SCHOLASTIC ANNOUNCES FISCAL 2008 FIRST QUARTER RESULTS

Harry Potter and the Deathly Hallows Achieves Record Sales and High Sell-Through
 
Strong Results Position Company to Meet Plan, Invest in Long-Term Growth

New York, NY (September 20, 2007) -- Scholastic Corporation (NASDAQ: SCHL) today reported results for the fiscal first quarter ended August 31, 2007 and affirmed its outlook for fiscal 2008.

Revenue in the first quarter was $586.9 million, up 75% from the prior year period, due in large part to phenomenal sales of Harry Potter and the Deathly Hallows, which was released on July 21, 2007.  Net loss for the quarter was $2.8 million or $0.07 per share.  This compares to a net loss of $46.9 million or $1.12 per share in the first quarter of fiscal 2007.  Scholastic typically records a loss in its fiscal first quarter, when most schools are not in session and its School Book Clubs and Fairs generate minimal revenue.

“This summer Scholastic again broke publishing records with the launch of Harry Potter and the Deathly Hallows.  Exceptional promotion and marketing combined with overwhelmingly favorable publicity resulted in unprecedented sales, while efficient distribution and execution helped us achieve high sell-through and improved margins.  Sales of READ 180® and educational technology also rose solidly in their primary selling season, reflecting Scholastic’s continued success raising student achievement,” commented Richard Robinson, Chairman, CEO and President.  “These positive first quarter results position us well to meet our fiscal 2008 goals while making planned investments to drive long-term growth, in particular in our education and children’s book businesses, and progress toward our 9 to 10% operating margin goal.” 

As previously announced, in fiscal 2008 the Company expects total revenue of approximately $2.3 to $2.5 billion, earnings per diluted share of $2.35 to $2.85 and free cash flow of $80 to $100 million.


First Quarter Segment Results

Children’s Book Publishing and Distribution.   Segment revenue for the quarter was $342.5 million, up over 200% from the prior year period.  Harry Potter® trade revenue increased to approximately $240 million from $5 million in last year’s first quarter, reflecting the successful launch of Harry Potter and the Deathly Hallows, as well as higher sales of the first six Harry Potter titles.  This factor significantly benefited segment operating profit for the quarter, which improved to $2.7 million compared to a loss of $67.3 million a year ago.


Educational Publishing.   Segment revenue for the quarter was $127.8 million, level with the prior year period.  Educational technology sales rose 9% largely due to solid sales of READ 180 and FASTT Math™.  This was offset by schools’ continued weak spending on supplemental materials, which resulted in lower sales in Paperbacks and Library Publishing.  Segment operating profit was $30.6 million compared to $32.7 million in the first quarter of last year, primarily reflecting lower revenue in Paperbacks and planned investments in the sales organization.

International.   Segment revenue for the quarter was $99.6 million, up 26% (17% in local currencies) from the prior year period.  Segment operating loss improved to $2.7 million compared to $5.5 million in the prior year period, primarily due to strong export sales of Harry Potter and improved results in Australia and Asia.


Media, Licensing and Advertising.   Segment revenue for the quarter rose 8% to $17.0 million, due in part to higher sales of interactive products.  Segment operating loss improved to $5.1 million from $6.1 million in the prior year period, primarily reflecting additional deliveries of television programming for which expenses had already been amortized.

Other Financial Results.  Corporate overhead in the quarter was $20.3 million compared to $19.9 million in the prior year period, reflecting higher Harry Potter-related expenses, partly offset by company-wide efforts to reduce costs.  Higher stock-based compensation expense of $0.02 per diluted share in the quarter also impacted corporate overhead, as well as segment results.  The adoption of FIN 48 (“Accounting for Uncertainty in Income Taxes”) effective June 1, 2007, together with FAS 109 (“Accounting for Income Taxes”), resulted in additional tax expense of $0.02 per diluted share in the quarter, partially offsetting the tax benefit related to the Company’s seasonal net loss.  As a result, the Company’s effective tax rate in the first quarter was 12.2%.

Free cash use (as defined) in the first quarter was $129.7 million compared to $147.9 million in the prior year period, reflecting improved operating results and lower inventories, partially offset by higher Harry Potter-related working capital.  Inventory levels declined by $16.8 million or 3% compared to a year ago.  In the quarter the Company received 5.1 million shares of its common stock under a previously announced $200 million accelerated share repurchase (“ASR”).  Under the agreement the Company may receive up to 1.1 million additional shares at the end of next month, with the final amount based on the average price of the common stock over the term of the ASR.  Because of additional debt to finance the ASR, partially offset by strong free cash flow in the intervening twelve months, net debt (as defined) was $546.8 million at quarter end, up from $456.1 million a year earlier.


Conference Call

The Company will hold a conference call to discuss its results at 8:00 am ET today, September 20, 2007. Scholastic’s Chairman, President and CEO, Richard Robinson, and Executive Vice President, CAO and CFO, Maureen O’Connell, will moderate the call. 

The conference call and accompanying slides will be webcast and accessible through the Investor Relations section of Scholastic’s website, scholastic.com.  Following the call, slides from the conference call will also be posted in the Investor Relations section of scholastic.com.


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

Forward-Looking Statements
This news release contains certain forward-looking statements.  Such forward-looking statements are subject to various risks and uncertainties, including the conditions of the children’s book and educational materials markets and acceptance of the Company’s products within those markets, and other risks and factors identified from time to time in the Company’s filings with the Securities and Exchange Commission.  Actual results could differ materially from those currently anticipated.
 
The entire release with tables can be viewed by clicking on the link below:
http://home.businesswire.com

Contacts:
Scholastic
Kyle Good
212-343-4563
 
Scholastic
Jeffrey Mathews
212-343-6741