New York, NY (December 19, 2002) -- Scholastic Corporation (NMS: SCHL) today announced record results for its second fiscal quarter ended November 30, 2002.

Revenue increased 4% to $660.3 million as compared to $637.2 million in the year-ago period and operating income increased 10% to $123.5 million, or 18.7% of revenue, as compared to $112.2 million, or 17.6% of revenue, in last year’s quarter. Net income increased 13% to $75.0 million as compared to $66.5 million in last year’s quarter, with net income per diluted share up 9% to $1.85 as compared to $1.69 in the year-ago quarter.
 
"Scholastic delivered record results despite a challenging economic climate,” said Richard Robinson, Chairman, President and CEO. "While revenue and earnings were slightly below expectations due to lower than anticipated results in our trade and school book club businesses, we expanded margin and generated higher profits in all four segments due to the sale of higher margin products and better than anticipated benefits from our ongoing cost-reduction efforts."
Highlights include:

• Strong growth in School-based Continuities, School Book Fairs, and new trade titles.
• Despite school budget pressures, sales of textbook and technology programs increased 7%, reflecting Scholastic’s focus on reading improvement products, such as the READ 180^® intervention program.
• Improved results in International operations, generating 10% higher revenue along with increased profitability.
• Cost reductions ahead of schedule at $17 million year-to-date, putting Scholastic on track to reduce costs by more than $35 million in Fiscal 2003 versus an original target of $30 million.

Updated FY03 Outlook
 
Looking ahead, Mr. Robinson said, “We now expect publication of the fifth Harry Potter book to occur early in our 2004 fiscal year, which begins June 1, 2003.  For the balance of the current fiscal year, we expect lower than previously anticipated Trade and Club revenue amid a weak economy, partially offset by strength in our other businesses and better than expected cost reduction.  Accordingly, we now expect Fiscal 2003 EPS to be approximately equal to last year’s $2.50, with the benefit of the Harry Potter book five to be recorded in Fiscal 2004."
 

Second Quarter Analysis

Children’s Book Publishing & Distribution – Revenue grew by 3% to $438.2 million compared to $426.8 million in the year-ago quarter, with Continuities and School Book Fairs both up 9%, more than offsetting declines of 2% in School Book Clubs and 5% in Trade.

• Continuities included a 43% or $7 million increase in revenues from Continuity programs offered in school channels, continued improvement in the Direct-to-Home business, and the successful integration of Baby’s First Book Club (acquired fourth quarter fiscal 2002).  School Book Club revenue was affected by growth in sales of school-based continuity programs, which are sold through the Book Club channel, but are reported in Continuities.  Book Fairs continued to perform well and are on budget for approximately 12% revenue growth in Fiscal 2003.
• Trade revenue included the following:  $10 million from the Klutz “books plus” business (acquired fourth quarter fiscal 2002); Harry Potter sales of $25 million as compared to the year-ago quarter’s exceptional $45 million, which was sparked by the premiere of the first Harry Potter movie; and increased sales from other Scholastic titles.  Due to the lower than anticipated increase in retail sales from the second Harry Potter movie, current period Harry Potter sales reflected a higher provision for returns (as a percentage of shipments) on current quarter shipments than that applied in the year-ago quarter, reducing net Harry Potter revenue by approximately $9 million.  Despite the sales decline compared to the prior year, Harry Potter titles continue to top bestseller lists.  Other titles that performed well included Clifford The Big Red Dog^®– 40^th Anniversary, Dear America^®, Ricky Ricotta, Scooby-Doo,The Thief Lord, David Gets In Trouble, and the Scholastic Dictionary.

Educational Publishing – Revenue expanded 3% to $76.6 million as compared to $74.1 million last year.  Curriculum revenue growth also reflected initial success of the Scholastic Early Childhood pre-school reading and learning program.  Paperback and Teaching Resources revenue increased 10% with the addition of Teacher’s Friend Publications (acquired fourth quarter fiscal 2002) and expanded sales of professional and supplemental materials to parent-teacher stores.  Revenue from Tom Snyder Productions supplemental classroom software (acquired third quarter fiscal 2002) more than offset a modest decline in revenue from Scholastic Library publishing.

International – Revenue was $98.7 million, up 10% as compared to $89.5 million last year.  Key factors included revenue gains from operations in Far East markets, Canada, Mexico and Australia and favorable currency exchange rates as compared to the year-ago quarter.

Media, Licensing & Advertising – Revenue grew slightly to $46.8 million with an increase in Clifford The Big Red Dog™ licensing more than offsetting lower CD-ROM sales.  Scholastic Entertainment is currently in production on two new TV series – the upcoming Clifford’s Puppy Days for PBS Kids and I Spy™ for HBO, which debuted last week.  Production also is moving ahead on the Clifford feature film for AOL Time Warner.
 

Six Month Fiscal 2003 Results
Revenue increased 3% to $967.2 million in the six-month period as compared to $943.3 million in the year-ago period.  Net income for the period increased 3% to $30.4 million, or $0.75 per diluted share, as compared to $29.5 million, or $0.79 per diluted share, in the year-ago period.  Net income in the first quarter of Fiscal 2003 included an after-tax, one-time charge of $1.2 million, or $0.03 per share, from the settlement of a 1997 lawsuit.  Net income in the first quarter of Fiscal 2002 included an after-tax charge of $5.2 million, or $0.13 per share, for a change in accounting due to the adoption of SOP 00-2, “Accounting by Producers and Distributors of Films.”

Conference Call
Scholastic will discuss its second quarter Fiscal 2003 results in a conference call tomorrow (December 20, 2002) at 8 AM Eastern. To participate, call 877-375-2162 or 973-582-2734. Slides can be viewed at in the Investor Relations section of www.scholastic.com. After 11 AM tomorrow and until January 10, 2003, a replay of the slides and audio will be available at www.scholastic.com/aboutscholastic/investor/index.htm and a replay of the audio will be available at 877-519-4471 or 973-341-3080 (use the PIN Number 3614186.)

About Scholastic
Scholastic is the world's largest publisher and distributor of children's books. Scholastic creates quality educational and entertaining materials and products for use in school and at home, including children's books, textbooks, magazines, technology-based products, teacher materials, television programming, 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 direct-to-home continuity programs; retail stores, schools, libraries, and television networks; and the Company's www.scholastic.com Internet site.

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.

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