization

14.4

14.7

Deferred income taxes

(15.7
)

(20.6
)
Stock-based compensation

5.3

5.5

Changes in assets and liabilities:

Accounts receivable

(1.0
)

(32.5
)
Inventories

(122.4
)

(94.9
)
Other current assets

(22.0
)

(11.5
)
Deferred promotion costs

(7.7
)

(5.8
)
Royalty advances

(1.1
)

(1.0
)
Accounts payable

75.8

38.7

Other accrued expenses

(16.9
)

20.1

Accrued royalties

13.8

15.0

Deferred revenue

19.9

21.3

Pension and post-retirement liability

(2.9
)

(2.9
)
Other, net

1.0

0.1

Total adjustments

(36.8
)

(32.5
)
Net cash used in operating activities of continuing operations

(71.0
)

(57.1
)
Net cash (used in) provided by operating activities of discontinued operations

(2.1
)

1.5

Net cash used in operating activities

(73.1
)

(55.6
)

Cash flows used in investing activities:

Prepublication and production expenditures

(10.8
)

(10.7
)
Additions to property, plant and equipment

(13.0
)

(8.5
)
Acquisition related payments

(1.0
)

—

Net cash used in investing activities of continuing operations

(24.8
)

(19.2
)
Net cash used in investing activities

(24.8
)

(19.2
)

~~See accompanying notes~~


	Nine months ended February 28,

	2011			2010

Cash flows provided by (used in) operating activities:
Net income	$	14.6		$	26.9
Loss from discontinued operations, net of tax		(2.8	)		(1.0	)

Earnings from continuing operations		17.4			27.9

Adjustments to reconcile earnings from continuing operations to net cash provided by (used in) operating activities of continuing operations:
Provision for losses on accounts receivable		12.6			9.4
Provision for losses on inventory		18.4			20.2
Provision for losses on royalty advances		3.3			5.1
Amortization of prepublication and production costs		35.3			36.6
Depreciation and amortization		43.4			43.7
Deferred income taxes		1.0			(3.2	)
Stock-based compensation		11.1			11.1
Non-cash write off related to asset impairments		—			40.1
Unrealized loss on investment		—			1.5
Changes in assets and liabilities:
Accounts receivable		13.6			4.8
Inventories		(69.1	)		(47.1	)
Other current assets		(38.8	)		(4.0	)
Deferred promotion costs		(2.2	)		(0.7	)
Royalty advances		(1.8	)		(3.8	)
Accounts payable		57.6			(3.0	)
Other accrued expenses		7.7			28.9
Accrued royalties		18.7			18.5
Deferred revenue		25.8			24.7
Pension and postretirement liability		(4.4	)		(8.0	)
Other, net		4.8			(2.8	)

Total adjustments		137.0			172.0


Net cash provided by operating activities of continuing operations		154.4			199.9
Net cash provided by operating activities of discontinued operations		0.5			1.0


Net cash provided by operating activities		154.9			200.9

Cash flows (used in) provided by investing activities:
Prepublication and production expenditures		(38.4	)		(33.1	)
Additions to property, plant and equipment		(31.4	)		(28.4	)
Repayment of loan from investee		1.2			—
Net proceeds from sale of discontinued operations		—			0.2
Land acquisition		(24.3	)		—
Acquisition-related payments (net of cash received of $2.5 and $0.0)		(9.2	)		(1.0	)


Net cash used in investing activities		(102.1	)		(62.3	)

See accompanying notes

SCHOLASTIC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED

(Dollar amounts in millions, except per share data)

Three months ended
August 31,

2010

2009

Cash flows (used in) provided by financing activities:

Repayment of term loan

(10.7
)

(10.7
)
Repurchase of 5.00% notes

—

(4.1
)
Borrowings under lines of credit

12.6

40.7

Repayment under lines of credit

(12.6
)

(34.5
)
Repayment of capital lease obligations

(0.3
)

(0.9
)
Reacquisition of common stock

(9.7
)

(1.0
)
Payment of dividends

(2.7
)

(2.7
)
Net cash used in financing activities of continuing operations

(23.4
)

(13.2
)

Net cash used in financing activities

(23.4
)

(13.2
)
Effect of exchange rate changes on cash and cash equivalents

1.4

(1.4
)

Net decrease in cash and cash equivalents

(119.9
)

(89.4
)
Cash and cash equivalents at beginning of period

244.1

143.6

Cash and cash equivalents at end of period

$
124.2

$
54.2

~~See accompanying notes~~


	Nine months ended February 28,

	2011			2010

Cash flows (used in) provided by financing activities:
Repayment of term loan		(32.1	)		(32.1	)
Borrowings under Credit Agreement and Revolver		70.0			—
Repayment of Credit Agreement and Revolver		(70.0	)		—
Repurchase of 5% notes		—			(4.1	)
Borrowings under lines of credit		92.3			135.0
Repayment of lines of credit		(94.6	)		(132.8	)
Repayment of capital lease obligations		(1.9	)		(2.6	)
Reacquisition of common stock		(166.9	)		(1.5	)
Proceeds pursuant to stock-based compensation plans		2.6			3.8
Payment of dividends		(7.7	)		(8.2	)
Other		(1.2	)		(0.6	)


Net cash used in financing activities		(209.5	)		(43.1	)
Effect of exchange rate changes on cash and cash equivalents		3.3			(0.2	)


Net (decrease) increase in cash and cash equivalents		(153.4	)		95.3
Cash and cash equivalents at beginning of period		244.1			143.6

Cash and cash equivalents at end of period	$	90.7		$	238.9


See accompanying notes

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

1. Basis of Presentation

Principles of consolidation

The accompanying condensed consolidated financial statements include the accounts of Scholastic Corporation (the “Corporation”) and all wholly-owned and majority-owned subsidiaries (collectively, “Scholastic” or the “Company”). ~~All significant intercompany~~Intercompany transactions are eliminated in consolidation. 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, 2010 (the “Annual Report”).

The Company’s fiscal year is not a calendar year. Accordingly, references in this document to fiscal 2010 relate to the twelve month period ended May 31, 2010.

Discontinued Operations

~~As more fully described in Note 2, “Discontinued Operations,” the~~The Company closed or sold several operations during fiscal 2008, 2009 and ~~2009,~~2010 and presently holds for sale one operation. All of these businesses are classified as discontinued operations in the Company’s financial statements.

The remaining assets and liabilities associated with the foregoing discontinued businesses or operations are presented in the Company’s condensed consolidated balance sheets as “Current assets of discontinued operations” and “Current liabilities of discontinued operations” as of ~~August 31, 2010,~~February 28, 2011, May 31, 2010 and ~~August 31, 2009. In fiscal 2010, the Company sold a previously discontinued non-core book distribution business.~~February 28, 2010. The aggregate results of operations of these businesses for the three and nine months ended ~~August 31,~~February 28, 2011 and 2010 ~~and 2009~~ are included in the condensed consolidated statements of operations as ~~“(Loss) earnings~~“Earnings (loss) from discontinued operations, net of tax.” The aggregate cash flows of these businesses are also presented separately in the Company’s consolidated statements of cash flows for the ~~three~~nine months ended ~~August 31, 2010~~February 28, 2011 and ~~2009.~~2010. 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.

During the ~~three months ended August 31, 2010,~~first quarter of fiscal 2011, the Company determined that its distribution facility in Danbury, Connecticut (the “Danbury Facility”) was no longer “held for ~~sale”.~~sale.” Accordingly, the assets, liabilities and results of operations of the Danbury Facility are included in ~~Continuing Operations~~continuing operations for all periods presented.

~~Reclassification~~

The current presentation includes a net reclassification of certain costs to “Cost of goods sold” from “Selling, general and administrative expenses” totaling $2.2 for the three months ended August 31, 2009.

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 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 ~~August 31, 2009~~February 28, 2010 condensed consolidated balance sheet is included for comparative purposes.

Use of estimates

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 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 on-going basis, the Company evaluates the adequacy of its reserves and the estimates used in calculations, including, but not limited to: collectability of accounts receivable; sales ~~returns; gross margin rates used to determine inventory~~

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

returns; gross margin rates used to determine inventory values; gross profits for book fair operations during interim periods; amortization periods; stock-based compensation expense; pension and other post-retirement obligations; ~~tax rates;~~taxes; recoverability of inventories, ~~deferred promotions costs,~~ deferred income taxes and tax reserves, prepublication costs and royalty advances; and the fair value of goodwill reporting units and other intangibles.

Restricted Cash

The condensed consolidated balance sheets include restricted cash of $1.1, $0.0 and $0.0 as of February 28, 2011, May 31, 2010 and February 28, 2010, respectively, which is reported in “Other current assets.” This restricted cash was acquired with the assets of Math Solutions. See Note 2, “Acquisition and Land Purchase,” for a further description of the acquisition.

New Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (the “FASB”) issued an update to authoritative guidance on the revenue recognition related to multiple deliverable revenue arrangements. The guidance addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. Vendors often provide multiple products or services to their customers. Those deliverables often are provided at different points in time or over different time periods. The current authoritative guidance establishes the accounting and reporting guidance for arrangements under which the vendor will perform multiple revenue-generating activities. Specifically, this guidance addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. This guidance will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company has not chosen early adoption and is evaluating the impact on the Company’s consolidated financial position, results of operations and cash flows.

In October 2009, the FASB issued an update to authoritative guidance related to certain revenue arrangements that include software elements. The accounting guidance update addresses the accounting revenue arrangements that contain tangible products and software and it affects vendors that sell or lease tangible products in an arrangement that contains software that is more than incidental to the tangible product as a whole. The update clarifies what guidance should be used in allocating and measuring revenue. Tangible products containing software components and non-software components that function together to deliver the tangible product’s essential functionality are no longer within the scope of the software recognition guidance “Software – Revenue Recognition.” The amendment requires that hardware components of a tangible product containing software components always be excluded from the software revenue guidance. This guidance will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company has not chosen early adoption and is evaluating the update. The Company does not expect a significant impact on ~~the Company’s~~its consolidated financial position, results of operations and cash flows.

In ~~April~~December 2010, the FASB issued an update to the authoritative guidance on the ~~milestone method~~two-step testing required for impairment of ~~revenue recognition. The objective~~goodwill and other intangible assets. When a goodwill impairment test is performed (either on an annual or interim basis), an entity must assess whether the carrying amount of ~~this update is~~a reporting unit exceeds its fair value. If it does, an entity must perform an additional test to ~~provide guidance on defining a milestone~~determine whether goodwill has been impaired and ~~determining when it may be appropriate~~ to ~~apply~~calculate the ~~milestone method~~amount of revenue recognition for research or development transactions. Research or development arrangements frequently include payment provisions whereby a portion or all of the consideration is contingent upon milestone events such as a specific result from the research or development efforts. An entity often recognizes these milestone payments as revenue in their entirety upon achieving the related milestone, commonly referred to as the milestone method.that impairment. The amendments in this update ~~provide guidance on~~modify Step 1 of the ~~criteria~~goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that ~~should be met for~~a goodwill impairment exists. In determining whether ~~the milestone method~~it is more likely than not that an impairment of ~~revenue recognition is appropriate.~~goodwill exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The amendments in this update are effective ~~on a prospective basis~~ for ~~milestones achieved in~~ fiscal years, and interim periods within those years, beginning on or after ~~June~~December 15, 2010. Early adoption is not permitted. The Company ~~has not chosen early adoption and~~ is evaluating the impact on ~~the Company’s~~its consolidated financial position and results of ~~operations and cash flows.~~operations.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

2. Acquisition and Land Purchase

Transaction costs of $0.4 were expensed in fiscal 2011 and are included in “Other (expense) income” on the Company’s condensed consolidated statements of operations. The results of operations of this acquisition subsequent to the acquisition date are included in theEducational Publishing segment.

In the second quarter of fiscal 2011, the Company purchased the land on which its corporate headquarters are located for $24.3 and also satisfied capital lease obligations on this property of $1.3.

3. Discontinued Operations

During fiscal 2008, the Company determined to sell or shut down its domestic, Canadian and UK continuities businesses, and intends to sell a related warehousing and distribution facility located in Maumelle, Arkansas (the “Maumelle Facility”). During fiscal 2009, the Company also ceased its operations in Argentina and Mexico, its door-to-door selling operations in Puerto Rico as well as its continuities business in Australia and New Zealand, its corporate book fairs business and closed its Scarsdale, NY store. The Company also sold a trade magazine. Additionally, the Company sold a non-core market research business and a non-core on-line resource for teachers business. In fiscal 2010, the Company sold a previously discontinued non-core book distribution business. All of the above businesses are classified as discontinued operations in the Company’s financial statements.

~~The Company continues to monitor~~monitors the expected cash proceeds to be realized from the disposition of discontinued ~~operations~~operations’ assets, and adjusts asset values accordingly.

The Company continuously evaluates its portfolio of businesses for both impairment and economic viability. The Company did not cease any additional operations or classify any additional operations as “held for sale” during the ~~three-month~~nine-month period ended ~~August 31, 2010.~~February 28, 2011. During the ~~three months ended August 31, 2010,~~first quarter of fiscal 2011, the Company determined that the Danbury Facility was no longer “held for ~~sale”.~~sale.” Accordingly, the assets, liabilities and results of operations of the Danbury Facility are included in ~~Continuing Operations~~continuing operations for all periods presented.

During the second quarter of fiscal 2011, the Company began the process of settling the pension plan of Grolier Limited, a Canadian entity in the continuities business. Losses related to the recognition of prior service costs associated with the portion of the settlement completed in the current fiscal year are reflected in the table below. See Note 10, “Employee Benefit Plans,” for further details pertaining to the settlement.

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


	Three months ended August 31,						Three months ended February 28,					Nine months ended February 28,

	2010			2009			2011		2010			2011			2010

Revenues	$	—		$	1.3		$	—	$	—		$	—		$	2.4

(Loss) earnings before income taxes		(1.3	)		1.9
Loss on sale								—		—			—			(1.1	)
Earnings (loss) before income taxes								0.2		(1.5	)		(3.3	)		0.4
Income tax benefit (expense)		0.3			(0.3	)		—		0.2			0.5			(0.3	)


(Loss) earnings from discontinued operations, net of tax	$	(1.0	)	$	1.6
Earnings (loss) from discontinued operations, net of tax							$	0.2	$	(1.3	)	$	(2.8	)	$	(1.0	)

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:



	August 31, 2010			May 31, 2010			August 31, 2009			February 28, 2011			May 31, 2010			February 28, 2010

Accounts receivable, net		$	3.4		$	3.7		$	11.8		$	—		$	3.7		$	7.0
Inventories, net			—			—			0.7
Other assets			9.2			9.2			9.4			9.2			9.2			9.3


Current assets of discontinued operations		$	12.6		$	12.9		$	21.9		$	9.2		$	12.9		$	16.3


Accounts payable		$	—		$	—		$	1.2		$	—		$	—		$	0.2
Accrued expenses and other liabilities			2.9			2.9			3.7			0.6			2.9			1.4

Current liabilities of discontinued operations		$	2.9		$	2.9		$	4.9		$	0.6		$	2.9		$	1.6

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 reportable segments:Children’s Book Publishing and Distribution; Educational Publishing; Media, Licensing and Advertising;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.

• Children’s Book Publishing and Distributionoperates as an integrated business which includes the publication and distribution of children’s books, media and interactive products in the United States through school-based book clubs and book fairs and the trade channel. This segment is comprised of three operating segments.

• Educational Publishingincludes the production and/or publication and distribution to schools and libraries of educational technology products and services, 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. This segment is comprised of ~~two~~three operating segments.

•Media, Licensing and Advertisingincludes the production and/or distribution of media, consumer promotions and merchandising and advertising revenue, including sponsorship programs. This segment is comprised of three operating segments.

• 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. This segment is comprised of two operating segments.

Children’s Book
Publishing and
Distribution

Educational
Publishing

Media,
Licensing and
Advertising

Overhead⁽¹⁾

Total
Domestic

International

Total

Three months ended
August 31, 2010

Revenues

$
72.8

$
118.6

$
17.6

$
—

$
209.0

$
81.9

$
290.9

Bad debts

2.0

—

—

—

2.0

0.9

2.9

Depreciation and amortization⁽²⁾

3.6

0.6

0.5

8.4

13.1

1.3

14.4

Amortization⁽³⁾

3.3

6.5

1.7

—

11.5

0.6

12.1

Royalty advances expensed

5.1

0.2

0.1

—

5.4

0.6

6.0

Segment operating (loss) income

(51.6
)

28.5

(2.9
)

(18.6
)

(44.6
)

(2.2
)

(46.8
)
Segment assets

553.1

348.1

57.3

384.0

1,342.5

288.2

1,630.7

Goodwill

54.3

88.4

5.4

—

148.1

8.5

156.6

Expenditures for long-lived assets including royalty advances

13.0

6.9

2.0

5.5

27.4

3.1

30.5

Long-lived assets

183.8

168.2

20.1

227.1

599.2

69.7

668.9

Three months ended
August 31, 2009

Revenues

$
76.2

$
148.7

$
15.1

$
—

$
240.0

$
75.6

$
315.6

Bad debts

1.0

0.2

—

—

1.2

0.9

2.1

Depreciation and amortization⁽²⁾

3.3

0.9

0.2

8.8

13.2

1.5

14.7

Amortization⁽³⁾

2.5

6.8

2.2

—

11.5

0.6

12.1

Royalty advances expensed

5.1

0.2

0.1

—

5.4

1.5

6.9

Segment operating (loss) income

(47.5
)

41.3

(3.7
)

(23.5
)

(33.4
)

(1.9
)

(35.3
)
Segment assets

512.3

393.7

65.5

417.5

1,389.0

259.9

1,648.9

Goodwill

54.3

88.4

5.8

—

148.5

8.5

157.0

Expenditures for long-lived assets including royalty advances

12.7

5.6

1.6

2.9

22.8

2.8

25.6

Long-lived assets

180.6

204.8

30.2

226.5

642.1

74.1

716.2


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

Three months ended February 28, 2011

Revenues	$	193.0		$	81.3		$	24.3		$	—		$	298.6		$	95.1		$	393.7
Bad debt expense		4.7			1.0			0.1			—			5.8			0.9			6.7
Depreciation and amortization⁽³⁾		4.1			0.6			—			8.3			13.0			1.5			14.5
Amortization⁽⁴⁾		3.2			5.2			1.8			—			10.2			0.6			10.8
Royalty advances expensed		5.0			0.2			0.1			—			5.3			0.9			6.2
Segment operating loss		(9.2	)		(2.7	)		(5.7	)		(12.9	)		(30.5	)		(1.4	)		(31.9	)
Expenditures for long-lived assets including royalty advances		8.6			9.2			1.6			5.7			25.1			1.6			26.7

Three months ended February 28, 2010

Revenues	$	192.1		$	88.0		$	30.0		$	—		$	310.1		$	88.7		$	398.8
Bad debt expense		2.0			0.2			0.1			—			2.3			0.6			2.9
Depreciation and amortization⁽³⁾		3.4			0.7			0.1			8.5			12.7			1.5			14.2
Amortization⁽⁴⁾		3.2			6.0			2.2			—			11.4			0.9			12.3
Royalty advances expensed		4.9			0.2			0.2			—			5.3			1.3			6.6
Segment operating income (loss)		6.9			8.3			(1.5	)		(14.0	)		(0.3	)		(0.2	)		(0.5	)
Expenditures for long-lived assets including royalty advances		8.0			7.8			1.5			8.0			25.3			3.6			28.9

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


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

Nine months ended February 28, 2011

Revenues	$	653.2	$	301.5	$	82.7		$	—		$	1,037.4	$	322.9	$	1,360.3
Bad debt expense		9.0		1.0		0.2			—			10.2		2.4		12.6
Depreciation and amortization⁽³⁾		11.6		2.0		0.5			25.2			39.3		4.1		43.4
Amortization⁽⁴⁾		9.5		18.7		5.1			—			33.3		2.0		35.3
Asset impairments		—		—		—			—			—		—		—
Royalty advances expensed		13.3		0.6		0.3			—			14.2		2.3		16.5
Segment operating income (loss)		36.5		36.8		(3.9	)		(41.1	)		28.3		21.7		50.0
Segment assets at February 28, 2011		483.6		297.8		42.0			433.5			1,256.9		288.1		1,545.0
Goodwill at February 28, 2011		54.3		89.9		5.4			—			149.6		8.7		158.3
Expenditures for long-lived assets including royalty advances		29.5		31.7		5.8			42.6			109.6		8.7		118.3
Long-lived assets at February 28, 2011		177.9		178.9		19.5			247.2			623.5		74.4		697.9

Nine months ended February 28, 2010

Revenues	$	637.1	$	359.3	$	82.9		$	—		$	1,079.3	$	295.2	$	1,374.5
Bad debt expense		4.4		1.4		0.1			—			5.9		3.5		9.4
Depreciation and amortization⁽³⁾		10.3		2.3		0.5			26.1			39.2		4.5		43.7
Amortization⁽⁴⁾		8.7		19.4		6.4			—			34.5		2.1		36.6
Asset impairments		—		36.3		—			—			36.3		3.8		40.1
Royalty advances expensed		14.5		0.4		0.6			—			15.5		3.1		18.6
Segment operating income (loss)		67.2		45.5		(2.6	)		(53.0	)		57.1		12.7		69.8
Segment assets at February 28, 2010		478.3		285.6		51.6			577.9			1,393.4		253.1		1,646.5
Goodwill at February 28, 2010		54.3		88.4		5.9			—			148.6		8.4		157.0
Expenditures for long-lived assets including royalty advances		31.7		20.4		4.6			15.1			71.8		8.0		79.8
Long-lived assets at February 28, 2010		177.9		166.0		23.9			225.0			592.8		69.4		662.2


(1)	Includes assets and results of operations acquired in a business combination as of September 9, 2010.

(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 the Danbury facility.

~~(2)~~(3)	Includes depreciation of property, plant and equipment and amortization of intangible assets.

~~(3)~~(4)	Includes amortization of prepublication and production costs.

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:



	Carrying Value			Fair Value			Carrying Value			Fair Value			Carrying Value			Fair Value			Carrying Value			Fair Value			Carrying Value			Fair Value			Carrying Value			Fair Value

	*August 31, 2010*						*May 31, 2010*						*August 31, 2009*						February 28, 2011						May 31, 2010						February 28, 2010

Lines of Credit (weighted average interest rates of 3.9%,
3.9% and 2.9%, respectively)	$	7.7		$	7.7		$	7.5		$	7.5		$	13.4		$	13.4

Lines of Credit (weighted average interest rates of 4.0%, 3.9% and 3.9%, respectively)																			$	6.7		$	6.7		$	7.5		$	7.5		$	9.4		$	9.4
Loan Agreement:
Revolving Loan		—			—			—			—			—			—			—			—			—			—			—			—
Term Loan (interest rates of 1.1%, 1.1% and 1.2%, respectively)		82.3			82.3			93.0			93.0			125.1			125.1
Term Loan (interest rates of 1.1%, 1.1% and 1.0%, respectively)																				60.9			60.9			93.0			93.0			103.7			103.7
5% Notes due 2013, net of discount		152.3			149.2			152.3			151.3			152.1			130.1			152.5			155.3			152.3			151.3			152.2			146.9



*Total debt*		242.3			239.2			252.8			251.8			290.6			268.6		$	220.1		$	222.9		$	252.8		$	251.8		$	265.3		$	260.0

Less lines of credit, short-term debt and current portion of long-term debt		(50.5	)		(50.5	)		(50.3	)		(50.3	)		(56.2	)		(56.2	)		(49.5	)		(49.5	)		(50.3	)		(50.3	)		(52.2	)		(52.2	)


Total long-term debt	$	191.8		$	188.7		$	202.5		$	201.5		$	234.4		$	212.4		$	170.6		$	173.4		$	202.5		$	201.5		$	213.1		$	207.8

Short-term debt’s carrying value approximates fair value. Fair value of the Loan Agreement approximates its carrying value due to its variable interest rate and stable credit rating. Fair values of the 5% Notes were estimated based on market quotes, where available, or dealer quotes.

The following table sets forth the maturities of the Company’s debt obligations as of ~~August 31, 2010,~~February 28, 2011, for the remainder of fiscal 2011 and thereafter:




Nine-month period ending May 31:
Three-month period ending May 31:
2011	$	39.8	$	17.4
Fiscal years ending May 31:
2012		42.8		42.8
2013		159.7		159.9
2014		—		—
2015		—		—
Thereafter		—		—


Total debt	$	242.3	$	220.1

Lines of Credit

As of ~~August 31, 2010,~~February 28, 2011, the Company’s domestic credit lines available under unsecured money market bid rate credit lines totaled $20.0. There were no outstanding borrowings under these credit lines at ~~August 31, 2010,~~February 28, 2011, May 31, 2010 and ~~August 31, 2009.~~February 28, 2010. All loans made under these credit lines are at the sole discretion of the lender and at an interest rate and term agreed to at the time each loan is made, but not to exceed ~~180~~365 days. These credit lines may be renewed, if requested by the Company, at the option of the lender.

As of ~~August 31, 2010,~~February 28, 2011, the Company had various local currency credit lines, with maximum available borrowings in amounts equivalent to ~~$28.3,~~$30.1, 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 international facilities equivalent to $7.7 at August 31, 2010, at a~~Borrowings and weighted average interest ~~rate~~rates for these lines of ~~3.9%; $7.5 at May 31, 2010 at a weighted average interest rate of 3.9%; and $13.4 at August 31, 2009 at a weighted average interest rate of 2.9%.~~credit are presented in the table above.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

Loan Agreement

On June 1, 2007, Scholastic Corporation and Scholastic Inc. (each, a “Borrower” and together, the “Borrowers”) entered into a $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 Term Loan, which may be prepaid at any time without penalty, requires quarterly principal payments of $10.7, with the first payment having been due on December 31, 2007, and a final payment of $7.4 due on June 1, 2012.

On August 16, 2010, the Borrowers entered into an amendment to the Loan Agreement, which added certain provisions related to covenants and interest.

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, as amended, is based on on:(1) a rate equal to the higher of (i) the prime rate, (ii) the prevailing Federal Funds rate plus 0.500% or (iii) the Eurodollar Rate for a one month interest period plus 1%; or (2) an adjusted LIBOR rate plus an applicable margin, ranging from 0.500% to 1.250% based upon the Company’s prevailing consolidated debt to total capital ratio. As of ~~August 31, 2010,~~February 28, 2011, there were no borrowings outstanding under the Revolving Loan.

As of ~~August 31, 2010,~~February 28, 2011, the applicable margin on the Term Loan was 0.750% and the applicable margin on the Revolving Loan was 0.600%. The Loan Agreement also provides for the payment of a facility fee ranging from 0.125% to 0.250% per annum on the Revolving Loan only, which at ~~August 31, 2010,~~February 28, 2011, was 0.150%. As of ~~August 31, 2010, $82.3~~February 28, 2011, $60.9 was outstanding under the Term Loan at an interest rate of ~~1.1%~~1.06%.

As of ~~August 31, 2010,~~February 28, 2011, standby letters of credit outstanding under the Loan Agreement totaled ~~$7.2.~~$1.4. 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 ~~August 31, 2010,~~February 28, 2011, 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)~~

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 ofof: (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.

The Company repurchased $5.0 of the 5% Notes on the open market in fiscal 2010. The Company did not make any additional purchases during the ~~three-month~~nine-month period ended ~~August 31, 2010.~~February 28, 2011.

~~5. Comprehensive Loss~~

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

Three months ended August 31,

2010

2009

Net loss

$
(35.2
)
$
(23.0
)

Other comprehensive income, net:

Foreign currency translation adjustment

3.3

3.3

Pension and post-retirement adjustments

0.5

0.5

Total other comprehensive income, net:

3.8

3.8

Total comprehensive loss

$
(31.4
)
$
(19.2
)

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

6. Comprehensive (Loss) Income

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


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

	2011			2010			2011		2010

Net (loss) earnings	$	(25.1	)	$	(5.6	)	$	14.6	$	26.9

Other comprehensive income (loss), net:
Foreign currency translation adjustment		4.3			(1.1	)		12.5		4.3
Pension and post-retirement adjustments		0.7			1.0			5.3		2.3

Total other comprehensive income (loss), net:		5.0			(0.1	)		17.8		6.6

Total comprehensive (loss) income	$	(20.1	)	$	(5.7	)	$	32.4	$	33.5

7. Earnings (Loss) Per Share

~~Basic (loss)~~A portion of the Company’s restricted stock units (“RSUs”) granted to employees participate in earnings through cumulative non-forfeitable dividends payable to the employees upon vesting of the RSUs. For periods in which the Company has net income, basic earnings per Common and Class A shares outstanding (the “Issued Shares”) is calculated as the lesser of:


	•	Net earnings divided by the weighted average shares outstanding of the Issued Shares during the period (the “Treasury Stock Method”); or

	•	The sum of earnings distributed in the period to the Issued Shares and undistributed earnings available to the Issued Shares (excluding earnings attributable to the participating RSUs) divided by the weighted average shares outstanding of the Issued Shares during the period (the “Two Class Method”).

Diluted earnings per share for periods in which the Company has net income is calculated as the lesser of:

	•	The Treasury Stock Method incorporating the effect of dilutive shares; or

	•	The Two Class Method incorporating the effect of dilutive shares.

In periods of net loss, dilutive earnings per share ~~is computed by dividing net (loss) earnings by~~are not reported as the ~~weighted average Shares~~effect of ~~Class A Stock and Common Stock outstanding during~~ the ~~period. Diluted (loss) earnings 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.~~ shares becomes anti-dilutive.

In a period in which the Company reports a discontinued operation, Earnings (loss) ~~earnings~~ 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 following table summarizes the reconciliation of the numerators and denominators for the basic and diluted (loss) earnings per share computation for the periods indicated:~~

Three months ended August 31,

2010

2009

Loss from continuing operations

$
(34.2
)
$
(24.6
)
(Loss) earnings from discontinued operations, net of tax

(1.0
)

1.6

Net loss

(35.2
)

(23.0
)
Weighted average Shares of Class A Stock and Common Stock

outstanding for basic (loss) earnings per share (in millions)

36.1

36.4

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

*

*

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

*

*

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

Basic (loss) earnings per share:

Loss from continuing operations

$
(0.95
)
$
(0.68
)
(Loss) earnings from discontinued operations, net of tax

$
(0.03
)
$
0.05

Net loss

$
(0.98
)
$
(0.63
)

Diluted (loss) earnings per share:

Loss from continuing operations

$
(0.95
)
$
(0.68
)
(Loss) earnings from discontinued operations, net of tax

$
(0.03
)
$
0.05

Net loss

$
(0.98
)
$
(0.63
)

* In the three months ended August 31, 2010 and 2009, the Company experienced a loss from continuing operations and therefore did not reflect any dilutive share impact.

Potentially dilutive shares do not impact (loss) earnings per share, as they are anti-dilutive due to losses in the three months ended August 31, 2010 and 2009, respectively. The number of potentially dilutive options with market prices exceeding exercise prices to purchase Class A Stock and Common Stock and restricted stock units which would have been excluded from the computation of diluted earnings per share, because they were anti-dilutive, was approximately 0.4 million and 0.1 million for the three months ended August 31, 2010 and 2009, respectively. Options outstanding pursuant to compensation plans were 6.4 million and 6.4 million as of August 31, 2010 and 2009, respectively.

During the three months ended August 31, 2010, the Company repurchased 388,426 common shares for approximately $9.7 pursuant to a share buy-back program authorized by the Board of Directors. As of August 31, 2010, $0.5 remains available for future purchases.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

The following table summarizes the reconciliation of the numerators and denominators for the basic and diluted earnings (loss) per share computation for the three and nine month periods ended February 28, 2011 and 2010, respectively:



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

	2011			2010			2011			2010


(Loss) earnings from continuing operations	$	(25.3	)	$	(4.3	)	$	17.4		$	27.9
Earnings (loss) from discontinued operations, net of tax		0.2			(1.3	)		(2.8	)		(1.0	)
Net (loss) earnings		(25.1	)		(5.6	)		14.6			26.9
Weighted average Shares of Class A Stock and Common Stock outstanding for basic earnings per share (in millions)		30.9			36.6			33.8			36.5

Dilutive effect of Class A Stock and Common Stock potentially issuable pursuant to stock-based compensation plans (in millions)		*			*			0.5			0.3

Adjusted weighted average Shares of Class A Stock and Common Stock outstanding for diluted earnings per share (in millions)		30.9			36.6			34.3			36.8

(Loss) earnings per share of Class A Stock and Common Stock:
Basic (loss) earnings per share:
(Loss) earnings from continuing operations	$	(0.81	)	$	(0.12	)	$	0.51		$	0.76
Earnings (loss) from discontinued operations, net of tax	$	0.00		$	(0.03	)	$	(0.08	)	$	(0.02	)
Net (loss) earnings	$	(0.81	)	$	(0.15	)	$	0.43		$	0.74

Diluted (loss) earnings per share:
(Loss) earnings from continuing operations	$	(0.81	)	$	(0.12	)	$	0.50		$	0.75
Earnings (loss) from discontinued operations, net of tax	$	0.00		$	(0.03	)	$	(0.08	)	$	(0.02	)
Net (loss) earnings	$	(0.81	)	$	(0.15	)	$	0.42		$	0.73

* In the three months ended February 28, 2011 and 2010, the Company experienced a loss from continuing operations and therefore did not reflect any dilutive share impact.

Earnings from continuing operations exclude earnings of less than $0.1 for the nine months ended February 28, 2011, in respect of earnings attributable to participating RSUs.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

Potentially dilutive options outstanding pursuant to compensation plans that were not included in the diluted earnings per share calculation because they were anti-dilutive were 5.4 million and 5.6 million for the three-month periods ended February 28, 2011 and 2010, respectively, and 4.4 million and 5.3 million for the nine-month periods ended February 28, 2011 and 2010, respectively.

Had the Company reported net income for the three-month period ended February 28, 2011 and 2010, the dilutive effect for the periods ended February 28, 2011 and 2010 would have been 0.7 million and 0.5 million, respectively.

During the nine months ended February 28, 2011, the Company repurchased 388,426 common shares on the open market for approximately $9.7 pursuant to a share buy-back program authorized by the Board of Directors.

In addition, on November 3, 2010, the Company completed a modified Dutch auction tender offer. The Company accepted for purchase 5,199,699 of its common shares at a price of $30.00 per share for a total cost of $156.0, excluding related fees and expenses. The common shares purchased pursuant to the tender offer represented approximately 15.1% of the common shares outstanding as of October 27, 2010. The Company funded the purchase of the shares in the tender offer using cash on hand and short term borrowings under its existing credit facility, which borrowings were repaid prior to November 30, 2010.

As of February 28, 2011, $44.5 remains available for future purchases of common shares under the current repurchase authorization of the Board of Directors. See Note 13, “Treasury Stock,” for a more complete description of the Company’s share buy-back program.

7.8. Goodwill and Other Intangibles

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

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



	Three months ended August 31, 2010				Twelve months ended May 31, 2010				Three months ended August 31, 2009
													Nine months ended February 28, 2011			Twelve months ended May 31, 2010			Nine months ended February 28, 2010

Gross beginning balance		$	174.0			$	174.0			$	174.0		$	174.0		$	174.0		$	174.0
Accumulated impairment			(17.4	)			(17.0	)			(17.0	)
Accumulated impairment beginning balance														(17.4	)		(17.0	)		(17.0	)


Beginning balance		$	156.6			$	157.0			$	157.0		$	156.6		$	157.0		$	157.0
Additions due to acquisition														1.7			—			—
Impairment charge			—				(0.4	)			—			—			(0.4	)		—

Ending balance		$	156.6			$	156.6			$	157.0		$	158.3		$	156.6		$	157.0

On September 9, 2010, the Company purchased the assets of Math Solutions, an education resources and professional development company focusing on K-12 math instruction, for $8.0, net of cash acquired. The Company has integrated this business with its existing educational technology businesses. The Company utilized Level 3 fair value measurement inputs, using its own assumptions including internally developed discounted cash flow forecasts, to determine the fair value of the assets acquired and the amount of goodwill to be allocated to the Math Solutions business. As a result, the Company recognized $1.5 of goodwill and $5.6 of amortizable intangible assets. In the second quarter of fiscal 2011, the Company also recognized $0.2 of goodwill associated with a previously acquired international entity.

As of May 31, 2010, the Company determined that the carrying value of its direct-to-home catalog business specializing in toys exceeded the fair value of this reporting unit. The Company employed internally developed discounted cash flow forecasts and market comparisons to determine the fair value of the reporting unit and the implied fair value of the reporting unit’s assets and liabilities. Accordingly, the Company recognized an impairment charge of $0.4 at May 31, 2010.

As of February 28, 2011, goodwill of $76.8 resides in reporting units within theEducational Publishing segment, with fair values that modestly exceed the reporting units’ carrying values. A decline in the business environment could result in a goodwill impairment.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

The following table summarizes the activity in ~~Other~~Total other intangibles subject to amortization for the periods indicated:



Customer Lists													Nine months ended February 28, 2011			Twelve months ended May 31, 2010			Nine months ended February 28, 2010
	Three months ended August 31, 2010				Twelve months ended May 31, 2010				Three months ended August 31, 2009

Beginning balance		$	0.8			$	0.1			$	0.1		$	0.8		$	0.1		$	0.1
Additions			—				5.1				5.1			—			5.1			5.1
Impairment charge			—				(3.8	)			—			—			(3.8	)		(3.8	)
Other adjustments			—				(0.3	)			—			—			(0.3	)		(0.3	)
Amortization expense			(0.1	)			(0.2	)			—			(0.2	)		(0.2	)		—
Foreign currency translation			0.1				(0.1	)			—			0.1			(0.1	)		—

Customer lists, net of accumulated amortization of $1.0, $0.9 and $0.7, respectively		$	0.8			$	0.8			$	5.2
Customer lists, net of accumulated amortization of $1.1, $0.9 and $0.7, respectively													$	0.7		$	0.8		$	1.1

Other Intangibles


Beginning balance		$	2.2			$	2.8			$	2.8		$	2.2		$	2.8		$	2.8
Additions due to acquisition														5.6			—			—
Reclassified from indefinite-lived intangible assets														10.7			—			—
Amortization expense			(0.1	)			(0.6	)			(0.2	)		(0.8	)		(0.6	)		(0.5	)

Other intangibles, net of accumulated amortization of $3.1, $3.0 and $2.6, respectively		$	2.1			$	2.2			$	2.6

Other intangibles, net of accumulated amortization of $3.8, $3.0 and $2.9, respectively													$	17.7		$	2.2		$	2.3



Total other intangibles subject to amortization		$	2.9			$	3.0			$	7.8		$	18.4		$	3.0		$	3.4

Amortization expense for Total other intangibles was $1.0 for the nine months ended February 28, 2011, $0.8 for the twelve months ended May 31, 2010 and $0.5 for the nine months ended February 28, 2010.

During the first quarter of fiscal 2010, the Company and its joint venture partner terminated a book distribution joint venture in the United Kingdom. As a result of this transaction, the Company received a portion of the business and a related customer list previously held by the joint venture in exchange for the partial forgiveness of amounts owed to the Company by the joint venture and related entities. The Company recognized this customer list in the first quarter of fiscal 2010 with a carrying value of $5.1, which the Company intended to operate apart from its existing customer list. In the second quarter of fiscal 2010, the Company determined that, to maximize profitability, the acquired customer list should ultimately be combined with its existing customer list. As a result, the Company assessed this customer list for impairment and determined that the customer list was impaired based upon the highest and best use for this asset. This assessment incorporated internally developed cash flow projections to measure fair value, as market data for this asset is not readily available. Accordingly, the Company recognized an impairment charge in the second quarter of fiscal 2010 related to this asset of $3.8.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

~~Amortization expense~~In the current fiscal year, the Company recognized $5.6 of amortizable intangible assets as a result of the Math Solutions acquisition. The Company utilized Level 3 fair value measurement inputs, using its own assumptions including internally developed discounted cash flow forecasts and market comparisons, to determine the fair value of the intangible assets acquired.

In the current fiscal year, the Company determined that certain intangible assets associated with publishing and trademark rights, which were previously accounted for as indefinite-lived assets, were no longer indefinite-lived. Accordingly, the Company assessed these assets for impairment as of September 1, 2010, and subsequently commenced amortization of the assets. The Company determined that the fair value of the assets exceeded their carrying value as of September 1, 2010, and therefore no impairment was recognized. The Company employed Level 3 fair value measurement techniques to determine the fair value of these assets as of September 1, 2010, including the relief from royalty method.

The following table summarizes Other intangibles ~~totaled $0.2 for~~not subject to amortization at the ~~three months ended August 31, 2010 and 2009, respectively, and $0.8 for the twelve months ended May 31, 2010.~~dates indicated:



	February 28, 2011		May 31, 2010		February 28, 2010

Net carrying value by major class:
Trademarks and Other		1.8		12.5		15.1

Total	$	1.8	$	12.5	$	15.1

The Company implemented certain strategic initiatives during fiscal 2010 to centralize publishing efforts within theChildren’s Book Publishing and Distribution segment. These initiatives included the elimination of the front list for certain library-specific titles. The Company will continue to serve the library market through other channels, notably the trade channel within theChildren’s Book Publishing and Distribution ~~segment.~~segment and various on-line and digital initiatives. As a result of these initiatives, and in tandem with reduced expectations in certainEducational Publishing print businesses, the Company determined that intangible assets of $28.7 and prepublication costs of $7.6 associated with such businesses, totaling $36.3, were impaired. The Company employed qualitative and internally developed quantitative methods, including discounted cash flow models, to determine the fair value of the asset to a market participant. Significant inputs, ~~included~~including a best use analysis of the existing market for the asset, ~~including~~and an analysis of the uses for the asset other than its current usage ~~resulting~~resulted in a determination that the market for the asset had declined significantly.

In the fourth quarter of fiscal 2010, the Company determined that the fair value of the trademark associated with the Company’s direct-to-home catalog business specializing in toys was less than the carrying value of the trademark. The Company used historical and projected results while applying a residual income fair value method to make this determination and recognized an impairment of this trademark of $2.6.

9.Investments

Included in “Other assets and deferred charges” on the Company’s condensed consolidated balance sheets were investments of $23.2, $20.6 and $21.6 at February 28, 2011, May 31, 2010 and February 28, 2010, respectively.

The Company owns a non-controlling interest in a book distribution business located in the United Kingdom. The carrying value of this cost-method investment was $9.1 as of February 28, 2011.

The Company’s investment in Usborne Publishing Ltd. (“Usborne”), which consists of a 26.2% non controlling interest in a children’s book publishing business located in the United Kingdom, is accounted for using the equity method of accounting. The net value of this investment at February 28, 2011 was $13.4.

The Company maintains a 12.25% equity interest in an entity that produces and distributes educational children’s television programming which is accounted for using the equity method of accounting. The net value of this investment at February 28, 2011 was $0.6. The Company does not have a contractual commitment to fund this entity prospectively, and has not guaranteed any liabilities of the entity.

Income from equity joint ventures totaled $1.2 for the nine months ended February 28, 2011 and $0.6 for the nine months ended February 28, 2010.

In the third quarter of fiscal 2010, the Company determined that a cost-method investment in a U.S. based internet company was other than temporarily impaired. Accordingly, the Company recognized a loss of $1.5.

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:~~

August 31, 2010

May 31, 2010

August 31, 2009

Net carrying value by major class:

Titles

$
—

$
—

$
28.7

Trademarks and Other

12.5

12.5

15.2

Total

$
12.5

$
12.5

$
43.9

~~8. Investments~~

Included in “Other assets and deferred charges” on the Company’s condensed consolidated balance sheets were investments of $21.7, $20.6 and $22.9 at August 31, 2010, May 31, 2010 and August 31, 2009, respectively.

In the fourth quarter of fiscal 2010, the Company determined that a cost-method investment in a U.S. based internet company was other than temporarily impaired. Accordingly, the Company recognized a loss of $1.5.

~~The Company owns non-controlling interests in a book distribution business located in the United Kingdom. The carrying value of these assets is $9.1 as of August 31, 2010.~~

In fiscal 2007, the Company participated in the organization of a new entity, the Children’s Network Venture LLC (“Children’s Network”) that produces and distributes educational children’s television programming under the name Qubo. Since inception in August 2006, the Company has contributed a total of $5.4 in cash and certain rights to existing television programming to the Children’s Network. The Company’s investment, which consists of a 12.25% equity interest, is accounted for using the equity method of accounting. The net value of this investment at August 31, 2010 was $0.7.

The Company’s investment in Usborne, which consists of a 26.2% non controlling interest in a children’s book publishing business located in the UK, is accounted for using the equity method of accounting. The net value of this investment at August 31, 2010 was $11.7.

~~Income from equity joint ventures totaled $0.3 for the three months ended August 31, 2010 and a loss of $0.1 for the three months ended August 31, 2009.~~

~~The following table summarizes~~ the Company’s investments as of the dates indicated:

August 31, 2010

May 31, 2010

August 31, 2009

Cost method investments:

The Book People, Ltd.

$
9.1

$
9.1

$
9.1

KIDZUI

—

—

1.5

Total cost method investments

$
9.1

$
9.1

$
10.6

Equity method investments:

Usborne

$
11.7

$
10.8

$
11.3

Other

0.9

0.7

1.0

Total equity method investments

12.6

11.5

12.3

Total

$
21.7

$
20.6

$
22.9

~~SCHOLASTIC CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED~~

~~(Dollar amounts in millions, except per share data)~~



	February 28, 2011		May 31, 2010		February 28, 2010

Cost method investments:
The Book People Ltd.	$	9.1	$	9.1	$	9.1

Total cost method investments	$	9.1	$	9.1	$	9.1


Equity method investments:
Usborne	$	13.4	$	10.8	$	11.9
Childrens television programming holdings		0.6		0.7		0.6
Other		0.1		—		—

Total equity method investments	$	14.1	$	11.5	$	12.5



Total	$	23.2	$	20.6	$	21.6

9.10. Employee Benefit Plans

The following table sets forth components of the net periodic benefit costs for the periods indicated 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 “UK Pension Plan”), and the defined benefit pension plan of Grolier Limited, an indirect subsidiary of Scholastic Corporation located in Canada (the “Canadian Pension Plan” and together with the U.S. Pension Plan and the UK Pension Plan, the “Pension Plans”). Also included are the post-retirement benefits, consisting of certain healthcare and life insurance benefits, provided by the Company to its eligible retired United States-based employees (the “Post-Retirement Benefits”). The Pension Plans and Post-Retirement Benefits include participants associated with both continuing operations and discontinued operations.


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

	2010			2009			2010			2009			2011			2010			2011			2010

Components of net periodic benefit costs:
Service cost	$	0.1		$	—		$	—		$	—		$	0.1		$	—		$	—		$	—
Interest cost		2.2			2.4			0.5			0.4			2.2			2.4			0.5			0.4
Expected return on assets		(2.4	)		(2.0	)		—			—			(2.3	)		(2.0	)		—			—
Net amortization of prior service credit		—			—			(0.2	)		(0.2	)		—			—			(0.2	)		(0.2	)
Amortization of loss		0.5			1.1			0.5			0.2			0.3			0.1			0.7			0.2
Settlement of Canadian plan														0.2			—			—			—

Net periodic benefit costs	$	0.4		$	1.5		$	0.8		$	0.4		$	0.5		$	0.5		$	1.0		$	0.4


													Pension Plans Nine months ended February 28,						Post-Retirement Benefits Nine months ended February 28,

													2011			2010			2011			2010

Components of net periodic benefit costs:
Service cost													$	0.2		$	0.1		$	—		$	—
Interest cost														6.6			7.3			1.4			1.1
Expected return on assets														(7.0	)		(6.1	)		—			—
Net amortization of prior service credit														—			—			(0.5	)		(0.5	)
Amortization of loss														1.4			1.5			1.9			0.5
Settlement of Canadian plan														3.6			—			—			—

Net periodic benefit costs													$	4.8		$	2.8		$	2.8		$	1.1

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

Effective June 1, 2009, the Company modified the U.S Pension Plan, such that no further benefits will accrue to employees under the plan.

Effective June 1, 2009, the Company modified the terms of the Post-Retirement Benefits, effectively excluding a large percentage of current employees from the plan. Under the plan amendments, only employees with 10 or more years of service to the Company and whose age plus service is at least 65 as of June 1, 2009 will be eligible to receive benefits upon retirement.

In the second quarter of fiscal 2011, the Company settled the majority of its outstanding liabilities of the Canadian Pension Plan by purchasing annuities to service these liabilities prospectively. Accordingly, net liabilities of $1.3 were settled with $1.2 of contributions above plan assets and the Company recognized pension expense of $3.4. The third quarter of fiscal 2011 includes pension expense of $0.2 recognized related to the partial settlement of this pension plan.

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. For the ~~three~~nine months ended ~~August 31, 2010,~~February 28, 2011, the Company contributed $2.3 to the U.S. Pension Plan, ~~$0.2~~$0.4 to the UK Pension Plan and ~~$0.0~~$1.4 to the Canadian Pension Plan.

The Company expects, based on actuarial calculations, ~~as of August 31, 2010,~~ to contribute cash of approximately ~~$11.2~~$5.8 to the Pension Plans for the fiscal year ending May 31, 2011.

~~10.~~11. Stock-Based Compensation

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


	Three months ended August 31,				Three months ended February 28,				Nine months ended February 28,

	2010		2009		2011		2010		2011		2010

Stock option expense	$	3.8	$	3.0	$	1.7	$	1.7	$	7.1	$	6.8
Restricted stock unit expense		1.4		2.4		0.9		0.9		3.2		3.7
Management stock purchase plan		—		—
Management stock purchase plan expense						0.0		0.0		0.6		0.4
Employee stock purchase plan expense		0.1		0.1		0.1		0.1		0.2		0.2

Total stock-based compensation	$	5.3	$	5.5
Total stock-based compensation expense					$	2.7	$	2.7	$	11.1	$	11.1

During each of the three ~~months~~and nine month periods ended ~~August 31,~~February 28, 2011 and 2010, ~~and 2009,~~ shares of Common Stock issued by the Corporation pursuant to its stock-based compensation plans were not material.

12. Severance

The table below provides information regarding the Company’s severance cost associated with certain cost reduction measures. Accrued severance of $1.5, $3.4 and $1.9 as of February 28, 2011, May 31, 2010 and February 28, 2010, respectively, is included in “Other accrued expenses” on the Company’s condensed consolidated balance sheets.


	Nine months ended February 28, 2011				Twelve months ended May 31, 2010				Nine months ended February 28, 2010

Beginning balance		$	3.4			$	3.4			$	3.4
Accruals			4.3				9.2				7.3
Payments			(6.2	)			(9.2	)			(8.8	)

Ending balance		$	1.5			$	3.4			$	1.9

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

~~11. Severance~~

~~The table below provides information regarding the severance cost appearing on the Company’s condensed consolidated statements of operations associated with certain cost reduction measures.~~

Accrued severance of $1.7, $3.4 and $1.4 as of August 31, 2010, May 31, 2010 and August 31, 2009, respectively, is included in “Other accrued expenses” on the Company’s condensed consolidated balance sheets.

Three months ended
August 31, 2010

Twelve months ended
May 31, 2010

Three months ended
August 31, 2009

Beginning balance

$
3.4

$
3.4

$
3.4

Accruals

2.1

9.2

4.3

Payments

(3.8
)

(9.2
)

(6.3
)

Ending balance

$
1.7

$
3.4

$
1.4

~~12.~~13. Treasury Stock

On December 16, 2009, the Company announced that its Board of Directors had authorized a ~~further~~ program to ~~repurchase~~purchase up to $20.0 of its Common Stock, from time to time as conditions allow, on the open market or through negotiated private transactions. During the nine months ended February 28, 2011, the Company repurchased 388,426 shares on the open market for approximately $9.7 at an average cost of $24.98 per share pursuant to this program.

In addition, pursuant to a subsequent Board of Directors authorization, on November 3, 2010 the Company completed a modified Dutch auction tender offer. The Company accepted for purchase 5,199,699 of its common shares at a price of $30.00 per share for a total cost of $156.0, excluding related fees and expenses. The common shares purchased pursuant to the tender offer represented approximately 15.1% of the common shares outstanding as of October 27, 2010. The Company funded the purchase of the shares in the tender offer using cash on hand and short term borrowings under its existing credit facility, which borrowings were repaid prior to November 30, 2010. Fees for the modified Dutch auction tender offer were $1.2.

As of February 28, 2011, $44.5 remains available for future purchases under the current Board of Directors authorizations, which purchases may be made from time to time as conditions allow, on the open market or in negotiated private transactions. The repurchase program may be suspended at any time without prior notice. During the three months ended August 31, 2010, the Company repurchased 388,426 shares on the open market for approximately $9.7 at an average cost of $24.98 per share. See Part II, “Other Information, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.” As of August 31, 2010, $0.5 remains available for future purchases.

~~13.~~14. Fair Value Measurements

The accounting standard regarding fair value measurements requires that the Company determine the appropriate level in the fair value hierarchy for each fair value measurement. The fair value hierarchy prioritizes the inputs, which refer to assumptions that market participants would use in pricing an asset or liability, based upon the highest and best use, into three levels as follows:


•	Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.

•	Level 2 Observable inputs other than unadjusted quoted prices in active markets for identical assets or liabilities such as

		o	Quoted prices for similar assets or liabilities in active markets
		o	Quoted prices for identical or similar assets or liabilities in inactive markets
		o	Inputs other than quoted prices that are observable for the asset or liability
		o	Inputs that are derived principally from or corroborated by observable market data by correlation or other means

•	Level 3 Unobservable inputs in which there is little or no market data available, which are significant to the fair value measurement and require the Company to develop its own assumptions.

The Company’s financial assets and liabilities measured at fair value consisted of cash and cash equivalents and debt, ~~and~~as well as foreign currency forward contracts, which were not 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 Company employs Level 2 fair value measurements for the disclosure of the fair value of its 5% Notes and its various lines of credit. See Note 4,5, “Debt,” for a more complete description of fair value measurements employed. 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. See Note ~~15,~~16, “Derivatives and Hedging,” for a more complete description of fair value measurements employed.

~~SCHOLASTIC CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED~~

~~(Dollar amounts in millions, except per share data)~~

~~Non financial~~Non-financial assets and liabilities for which the Company employs fair value measures on a non-recurring basis include:


	•	long-lived assets
	•	assets acquired in a business combination
	•	goodwill and indefinite-lived intangible assets
	•	long-lived assets held for sale

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

Level 2 and Level 3 inputs are employed by the Company in the fair value measurement of these assets and liabilities. In fiscal 2010, the Company recognized impairments of indefinite-lived and long-lived assets and investments totaling ~~$43.1.~~$44.6. In fiscal 2011, the Company acquired certain assets in a business combination for $8.0, net of cash acquired. The Company ~~used~~utilized Level 3 fair value measurement inputs, inusing its ~~determination of~~own assumptions, including internally developed discounted cash flow forecasts, to determine the fair value of ~~these impaired assets.~~the assets acquired. See Note 7,8, “Goodwill and Other Intangibles,” for a discussion of the fair value measures employed in these asset impairment and acquisition analyses.

~~14.~~15. Income Taxes

~~The Company calculates its interim income tax provision in accordance with current authoritative accounting guidance.~~ 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 year to date earnings or losses. The Company’s effective tax rate is based on expected income and statutory tax rates and takes 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, and unusual or infrequently occurring events, is recognized in the interim period in which the 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 annual effective tax rate for the fiscal year ending May 31, 2011 is currently expected to be approximately ~~43%~~48%. The Company’s expected full year effective tax rate exceeds statutory rates primarily as a result of net operating losses in foreign jurisdictions, mainly in the United Kingdom, where the Company does not expect to realize future tax benefits. As a result, valuation allowances are provided for the net operating loss carry forwards in these jurisdictions.

The Company recognizes tax benefits of uncertain tax positions in accordance with the current accounting guidance pertaining to uncertainty in income taxes. The Company does not currently anticipate a material change to its unrecognized tax benefits within twelve months of ~~August 31, 2010;~~February 28, 2011, notwithstanding changes expected to result from the settlement of the IRS examination for fiscal years ended May 31, 2003 through 2006. However, actual developments can change these expectations, including the final terms of settlement of such audit.

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 is currently under audit by ~~both~~ New York State ~~and New York City~~ for its fiscal years ended May 31, 2002 through 2004. It is possible that state and foreign tax examinations will be settled during the next twelve months. If any of these tax examinations are settled within that period, the Company will make any necessary adjustments to its unrecognized tax benefits.

~~15.~~16. Derivatives and Hedging

The Company enters into foreign currency derivative contracts to economically hedge the exposure to foreign currency fluctuations associated with the forecasted purchase of ~~inventory.~~inventory and the foreign exchange risk associated with certain receivables denominated in foreign currencies. These derivative contracts are economic hedges and are not designated as cash flow hedges. The Company marks-to-market these instruments and records the changes in the fair value of these items in current earnings, and it recognizes the unrealized gain or loss ~~is recognized~~ in other current assets or liabilities. Unrealized ~~gains~~losses of ~~$0.8~~$1.0 were recognized at ~~August 31, 2010~~February 28, 2011 and unrealized ~~losses~~gains of ~~$2.8~~$0.6 were recognized at ~~August 31, 2009.~~February 28, 2010, respectively.

The Company also enters into foreign currency derivative contracts to hedge the foreign exchange risk associated with certain receivables denominated in foreign currencies. The Company marks-to-market these instruments and records the changes in the fair value of these items in current earnings offsetting the foreign exchange gains and losses arising from the effect of changes in exchange rates used to measure the related assets. Unrealized gains related to these derivatives were $0.2 and $0.1 at August 31, 2010 and 2009, respectively.

~~SCHOLASTIC CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED~~

~~(Dollar amounts in millions, except per share data)~~

~~16.~~17. Subsequent Event

On ~~September 22, 2010,~~March 23, 2011, the Company announced that the Board of Directors declared a cash dividend of ~~$0.075~~$0.10 per Class A and Common ~~share in respect of the second quarter of fiscal 2011.~~share. The dividend is payable on ~~December~~June 15, ~~2010~~2011 to shareholders of record as ~~on November 15, 2010.~~

~~On September 23, 2010, the Company announced its intention to proceed with a “Dutch auction” style tender offer (the “Tender Offer”) to acquire up to $150 million~~ of its common shares, to be funded from available cash, initially including temporarily drawing on the Company’s existing credit facility. The Tender Offer was commenced on September 28, 2010, pursuant to which the Company has offered to acquire up to $150 million of its common shares at not less than a minimum price of $27.00 per share and not more that a maximum price of $31.00 per share. The Tender Offer is only being made pursuant to the offering materials and related documentation as filed with the SEC, to which reference is hereby made.April 29, 2011.

SCHOLASTIC CORPORATION

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

Overview and Outlook

~~The Company’s first~~Revenues for the quarter ~~is generally its smallest revenue period as most schools are not in session, resulting in~~ended February 28, 2011 were $393.7 million, a ~~seasonal loss.~~

~~Revenue in the fiscal 2011 first quarter was $290.9~~decrease of $5.1 million, ~~versus $315.6~~compared to revenues of $398.8 million in the prior fiscal year ~~period. While technology product sales~~quarter, driven by lower revenues in theEducational Publishing ~~segment declined~~andMedia, Licensing and Advertising segments, partially offset by higher revenues in the fiscal 2011 first quarter, compared to a year ago when the Company benefited significantly from the initial disbursement of federal stimulus funding, this was partially offset in the current quarter by higher recurringInternational and ~~service revenues, generated through a larger customer base. In~~Children’s Book Publishing and Distribution~~, revenue~~ segments. The Company experienced lower revenues inEducational Publishing in the current quarter, as state and local budget issues caused school districts to reduce spending, including of federal stimulus funds, from which the Company had benefitted in the prior fiscal year period. Revenues were also down in the book club channel, where, while order volumes increased, teachers made greater use of discounts and promotions online. Partially offsetting these was an increase in the trade ~~business increased approximately 9%~~channel revenues driven by strong sales of Harry Potter and the Hunger Games series as well as lower returns, in the ~~quarter, driven by the release of Suzanne Collins’~~ ~~Mockingjay,~~~~which completed~~~~The~~~~Hunger Games~~~~trilogy.~~current fiscal year quarter.

~~The net~~Net loss for the quarter ended February 28, 2011 was ~~$35.2~~$25.1 million, compared to ~~$23.0~~a net loss of $5.6 million in the prior fiscal year quarter. ~~During~~Consolidated loss per share was $0.81 versus a $0.15 loss per share in the ~~first~~prior fiscal year quarter. The greater loss in the current period primarily reflected lower sales of higher margin education technology compared to the prior fiscal year quarter and increased investment in digital initiatives relating to the Company’s children’s books ecommerce and ebook initiatives. Additionally, the Company recorded $3.5 million in bad debt expense related to the Border’s February bankruptcy filing. The third quarter is the Company’s second smallest revenue quarter, when it usually generates a net loss.

Revenues for the nine months ended February 28, 2011 decreased by $14.2 million, to $1,360.3 million, compared to $1,374.5 million in the prior fiscal year period, primarily due to lower revenues in theEducational Publishing segment. Net income for the nine months ended February 28, 2011 was $14.6 million, or $0.42 per diluted share, compared to $26.9 million, or $0.73 per diluted share, in the prior fiscal year period. The lower net income in the current fiscal year is due primarily to lower revenues in theEducational Publishing segment and the increased ~~its technology~~ spending on digital initiatives, as ~~it invested~~well as increased promotional expense in ~~children’s books’ key digital opportunities, e-commerce and e-books. Despite this increase, Selling, general and administrative expenses were generally flat as~~ the ~~Company continued to tightly manage costs in other areas.~~book club channel.

The Company ishad total debt of $220.1 million at February 28, 2011, down from $265.3 million a year ago, and continued to maintain a strong balance sheet and free cash flow, while returning shareholder value through a modified Dutch auction tender offer completed in the second quarter of fiscal 2011.

Based on ~~track to sustain last year’s strong performance, while investing in long-term growth opportunities. During this fiscal year,~~ the ~~Company expects federal~~Company’s year-to-date results and its expectation of continued pressure on school funding ~~while lower overall, to primarily benefit later quarters as Race to~~and accelerated spending on digital initiatives during the Top and School Improvement Grants begin reaching schools this fall. The Company plans to continue investing in digital growth initiatives and anticipates launching a children’s ebook offering by the endbalance of ~~the fiscal year. For~~ fiscal 2011, ~~the Company continues to anticipate total revenue~~Scholastic now expects fiscal 2011 revenues of approximately $1.9 ~~to $2.0~~ billion and earnings per diluted share from continuing operations in the range of ~~$1.95~~$1.25 to ~~$2.20,~~$1.40, before the impact of ~~any~~ one-time ~~items associated with cost reductions or non-cash, non-operating~~ items. ~~The Company continues to expect free cash flow of approximately $90 to $100 million.~~

Results of Continuing Operations and Discontinued Operations

Revenues for the quarter ended ~~August 31, 2010~~February 28, 2011 decreased by ~~$24.7~~$5.1 million, or ~~7.8%~~1.3%, to ~~$290.9~~$393.7 million, compared to ~~$315.6~~$398.8 million in the prior fiscal year ~~quarter. This was due to~~quarter, driven by lower revenues in theEducational Publishing ~~and~~~~Children’s Book Publishing and Distribution~~ ~~segments~~segment of ~~$30.1~~$6.7 million and ~~$3.4~~in theMedia, Licensing and Advertisingsegment of $5.7 million, ~~respectively,~~ partially offset by higher revenues in theInternational~~and~~~~Media, Licensing and Advertising~~ ~~segments~~ segment of ~~$6.3~~$6.4 million and ~~$2.5 million, respectively.~~

Cost of goods sold as a percentage of revenue for the quarter ended August 31, 2010 increased slightly to 50.8%, compared to 50.2% in the prior fiscal year quarter, primarily due to a decrease in sales of higher margin product in the current year in the~~Educational Publishing~~ ~~segment. Components of Cost of goods sold for the three months ended August 31, 2010 and 2009 are as follows:~~

Three months ended August 31,

2010

2009

Product, service and production costs

$
70.4

$
81.0

Royalty costs

17.9

19.0

Prepublication and production amortization

12.1

12.1

Postage, freight, shipping, fulfillment and all other costs

47.3

46.2

Total

$
147.7

$
158.3

Selling, general and administrative expenses decreased slightly to $170.6 million in the quarter, or 58.6% of revenue, compared to $171.5 million, or 54.3% of revenue, in the prior fiscal year quarter, due to lower employee-related expenses.

~~Bad debt expense increased to $2.9 million for the quarter ended August 31, 2010, compared to $2.1 million in the prior fiscal year quarter, primarily~~ in theChildren’s Book Publishing and Distribution ~~segment.~~

~~Severance expense decreased to $2.1 million~~segment of $0.9 million. Revenues for the ~~quarter~~nine months ended ~~August 31, 2010,~~February 28, 2011 decreased by $14.2 million to $1,360.3 million, compared to ~~$4.3~~$1,374.5 million in the prior year fiscal ~~year quarter when the Company was implementing its cost reduction plans.~~

~~The resulting operating loss for the quarter ended August 31, 2010 was $46.8 million, compared~~period, primarily due to ~~$35.3~~lower revenues of $57.8 million in the ~~prior fiscal year quarter.~~Educational Publishing segment, partially offset by higher revenues in theChildren’s Book Publishing and Distributionsegment of $16.1 million and the Internationalsegment of $27.7 million.

SCHOLASTIC CORPORATION

Item 2. MD&A

~~Net interest expense decreased slightly~~Cost of goods sold as a percentage of revenue for the quarter ended February 28, 2011 increased to ~~$3.8~~50.9%, compared to 48.9% in the prior fiscal year quarter. Cost of goods sold as a percentage of revenue for the nine months ended February 28, 2011 increased to 47.3%, compared to 45.6% in the prior fiscal year period. The increase in both periods is primarily related to higher product, fulfillment and postage costs attributable to increased promotional activities in the Company’sChildren’s Book Publishing and Distribution segment. The components of Cost of goods sold for the three and nine months ended February 28, 2011 and 2010 are as follows:



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

	2011		2010		2011		2010

Product, service and production costs	$	107.6	$	108.6	$	365.0	$	364.3
Royalty costs		21.7		19.1		68.4		69.7
Prepublication and production amortization		10.8		12.3		35.3		36.6
Postage, freight, shipping, fulfillment and all other costs		60.1		55.2		175.4		156.5

Total	$	200.2	$	195.2	$	644.1	$	627.1

Selling, general and administrative expenses increased to $203.0 million in the quarter, ~~ended August 31, 2010,~~or 51.6% of revenue, compared to ~~$3.9~~$185.1 million, or 46.4% of revenue, in the prior fiscal year quarter. Selling, general and administrative expenses for the nine months ended February 28, 2011 were $605.9 million, or 44.5% of revenue, compared to $577.1 million, or 42.0% of revenue, in the prior fiscal year period. The increases over the prior periods are primarily due to increased technology spending on digital growth initiatives, as well as higher promotional expense in theChildren’s Book Publishing and Distribution segment.

Bad debt expense increased by $3.8 million, to $6.7 million, for the quarter ended February 28, 2011, compared to $2.9 million in the prior fiscal year quarter, and by $3.2 million, to $12.6 million, for the nine months ended February 28, 2011, compared to $9.4 million in the prior fiscal year period, in each case primarily related to higher bad debt expense in theChildren’s Book Publishing and Distribution segment related to the Borders’ February bankruptcy filing in the current fiscal year quarter. Total bad debt expense associated with this customer was $3.5 million in both the current fiscal year quarter and fiscal year period.

The prior year nine month period reflects a non-cash charge of $40.1 million, of which $36.3 million was in theEducational Publishing segment for impairment of intangible assets and prepublication costs associated with print publishing for libraries and $3.8 million was for a non-cash impairment charge in theInternational segment related to a customer list acquired in connection with the dissolution of a joint venture.

Severance expense decreased slightly to $1.2 million for the quarter ended February 28, 2011, compared to $1.9 million in the prior fiscal year quarter. For the nine months ended February 28, 2011, severance expense decreased by $3.0 million, to $4.3 million, compared to $7.3 million in the prior fiscal year period when the Company was implementing a cost reduction program.

The resulting operating loss for the quarter ended February 28, 2011 was $31.9 million, compared to an operating loss of $0.5 million in the prior fiscal year quarter. For the nine months ended February 28, 2011, the resulting operating income was $50.0 million, compared to operating income of $69.8 million in the prior fiscal year period.

Net interest expense decreased by $0.1 million, to $3.9 million, in the quarter ended February 28, 2011, compared to $4.0 million in the prior fiscal year quarter. For the nine months ended February 28, 2011, net interest expense decreased by $0.5 million, to $11.7 million, compared to $12.2 million in the prior fiscal year period. Both decreases were due to lower average borrowings.

The Company’s ~~loss from continuing operations resulted in an~~ effective tax ~~rate of 32.4%~~rates were 29.3% and ~~35.8%~~28.3% for the fiscal quarters ended ~~August 31,~~February 28, 2011 and 2010, ~~and 2009,~~ respectively. Significant factors that ~~may~~ impact the effective tax rate include changes in the Company’s assessment of certain tax contingencies and the mix of earnings among the Company’s U.S. and international operations.

SCHOLASTIC CORPORATION

Item 2. MD&A

~~The loss~~Loss from continuing operations was ~~$34.2~~$25.3 million, or ~~$0.95~~$0.81 per share, for the quarter ended ~~August 31, 2010,~~February 28, 2011, compared to a loss of ~~$24.6~~$4.3 million, or ~~$0.68~~$0.12 per share, for the prior fiscal year quarter. For the nine months ended February 28, 2011, earnings from continuing operations were $17.4 million, or $0.50 per diluted share, compared to $27.9 million, or $0.75 per diluted share, in the prior fiscal year period.

Earnings from discontinued operations, net of tax, was $0.2 million, or less than $0.01 per diluted share, for the quarter ended February 28, 2011, compared to a loss of $1.3 million, or $0.03 per share, for the prior fiscal year quarter. Loss from discontinued operations for the nine months ended February 28, 2011 was $2.8 million, or $0.08 per share, compared to a loss from discontinued operations of $1.0 million, or $0.02 per share, for the prior fiscal year period. The results of discontinued operations for the nine months ended February 28, 2011 includes a charge associated with the partial settlement of the pension plan of Grolier Limited, a Canadian entity in the continuities business, of $3.6 million.

Net loss was $25.1 million, or $0.81 per share, for the quarter ended February 28, 2011, compared to a net loss of $5.6 million, or $0.15 per share, in the prior fiscal year quarter.

~~The loss from discontinued operations, net of tax, was $1.0~~ Net earnings were $14.6 million, or ~~$0.03~~$0.42 per diluted share, for the ~~quarter~~nine months ended ~~August 31, 2010,~~February 28, 2011, compared to ~~income from discontinued operations~~net earnings of ~~$1.6~~$26.9 million, or ~~$0.05~~$0.73 per diluted share, in the prior fiscal year ~~quarter. The prior year reflects favorable accounts receivable collections.~~

~~The net loss was $35.2 million, or $0.98 per share, for the quarter ended August 31, 2010, compared to a net loss of $23.0 million, or $0.63 per share, in the prior fiscal year quarter.~~period.

Results of Continuing Operations

Children’s Book Publishing and Distribution


($ amounts in millions)	Three months ended August 31,						Three months ended February 28,						Nine months ended February 28,

	2010			2009			2011			2010			2011			2010


Revenues	$	72.8		$	76.2		$	193.0		$	192.1		$	653.2		$	637.1
Operating loss		(51.6	)		(47.5	)

Operating (loss) income								(9.2	)		6.9			36.5			67.2


Operating margin		*			*			*			3.6	%		5.6	%		10.5	%

* Not meaningful

Revenues in theChildren’s Book Publishing and Distribution segment for the quarter ended ~~August 31, 2010 decreased~~February 28, 2011 increased by ~~$3.4~~$0.9 million, or ~~4.5%~~0.5%, to ~~$72.8~~$193.0 million, compared to ~~$76.2~~$192.1 million in the prior fiscal year quarter. ~~This decrease was primarily~~The increase is principally related to ~~higher book fairs~~increased revenues ~~recognized in the prior fiscal year, partially offset by higher revenue~~ in the Company’s trade ~~business~~channel, driven primarily by higher sales of core titles, including theHarry Potter titles, The Hunger Games series and higher sales of e-books, as well as decreased returns. This was partially offset by lower revenues in the ~~current period. Trade revenues were driven~~book club channel due to lower revenue per order, partially mitigated by a ~~strong frontlist that included~~~~Mockingjay~~ ~~by Suzanne Collins, which completed~~~~The Hunger Games~~~~trilogy, and~~higher number of orders in the ~~tenth book in~~~~The 39 Clues~~~~series.~~quarter. Revenues from ~~school book clubs and book fairs are not meaningful since school book clubs and book fairs~~School Book Fairs declined slightly, as adverse winter weather resulted in fair cancellations, most of which have ~~minimal activity in the Company’s first fiscal quarter, as most schools are not in session.~~

~~Segment operating loss~~been rescheduled for the ~~quarter~~spring. Revenues for the nine months ended ~~August 31, 2010~~February 28, 2011 increased by ~~$4.1~~$16.1 million, or ~~8.6%~~2.5%, to ~~a loss of $51.6~~$653.2 million, compared to ~~a loss of $47.5~~$637.1 million in the prior fiscal year period. This increase is related to higher revenues in the Company’s trade channel, due to strong core sales, driven by Suzanne Collins’ The Hunger Games series, and decreased returns.

Segment operating income for the quarter ended February 28, 2011 decreased by $16.1 million to a loss of $9.2 million, compared to operating income of $6.9 million in the prior fiscal year quarter, primarily related to increased promotional expense in the Company’s book club channel and increased expenditures related to the Company’s digital initiatives as well as higher bad debt expense of $3.5 million related to the Borders’ bankruptcy filing. Segment operating income for the nine months ended February 28, 2011 decreased by $30.7 million to $36.5 million, compared to $67.2 million in the prior fiscal year period, principally due to increased expenditures related to the Company’s children’s books digital, ~~format,~~ e-commerce and ~~eBook initiatives, and~~e-book initiatives. In addition, the Company had higher promotional ~~spending.~~expense in the book club channel and the bad debt expense related to Borders.

SCHOLASTIC CORPORATION

Item 2. MD&A

Educational Publishing


($ amounts in millions)	Three months ended August 31,						Three months ended February 28,						Nine months ended February 28,

	2010			2009			2011			2010			2011			2010

Revenues							$	81.3		$	88.0		$	301.5		$	359.3

Revenues	$	118.6		$	148.7
Operating income		28.5			41.3
Operating (loss) income								(2.7	)		8.3			36.8			45.5


Operating margin		24.0	%		27.8	%		*			9.4	%		12.2	%		12.7	%

* Not meaningful

Revenues in theEducational Publishingsegment for the quarter ended ~~August 31, 2010~~February 28, 2011 decreased by ~~$30.1~~$6.7 million, or ~~20.2%~~7.6%, to ~~$118.6~~$81.3 million, compared to ~~$148.7~~$88.0 million in the prior fiscal year quarter. This decrease was principally driven by ~~the prior year’s higher~~lower sales of educational technology ~~products, benefited~~compared to the prior fiscal year period as well as lower revenues in ~~part~~the Company’s classroom and library businesses in the current period, as the Company experienced a significant change in the school funding environment in fiscal 2011 compared to fiscal 2010. The decrease was partially offset by incremental revenues of $1.9 million from the ~~timing of~~recently acquired Math Solutions business in the ~~initial federal economic stimulus funding~~current fiscal quarter. Revenues for ~~education~~the nine months ended February 28, 2011 decreased by $57.8 million, or 16.1%, to $301.5 million, compared to $359.3 million in the prior ~~year.~~fiscal year period, primarily due to the strong level of educational technology sales in the prior year period, as well as lower school classroom and library revenues in the current period, partially offset by incremental revenues of $4.1 million from the Math Solutions business.

Segment operating income for the quarter ended ~~August 31, 2010~~February 28, 2011 decreased by ~~$12.8~~$11.0 million, to ~~$28.5~~a loss of $2.7 million, compared to ~~$41.3~~operating income of $8.3 million in the prior fiscal year quarter, ~~principally~~primarily driven by the ~~decrease~~lower revenues in ~~revenues from~~the Company’s educational technology ~~sales.~~business. Segment operating income for the nine months ended February 28, 2011 decreased by $8.7 million, to $36.8 million, from $45.5 million in the prior fiscal year period, primarily due to lower revenues in the Company’s technology business, as discussed above, partially offset by the prior year’s impairment charge of $36.3 million recognized by the Company in connection with its decision to consolidate supplemental non-fiction and library publishing activities.

International


($ amounts in millions)	Three months ended August 31,						Three months ended February 28,						Nine months ended February 28,

	2010			2009			2011			2010			2011			2010

Revenues							$	95.1		$	88.7		$	322.9		$	295.2

Revenues	$	81.9		$	75.6
Operating loss		(2.2	)		(1.9	)
Operating (loss) income								(1.4	)		(0.2	)		21.7			12.7


Operating margin		*			*			*			*			6.7	%		4.3	%

* Not meaningful

Revenues in the Internationalsegment for the quarter ended ~~August 31, 2010~~February 28, 2011 increased by ~~$6.3~~$6.4 million, or ~~8.3%~~7.2%, to ~~$81.9~~$95.1 million, compared to ~~$75.6~~$88.7 million in the prior fiscal year quarter, primarily due to the favorable impact of foreign currency exchange rates of ~~$3.2~~$5.2 million ~~in addition to~~and an increase in revenue of ~~$4.3~~$3.2 million in the Company’s Canadian and Australian operations. Revenues for the nine months ended February 28, 2011 increased by $27.7 million, or 9.4%, to $322.9 million, compared to $295.2 million during the prior fiscal year period, primarily due to the favorable impact of foreign currency exchange rates of $14.2 million, as well as higher revenues of $13.6 million in the Company’s Australian and Canadian operations. ~~The release of~~~~Mockingjay~~~~contributed to the strong results in Canada.~~

Segment operating loss for the quarter ended August 31, 2010 increased to a loss of $2.2 million, compared to a loss of $1.9 million in the prior fiscal year quarter, primarily due to restructuring expenses of $1.2 million in the UK, partially offset by a favorable foreign exchange rate.

SCHOLASTIC CORPORATION

Item 2. MD&A

Segment operating loss for the quarter ended February 28, 2011 increased by $1.2 million to a loss of $1.4 million, compared to a loss of $0.2 million in the prior fiscal year quarter, primarily due to lower foreign rights revenues and higher general expenses partially offset by stronger Australian operations results. The current year quarter includes restructuring costs of $1.8 million related to the consolidation of distribution facilities in the UK, compared to the prior fiscal year quarter UK restructuring costs of $2.4 million. Segment operating income for the nine months ended February 28, 2011 increased by $9.0 million, to $21.7 million, compared to $12.7 million in the prior fiscal year period, primarily due to the increased revenues in the Company’s Canadian and Australian operations, which have experienced strong results in their trade distribution channels. The nine months ended February 28, 2011 include restructuring costs of $3.0 million in the UK. In the prior fiscal year period, the Company recognized an impairment charge of $3.8 million related to customer lists acquired in connection with the dissolution of a joint venture in the UK, as well as restructuring costs of $3.9 million related to the consolidation of UK distribution facilities.

Media, Licensing and Advertising


($ amounts in millions)	Three months ended August 31,						Three months ended February 28,						Nine months ended February 28,

	2010			2009			2011			2010			2011			2010


Revenues	$	17.6		$	15.1		$	24.3		$	30.0		$	82.7		$	82.9

Operating loss		(2.9	)		(3.7	)		(5.7	)		(1.5	)		(3.9	)		(2.6	)


Operating margin		*			*			*			*			*			*

* Not meaningful

Revenues in the Media, Licensing and Advertising segment for the quarter ended ~~August 31, 2010 increased~~February 28, 2011 decreased by ~~$2.5~~$5.7 million, or ~~16.6%~~19.0%, to ~~$17.6~~$24.3 million, compared to ~~$15.1~~$30.0 million in the prior fiscal year quarter, primarily due to ~~revenue~~lower sales in the direct-to-home toy catalog business and of ~~$3.6~~interactive products, as well as the timing of advertising revenues. Revenues for the nine months ended February 28, 2011 decreased by $0.2 million, ~~received~~or 0.2%, to $82.7 million, compared to $82.9 million in the prior fiscal year period, primarily due to lower revenues from ~~a third party film distribution agreement.~~interactive products, partially offset by higher advertising revenues from consumer magazines.

Segment operating loss for the quarter ended ~~August 31, 2010 decreased~~February 28, 2011 increased by $4.2 million, to a loss of ~~$2.9~~$5.7 million, compared to a loss of ~~$3.7~~$1.5 million in the prior fiscal year quarter, primarily related to the ~~film distribution agreement noted above.~~lower revenues in the Company’s direct-to-home toy catalog business. Segment operating loss for the nine months ended February 28, 2011 increased by $1.3 million, to a loss of $3.9 million, compared to a loss of $2.6 million in the prior fiscal year period, primarily due to lower revenues and higher promotional expense in the Company’s direct-to-home toy catalog business.

Seasonality

SCHOLASTIC CORPORATION

Item 2. MD&A

Liquidity and Capital Resources

The Company’s cash and cash equivalents ~~including cash from discontinued operations,~~ totaled ~~$124.2~~$90.7 million at ~~August 31, 2010,~~February 28, 2011, compared to $244.1 million at May 31, 2010 and ~~$54.2~~$238.9 million at ~~August 31, 2009.~~February 28, 2010.

Cash provided by operating activities decreased by $46.0 million to $154.9 million for the nine months ended February 28, 2011, compared to $200.9 million of cash provided by operating activities in the prior fiscal year period.

Net income adjusted for non cash items yielded cash from operations of $142.5 million in the current fiscal year period, compared to $192.4 million in the prior year period, a decrease of $49.9 million. While earnings from continuing operations was only $10.5 million higher in the prior year period than in the current year period, non cash items were significantly higher in the prior year period, driven by impairment charges of $40.1 million, resulting in the decreased cash flows of $49.9 million.

Changes in the Company’s working capital and other operating accounts yielded positive cash flows of $11.9 million in the nine months ended February 28, 2011, compared to positive cash flows of $7.5 million in the prior year period. The increased cash flow of $4.4 million was attributable to an increase in accounts payable and accrued expenses in the current year period of $65.3 million compared to the prior year period increase of $25.9 million, yielding an increase in cash provided by operating activities of $39.4 million. The current year increase in accounts payable relates primarily to inventory purchases and the timing of payments. These improvements were partially offset by a $69.1 million increase in inventories in the current year period compared to an increase of $47.1 million in the prior year period, yielding higher cash use of $22.0 million and higher tax payments of $14.0 million in the current year period. The change in inventory was driven by higher purchases in the current year period following significant inventory reductions during the second half of fiscal 2010.

Cash used in ~~operating~~investing activities increased by ~~$17.5~~$39.8 million to ~~$73.1~~$102.1 million for the ~~three~~nine months ended ~~August 31, 2010,~~February 28, 2011, compared to ~~$55.6~~$62.3 million in the prior fiscal year period. ~~In addition to the increased loss, adjusted for non-cash items of $7.0 million, the increase of $17.5 million~~This change was primarily related ~~to unfavorable working capital changes which included:~~to:


	•	~~a $122.4 million increase~~investment in ~~inventory~~property, plant and equipment and prepublication and production costs in the current year period of $69.8 million, compared to ~~a $94.9~~$61.5 million ~~increase~~ in the prior ~~fiscal~~ year ~~period.~~period, largely related to increased spending on digital initiatives;

	•	~~a decrease in other accrued expenses~~acquisitions and related payments of ~~$16.9~~$9.2 million in the current ~~fiscal~~ year period as compared to ~~an increase~~acquisition related payments of ~~$20.1~~$1.0 million in the prior ~~fiscal~~ year ~~period.~~period; and

	•	~~a $22.0 million increase in other current assets in~~ the ~~current period compared to a $11.5 million increase in~~purchase of the ~~prior fiscal year period.~~

~~partially offset by~~

	•	~~an increase in accounts receivable of $1.0~~land on which the Company’s corporate headquarters are located for $24.3 million in the current ~~period compared to an increase of $32.5 million in the prior fiscal year period.~~

	•	~~a $75.8 million increase in accounts payable compared to a $38.7 million increase in the prior fiscal~~ year period.

Inventory increases resulted from the timing of purchases. Increases in other current assets were related to an increase in promotional spending, primarily in the Company’s book clubs business. These were offset by a lower increase in accounts receivable in the current year, primarily related to the prior year’s higher sales of educational technology products.

~~SCHOLASTIC CORPORATION~~

~~Item 2. MD&A~~

Cash used in investing activities increased by $5.6 million to $24.8 million for the three months ended August 31, 2010, compared to $19.2 million in the prior fiscal year period. This change was primarily related to increased investments in property, plant and equipment. In the second quarter of fiscal 2011, the Company is investing in an acquisition in the~~Educational Publishing~~segment and the purchase of the real property underlying a portion of its principal offices in New York City, for approximately $36 million, as well as additional spending for property, plant and equipment and prepublication costs.

Cash used in financing activities was ~~$23.4~~$209.5 million for the ~~three~~nine months ended ~~August 31, 2010,~~February 28, 2011, compared to ~~$13.2~~$43.1 million for the prior fiscal year period. The change was primarily due to ~~higher repurchases~~the completion of ~~Common Stock of $8.7 million~~a modified Dutch auction tender offer in the ~~fiscal 2011 first quarter, as well as~~current year period. The Company accepted for purchase 5,199,699 of its common shares at a ~~decrease~~price of $30.00 per share, for a total cost of $157.2 million, inclusive of related fees and expenses. The Company funded the purchase of the shares in ~~net~~the tender offer using cash on hand and short-term borrowings under ~~the Company’s lines of~~its existing credit of $6.2 million, partially offset by a $4.1 million 5% Note repurchases in the prior year. On September 28, 2010, the Company commenced a share repurchase for up to $150 million of its Common Stock through a “Dutch auction” style tender offer (the “Tender Offer”).facility, which have since been repaid.

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.

SCHOLASTIC CORPORATION

Item 2. MD&A

The Company’s operating philosophy is to use cash provided from operating activities to create value by paying down debt, reinvesting in existing businesses and, from time to time, making acquisitions that will complement its portfolio of businesses, as well as engaging 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 ~~including the Tender Offer,~~ for the foreseeable future.

On September 23, 2010, the Company announced its intention to proceed with a “Dutch auction” style Tender Offer to acquire up to $150 million of its common shares, to be funded from available cash balances, initially including temporarily drawing on the Company’s existing credit facility (see “Loan Agreement” below). The Tender Offer was commenced on September 28, 2010, pursuant to which the Company has offered to acquire up to $150 million of its common shares at not less than a minimum price of $27.00 per share and not more that a maximum price of $31.00 per share. The Tender Offer is only being made pursuant to the offering materials and related documentation as filed with the SEC, to which reference is hereby made.

The Company has maintained sufficient liquidity to fund ongoing operations, dividends, authorized common share repurchases (including its recently-completed tender offer), debt service, planned capital expenditures and other investments. As of ~~August 31, 2010,~~February 28, 2011, the Company’s primary sources of liquidity consisted of cash and cash equivalents of ~~$124.2~~$90.7 million, cash from operations, and borrowings remaining available under the Revolving Loan (as described under “Financing” below) totaling $325.0 million. Approximately ~~66%~~73% of the Company’s outstanding debt is ~~not~~ due ~~until~~in fiscal 2013, ~~31%~~24% is spread ratably over each preceding period and the remaining 3% represents borrowings under the Company’s lines of credit. 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). Accordingly, the Company believes these sources of liquidity are sufficient to finance its ongoing operating needs, as well as its financing and investing activities. The Company’s credit rating from Standard & Poor’s Rating Services is “BB-” and its credit rating from Moody’s Investors Service is “Ba2.” Moody’s Investors Service has rated the outlook for the Company as “Positive,” and Standard and Poor’s Rating Services has rated the outlook for the Company as “Stable.” The Company believes that existing committed credit lines, cash from operations and other sources of cash are sufficient to meet the Company’s liquidity needs for the near term, including any funds required for the Tender Offer, as the Company is currently compliant with its debt covenants and expects to remain compliant for 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 result in an increase or decrease in interest costs under the Company’s Loan Agreement.

~~SCHOLASTIC CORPORATION~~

~~Item 2. MD&A~~

Financing

Lines of Credit

As of ~~August 31, 2010,~~February 28, 2011, the Company’s domestic credit lines available under unsecured money market bid rate credit lines totaled $20.0 million. There were no outstanding borrowings under these credit lines at ~~August 31, 2010,~~February 28, 2011, May 31, 2010 and ~~August 31, 2009.~~February 28, 2010. 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 180 days,~~ agreed to at the time each loan is ~~made.~~made, but not to exceed 365 days. These credit lines may be renewed, if requested by the Company, at the option of the lender.

As of ~~August 31, 2010,~~February 28, 2011, the Company had various local currency credit lines, with maximum available borrowings in amounts equivalent to ~~$28.3~~$30.1 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 ~~international facilities~~credit lines equivalent to ~~$7.7~~$6.7 million at ~~August 31, 2010~~February 28, 2011 at a weighted average interest rate of ~~3.9%~~4.0%; $7.5 million at May 31, 2010 at a weighted average interest rate of 3.9%; and ~~$13.4~~$9.4 million at ~~August 31, 2009~~February 28, 2010 at a weighted average interest rate of ~~2.9%~~3.9%.

Loan Agreement

On June 1, 2007, Scholastic Corporation and Scholastic Inc. (each, a “Borrower” and together, the “Borrowers”) entered into a $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 Term Loan, which may be prepaid at any time without penalty, requires quarterly principal payments of $10.7 million, with the first payment having been due on December 31, 2007, and a final payment of $7.4 million due on June 1, 2012.

~~On August 16, 2010, the Borrowers entered into an amendment to the Loan Agreement, which added certain provisions related to covenants and interest.~~

SCHOLASTIC CORPORATION

Item 2. MD&A

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, as amended, is based on (1) a rate equal to the higher of (i) the prime rate, (ii) the prevailing Federal Funds rate plus 0.500% or (iii) the Eurodollar Rate for a one month interest period plus 1%; or (2) an adjusted LIBOR rate plus an applicable margin, ranging from 0.500% to 1.250% based upon the Company’s prevailing consolidated debt to total capital ratio. As of ~~August 31, 2010,~~February 28, 2011, there were no borrowings outstanding under the Revolving Loan.

As of ~~August 31, 2010,~~February 28, 2011, the applicable margin ofon the Term Loan was 0.750% and the applicable margin on the Revolving Loan was 0.600%. The Loan Agreement also provides for the payment of a facility fee ranging from 0.125% to 0.250% per annum on the Revolving Loan only, which at ~~August 31, 2010,~~February 28, 2011, was 0.150%. As of ~~August 31, 2010, $82.3~~February 28, 2011, $60.9 million was outstanding under the Term Loan at an interest rate of ~~1.1%~~1.06%.

As of ~~August 31, 2010, there was $7.2 million of outstanding~~February 28, 2011, standby letters of credit ~~issued~~outstanding under the Loan ~~Agreement.~~Agreement totaled $1.4 million. 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 ~~August 31, 2010,~~February 28, 2011, the Company was in compliance with these covenants. See Note 45 of Notes to condensed consolidated financial statements – unaudited in Item 1, “Financial Statements,” for outstanding balances and interest rates for ~~these notes.~~the Term Loan.

~~SCHOLASTIC CORPORATION~~

~~Item 2. MD&A~~

5% Notes due 2013

In April 2003, Scholastic Corporation issued $175.0 million 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. The Company repurchased $5.0 million and $2.5 million of the 5% Notes on the open market in fiscal 2010 and 2009, respectively. The Company did not make any additional repurchases during the ~~three-month~~nine month period ended ~~August 31, 2010.~~February 28, 2011.

The Company’s total debt obligations were ~~$242.3~~$220.1 million at ~~August 31, 2010,~~February 28, 2011, $252.8 million at May 31, 2010 and ~~$290.6~~$265.3 million at ~~August 31, 2009.~~February 28, 2010. The lower level of debt at ~~August 31, 2010~~February 28, 2011 as compared to May 31, 2010 and ~~August 31, 2009~~February 28, 2010 was primarily due to repayments made on the Term Loan, repurchases of the Company’s 5% Notes on the open market in fiscal 2010 and reduced borrowings resulting from lower debt requirements. The Company utilized existing cash balances in the first fiscal quarter of 2011 to meet seasonal working capital requirements. As a result, cash balances declined $119.9 million in such fiscal quarter.

For a more complete description of the Company’s debt obligations, see Note 45 of Notes to condensed consolidated financial statements – unaudited in Item 1, “Financial Statements.”

SCHOLASTIC CORPORATION

Item 2. MD&A

New Accounting Pronouncements

Reference is made to Note 1 of Notes to condensed consolidated financial statements - unaudited in Item 1, “Financial Statements,” for information concerning recent accounting pronouncements since the filing of the Company’s Annual Report.

SCHOLASTIC CORPORATION

Item 2. MD&A

Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. Additional written and oral forward-looking statements may be made by the Company from time to time in Securities and Exchange Commission ~~(the “SEC”~~(“SEC”) filings and otherwise. The Company cautions readers that results or expectations expressed by forward-looking statements, including, without limitation, those relating to the Company’s future business prospects, plans, conditions in the children’s book and educational material markets and acceptance of the Company’s products in those markets, earnings per share, levels of government spending for educational programs, e-commerce and digital initiatives strategies, goals, revenues, improved efficiencies, general costs, manufacturing costs, medical costs, merit pay, operating margins, working capital, liquidity, capital needs, expectations regarding the Company’s financing arrangements, expected investing activity, interest costs and income, are subject to risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements, due to factors including those noted in the Annual Report and other risks and factors identified from time to time in the Company’s filings with the SEC.

The Company disclaims any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

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. 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. As of ~~August 31, 2010,~~February 28, 2011, these transactions were not significant. 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 ~~40%~~31% of the Company’s debt at ~~August 31, 2010 and May 31, 2010~~February 28, 2011 bore interest at a variable rate and was sensitive to changes in interest rates, compared to approximately ~~50%~~40% at ~~August~~May 31, ~~2009.~~2010 and 43% at February 28, 2010. The decrease in variable-rate debt as of ~~August~~February 28, 2011 compared to May 31, 2010 and ~~May 31,~~February 28, 2010 ~~compared to August 31, 2009,~~ was primarily due to repayments made on the Term Loan. 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 ~~August 31, 2010~~February 28, 2011 (see Note 45 of Notes to condensed consolidated financial statements - unaudited in Item 1, “Financial Statements”):


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

	2011⁽¹⁾			2012			2013			2014		2015		Thereafter		Total
																			2011⁽¹⁾			2012			2013			2014		2015		Thereafter		Total

Debt Obligations																		Debt Obligations
Lines of Credit	$	7.7		$	—		$	—		$	—	$	—	$	—	$	7.7	Lines of Credit	$	6.7		$	—		$	—		$	—	$	—	$	—	$	6.7
Average interest rate		3.9	%															Average interest rate		4.0	%

Long-term debt including current																		Long-term debt including current
Fixed-rate debt	$	—		$	—		$	153.0		$	—	$	—	$	—	$	153.0
Average interest rate								5.0	%
																		Fixed-rate debt	$	—		$	—		$	153.0		$	—	$	—	$	—	$	153.0
Variable-rate debt	$	32.1		$	42.8		$	7.4	⁽³⁾	$	—	$	—	$	—	$	82.3
Interest rate⁽²⁾		1.1	%		1.1	%		1.1	%
																		Interest rate								5.0	%

																		Variable rate debt	$	10.7		$	42.8		$	7.4	⁽³⁾	$	—	$	—	$	—	$	60.9
																		Interest rate⁽²⁾		1.1	%		1.1	%		1.1	%


(1)	Fiscal 2011 includes the remaining ~~nine~~three months of the current fiscal ~~year.~~year, ending May 31, 2011.

(2)	Represents the interest rate under the Term Loan at ~~August 31, 2010;~~February 28, 2011; the interest rate is subject to change over the life of the Term Loan.

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

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 ~~August 31, 2010,~~February 28, 2011, 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 ~~August 31, 2010~~February 28, 2011 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 ~~2. Unregistered Sales of Equity Securities and Use of Proceeds~~1. Legal Proceedings

As previously reported, the Company is party to certain actions originally filed by each of Alaska Laborer Employers Retirement Fund and Paul Baicu, which were consolidated on November 8, 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 Annual Report on Form 10-K filed on July 30, 2008. The ~~following table provides information~~Court thereafter dismissed the Company’s pending motion to dismiss as moot. On October 20, 2008, the plaintiff filed the second amended complaint, and on October 31, 2008, the Company filed a motion to dismiss the second amended complaint. On September 30, 2010, the Court granted the Company’s motion to dismiss the second amended complaint for failure to state a cause of action, while also granting leave to the plaintiff to move to file a new proposed amended complaint. On December 1, 2010, the plaintiff filed a motion for leave to file a proposed third amended class action complaint, as well as a motion to replace Alaska Laborer Employers Retirement Fund with ~~respect~~City of Sterling Heights Police and Fire Retirement System as lead plaintiff, and, on January 14, 2011, the Company filed an opposition to ~~repurchases of shares of Common Stock~~plaintiff’s motions for leave to file a third amended class action complaint and to substitute lead plaintiff, which was argued on March 3, 2011 and is awaiting decision by the ~~Corporation during~~court. The proposed third amended class action complaint shortens the ~~three months ended August 31, 2010:~~original class action period to end on December 16, 2005 rather than on March 23, 2006, but otherwise continues to allege securities fraud relating to statements made by the Company concerning its operations and financial results, now for the period between March 18, 2005 and December 16, 2005, 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.

Issuer Purchases of Equity Securities
(Dollars in millions except per share amounts)

Period

Total number of
shares purchased

Average price paid
per share

Total cumulative
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⁽¹⁾

June 1, 2010 through
June 30, 2010

123,800

$
24.84

123,800

$
7.1

July 1, 2010 through
July 31, 2010

127,962

$
25.40

251,762

$
3.9

August 1, 2010 through
August 31, 2010

136,664

$
24.72

388,426

$
0.5

Total

388,426

$
24.98


~~(1)~~	On December 16, 2009, the Company announced that its Board of Directors had authorized a new program to 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. As of August 31, 2010, approximately $0.5 million remained of the current authorization.

SCHOLASTIC CORPORATION

Item 6. Exhibits


Exhibits:

~~4.1~~	Amendment No. 1, dated as of August 16, 2010, to the Credit Agreement, dated as of June 1, 2007, among the registrant and Scholastic Inc., as borrowers, the Initial Lenders named therein, JP Morgan Chase Bank, N.A., as administrative agent, J.P. Morgan Securities Inc. and Bank of America Securities LLC, as joint lead arrangers and joint lead bookrunners, Bank of America, N.A. and Wachovia Bank, N.A., as syndication agents, and SunTrust Bank and The Royal Bank of Scotland, plc as Documentation Agents.

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.

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Document

101.DEF	XBRL Taxonomy Extension Definitions Document

101.LAB	XBRL Taxonomy Extension Labels Document

101.PRE	XBRL Taxonomy Extension Presentation Document

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: ~~October 1, 2010~~March 31, 2011	By:	/s/ Richard Robinson


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

Date: ~~October 1, 2010~~March 31, 2011	~~By:~~	/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 ~~AUGUST 31, 2010~~
FEBRUARY 28, 2011

Exhibits Index


Exhibit Number		Description of Document



	~~4.1~~		Amendment No. 1, dated as of August 16, 2010, to the Credit Agreement, dated as of June 1, 2007, among the registrant and Scholastic Inc., as borrowers, the Initial Lenders named therein, JP Morgan Chase Bank, N.A., as administrative agent, J.P. Morgan Securities Inc. and Bank of America Securities LLC, as joint lead arrangers and joint lead bookrunners, Bank of America, N.A. and Wachovia Bank, N.A., as syndication agents, and SunTrust Bank and The Royal Bank of Scotland, plc as Documentation Agents.

	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.

	101.INS		XBRL Instance Document *

	101.SCH		XBRL Taxonomy Extension Schema Document *

	101.CAL		XBRL Taxonomy Extension Calculation Document *

	101.DEF		XBRL Taxonomy Extension Definitions Document *

	101.LAB		XBRL Taxonomy Extension Labels Document *

	101.PRE		XBRL Taxonomy Extension Presentation Document *

* In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed.”

3537


	August 31, 2010				May 31, 2010				August 31, 2009

ASSETS
Current Assets:
Cash and cash equivalents		$	124.2			$	244.1			$	54.2
Accounts receivable, net			212.4				212.5				228.0
Inventories, net			433.0				315.7				435.0
Deferred income taxes			59.7				59.3				83.8
Other current assets			83.4				42.5				57.8
Current assets of discontinued operations			12.6				12.9				21.9


Total current assets			925.3				887.0				880.7

Property, plant and equipment, net			321.0				316.6				317.4
Prepublication costs			109.1				110.7				119.7
Royalty advances, net			37.9				38.0				41.1
Production costs			7.2				7.1				6.4
Goodwill			156.6				156.6				157.0
Other intangibles			15.4				15.5				51.7
Non current deferred income taxes			33.0				33.6				59.0
Other assets and deferred charges			37.8				35.3				37.8

Total assets		$	1,643.3			$	1,600.4			$	1,670.8


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Lines of credit, short-term debt and current portion of long-term debt			50.5				50.3				56.2
Capital lease obligations			0.9				0.9				2.6
Accounts payable			178.0				101.0				167.2
Accrued royalties			56.3				42.3				56.8
Deferred revenue			59.8				39.8				55.5
Other accrued expenses			138.9				156.2				160.6
Current liabilities of discontinued operations			2.9				2.9				4.9


Total current liabilities			487.3				393.4				503.8

Noncurrent Liabilities:
Long-term debt			191.8				202.5				234.4
Capital lease obligations			55.1				55.0				54.7
Other noncurrent liabilities			116.8				119.1				110.4


Total noncurrent liabilities			363.7				376.6				399.5

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			574.5				569.2				558.4
Accumulated other comprehensive loss			(81.6	)			(85.4	)			(73.3	)
Retained earnings			569.9				607.8				537.0
Treasury stock at cost			(270.9	)			(261.6	)			(255.0	)

Total stockholders’ equity			792.3				830.4				767.5

Total liabilities and stockholders’ equity		$	1,643.3			$	1,600.4			$	1,670.8


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

Three months ended August 31, 2010

Revenues	$	72.8		$	118.6	$	17.6		$	—		$	209.0		$	81.9		$	290.9
Bad debts		2.0			—		—			—			2.0			0.9			2.9
Depreciation and amortization⁽²⁾		3.6			0.6		0.5			8.4			13.1			1.3			14.4
Amortization⁽³⁾		3.3			6.5		1.7			—			11.5			0.6			12.1
Royalty advances expensed		5.1			0.2		0.1			—			5.4			0.6			6.0
Segment operating (loss) income		(51.6	)		28.5		(2.9	)		(18.6	)		(44.6	)		(2.2	)		(46.8	)
Segment assets		553.1			348.1		57.3			384.0			1,342.5			288.2			1,630.7
Goodwill		54.3			88.4		5.4			—			148.1			8.5			156.6
Expenditures for long-lived assets including royalty advances		13.0			6.9		2.0			5.5			27.4			3.1			30.5
Long-lived assets		183.8			168.2		20.1			227.1			599.2			69.7			668.9

Three months ended August 31, 2009

Revenues	$	76.2		$	148.7	$	15.1		$	—		$	240.0		$	75.6		$	315.6
Bad debts		1.0			0.2		—			—			1.2			0.9			2.1
Depreciation and amortization⁽²⁾		3.3			0.9		0.2			8.8			13.2			1.5			14.7
Amortization⁽³⁾		2.5			6.8		2.2			—			11.5			0.6			12.1
Royalty advances expensed		5.1			0.2		0.1			—			5.4			1.5			6.9
Segment operating (loss) income		(47.5	)		41.3		(3.7	)		(23.5	)		(33.4	)		(1.9	)		(35.3	)
Segment assets		512.3			393.7		65.5			417.5			1,389.0			259.9			1,648.9
Goodwill		54.3			88.4		5.8			—			148.5			8.5			157.0
Expenditures for long-lived assets including royalty advances		12.7			5.6		1.6			2.9			22.8			2.8			25.6
Long-lived assets		180.6			204.8		30.2			226.5			642.1			74.1			716.2


	*Three months ended August 31,*

	2010			2009


Net loss	$	(35.2	)	$	(23.0	)

Other comprehensive income, net:
Foreign currency translation adjustment		3.3			3.3
Pension and post-retirement adjustments		0.5			0.5

Total other comprehensive income, net:		3.8			3.8


Total comprehensive loss	$	(31.4	)	$	(19.2	)