UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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


For the quarterly period ended February ~~29, 2008~~28, 2009		Commission File No. 000-19860

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

~~Delaware~~		~~13-3385513~~
SCHOLASTIC CORPORATION
(Exact name of Registrant as specified in its charter)


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

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

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

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

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


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

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

Yes~~Yes~~o No NoxX

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

~~Title~~
	Title of each class		Number of shares outstanding
~~of each class~~		as of March 31, ~~2008~~2009


	Common Stock, $.01 par value		~~36,648,620~~ 34,738,598
	Class A Stock, $.01 par value		1,656,200

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

SCHOLASTIC CORPORATION

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2009

INDEX


				Page

Part I - Financial Information				~~Page~~

	Item 1.		Financial Statements

		Condensed Consolidated Statements of Operations - Unaudited for the
		Three and Nine months ended February ~~29, 2008~~28, 2009 and February ~~28, 2007~~29, 2008		1

		Condensed Consolidated Balance Sheets -– February 28, 2009 and February 29, 2008 ~~and~~
		~~February 28, 2007~~ - Unaudited; and May 31, ~~2007~~2008		2

		Consolidated Statements of Cash Flows - Unaudited for the Nine
		months ended February ~~29, 2008~~28, 2009 and February ~~28, 2007~~29, 2008		3

		Notes to Condensed Consolidated Financial Statements - Unaudited		4

	Item 2.		Management’s Discussion and Analysis of Financial Condition
		and Results of Operations		15 17

	Item 3.		Quantitative and Qualitative Disclosures about Market Risk		22 25

	Item 4.		Controls and Procedures		23 26

Part II – Other Information

~~Item 1.~~		~~Legal Proceedings~~		24

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		25 27

	Item 6.	Exhibits	~~Exhibits~~		26 28

Signatures				29
		27

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*						*Nine months ended*
	*February 28,*			*February 29,*			*February 28,*			*February 29,*

	2009			2008			2009			2008
				*(Restated)*						*(Restated)*

Revenues	$	424.9		$	440.4		$	1,359.0		$	1,644.2

Operating costs and expenses:
Cost of goods sold		214.1			216.0			643.2			800.3
Selling, general and administrative expenses		193.7			200.9			599.6			625.2
Bad debt expense		2.4			3.1			11.1			8.3
Depreciation and amortization		14.5			14.4			45.4			44.6
Severance		5.8			1.8			19.8			5.2
Goodwill impairment charge		17.0			—			17.0			—

Total operating costs and expenses		447.5			436.2			1,336.1			1,483.6

Operating (loss) income		(22.6	)		4.2			22.9			160.6

Other income (expense)		0.3			(0.9	)		0.3			(0.9	)
Interest expense, net		5.6			6.0			18.5			24.4
Loss on investments		13.5			—			13.5			—


(Loss) earnings from continuing operations before income taxes		(41.4	)		(2.7	)		(8.8	)		135.3
(Benefit) provision for income taxes		(6.3	)		(1.3	)		10.6			49.0


(Loss) earnings from continuing operations		(35.1	)		(1.4	)		(19.4	)		86.3
Loss from discontinued operations, net of tax		(0.9	)		(77.9	)		(22.6	)		(92.8	)


Net loss	$	(36.0	)	$	(79.3	)	$	(42.0	)	$	(6.5	)


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

Basic:
(Loss) earnings from continuing operations	$	(0.95	)	$	(0.03	)	$	(0.52	)	$	2.22
Loss from discontinued operations, net of tax	$	(0.03	)	$	(2.03	)	$	(0.60	)	$	(2.39	)
Net loss	$	(0.98	)	$	(2.06	)	$	(1.12	)	$	(0.17	)
Diluted:
(Loss) earnings from continuing operations	$	(0.95	)	$	(0.03	)	$	(0.52	)	$	2.19
Loss from discontinued operations, net of tax	$	(0.03	)	$	(2.03	)	$	(0.60	)	$	(2.35	)
Net loss	$	(0.98	)	$	(2.06	)	$	(1.12	)	$	(0.16	)

Dividends declared per common share	$	0.075		$	—		$	0.225		$	—

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

Three months ended

Nine months ended

February 29, February 28,
February 29,

February 28,

2008
2007

2008

2007

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

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

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

Operating income (loss) 0.6 (2.0 ) 152.6 66.9

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

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

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

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

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

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

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

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

See accompanying notes

SCHOLASTIC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollar amounts in millions, except per share data)


	February 28, 2009			May 31, 2008			February 29, 2008 (Restated)

	(Unaudited)						(Unaudited)
ASSETS
*Current Assets:*
Cash and cash equivalents	$	37.0		$	117.3		$	191.7
Accounts receivable, net		196.6			205.3			199.2
Inventories		413.8			360.9			423.6
Deferred promotion costs		10.0			5.9			9.5
Deferred income taxes		130.7			116.9			93.0
Prepaid expenses and other current assets		57.3			53.1			72.8
Current assets of discontinued operations		40.6			86.3			165.7



Total current assets		886.0			945.7			1,155.5

Property, plant and equipment, net		316.3			338.8			331.8
Prepublication costs		116.6			110.6			105.9
Royalty advances		44.9			48.4			52.0
Production costs		5.9			4.9			4.8
Goodwill		141.0			164.4			164.4
Other intangibles		46.9			47.4			49.7
Other assets and deferred charges		96.5			101.4			111.4


Total assets	$	1,654.1		$	1,761.6		$	1,975.5


LIABILITIES AND STOCKHOLDERS’ EQUITY
*Current Liabilities:*
Lines of credit, short-term debt and current portion of long-term debt	$	52.6		$	54.6		$	53.5
Capital lease obligations		3.5			4.9			4.9
Accounts payable		132.1			109.1			113.8
Accrued royalties		60.2			45.5			151.5
Deferred revenue		48.7			35.4			50.3
Other accrued expenses		147.1			171.2			169.5
Current liabilities of discontinued operations		16.3			21.3			40.9



Total current liabilities		460.5			442.0			584.4

*Noncurrent Liabilities:*
Long-term debt		262.7			295.1			320.1
Capital lease obligations		55.0			56.7			57.6
Other noncurrent liabilities		110.6			94.7			118.6


Total noncurrent liabilities		428.3			446.5			496.3

*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		550.7			539.1			531.9
Accumulated other comprehensive loss		(71.9	)		(34.7	)		(31.0	)
Retained earnings		537.7			588.3			598.9
Treasury stock at cost		(251.6	)		(220.0	)		(205.4	)


Total stockholders’ equity		765.3			873.1			894.8

Total liabilities and stockholders’ equity	$	1,654.1		$	1,761.6		$	1,975.5

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

February 29, 2008

May 31, 2007

February 28, 2007

(Unaudited)

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

Total current assets 1,099.6 904.7 1,000.6

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

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

LIABILITIES AND STOCKHOLDERS’ EQUITY
    Current Liabilities:

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

Total current liabilities 581.6 414.1 409.4

    Noncurrent Liabilities:

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

Total noncurrent liabilities 497.7 334.6 453.8

Commitments and Contingencies — — —

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

SCHOLASTIC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED

(Dollar amounts in millions)

~~CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED~~


	*Nine months ended*

	February 28, 2009			February 29, 2008
				(Restated)

Cash flows provided by operating activities:
Net loss	$	(42.0	)	$	(6.5	)
Loss from discontinued operations, net of tax		(22.6	)		(92.8	)

(Loss) earnings from continuing operations		(19.4	)		86.3

Adjustments to reconcile (loss) earnings from continuing operations to net cash provided by operating activities of continuing operations:
Provision for losses on accounts receivable and other reserves		39.4			38.1
Amortization of prepublication and production costs		32.5			33.0
Depreciation and amortization		45.4			44.6
Deferred income taxes		(6.3	)		(25.2	)
Non cash write off related to asset impairment		17.0			—
Unrealized loss on investment		13.5			—
Changes in assets and liabilities:
Accounts receivable		(16.3	)		11.5
Inventories		(96.5	)		(76.9	)
Prepaid expenses and other current assets		(5.3	)		(10.9	)
Deferred promotion costs		(4.2	)		(4.4	)
Royalty advances		(6.0	)		(5.0	)
Accounts payable and other accrued expenses		15.6			58.4
Accrued royalties		16.3			115.8
Deferred revenue		14.7			27.5
Pension and postretirement liability		(6.7	)		(4.4	)
Other net		21.0			14.1

Total adjustments		74.1			216.2

Net cash provided by operating activities of continuing operations		54.7			302.5
Net cash (used in) provided by operating activities of discontinued operations		(20.6	)		1.2

Net cash provided by operating activities		34.1			303.7

Cash flows used in investing activities:
Prepublication expenditures		(37.2	)		(36.6	)
Additions to property, plant and equipment		(32.7	)		(34.3	)
Net proceeds from sale of businesses		33.0			—
Production expenditures		(3.8	)		(2.8	)
Repayment of loan from investee		6.0			6.2
Loan to investee		(4.4	)		(6.1	)
Acquisition related payments		(3.8	)		(1.1	)
Other		—			(0.1	)

Net cash used in investing activities of continuing operations		(42.9	)		(74.8	)
Net cash used in investing activities of discontinued operations		(0.8	)		(3.6	)

Net cash used in investing activities		(43.7	)		(78.4	)

Cash flows used in financing activities:
Borrowings under credit agreement and revolving loan		220.3			190.0
Repayment of credit agreement and revolving loan		(220.3	)		(190.0	)
Borrowings under term loan		—			200.0
Repayment of term loan		(32.1	)		(10.7	)
Repurchase of 5.00% notes		(0.4	)		—
Borrowings under lines of credit		429.5			412.5
Repayment under lines of credit		(429.2	)		(468.7	)
Repayment of capital lease obligations		(3.7	)		(4.2	)
Reacquisition of common stock		(31.6	)		(205.4	)
Proceeds pursuant to stock-based compensation plans		1.4			33.3
Payment of dividends		(5.7	)		—
Other		—			0.6

Net cash used in financing activities of continuing operations		(71.8	)		(42.6	)

Net cash used in financing activities		(71.8	)		(42.6	)
Effect of exchange rate changes on cash and cash equivalents		(0.5	)		(4.4	)

Net (decrease) increase in cash and cash equivalents		(81.9	)		178.3
Cash and cash equivalents at beginning of period, including cash of discontinued operations of $3.1 and $2.4 at June 1, 2008 and 2007, respectively		120.5			22.8

*Cash and cash equivalents at end of period, including cash of discontinued operations of $1.6 and $9.4 at February 28, 2009 and February 29, 2008, respectively*		38.6			201.1

~~(Dollar amounts in millions)~~

Nine months ended

February 29,

February 28,

2008

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

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

Cash flows used in investing activities:

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

Cash flows used in financing activities:

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

See accompanying notes

See accompanying notes

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

1. Basis of Presentation

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

As more fully described in Note 2, “Discontinued Operations,” ~~during the three months ended February 29,~~in August 2008, the Company ~~announced that it intends to sell~~completed the sale of its domestic direct-to-home continuity business (the “DTH business”) and has ceased operations of its direct-to-home continuity ~~businesses (the “DTH business”), including the domestic portion located in the United States and the international portion located~~business in the United Kingdom ~~and~~as of February 28, 2009. The Company expects to complete the divestiture of its direct-to-home continuity business located in Canada, as well as a ~~related~~ warehousing and distribution facility located in Maumelle, Arkansas (the “Maumelle Facility”)., by the end of the current fiscal year. As previously announced, during the fourth quarter of fiscal 2008, due to the impending sale of the DTH business, it was also determined that the Scholastic school-based continuities business (the “SC business”) would not have an adequate infrastructure and, as a result, the SC business was shut down effective May 31, 2008. The DTH business, the Canada and United Kingdom direct-to-home continuity businesses, the Maumelle Facility and the SC business are hereinafter referred to collectively as the “Former Continuities Business.”

In addition to the foregoing, during the six months ended February 28, 2009, the Company determined to exit certain other unprofitable, non-core businesses or operations as detailed in Note 2, “Discontinued Operations,” which operations have been or are in the process of being sold or shut down. The Company continuously evaluates its portfolio of businesses for both impairment and economic viability.

Also, in a separate transaction during the ~~planned divestiture,~~three months ended February 28, 2009, the Company sold Quality Education Data (“QED”), a non-core business which markets databases serving the school market, for proceeds of $29.0, resulting in a pre-tax profit of $21.9.

The remaining assets and liabilities associated with the ~~DTH business that are intended to be disposed of~~foregoing businesses or operations are presented on the Company’s Condensed Consolidated Balance Sheets as ~~"Current~~“Current assets of discontinued ~~operations," “Noncurrent assets of discontinued operations,” ”Current~~operations” and “Current liabilities of discontinued operations” ~~and “Noncurrent liabilities~~as of ~~discontinued operations”, as of~~February 28, 2009, May 31, 2008 and February 29, 2008. The aggregate results of operations of ~~the DTH business~~these businesses for the three and nine ~~month periods~~months ended February 28, 2009 and February 29, 2008 are included in the Condensed Consolidated Statements of Operations as ~~"Loss~~“Loss from discontinued operations, net of tax."” The aggregate cash flows of ~~the discontinued operations~~these businesses are also presented separately in the Company’s Consolidated Statements of Cash Flows for the nine months ended February 28, 2009 and February 29, 2008. All corresponding prior year periods presented in the Company’s Condensed Consolidated Financial Statements and accompanying notes have been reclassified to reflect the discontinued operations presentation.

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

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

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

In addition to the reclassification to reflect discontinued operations presentation, certain prior year amounts have been reclassified to conform to the current year. Royalty advances, which were previously reported within “Cash flows used in investing activities” in the Company’s Consolidated Statements of Cash Flows, are now presented as a component of “Changes in assets and liabilities” within “Cash flows provided by operating activities.” In addition, certain amounts related to the translation of foreign currency amounts, which were previously reported in “Other, net” in the Consolidated Statements of Cash Flows, are now presented as a component of the “Effect of exchange rate changes on cash and cash equivalents.” The prior year reclassifications to the Statement of Cash Flows resulted in a $12.7 decrease in “Net cash provided by operating activities” for the nine months ended February 28, 2007, which was attributable to a $23.9 royalty advance reclassification, partially offset by a $11.2 foreign currency reclassification.

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued ~~Statement of Financial Accounting Standards (“SFAS”)~~SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and states that a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. In February 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13,” and FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157.” Collectively, these Staff Positions allow a one-year deferral of adoption of SFAS 157 for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a non-recurring basis and amend SFAS 157 to exclude FASB Statement No. 13 and its related interpretive accounting pronouncements that address leasing transactions.

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

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

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

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

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

The Company’s assets and liabilities measured at fair value on a recurring basis subject to the presentation requirements of SFAS 157 at February 28, 2009 consisted of cash and cash equivalents and foreign currency forward contracts, neither of which were material as of the reporting date. Cash and cash equivalents are comprised of bank deposits and short-term investments, such as money market funds, the fair value of which is based on quoted market prices, a Level 1 fair value measure. The fair values of foreign currency forward contracts, used by the Company to manage the impact of foreign exchange rate changes to the financial statements, are based on quotations from financial institutions, a Level 2 fair value measure.

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

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

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

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

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

In September 2008, the FASB issued FSP No. 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161” (“FSP 133-1”). FSP 133-1 requires more extensive disclosure regarding potential adverse effects of changes in credit risk on the financial position, financial performance, and cash flows of sellers of credit derivatives. FSP 133-1 also amends FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others,” to require additional disclosure about the current status of the payment or performance risk of a guarantee. FSP 133-1 also clarifies the effective date of FASB Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” by stating that the disclosures required should be provided for any reporting period (annual or quarterly interim) beginning after November 15, 2008. The adoption of FSP 133-1 did not impact the Company.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

2. Discontinued Operations

~~During~~As previously announced, the Company sold its DTH business in August 2008 and shut down its SC business (which, together with the DTH business, were formerly included in the Children’s Book Publishing and Distribution segment) effective May 31, 2008, ceased operations at its direct-to-home continuity business in the United Kingdom (formerly included in the International Segment) and intends to sell its Maumelle Facility (formerly included in Overhead). The Company also intends to complete the divestiture of its direct-to-home continuity business in Canada (formerly included in the International segment) in fiscal 2009. In the three months ended November 30, 2008, the Company discontinued its subsidiary in Argentina, which served multiple distribution channels including book clubs, book fairs and trade, and its door-to-door encyclopedia sales business in Puerto Rico (both of which were formerly included in the International segment), as well as a trade magazine (formerly included in the Media, Licensing and Advertising segment). Additionally, in the three months ended February ~~29, 2008,~~28, 2009, the Company ~~announced that it intends~~shut down its Scarsdale, NY retail store and its book and gift fairs operation serving adult markets (both of which were formerly included in the Children’s Book Publishing and Distribution segment), and determined to sell ~~the DTH business,~~an on-line resource for teachers and a Spanish language book channel (both of which ~~includes both the domestic portion and the international portion located~~were formerly included in the ~~United Kingdom and Canada,~~Educational Publishing segment), as well as ~~the Maumelle Facility. The assets of the DTH business are being classified together~~its Danbury, CT distribution facility (formerly included in ~~one disposal group (the “DTH disposal group”) because~~Overhead). During this period, in a separate transaction, the Company ~~currently anticipates that these assets will be~~ sold ~~together~~its QED business (formerly included in ~~a single transaction. In accordance with SFAS No. 144, “Accounting for~~ the ~~Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), the~~Media, Licensing and Advertising segment). The results of operations ~~for the DTH business~~associated with these businesses are presented as discontinued operations in the Company’s Condensed Consolidated Financial Statements ~~as discontinued operations.~~in fiscal 2009 and prior year periods. The Company ~~currently anticipates that~~continues to monitor the ~~sale will~~expected cash proceeds to be ~~completed during~~realized from the ~~fourth quarter~~disposition of ~~fiscal 2008, or~~discontinued operations assets, and adjusts asset values accordingly. During the ~~first quarter of fiscal 2009.~~

SFAS 144 requires adjustments to the carrying value of assets held for sale if the carrying value exceeds their estimated fair value, less cost to sell. The calculation of estimated fair value less cost to sell included significant estimates and assumptions, including, but not limited to: operating projections and the discount rate and terminal values developed in connection with the discounted cash flow; excess working capital levels; real estate fair values; and the anticipated costs involved in the selling process. In addition, as a result of the Company's decision to sell the DTH business,three months ended February 28, 2009, the Company ~~prepared separate financial statements reflecting the~~recognized impairment charges related to discontinued operations ~~presentation, which required management to make significant judgments~~of $19.6 pre-tax.

The Company continuously evaluates its portfolio of businesses for both impairment and estimates for purposes of allocating to the discontinued operations certain operating expenses, such as warehousing and distribution expenses, as well as assets, liabilities and other balance sheet items, including accounts payable and certain other noncurrent liabilities. Prior to the decision to sell the DTH business, separate financial statements were not available for the DTH business in the normal course, nor was financial information separately available for management in the normal course of internal financial reporting sufficient to construct separate financial statements. As a result of the analysis made by the Company as required by SFAS No. 144, the Company recorded a non-cash impairment charge of $107.3 and a tax benefit of $34.6, resulting in a charge of $72.7, net of tax, during the quarter ended February 29, 2008 to reflect the DTH disposal group at its estimated fair value less cost to sell. The impairment charge was first applied to the long-lived assets and the deferred promotion costs of the DTH disposal group. The remainder of the impairment charge was then applied on a pro-rata basis to accounts receivable, inventory and other current assets. If a sale is consummated at a selling price lower (or higher) than the estimated fair value less cost to sell, the Company would incur a loss (or gain) on the sale.economic viability.

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


													*Three months ended*								*Nine months ended*
													*February 28,*				*February 29,*				*February 28,*				*February 29,*
	*Three months ended*						*Nine months ended*
													2009				2008				2009				2008
	February 29,			February 28,			February 29,			February 28,							(Restated)								(Restated)
	2008			2007			2008			2007

Revenues	$	40.0		$	51.1		$	130.1		$	146.0			$	6.8			$	58.0			$	64.3		$	187.3
Non-cash impairment charge		(107.3	)		—			(107.3	)		—
Gain on sale															21.9				—				32.4			—
Non-cash impairment															(19.6	)			(103.2	)			(39.2	)		(103.2	)
Loss before income taxes		(114.8	)		(5.5	)		(130.9	)		(13.9	)			(1.7	)			(114.6	)			(27.1	)		(135.1	)
Income tax benefit		37.3			1.6			42.8			4.7				0.8				36.7				4.5			42.3


Loss from discontinued operations, net of tax	$	(77.5	)	$	(3.9	)	$	(88.1	)	$	(9.2	)		$	(0.9	)		$	(77.9	)		$	(22.6	)	$	(92.8	)

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

February 29, 2008

May 31, 2007

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

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

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



	*February 28, 2009*			*May 31, 2008*			*February 29, 2008*
							*(Restated)*

Accounts receivable, net			21.3			30.6			54.8
Inventories, net			0.8			13.9			49.0
Other assets⁽¹⁾			18.5			41.8			61.9

Current assets of discontinued operations		$	40.6		$	86.3		$	165.7

Accounts payable and accrued expenses			16.3			21.2			39.5
Other liabilities			0.0			0.1			1.4

Current liabilities of discontinued operations		$	16.3		$	21.3		$	40.9


(1)	Cash from discontinued operations was $1.6, $3.1 and $9.4 for the periods ended February 28, 2009, May 31, 2008 and February 29, 2008, respectively. The cash in discontinued operations resides primarily in foreign subsidiaries, for which the Company is evaluating the repatriation.

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

3. Segment Information

The Company categorizes its businesses into four ~~operating~~reportable segments:Children’s Book Publishing and Distribution; Educational Publishing; Media, Licensing and Advertising (which collectively represent the Company’s domestic operations); and International. This classification reflects the nature of products and services consistent with the method by which the Company’s chief operating decision-maker assesses operating performance and allocates resources. Revenues and operating margin related to a segment’s products sold or services rendered through another segment’s distribution channel are reallocated to the segment originating the products or services.

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

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

•Media, Licensing and Advertisingincludes the production and/or distribution of media and electronic products and programs (including children’s television programming, videos, DVDs, software, feature films, interactive and audio products, promotional activities and non-book merchandise);, and advertising revenue, including sponsorship programs.

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

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

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

Three months ended
February 29, 2008
Three months ended February 28, 2009


Revenues	$	229.7	$	78.1		$	42.0	$	0.0		$	349.8		$	108.6	$	458.4		$	223.3	$	74.7		$	38.4	$	—		$	336.4		$	88.5		$	424.9
Bad debt		4.4		0.6			0.1		0.0			5.1			1.2		6.3			2.1		(0.2	)		0.0		0.0			1.9			0.5			2.4
Depreciation and amortization⁽³⁾		3.6		0.8			1.8		6.7			12.9			1.9		14.8			4.0		0.9			0.2		8.2			13.3			1.2			14.5
Amortization⁽⁴⁾		3.6		6.3			1.4		0.0			11.3			0.3		11.6			3.2		6.2			2.2		0.0			11.6			0.2			11.8
Royalty advances expensed		4.4		0.3			0.1		0.0			4.8			0.3		5.1			5.5		0.4			0.0		0.0			5.9			0.6			6.5
Operating income (loss)		10.2		(0.6	)		2.2		(16.5	)		(4.7	)		5.3		0.6			12.6		0.9			1.4		(23.6	)		(8.7	)		(13.9	)		(22.6	)
Expenditures for long-lived assets⁽⁵⁾		14.2		8.8			4.5		4.9			32.4			2.9		35.3
Expenditures for long-lived assets																				11.9		10.5			2.9		5.0			30.3			1.5			31.8


Three months ended
February 28, 2007

Three months ended February 29, 2008


Revenues	$	238.8	$	74.6		$	40.8	$	0.0		$	354.2		$	91.8	$	446.0			218.3		76.5			38.6		0.0			333.4			107.0			440.4
Bad debt		6.5		0.8			0.1		0.0			7.4			1.3		8.7			1.5		0.6			0.0		0.0			2.1			1.0			3.1
Depreciation and amortization⁽³⁾		3.9		0.8			1.7		7.1			13.5			1.2		14.7			3.4		1.1			1.8		6.3			12.6			1.8			14.4
Amortization⁽⁴⁾		4.1		7.7			2.3		0.0			14.1			0.4		14.5			2.4		6.2			1.5		0.0			10.1			0.2			10.3
Royalty advances expensed		4.2		0.3			0.2		0.0			4.7			0.7		5.4			4.5		0.3			0.1		0.0			4.9			0.3			5.2
Operating income (loss)		9.3		(3.1	)		3.0		(15.6	)		(6.4	)		4.4		(2.0	)		14.0		(0.2	)		1.7		(17.0	)		(1.5	)		5.7			4.2
Expenditures for long-lived assets⁽⁵⁾		18.4		6.2			3.3		1.5			29.0			1.9		31.3
Expenditures for long-lived assets																				17.1		10.4			0.9		3.9			32.3			2.8			35.1

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


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


Nine months ended February 28, 2009


Revenues	$	664.2	$	280.8	$	114.9	$	—		$	1,059.9	$	299.1		$	1,359.0
Bad debt		6.5		1.0		0.3		0.0			7.8		3.3			11.1
Depreciation and amortization⁽³⁾		12.2		2.9		0.7		24.9			40.7		4.7			45.4
Amortization⁽⁴⁾		8.7		16.8		5.7		0.0			31.2		1.3			32.5
Royalty advances expensed		17.7		0.9		0.4		0.0			19.0		2.7			21.7
Operating income (loss)		57.3		36.2		6.4		(73.6	)		26.3		(3.4	)		22.9
Segment Assets		543.0		319.1		58.4		463.2			1,383.7		229.8			1,613.5
Goodwill		38.2		88.4		5.8		0.0			132.4		8.6			141.0
Expenditures for long-lived assets		36.7		25.9		9.7		17.8			90.1		7.4			97.5
Long-lived Assets⁽⁵⁾		175.8		203.6		27.5		223.7			630.6		63.0			693.6



Nine months ended February 29, 2008


Revenues		898.8		300.4		104.9		0.0			1,304.1		340.1			1,644.2
Bad debt		3.9		1.0		0.4		0.0			5.3		3.0			8.3
Depreciation and amortization⁽³⁾		11.3		2.4		2.9		22.5			39.1		5.5			44.6
Amortization⁽⁴⁾		8.8		18.3		4.6		0.0			31.7		1.3			33.0
Royalty advances expensed		16.7		0.9		0.4		0.0			18.0		1.9			19.9
Operating income (loss)		137.7		43.4		5.4		(55.6	)		130.9		29.7			160.6
Segment Assets		688.8		314.0		56.0		430.2			1,489.0		320.8			1,809.8
Goodwill		38.2		89.0		5.8		0.0			133.0		31.4			164.4
Expenditures for long-lived assets		40.7		22.1		8.3		13.8			84.9		11.2			96.1
Long-lived Assets⁽⁵⁾		180.0		193.3		25.9		231.8			631.0		117.3			748.3

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

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

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

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

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

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

(5)

Children’s Book

Media,

Publishing and

Educational

Licensing and

Total

Distribution⁽¹⁾

Publishing

Advertising

Overhead⁽¹⁾⁽²⁾

Domestic

International⁽¹⁾

Total

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

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

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

~~(2)~~	Overhead includes all domestic corporate amounts not allocated to segments, including expenses and costs related to the management of corporate assets. Unallocated assets are principally comprised of deferred income taxes and property, plant and equipment related to the Company’s headquarters in the metropolitan New York area, its fulfillment and distribution facilities located in Missouri, and an industrial/office building complex in Connecticut.

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

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

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

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

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

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

4. Debt

The following table summarizes debt as of the dates indicated:



	*February 29, 2008*			*May 31, 2007*			*February 28, 2007*			*February 28, 2009*				*May 31, 2008*				*February 29, 2008*


Lines of Credit	$	10.7		$	66.2		$	34.7			$	9.8			$	11.8			$	10.7
Loan Agreement:
Revolving Loan		—			—			—				—				—				—
Term Loan		189.3			—			—				146.5				178.6				189.3
Credit Agreement and Revolver		—			—			138.0
5% Notes due 2013, net of discount		173.6			173.4			173.4				159.0				159.3				173.6



*Total debt*		373.6			239.6			346.1				315.3				349.7				373.6

Less lines of credit, short-term debt and current portion of long-term debt		(53.5	)		(66.2	)		(34.7	)			(52.6	)			(54.6	)			(53.5	)


Total long-term debt	$	320.1		$	173.4		$	311.4			$	262.7			$	295.1			$	320.1

The following table sets forth the maturities of the Company’s debt obligations as of February ~~29, 2008~~28, 2009 for the remainder of fiscal ~~2008~~2009 and thereafter:

Three-month period ending May 31:
2008	$	21.4



2009			$	20.5
Fiscal years ending May 31:
2009		42.8
2010		42.8		42.8
2011		42.8		42.8
2012		42.8		42.8
2013				166.4
Thereafter		181.0		—


Total debt	$	373.6	$	315.3

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”) elected to replace the Company’s then-existing credit facilities ~~the Credit Agreement and the Revolver (as discussed below),~~ with a new $525.0 credit facility with certain banks (the “Loan Agreement”), consisting of a $325.0 revolving credit component (the “Revolving Loan”) and a $200.0 amortizing term loan component (the “Term Loan”). The Loan Agreement is a contractually committed unsecured credit facility that is scheduled to expire on June 1, 2012. The $325.0 Revolving Loan component allows the Company to borrow, repay or prepay and reborrow at any time prior to the stated maturity date, and the proceeds may be used for general corporate purposes, including financing for acquisitions and share repurchases. The Loan Agreement also provides for an increase in the aggregate Revolving Loan commitments of the lenders of up to an additional $150.0. The $200.0 Term Loan component was established in order to fund the reacquisition by the Corporation of shares of its Common Stock pursuant to an Accelerated Share Repurchase Agreement ~~(see Note 11, “Treasury Stock”)~~ and was fully drawn on June 28, 2007 in connection with that transaction. The Term Loan, which may be prepaid at any time without penalty, requires quarterly principal payments of $10.7, with the first payment on December 31, 2007, and a final payment of $7.4 due on June 1, 2012. Interest on both the Term Loan and Revolving Loan is due and payable in arrears on the last day of the interest period (defined as the period commencing on the date of the advance and ending on the last day of the period selected by the Borrower at the time each advance is made). At the election of the Borrower, the interest rate charged for each loan made under the Loan Agreement is based on (1) a rate equal to the higher of (a) the prime rate or (b) the prevailing Federal Funds rate plus ~~0.5%~~0.500% or (2) an adjusted LIBOR rate plus an applicable margin, ranging from ~~0.50%~~0.500% to ~~1.25%~~1.250% based on the Company’s prevailing consolidated debt to total capital ratio. As of February ~~29, 2008,~~28, 2009, the applicable margin onof the Term Loan was 0.875% and the applicable margin on the Revolving Loan was ~~0.70%~~ 0.700%. The Loan Agreement also provides for the payment of a facility fee ranging from 0.125% to ~~0.25%~~0.250% per annum on the Revolving Loan only, which at February ~~29, 2008~~28, 2009 was 0.175%. As of February ~~29, 2008, $189.3 was outstanding under~~28, 2009, the Term Loan had an outstanding balance of $146.5, at an interest rate of 1.4%; at May 31, 2008 the Term Loan had an outstanding balance of $178.6 at an interest rate of 3.8%; and at February 29, 2008 the Term Loan had an outstanding balance of $189.3 at an interest rate of 4.0%. There were no outstanding borrowings under the Revolving Loan as of February 28, 2009, May 31, 2008 or February 29, 2008. As of February 28, 2009, standby letters of credit outstanding under the Loan Agreement totaled $0.5 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 February ~~29, 2008~~28, 2009 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)~~

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

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

5% Notes due 2013

In April 2003, Scholastic Corporation issued $175.0 of 5% Notes (the “5% Notes”). The 5% Notes are senior unsecured obligations that mature on April 15, 2013. Interest on the 5% Notes is payable semi-annually on April 15 and October 15 of each year through maturity. The Company may at any time redeem all or a portion of the 5% Notes at a redemption price (plus accrued interest to the date of the redemption) equal to the greater of (i) 100% of the principal amount, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest discounted to the date of redemption. In fiscal 2008, the Company repurchased $14.5 of the 5% Notes on the open market. For the nine months ended February 28, 2009 the Company repurchased an additional $0.5 of the 5% notes on the open market.

Lines of Credit

During the fourth quarter of fiscal ~~2007,~~2008, the Company ~~entered into~~renewed unsecured money market bid rate credit lines totaling $50.0 that were originally entered into during the fourth quarter of ~~which $41.0 was outstanding at May 31,~~fiscal 2007. At February 28, 2009 the Company’s credit lines available under these facilities aggregate $45.0. There were no outstanding borrowings under these credit lines at February 28, 2009, May 31, 2008 and February 29, 2008. All loans made under these credit lines are at the sole discretion of the lender and at an interest rate and term, not to exceed 364 days, agreed to at the time each loan is made. The weighted average interest rate for all money market bid rate loans outstanding on May 31, 2007 was 6.2% . These credit lines are typically available for loans up to 364 days and may be renewed, if requested by the Company, at the sole option of the lender.

As of February ~~29, 2008,~~28, 2009, the Company had various local currency credit lines, with maximum available borrowings in amounts equivalent to ~~$74.4,~~$35.9, underwritten by banks primarily in the United States, Canada and the United Kingdom. These credit lines are typically available for overdraft borrowings or loans up to 364 days and may be renewed, if requested by the Company, at the sole option of the lender. There were borrowings outstanding under these facilities equivalent to $9.8 at February 28, 2009 at a weighted average interest rate of 3.8%; $11.8 at May 31, 2008 at a weighted average interest rate of 6.4%; and $10.7 at February 29, 2008 at a weighted average interest rate of 7.5%~~, as compared to the equivalent of $25.2 at May 31, 2007 at a weighted average interest rate of 7.0% and the equivalent of $34.7 at February 28, 2007 at a weighted average interest rate of 5.9%~~ .

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

5. Comprehensive Income (Loss)

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

Three months ended

Nine months ended

February 29,

February 28,

February 29,

February 28,

2008
2007
2008
2007
Net income (loss) $ (82.1 ) $ (7.7 ) $ (9.3 ) $ 20.5
Other comprehensive income (loss):
Foreign currency translation adjustments 6.6 (1.8 ) 2.7 (7.0 )
Retirement plans and post-retirement healthcare, net of tax 0.5 — 0.9 —
Comprehensive income (loss)
$
(75.0 )
$
(9.5 )
$
(5.7 )
$
13.5


	*Three months ended*						*Nine months ended*
	*February 28,*			*February 29,*			*February 28,*			*February 29,*

	2009			2008			2009			2008
				(Restated)						(Restated)


Net loss	$	(36.0	)	$	(79.3	)	$	(42.0	)	$	(6.5	)

Other comprehensive (loss) income
Foreign currency translation adjustments		(6.6	)		6.6			(39.9	)		2.7
Retirement plans and post-retirement healthcare, net of tax		0.4			0.5			2.7			0.9


Comprehensive loss	$	(42.2	)	$	(72.2	)	$	(79.2	)	$	(2.9	)

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

6. ~~Investment~~

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

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

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

Three months ended

Nine months ended

February 29,

February 28,

February 29,

February 28,

2008

2007

2008

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

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

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

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

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

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

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


	*Three months ended*						*Nine months ended*
	*February 28,*			*February 29,*			*February 28,*			*February 29,*

	2009			2008			2009			2008
				(Restated)						(Restated)


(Loss) earnings from continuing operations	$	(35.1	)	$	(1.4	)	$	(19.4	)	$	86.3
Loss from discontinued operations, net of tax		(0.9	)		(77.9	)		(22.6	)		(92.8	)
Net loss		(36.0	)		(79.3	)		(42.0	)		(6.5	)
Weighted average Shares of Class A Stock and Common Stock outstanding for basic earnings per share (in millions)		36.9			38.4			37.5			38.9
Dilutive effect of Class A Stock and Common Stock potentially issuable pursuant to stock-based compensation plans (in millions)		—			—			—			0.5
Adjusted weighted average Shares of Class A Stock and Common Stock outstanding for diluted earnings per share (in millions)		36.9			38.4			37.5			39.4

(Loss) earnings per share of Class A Stock and Common Stock:
Basic (loss) earnings per share:
(Loss) earnings from continuing operations	$	(0.95	)	$	(0.03	)	$	(0.52	)	$	2.22
Loss from discontinued operations, net of tax	$	(0.03	)	$	(2.03	)	$	(0.60	)	$	(2.39	)
Net loss	$	(0.98	)	$	(2.06	)	$	(1.12	)	$	(0.17	)

Diluted (loss) earnings per share:
(Loss) earnings from continuing operations	$	(0.95	)	$	(0.03	)	$	(0.52	)	$	2.19
Loss from discontinued operations, net of tax	$	(0.03	)	$	(2.03	)	$	(0.60	)	$	(2.35	)
Net loss	$	(0.98	)	$	(2.06	)	$	(1.12	)	$	(0.16	)

Potentially dilutive shares do not impact earnings per share as they are antidilutive due to losses in the three and nine month periods ended February 28, 2009, and the three month period ended February 29, 2008. Antidilutive shares pursuant to stock-based compensation plans were 0.2 million, 0.5 million and 0.2 million for the three month period ended February 28, 2009, the three month period ended February 29, 2008 and the nine month period ended February 28, 2009 respectively. Options outstanding pursuant to compensation plans total 6.1 million at February 28, 2009.

In March 2009, the Company repurchased 234,169 common shares for $2.3 pursuant to share buy-back programs authorized by the Board of Directors.

SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(Dollar amounts in millions, except per share data)

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

8.7. Goodwill and Other Intangibles

Goodwill and other intangible assets are reviewed for impairment annually or more frequently if impairment indicators arise. At February 28, 2009, the total market value of the Company’s outstanding Common and Class A shares was less than the carrying value of the Company’s net assets. Due to the reduced total market value of the Company’s Common Stock, the Company evaluated the goodwill for its reporting units for impairment as of February 28, 2009. The Company employed internally developed discounted cash flow forecasts to determine the fair values of its reporting units, based upon the best available financial data. The Company concluded that goodwill associated with the Company’s United Kingdom operations was impaired as of February 28, 2009, and recognized a goodwill impairment of $17.0. Operating results in the United Kingdom have declined in recent periods. No other reporting units have carrying values that exceeded estimated fair values as of February 28, 2009. The Company’s annual impairment test for goodwill is in the fourth quarter of the fiscal year, when the Company completes its annual strategic planning and budget processes, and therefore the Company will also test for goodwill impairment in the fourth quarter of the current fiscal year.

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

Nine months ended

Twelve months ended

Nine months ended

February 29, 2008

May 31, 2007

February 28, 2007

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

Total $ 260.4
$
261.6
$
249.8

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



	Nine months ended February 28, 2009				Twelve months ended May 31, 2008				Nine months ended February 29, 2008 (Restated)


Beginning balance		$	164.4			$	165.5			$	165.5
Other adjustments			(0.6	)			(1.2	)			(1.2	)
Goodwill impairment			(17.0	)			0.0				0.0
Foreign currency translation			(5.8	)			0.1				0.1

Total		$	141.0			$	164.4			$	164.4

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



										*February 28, 2009*				*May 31, 2008*				*February 29, 2008*
	*February 29, 2008*			*May 31, 2007*			*February 28, 2007*

Customer lists	$	3.2		$	3.2		$	3.2			$	1.0			$	1.0			$	1.0
Accumulated amortization		(3.0	)		(2.9	)		(3.0	)			(0.9	)			(0.8	)			(0.8	)


Net customer lists		0.2			0.3			0.2			$	0.1			$	0.2			$	0.2


Other intangibles		4.1			4.1			4.2			$	8.7			$	8.7			$	4.1
Accumulated amortization		(3.1	)		(3.0	)		(2.9	)			(5.8	)			(5.4	)			(3.2	)


Net other intangibles		1.0			1.1			1.3			$	2.9			$	3.3			$	0.9


Total	$	1.2		$	1.4		$	1.5			$	3.0			$	3.5			$	1.1

During the fourth quarter of fiscal 2008 the Company reviewed its intangible assets with indefinite lives and determined that certain intangible assets not previously subject to amortization should begin being amortized as of that fiscal period. Accordingly, approximately $4.7 of Other intangibles reported as not subject to amortization as of February 29, 2008 are reported as Other intangibles subject to amortization as of February 28, 2009 and May 31, 2008. This reclassification was based on the Company’s analysis of the cash flows related to these assets.

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

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

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(Dollar amounts in millions, except per share data)

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

										��

	*February 29, 2008*		*May 31, 2007*		*February 28, 2007*		*February 28, 2009*				*May 31, 2008*			*February 29, 2008*


Net carrying value by major class:
Titles	$	31.0	$	31.0	$	31.0		$	28.7			$	28.7		$	31.0
Major sets		11.4		11.4		11.4
Trademarks and Other		17.6		17.6		17.6			15.2				15.2			17.6


Total	$	60.0	$	60.0	$	60.0		$	43.9			$	43.9		$	48.6

8. Investments

The Company owns non-controlling interests in a book distribution business and related entities located in the United Kingdom. Results of these operations have been negatively impacted by overall market conditions, and accordingly, the Company has determined that these assets are other than temporarily impaired. In the three month period ended February 28, 2009, the Company recorded losses on investments related to these operations of $13.5, reducing the Company’s carrying value of these assets to $9.0.

9. Pension and Other Post-Retirement Benefits

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


													Pension Plans Three months ended						Post-Retirement Benefits Three months ended
													*February 28,*			*February 29,*			*February 28,*			*February 29,*

													2009			2008			2009			2008

Components of net periodic benefit costs:
Service cost													$	2.0		$	2.4		$	—		$	—
Interest cost														2.5			2.5			0.4			0.5
Expected return on assets														(2.8	)		(2.9	)		—			—
Net amortization of prior service (credit)														—			—			(0.2	)		(0.2	)
Amortization of loss														0.5			0.5			0.2			0.4

Net periodic benefit costs													$	2.2		$	2.5		$	0.4		$	0.7
	Pension Plans						Post-Retirement Benefits
	*Three months ended*						*Three months ended*
													Pension Plans Nine months ended						Post-Retirement Benefits Nine months ended
	February 29,			February 28,			February 29,			February 28,			*February 28,*			*February 29,*			*February 28,*			*February 29,*
	2008			2007			2008			2007
													2009			2008			2009			2008

Components of Net Periodic Benefit Cost:
Components of net periodic benefit costs:
Service cost	$	2.4		$	2.1		$	—		$	—		$	6.0		$	6.7		$	0.1		$	0.1
Interest cost		2.5			2.3			0.5			0.5			7.6			7.5			1.1			1.4
Expected return on assets		(2.9	)		(2.4	)		—			—			(8.3	)		(8.7	)		—			—
Net amortization of prior service (credit)/cost		—			—			(0.2	)		(0.2	)
Net amortization of prior service (credit)														(0.1	)		(0.1	)		(0.6	)		(0.6	)
Amortization of loss		0.5			0.7			0.4			0.3			1.4			1.5			0.5			1.1

Net periodic benefit costs													$	6.6		$	6.9		$	1.1		$	2.0

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



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

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


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


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

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

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(Dollar amounts in millions, except per share data)

The Company’s funding practice with respect to the Pension Plans is to contribute on an annual basis at least the minimum amounts required by applicable laws. These contributions are intended to provide for future benefits earned to date and those expected to be earned in the future. For the nine months ended February ~~29, 2008,~~28, 2009, the Company contributed ~~$7.8, $1.1 and $0.1~~$9.9 to the U. S. Pension Plan, the U. K. Pension Plan and the Canadian Pension Plan ~~respectively.~~in the aggregate. The Company expects, based on ~~current~~ actuarial calculations, to contribute cash of approximately ~~$13.4~~$14.5 in the aggregate to the Pension Plans in the fiscal year ending May 31, ~~2008.~~2009.

10. Stock-Based Compensation

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

	*Three months ended*				*Nine months ended*
									*Three months ended*				*Nine months ended*
	February 29,		February 28,		February 29,		February 28,		*February 28,*		*February 29,*		*February 28,*		*February 29,*
	2008		2007		2008		2007
									2009		2008		2009		2008

Stock option expense	$	1.1	$	0.8	$	3.0	$	1.3	$	1.5	$	1.1	$	4.3	$	3.0
Restricted stock unit expense(a)		0.8		0.3		1.7		0.8		1.0		0.8		4.7		1.7
Employee stock purchase plan expense		0.2		0.1		0.4		0.3		0.1		0.2		0.4		0.4


Total stock-based compensation	$	2.1	$	1.2	$	5.1	$	2.4	$	2.6	$	2.1	$	9.4	$	5.1

(a) Restricted stock unit expense for the nine months ended February 28, 2009, includes $2.2 million due to the accelerated vesting of units for employees eligible for retirement pursuant to such plans

During the ~~nine~~three month periods ended February ~~29, 2008~~28, 2009 and February ~~28, 2007, the Corporation issued 1.2 million and 0.9 million~~29, 2008, shares of Common Stock ~~respectively,~~issued by the Corporation pursuant to its stock-based compensation ~~plans.~~plans were not material.

11. Accrued Severance

During fiscal year 2009, the Company initiated certain cost reduction measures, including employee headcount reductions. The below table provides information regarding severance costs appearing on the Company’s Condensed Consolidated Statements of Operations associated with these cost reduction measures. The below accrual of $2.9 as of February 28, 2009 is included in Other accrued expenses on the Company’s Condensed Consolidated Balance Sheets.

Nine months ended
February 28, 2009

Balance at May 31, 2008

$
0.4

Accruals

19.8

Payments

(17.3
)

Balance at February 28, 2009

$
2.9

12. Treasury Stock

On ~~June 1, 2007,~~May 28, 2008, the Corporation entered into an agreement with a financial institution to repurchase $200.0 of its outstanding Common Stock under an Accelerated Share Repurchase Agreement (the “ASR”). The entire $200.0 repurchase was executed under a “collared” transaction whereby a price range for the shares was established. Under the ASR, the Corporation initially received 5.1 million shares on June 28, 2007 (the “Initial Execution Date”), representing the minimum number of shares to be received based on a calculation using the “cap” or high-end of the price range collar. On October 29, 2007 (the “Settlement Date” ), the Corporation received an additional 0.7 million shares at no additional cost, bringing the total number of shares repurchased under the ASR to 5.8 million shares, which is reflected in the Treasury Stock component of Stockholders’ Equity. The total number of shares received under the ASR was determined based on the adjusted volume weighted average price of the Common Stock, as defined in the ASR, during the four month period from the Initial Execution Date through the Settlement Date, which was $34.64 per share.

~~On December 20, 2007, the Corporation~~Company announced that its Board of Directors had authorized a new program to repurchase up to $20.0 of Common Stock ~~from time to time~~ as conditions allow, on the open market or through negotiated private transactions. On November 20, 2008 the Board of Directors authorized a further program to repurchase up to an additional $10.0 of its Common Stock and on February 4, 2009, the Board of Directors authorized an additional program to repurchase up to another $5.0 of its Common Stock, which will be funded with available cash, pursuant to which the Company may purchase shares, from time to time as conditions allow, on the open market. The repurchase program may be suspended at any time without prior notice. During the ~~three~~nine months ended February ~~29, 2008,~~28, 2009, the ~~Corporation reacquired~~Company repurchased approximately ~~0.2~~1.7 million shares on the open market for ~~approximately $5.4~~$31.6 at an average cost of ~~$32.53~~$18.56 per share. See Part II, “Other Information, Item 2,2. Unregistered Sales of Equity Securities and Use of Proceeds.”

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

~~12.~~13. Income Taxes

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

The Company anticipates a full fiscal year tax rate of approximately 43% for continuing operations for the current fiscal year exclusive of expected discrete items. Inclusive of discrete items, the Company expects a full year effective tax rate of approximately 77%. The Company’s expected full year effective tax rate excluding discrete items exceeds statutory rates primarily as a result of net operating losses experienced in foreign operations, primarily in the United Kingdom, for which the Company does not expect to realize future tax benefits. Accordingly, valuation allowances are provided for the net operating loss carry forwards of these operations. The high expected full year tax rate inclusive of discrete items is primarily due to goodwill impairments and losses on investments occurring in the current quarter in the United Kingdom, where the Company does not expect to realize any associated tax benefits for these charges. Due to the seasonality of the Company’s operations and discrete items, current period effective tax rates are not meaningful.

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

The Company recognizes tax benefits of uncertain tax positions in accordance with FASB ~~issued~~ Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 provides guidance on recognizing, measuring, presenting, and disclosing in the financial statements uncertain tax positions that a company has taken or expects to file in a tax return. FIN 48 states that a tax benefit from an uncertain tax position may be recognized only if it is “more likely than not” that the position is sustainable, based on its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with a taxing authority having full knowledge of all relevant information. Prior to the issuance of FIN 48, an uncertain tax position would not be recorded unless it was “probable” that a loss or reduction of benefits would occur. Under FIN 48, the liability for unrecognized tax benefits is classified as noncurrent unless the liability is expected to be settled in cash within twelve months of the reporting date. The Company adopted the provisions of FIN 48 effective as of June 1, 2007.

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

Upon adoption, the Company recognized a $34.0 increase in the liability for unrecognized tax benefits, a $27.6 increase in deferred tax assets, and a $6.4 reduction to the June 1, 2007 balance of retained earnings. As of June 1, 2007, the total amount of unrecognized tax benefits was $40.2, of which $5.7 and $0.6 represented accruals for potential payments of interest and penalties, respectively. Of this total, $12.7 represented the total amounts of unrecognized tax benefits that, if recognized, would affect the effective tax rate favorably. There have been no material changes to the liability for uncertain tax positions for the nine months ended February 29, 2008. The Company does not currently anticipate a material change to its unrecognized tax benefits within twelve months of February ~~29, 2008;~~28, 2009; however, actual developments can change these ~~expectations. The Company’s policy is to classify potential liabilities for interest and penalties related to unrecognized tax benefits as part~~expectations, including settlement of ~~its income tax provision. During the nine months ended February 29, 2008, the Company recognized $1.4 of income tax expense for accruals for potential payments of interest and penalties.~~

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

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

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

14. Related Party Transactions

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

15. Subsequent Event

On March 26, 2009, the Company announced that the Board had declared a quarterly dividend of $0.075 per share to be paid on June 15, 2009 to shareholders of record of the Corporation’s Common Stock and Class A Stock on April 30, 2009.

SCHOLASTIC CORPORATION

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

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

Overview and Outlook

~~Scholastic’s third~~The Company incurred a loss from continuing operations, net of tax, for the quarter ended February 28, 2009 of $35.1 million compared to a loss of $1.4 million in the quarter ended February 29, 2008. The loss from continuing operations in the current fiscal quarter was higher primarily due to a $17.0 million charge for goodwill impairment relating to the Company’s operations in the U.K., a $13.5 million charge for unrealized losses on investments in the U.K., one-time expenses of $4.8 million associated with the Company’s cost reduction plans, higher promotional costs in the Book Clubs channel and lower results from the Company’s operations in the U.K.

During the third quarter of fiscal 2009, the Company maintained a strong balance sheet and free cash flow. Additionally, in the face of continued declines in consumer retail spending, the Company successfully sustained revenues last quarter in its market-leading children’s book and educational technology businesses. In theChildren’s Books Publishing and Distribution segment, revenue increased benefiting from strong Trade performance, including the ground-breaking multiplatform series The 39 Clues, as well as solid order volumes in School Book Clubs and higher revenue per fair in School Book Fairs. In Education, double-digit growth in sales of educational technology was led by the Company’s reading intervention programs, including the market-leading READ 180® and the newly launched product-line extension, System 44™, partially offset by lower library publishing revenues.

The Company continued working towards its goal of 9 to 10% operating margins and has implemented additional cost reduction plans in the second half of fiscal 2009 of $20 million, eliminating management bonuses and curtailing discretionary spending, including consulting, travel and entertainment, training and sales conferences, which follows $35 million in annualized reductions in the first half of the year. The Company also intends to continue to review existing unprofitable businesses to determine whether the Company should exit such businesses.

At February 28, 2009, the total market value of the Company’s outstanding Common and Class A shares was less than the carrying value of the Company’s net assets. The Company concluded that goodwill associated with the Company’s United Kingdom operations was impaired as of February 28, 2009, and recognized a goodwill impairment of $17.0 million. Operating results in the United Kingdom have declined in recent periods, as previously reported. No other reporting units have carrying values that exceeded estimated fair values as of February 28, 2009. Also in the United Kingdom, the Company recognized an unrealized loss on investments in a book distribution business and related entities of $13.5 million in the current quarter. The Company continues to have significant available liquidity and capital resources, and believes that the long term prospects of its businesses remain unchanged. The Company believes that the recent decline in the market value of the Company’s outstanding shares is ~~historically~~not indicative of the Company’s expected long-term cash flows of its ~~second smallest revenue period. Revenues~~core businesses, and is a function of the current condition of the capital markets. Accordingly, the Company does not believe that the recent decline in share price is reflective of declines in its businesses. However, the Company will continue to monitor its asset base for further indicators of impairment.

The Company sold its DTH Business in August 2008, ceased operations in its direct-to-home business located in the United Kingdom as of February 28, 2009, expects to complete the divestiture of its direct-to-home continuities business in Canada and sell the Maumelle facility in the current fiscal year. In addition to the foregoing, during the six months ended February 28, 2009, the Company determined to exit certain other unprofitable, non-core businesses or operations as detailed in Note 2, “Discontinued Operations,” which operations have been or are in the process of being sold or shut down. Also, in a separate transaction during the three months ended February 28, 2009, the Company sold Quality Education Data (“QED”), a non-core business which markets databases serving the school market, for proceeds of $29.0, resulting in a pre-tax profit of $21.9.The Company took the foregoing actions as part of its plan to improve short-term and long-term profitability, and focus on its core businesses. The loss from ~~continuing~~discontinued operations, net of tax, for the quarter ended February 28, 2009 was $0.9 million, compared to a loss of $77.9 million for the quarter ended February 29, ~~2008 increased by $12.4 million, or 2.8%, over~~2008. The current year quarter reflects the sale of a non-core business which resulted in the above mentioned gain, while the prior year reflects asset write-downs related to the Company’s decision to exit the Direct to Home continuities business.

The Board of Directors has declared a quarterly cash dividend of $0.075 per share on the Corporation’s Class A and Common Stock for the fourth quarter of fiscal ~~year quarter as a result~~2009. Additionally, the Corporation continues to repurchase shares of ~~higher revenues in~~its Common Stock from time to time under current programs approved by the~~International, Educational Publishing~~ ~~and~~~~Media, Licensing and Advertising~~ ~~segments, partially offset by lower revenue in the~~~~Children’s Book Publishing~~~~and~~ ~~Distribution~~ ~~segment. Operating income from continuing operations~~ Board.

Results of Continuing Operations

Revenues for the quarter ended February ~~29, 2008 was $0.6~~28, 2009 decreased by $15.5 million, or 3.5%, to $424.9 million, compared to ~~an operating loss of $2.0~~$440.4 million ~~from continuing operations~~ in the prior fiscal year quarter. ~~Operating results improved~~This was due to a $21.8 million impact resulting from foreign exchange in the ~~Company’s school-based book fair and trade businesses, which are reported within~~quarter, partially offset by higher revenues in theChildren’s Book Publishing and Distribution segment ~~and in the~~ ~~Educational Publishing~~ ~~and~~~~International~~ ~~segments.~~of $5.0 million. For the nine months ended February ~~29, 2008,~~28, 2009, revenues ~~and operating income from continuing operations increased~~decreased by ~~$279.9~~$285.2 million, ~~and $85.7 million, respectively, primarily due~~or 17.3%, to~~Harry Potter and the Deathly Hallows, the final book of the seven book series, which was released on July 21, 2007.~~

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

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

~~Results of Continuing Operations~~

~~Revenues for the quarter ended February 29, 2008 increased to $458.4~~ $1,359.0 million, compared to ~~$446.0~~$1,644.2 million ~~in the prior fiscal year quarter. This increase was due to higher revenues in the~~~~International, Educational Publishing~~ ~~and~~~~Media, Licensing and Advertising~~ ~~segments, which increased by $16.8 million, $3.5 million and $1.2 million, respectively, partially offset by a $9.1 million decline in revenues from the~~~~Children’s Book Publishing and Distribution~~ segment, as compared to the prior fiscal year quarter. For the nine months ended February 29, 2008, revenues increased by 19.7% to $1,701.4 million, compared to $1,421.5 million in the prior fiscal year period, due to higher revenues in each of the Company’s four operating segments, led by the~~Children’s Book Publishing and Distribution~~ ~~segment, which rose by $213.3 million principally as a result of the July 2007 release of~~~~Harry Potter and the Deathly Hallows~~~~, and the~~~~International~~ ~~segment, which rose by $56.7 million, as compared to the prior fiscal year period.~~

Cost of goods sold for the quarter ended February 29, 2008 was $225.6 million, or 49.2% of revenues, as compared to $223.0 million, or 50.0% of revenues in the prior fiscal year quarter. For the nine months ended February 29, 2008, cost of goods sold increased to $828.8 million, or 48.7% of revenues, compared to $680.1 million, or 47.8% of revenues, in the prior fiscal year period, primarily due to ~~costs related to~~lower revenues from theChildren’s Book Publishing and Distribution segment, which in the prior year benefited from the July 2007 release ofHarry Potter and the Deathly Hallows.

~~Selling, general and administrative expenses increased to $211.1 million, or 46.1%~~Cost of ~~revenues, in~~goods sold as a percentage of revenue for the quarter ended February ~~29, 2008, as~~28, 2009 increased to 50.4%, compared to ~~$201.6 million, or 45.2% of revenues,~~49.0% in the prior fiscal year quarter, primarily due to ~~the planned investments~~increased revenues in the ~~sales and service organizations in~~current quarter associated with the release of J.K. Rowling’s~~Educational Publishing~~The Tales of Beedle the Bard~~segment.~~ that do not have a correlating impact on operating income, as profits fromThe Tales of Beedle the Bard benefit Ms. Rowling’s charity. For the nine months ended February ~~29, 2008, selling, general and administrative expenses increased~~28, 2009, cost of goods sold decreased to ~~$655.9~~$643.2 million, ~~from $607.9~~or 47.3% of revenues, compared to $800.3 million, or 48.7% of revenues, in the prior fiscal year period, primarily due to higher costs related to the Harry Potter release in ~~July 2007. As~~the prior fiscal year period.

Selling, general and administrative expenses decreased $7.2 million to $193.7 million for the quarter ended February 28, 2009, compared to $200.9 million in the prior fiscal year quarter. Selling, general and administrative expenses as a percentage of revenue remained flat at 45.6% for both fiscal year periods. This decrease was due to lower employee related costs related to cost reduction plans. For the nine months ended February 28, 2009, selling, general and administrative expenses ~~decreased~~as a percentage of revenues increased to ~~38.6% for the nine months ended February 29, 2008~~44.1% from ~~42.8%~~38.0% in the prior fiscal year period, primarily due to the ~~revenue~~prior year benefit ~~from~~of Harry Potter revenues without a corresponding increase in expense and the ~~Deathly Hallows~~ ~~without a proportionate increase in expense.~~current year acceleration of restricted stock units.

Bad debt expense decreased to ~~$6.3~~$2.4 million for the quarter ended February 28, 2009, compared to $3.1 million in the prior fiscal year quarter. For the nine months ended February 28, 2009, bad debt expense increased to $11.1 million from $8.3 million in the prior fiscal year period due to increased bad debt reserves in theChildren’sBook Publishing and Distribution segment, primarily for the Trade channel.

Severance expense increased to $5.8 million, or 1.4% of revenues, including $4.8 million related to the Company’s cost reduction actions, for the quarter ended February ~~29, 2008,~~28, 2009, compared to ~~$8.7~~$1.8 million, or ~~1.9%~~0.4% of revenues, in the prior fiscal year quarter. For the nine months ended February ~~29, 2008, bad debt~~28, 2009, severance expense ~~decreased~~increased to ~~$17.9~~$19.8 million, or ~~1.1%~~1.5% of revenues, ~~compared to $20.6~~from $5.2 million, or ~~1.4%~~0.3% of revenues, in the prior fiscal year period. These increases were primarily the result of expenses incurred related to cost reduction plans.

SCHOLASTIC CORPORATION

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

In the quarter ended February 28, 2009, the Company recorded a non-cash charge for impairment of goodwill in its U.K. business of $17.0 million.

The resulting operating ~~income~~loss for the quarter ended February ~~29, 2008~~28, 2009 was ~~$0.6~~$22.6 million, compared to an operating ~~loss~~income of ~~$2.0~~$4.2 million in the prior fiscal year quarter, primarily due to the non-cash charge associated with the Company’s U.K. goodwill impairment, higher severance and related expenses associated with the Company’s cost reduction plans and unfavorable foreign exchange rates. For the nine months ended February 28, 2009, operating income decreased to $22.9 million, compared to $160.6 million in the prior year, primarily due to lower Harry Potter revenues and profits, higher severance expense, and the U.K. goodwill impairment in the current period.

Net interest expense decreased to $5.6 million in the quarter ended February 28, 2009, compared to $6.0 million in the prior fiscal year quarter. For the nine months ended February ~~29, 2008, the resulting operating income increased~~28, 2009, net interest expense decreased by $5.9 million to ~~$152.6~~$18.5 million ~~or 9.0% of revenues,~~as compared to ~~$66.9~~$24.4 million ~~or 4.7% of revenues,~~ in the prior fiscal year ~~period.~~period, driven by lower borrowing levels and favorable interest rates.

~~Other expense was $0.9 million for both~~In the three and nine months ended February 29, 2008, representing expense associated with the early termination of one of the Company’s subleases. Other income was $3.0 million for both the three and nine monthsquarter ended February 28, ~~2007, representing a gain from~~2009, the ~~sale of the Company’s remaining investment~~Company recorded non-cash unrealized losses on investments in a ~~French publishing company.~~U.K. book distribution business and related entities of $13.5 million.

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

~~Loss~~loss from continuing operations was ~~$4.6~~$35.1 million, or ~~$0.12~~$0.95 per diluted share, for the quarter ended February ~~29, 2008,~~28, 2009, compared to ~~$3.8~~a loss of $1.4 million, or ~~$0.09~~$0.03 per diluted share, in the prior fiscal year quarter. For the nine months ended February ~~29, 2008, earnings~~28, 2009, the loss from continuing operations was ~~$78.8~~$19.4 million, or ~~$2.00~~$0.52 per diluted share, compared to ~~$29.7~~earnings from continuing operations of $86.3 million, or ~~$0.69~~$2.19 per diluted share, in the prior fiscal year period.

~~Net~~The loss from discontinued operations, net of tax, was ~~$82.1~~$0.9 million, or ~~$2.14~~$0.03 per diluted share, for the quarter ended February ~~29, 2008,~~28, 2009, compared to ~~$7.7~~a loss of $77.9 million, or $0.18 per share, in the prior fiscal year quarter, substantially due to the write-down of certain assets associated with the reclassification of the DTH business as discontinued operations. For the nine months ended February 29, 2008, net loss was $9.3 million, or $0.23 per share, compared to net income of $20.5 million, or $0.48$2.03 per diluted share, in the prior fiscal year ~~period. The weighted average shares~~quarter. For the nine months ended February 28, 2009, the loss from discontinued operations, net of ~~Class A Stock and Common Stock outstanding, which is used to calculate earnings~~tax, was $22.6 million, or ~~loss~~$0.60 per diluted share, ~~were lower as of February 29, 2008~~ compared to a loss of $92.8 million, or $2.35 per diluted share, in the prior fiscal year period.

The net loss was $36.0 million, or $0.98 per diluted share, for the quarter ended February 28, ~~2007 primarily due~~2009, compared to ~~an accelerated~~$79.3 million, or $2.06 per diluted share, ~~repurchase agreement entered into by~~in the ~~Corporation on June 1, 2007 (the “ASR”), as more fully discussed~~prior fiscal year quarter. For the nine months ended February 28, 2009, the net loss was $42.0 million, or $1.12 per diluted share, compared to $6.5 million, or $0.16 per diluted share, in ~~Note 11 of Notes to Condensed Consolidated Financial Statements – Unaudited in Item 1, “Financial Statements.”~~the prior fiscal year period.

SCHOLASTIC CORPORATION

Item 2. MD&A

Results of Continuing Operations - Segments

Children’s Book Publishing and Distribution


													*Three months ended*						*Nine months ended*
($ amounts in millions)	*Three months ended*						*Nine months ended*						*February 28,*			*February 29,*			*February 28,*			*February 29,*

	February 29,			February 28,			February 29,			February 28,
	2008			2007			2008			2007			2009			2008			2009			2008


Revenues	$	229.7		$	238.8		$	933.0		$	719.7		$	223.3		$	218.3		$	664.2		$	898.8
Operating income		10.2			9.3			127.9			48.8			12.6			14.0			57.3			137.7


Operating margin		4.4	%		3.9	%		13.7	%		6.8	%		5.6	%		6.4	%		8.6	%		15.3	%

Revenues in theChildren’s Book Publishing and Distribution segment for the quarter ended February ~~29, 2008 decreased~~28, 2009 increased by ~~$9.1~~$5.0 million, or 2.3%, to ~~$229.7~~$223.3 million, as compared to ~~$238.8~~$218.3 million in the prior fiscal year quarter. ~~Within~~This improvement was due to an increase in revenues in the ~~segment,~~Company’s trade business related to higher front list revenues from the ~~Company’s school-based continuity business declined~~release ofThe Tales of Beedle the Bard andThe 39 Clues in the current period partially offset by ~~$10.4 million~~lower revenues in school book clubs and school book fairs. The higher revenues in the current quarter associated with the release ofThe Tales of Beedle the Bard do not have a correlating impact on operating income, as profits fromThe Tales of Beedle the Bard benefit charity. The revenue decline in school book clubs was primarily due to lower ~~post-enrollment sales, and revenues from school-based~~revenue per order partially offset by an increase in order volume. The decline in school book ~~clubs declined by $7.6 million,~~fairs was primarily due to a lower ~~number~~revenue from clearance sales. Revenues for the nine months ended February 28, 2009 decreased by $234.6 million to $664.2 million, compared to $898.8 million in the prior fiscal year period. This decrease was due to the unprecedented success of ~~orders,~~Harry Potter and the Deathly Hallows, the seventh and final book in the series, in the prior year, which ~~reflected~~included approximately $260 million of Harry Potter revenues.

Segment operating income for the ~~elimination of certain less profitable mailings. These declines were~~quarter ended February 28, 2009 decreased by $1.4 million, or 10.0%, to $12.6 million, compared to $14.0 million in the prior fiscal year quarter, principally due to increased promotional costs in school book clubs and higher royalty expense in the Company’s trade business, partially offset by ~~a $5.1~~improved results in school book fairs. Segment operating income for the nine months ended February 28, 2009 declined by $80.4 million ~~increase~~to $57.3 million, compared to $137.7 million in ~~school-based book fair revenues, primarily related to higher fair count, and a $3.8 million increase in trade revenues,~~the prior fiscal year period, primarily due to ~~higher~~ lower operating results in the Company’s trade business related to the prior year’s release ofHarry Potter ~~revenues.~~and the Deathly Hallows.

Educational Publishing


	*Three months ended*						*Nine months ended*
($ amounts in millions)	*February 28,*			*February 29,*			*February 28,*			*February 29,*

	2009			2008			2009			2008


Revenues	$	74.7		$	76.5		$	280.8		$	300.4
Operating income (loss)		0.9			(0.2	)		36.2			43.4


Operating margin		1.2	%			*		12.9	%		14.4	%

* Not meaningful

Revenues in theEducational Publishingsegment for the quarter ended February 28, 2009 decreased by $1.8 million, or 2.4%, to $74.7 million, compared to $76.5 million in the prior fiscal year quarter. The revenue decline was due to lower classroom and library publishing revenues, partially offset by higher sales of technology products. Technology products were positively impacted by the release of System 44 in the current quarter. Segment revenues for the nine months ended February 28, 2009 decreased by $19.6 million, or 6.5%, to $280.8 million, compared to $300.4 million in the prior fiscal year period. This decrease was principally driven by lower revenues from sales of technology products, primarily due to lower sales of READ180in the first quarter of fiscal 2009.

Segment operating income for the quarter ended February ~~29, 2008~~28, 2009 increased byto $0.9 ~~million to $10.2~~ million, as compared to ~~$9.3~~an operating loss of $0.2 million in the prior fiscal year quarter, principally driven by lower selling expenses, more than offsetting the impact of lower revenues in the current fiscal year quarter. Segment operating income for the nine months ended February 28, 2009 decreased by $7.2 million, or 16.6%, to $36.2 million, compared to $43.4 million in the prior fiscal year period. This decrease is primarily due to lower revenues partially offset by lower selling expenses.

SCHOLASTIC CORPORATION

Item 2. MD&A

Media, Licensing and Advertising


	*Three months ended*						*Nine months ended*
($ amounts in millions)	*February 28,*			*February 29,*			*February 28,*			*February 29,*

	2009			2008			2009			2008


Revenues	$	38.4		$	38.6		$	114.9		$	104.9
Operating income		1.4			1.7			6.4			5.4


Operating margin		3.6	%		4.4	%		5.6	%		5.1	%

Revenues in the Media, Licensing and Advertising segment for the quarter ended February 28, 2009 slightly decreased to $38.4 million, compared to $38.6 million in the prior fiscal year quarter, primarily due to ~~the higher~~lower revenues in ~~the Company’s school-based book fairs business.~~

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

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

~~Educational Publishing~~

($ amounts in millions)
Three months ended

Nine months ended

February 29,

February 28,

February 29,

February 28,

2008

2007

2008

2007

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

* not meaningful

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

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

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

~~Media, Licensing and Advertising~~

($ amounts in millions)
Three months ended

Nine months ended

February 29,

February 28,

February 29,

February 28,

2008

2007

2008

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

~~Revenues in the~~~~Media, Licensing and Advertising~~ segment for the quarter ended February 29, 2008 increased by $1.2 million, or 2.9%, to $42.0 million, compared to $40.8 million in the prior fiscal year quarter, primarily due to an increase in revenues from Back toTo Basics ~~Toys~~^®Toys®, the Company’s catalog toy business. Segment revenues for the nine months ended February ~~29, 2008~~28, 2009 increased by ~~$3.6~~$10.0 million, or ~~3.2%~~9.5%, to ~~$116.7~~$114.9 million, as compared to ~~$113.1~~$104.9 million in the prior fiscal year period, primarily due to ~~an increase in~~higher revenues from sales of software and interactive products, ~~sold through~~as well as higher advertising revenue in the ~~Company’s school-based book fairs.~~custom publishing business.,

Segment operating income ~~decreased by $0.8 million to $2.2 million~~ for the quarter ended February ~~29, 2008, as~~28, 2009 decreased to $1.4 million, compared to ~~$3.0~~$1.7 million in the prior fiscal year quarter, ~~despite the increase in revenues,~~ primarily due to ~~higher fulfillment and shipping costs in~~ the ~~Back to Basics Toys business caused by a third-party operational issue.~~lower revenues. Segment operating income ~~increased by $2.0 million to $8.0 million~~ for the nine months ended February ~~29, 2008, as compared to $6.0 million in the prior fiscal year period, primarily due to increased revenues from sales of software and interactive products.~~

~~International~~

($ amounts in millions)
Three months ended

Nine months ended

February 29,

February 28,

February 29,

February 28,

2008

2007

2008

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

~~Revenues in the~~~~International~~ ~~segment for the quarter ended February 29, 2008~~28, 2009 increased by ~~$16.8~~$1.0 million, or 18.5%, to ~~$108.6~~$6.4 million, compared to $91.8 million in the prior fiscal year quarter, due to the favorable impact of foreign currency exchange rates of $10.1 million and local currency revenue growth equivalent to $6.7 million, principally in the United Kingdom trade business. Segment revenues for the nine months ended February 29, 2008 increased by $56.7 million to $346.2 million, as compared to $289.5$5.4 million in the prior fiscal year period, primarily due to the ~~favorable~~higher revenues, partially offset by higher prepublication expense amortization on new interactive product lines.

International


	*Three months ended*						*Nine months ended*
($ amounts in millions)	*February 28,*			*February 29,*			*February 28,*			February 29,

	2009			2008			2009			2008


Revenues	$	88.5		$	107.0		$	299.1		$	340.1
Operating (loss) income		(13.9	)		5.7			(3.4	)		29.7


Operating margin			*		5.3	%			*		8.7	%

* Not meaningful

Revenues in the Internationalsegment for the quarter ended February 28, 2009 decreased by $18.5 million, or 17.3%, to $88.5 million, compared to $107.0 million in the prior fiscal year quarter, due to the unfavorable impact of foreign currency exchange rates of ~~$32.0 million, higher~~$21.8 million. Segment revenues ~~from the Company’s export business of $6.8 million, and local currency revenue growth in the United Kingdom and Australia equivalent to $10.4 million and $6.8 million, respectively.~~

Segment operating income for the quarter ended February 29, 2008 increased by $0.9 million to $5.3 million, as compared to $4.4 million in the prior fiscal year quarter, primarily due to higher operating income from the United Kingdom. Segment operating income for the nine months ended February ~~29, 2008 increased~~28, 2009 decreased by ~~$8.1~~$41.0 million, or 12.1%, to ~~$28.6~~$299.1 million, as compared to ~~$20.5~~$340.1 million in the prior fiscal year period, primarily due to ~~higher~~the unfavorable impact of foreign currency exchange rates of $40.3 million.

Segment operating loss for the quarter ended February 28, 2009 was $13.9 million, compared to operating income ~~from Australia and~~of $5.7 million in the prior fiscal year quarter, due to lower operating income in the United Kingdom ~~which increased by~~including a non-cash charge for impairment of goodwill of $17.0 million. Segment operating loss for the ~~equivalent~~nine months ended February 28, 2009 was $3.4 million, compared to operating income of ~~$3.6~~$29.7 million ~~and $3.0 million, respectively.~~in the prior fiscal year period. This decrease was primarily due to lower operating income in the United Kingdom, including the non-cash goodwill impairment charge of $17.0 million.

SCHOLASTIC CORPORATION

Item 2. MD&A

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

Results of Discontinued Operations

As previously announced, the Company sold its DTH business in August 2008, has shut down its SC business effective May 31, 2008, ceased operation in its direct-to-home continuity business located in the United Kingdom and intends to sell its Maumelle facility. Additionally, the Company intends to complete the divestiture of its direct-to-home business located in Canada in fiscal 2009. In addition to the foregoing, during the six months ended February 28, 2009, the Company determined to exit certain other unprofitable, non-core businesses or operations as detailed in Note 2, “Discontinued Operations,” which operations have been or are in the process of being sold or shut down. Also, in a separate transaction during the three months ended February 28, 2009, the Company sold Quality Education Data (“QED”), a non-core business which markets databases serving the school market. The results of operations associated with these businesses are presented as discontinued operations for accounting purposes in the fiscal 2009 and prior year periods. During the three months ended February ~~29, 2008,~~28, 2009, the Company announced that it intends to sell the DTH business, which includes both the domestic portion and the international portion located in the United Kingdom and Canada, as well as the Maumelle Facility. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), the results of operations for the DTH business are presented separately in the Company’s Condensed Consolidated Financial Statements as discontinued operations and the assets and liabilities of the DTH business are treated as held for sale. SFAS 144 requires write-downs of the carrying value of assets held for sale if the carrying value exceeds their estimated fair value, less cost to sell. As a result, the Company recorded a non-cashrecognized impairment charge of $107.3 million and a tax benefit of $34.6 million, resulting in a charge of $72.7 million, net of tax, during the quarter ended February 29, 2008 to reflect the DTH business at its estimated fair value less cost to sell. The calculation of estimated fair value less cost to sell included significant estimates and assumptions, including, but not limited to: operating projections and the discount rate and terminal values developed in connection with the discounted cash flow; excess working capital levels; real estate fair values; and the anticipated costs involved in the selling process. In addition, as a result of the Company’s decision to sell the DTH business, the Company prepared separate financial statements reflecting the discontinued operations presentation, which required management to make significant judgments and estimates for purposes of allocating to the discontinued operations certain operating expenses, such as warehousing and distribution expenses, as well as assets, liabilities and other ~~balance sheet items, including accounts payable and certain other noncurrent liabilities.~~

~~Loss from~~charges related to discontinued operations, net of tax, was $77.5 million, or $2.02 per share, for the quarter ended February 29, 2008, compared to $3.9 million, or $0.09 per share, in the prior fiscal year quarter. For the nine months ended February 29, 2008,of $12.5 million.

The loss from discontinued operations, net of tax, was ~~$88.1~~$0.9 million ~~or $2.23 per share,~~for the quarter ended February 28, 2009, compared to ~~$9.2~~$77.9 million ~~or $0.22 per share,~~in the prior fiscal year quarter. The loss from discontinued operations, net of tax, was $22.6 million for the nine months ended February 28, 2009, compared to $92.8 million in the prior fiscal year. The higher losses in ~~each of~~ the ~~current~~previous year ~~periods versus the comparable prior year periods were substantially related~~period are primarily due to the ~~write-down of assets required by SFAS 144.~~DTH business.

Seasonality

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

Liquidity and Capital Resources

The Company’s cash and cash equivalents ~~including the cash of the discontinued operations,~~ totaled ~~$201.2~~$37.0 million at February 28, 2009, compared to $117.3 million at May 31, 2008 and $191.7 million at February 29, ~~2008, compared to $22.8~~2008. Cash from discontinued operations was $1.6 million at February 28, 2009, $3.1 million at May 31, ~~2007~~2008 and ~~$29.4~~$9.4 million at February ~~28, 2007.~~29, 2008.

Cash provided by operating activities was ~~$308.5~~$34.1 million for the nine months ended February ~~29, 2008, as~~28, 2009, compared to ~~$42.7~~$303.7 million in the prior fiscal year period. ~~This increase was~~The net decrease of $269.6 million is primarily due to ~~a $49.1 million improvement in earnings from continuing operations and working capital changes between the two periods, substantially due~~higher revenues related to ~~the higher~~ Harry Potter revenues in the current fiscal year. The most significant of these working capital changes that had a positive effect on cash flows occurred in Accrued royalties, which provided cash of $117.6 million in the current fiscal year period compared to $20.6 millionrealized in the prior ~~fiscal~~ year ~~period; Accounts payable and other accrued expenses,~~nine month period, for which provided cash of $34.1 million in the current fiscal year period compared to a use of cash of $31.2 million in the prior fiscal year period; and Accounts receivable, which provided cash of $9.1 million in the current fiscal year period compared to a use of cash of $21.3 million in the prior fiscal year period. Substantially all accrued expenses associated with Harry Potter revenues are expected to berelated royalty payments were paid by the Company subsequent to February 29, 2008, in addition to lower accounts payable and accrued expenses in the ~~quarter ending May 31, 2008.~~current nine month period.

Cash used in investing activities ~~increased to $80.3~~decreased by $34.7 million for the nine months ended February ~~29, 2008~~28, 2009, primarily related to proceeds from ~~$67.9~~the sale of QED and proceeds from the sale of the DTH business totaling $33.0 million.

Cash used in financing activities was $71.8 million for the nine months ended February 28, 2009, compared to $42.6 million for the prior fiscal year period, ~~reflecting increased prepublication expenditures for new product development in the~~~~Educational Publishing~~ ~~segment.~~

~~Cash used in financing activities was $42.6~~representing a $29.2 million ~~for the nine months ended February 29, 2008, compared to $140.4 million for the prior fiscal~~increase year ~~period. This $97.8 million~~over year. The change ~~was~~is primarily due to ~~higher proceeds pursuant to stock-based compensation plans~~lower borrowings under the Term Loan in the current ~~fiscal~~ year period ~~which provided $33.3~~of $200.0 million ~~of cash as compared to $21.5 million in the prior fiscal year period,~~and the repurchase in the open market and repayment at maturity of an aggregate of $294.0 million of the Corporation’s then-outstanding 5.75% Notes due January 15, 2007 (the “5.75% Notes”) during the prior fiscal year period, offset by ~~net repayments of revolving credit facilities~~lower common stock repurchases in the current ~~fiscal~~ year ~~period equal to $56.2 million as compared to net borrowings under revolving credit facilities in the prior fiscal year period equal to $138.8~~of $173.8 million. In addition, during the current fiscal year period, the Company used the $200.0 million proceeds from the Term Loan (as described under “Financing” below) to fund the reacquisition by the Corporation of shares of Common Stock pursuant to the ASR and used an additional $5.4 million for open market reacquisitions of Common Stock, as discussed below.

Due to the seasonal nature of its business as discussed under “Seasonality” above, the Company usually experiences negative cash flows in the June through October time period. As a result of the Company’s business cycle, borrowings have historically increased during June, July and August, have generally peaked in September or October, and have been at their lowest point in May. In the current fiscal year, borrowings peaked in October 2008, and have declined in the second half of the fiscal year. The Company expects to realize the benefit of deferred tax assets related to the DTH business divestiture in the current fiscal year. Accordingly, net tax payments will be lower than historical levels in the current fiscal year.

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

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

In the current fiscal year, the Company expects higher uses of cash than in previous years for severance payments and dividends while continuing modest discretionary common share repurchases under its current repurchase program. Despite the current economic conditions and the aforementioned uses of cash expected in the current fiscal year, the Company has maintained, and expects to maintain for the foreseeable future sufficient liquidity to fund ongoing operations (including severance payments and pension contributions), dividends, authorized common share repurchases, debt service, planned capital expenditures and other investments. As of February ~~29, 2008,~~28, 2009, the Company’s primary sources of liquidity consisted of cash and cash equivalents ~~including short-term investments,~~ of ~~$201.2~~$37.0 million, cash from operations, and borrowings remaining available under the Revolving Loan (as described under “Financing” below) totaling $325.0 million. Approximately 53% of the Company’s outstanding debt is not due until fiscal year 2013, and the remaining 47% is spread ratably over each preceding period. The Company may at any time, but in any event not more than once in any calendar year, request that the aggregate availability of credit under the Revolving Loan be increased by an amount of $10.0 million or an integral multiple of $10.0 million (but not to exceed $150.0 million).

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

In March 2009, the Company’s credit rating was reduced to ~~repay its debt obligations as they become due. As of February 29, 2008, the Company was rated BB~~“BB-” by Standard & Poor’s Rating Services and ~~Ba1~~“Ba2” by Moody’s Investors Service. ~~Under prevailing market conditions,~~Both agencies have rated the outlook for the Company as “Stable”. The Company believes that ~~these ratings afford it adequate access~~existing committed credit lines, cash from operations and other sources of cash are sufficient to meet the ~~public~~Company’s liquidity needs for the near term, as the Company is currently compliant with its debt covenants and ~~private markets~~expects to remain compliant for ~~debt.~~the foreseeable future. The Company’s interest rates for the Loan Agreement are associated with certain leverage ratios, and, accordingly, a change in the Company’s credit rating does not result in an increase in interest costs under the Company’s Loan Agreement.

SCHOLASTIC CORPORATION

Item 2. MD&A

Financing

On June 1, 2007, Scholastic Corporation and Scholastic Inc. (each, a “Borrower” and together, the “Borrowers”) elected to replace the Company’s then-existing credit facilities ~~the Credit Agreement and the Revolver (as discussed below),~~ with a new $525.0 million credit facility with certain banks (the “Loan Agreement”), consisting of a $325.0 million revolving credit component (the “Revolving Loan”) and a $200.0 million amortizing term loan component (the “Term Loan”). The Loan Agreement is a contractually committed unsecured credit facility that is scheduled to expire on June 1, 2012. The $325.0 million Revolving Loan component allows the Company to borrow, repay or prepay and reborrow at any time prior to the stated maturity date, and the proceeds may be used for general corporate purposes, including financing for acquisitions and share repurchases. The Loan Agreement also provides for an increase in the aggregate Revolving Loan commitments of the lenders of up to an additional $150.0 million. The $200.0 million Term Loan component was established in order to fund the reacquisition by the Corporation of shares of its Common Stock pursuant to ~~the ASR (as more fully described in Note 11 of Notes to Condensed Consolidated Financial Statements-Unaudited in Item 1, “Financial Statements”)~~an Accelerated Share Repurchase Agreement and was fully drawn on June 28, 2007 in connection with that transaction. The Term Loan, which may be prepaid at any time without penalty, requires quarterly principal payments of $10.7 million, with the first payment made on December 31, 2007, and a final payment of $7.4 million due on June 1, 2012. Interest on both the Term Loan and Revolving Loan is due and payable in arrears on the last day of the interest period (defined as the period commencing on the date of the advance and ending on the last day of the period selected by the Borrower at the time each advance is made). At the election of the Borrower, the interest rate charged for each loan made under the Loan Agreement is based on (1) a rate equal to the higher of (a) the prime rate or (b) the prevailing Federal Funds rate plus ~~0.5%~~0.500% or (2) an adjusted LIBOR rate plus an applicable margin, ranging from ~~0.50%~~0.500% to ~~1.25%~~1.250% based on the Company’s prevailing consolidated debt to total capital ratio. As of February ~~29, 2008,~~28, 2009, the applicable margin on the Term Loan was ~~0.875 %~~0.875% and the applicable margin on the Revolving Loan was ~~0.70 %.~~0.700%. The Loan Agreement also provides for the payment of a facility fee ranging from 0.125% to ~~0.25%~~0.250% per annum on the Revolving Loan only, which at February ~~29, 2008~~28, 2009 was ~~0.175 %.~~0.175%. As of February ~~29, 2008, $189.3~~28, 2009, the term loan had an outstanding balance of $146.5 million ~~was outstanding under the Term Loan~~ at an interest rate of ~~4.0 %.~~1.4%.; at May 31, 2008 the Term Loan had an outstanding balance of $178.6 million at an interest rate of 3.8%; and at February 29, 2008, the Term Loan had an outstanding balance of $189.3 million at an interest rate of 4.0%. There were no outstanding borrowings under the Revolving Loan as of February 28, 2009, May 31, 2008 and February 29, 2008. As of February 28, 2009 there was $0.5 million of outstanding standby letters of credit issued under the Loan Agreement. The Loan Agreement contains certain covenants, including interest coverage and leverage ratio tests and certain limitations on the amount of dividends and other distributions, and at February ~~29, 2008~~28, 2009 the Company was in compliance with these covenants.

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

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

During the fourth quarter of fiscal ~~2007,~~2008, the Company ~~entered into~~renewed unsecured money market bid rate credit lines totaling $50.0 million that were originally entered into during the fourth quarter of ~~which $41.0 million was outstanding at May 31,~~fiscal 2007. As of February 28, 2009, the Company’s credit lines under these facilities aggregate $45.0 million. There were no outstanding borrowings under these credit lines at February 28, 2009, May 31, 2008 and February 29, 2008. On March 20, 2009, the Company’s aggregate credit lines available under these facilities were reduced to $20 million, resulting from a lender’s cancellation of its $25.0 million line. All loans made under these credit lines are at the sole discretion of the lender and at an interest rate and term, not to exceed 364 days, agreed to at the time each loan is made. ~~The weighted average interest rate for all money market bid rate loans outstanding on May 31, 2007 was 6.2% .~~ These credit lines are typically available for loans up to 364 days and may be renewed, if requested by the Company, at the sole option of the lender.

As of February ~~29, 2008,~~28, 2009, the Company had various local currency credit lines, with maximum available borrowings in amounts equivalent to ~~$74.4~~$35.9 million, underwritten by banks primarily in the United States, Canada and the United Kingdom. These credit lines are typically available for overdraft borrowings or loans up to 364 days and may be renewed, if requested by the Company, at the sole option of the lender. There were borrowings outstanding under these facilities equivalent to $9.8 million at February 28, 2009 at a weighted average interest rate of 3.8%, compared to the equivalent of $11.8 million at May 31, 2008 at a weighted average interest rate of 6.4% and to the equivalent of $10.7 million at February 29, 2008 at a weighted average interest rate of 7.5% ~~as compared~~. In December 2008, the Company recapitalized its United Kingdom operations via a cash contribution from the Company’s domestic operations, due to the ~~equivalent~~cancellation of ~~$25.2 million at May 31, 2007 at a weighted average interest rate of 7.0% and~~ the ~~equivalent of $34.7 million at~~local currency credit line in the United Kingdom.

At February 28, ~~2007 at a weighted average interest rate of 5.9 %.~~

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

~~At February 29, 2008 and May 31, 2007,~~2009, the Company had open standby letters of credit of ~~$8.4~~$7.6 million issued under certain credit lines, as compared to ~~$13.0~~$8.4 million atas of May 31, 2008 and February ~~28, 2007.~~29, 2008. These letters of credit are scheduled to expire within one year; however, the Company expects that substantially all of these letters of credit will be renewed, at similar terms, prior to expiration.

The Company’s total debt obligations were $315.3 million at February 28, 2009, $349.7 million at May 31, 2008 and $373.6 million at February 29, ~~2008, $239.6 million at May 31, 2007 and $346.1 million at February 28, 2007.~~2008. The higher level of debt at February 29, 2008 compared to the levels at both May 31, 2007 and February 28, 2007 was primarily due to the $200.0 million Term Loan drawn to finance the ASR in June 2007, partially offset by the reduced borrowing requirements of the Company in the current fiscal year period resulting from the higher Harry Potter receipts during the period and the favorable timing of the payment of associated accrued royalties. The higherlower level of debt at February 28, ~~2007~~2009 as compared to May 31, ~~2007~~2008 and February 29, 2008 was primarily due to ~~higher borrowings under revolving credit facilities in connection with~~ the ~~repayment~~repayments made on the Term Loan and a repurchase of the ~~$258.0 million of 5.75%~~Company’s 5% Notes ~~that remained outstanding at maturity in January 2007.~~on the open market.

For a more complete description of the Company’s debt obligations, see Note 4 of Notes to Condensed Consolidated Financial Statements ~~–Unaudited~~– Unaudited in Item 1, “Financial Statements.”

SCHOLASTIC CORPORATION

Item 2. MD&A

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and states that a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. SFAS 157 will become effective for the Company’s fiscal year beginning June 1, 2008. The Company is currently evaluating the impact, if any, that SFAS 157 will have on its consolidated financial position, results of operations and cash flows.

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

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

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

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

Recently Adopted Accounting Pronouncements

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

In September 2006, the FASB issued ~~FIN 48, which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with~~ SFAS No. ~~109, “Accounting~~157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for ~~Income Taxes.~~measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and states that a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. In February 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” and FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157.” ~~FIN 48 provides guidance on recognizing, measuring, presenting,~~Collectively, these Staff Positions allow a one-year deferral of adoption of SFAS 157 for nonfinancial assets and ~~disclosing~~liabilities that are recognized or disclosed at fair value in the financial statements ~~uncertain tax positions~~on a non-recurring basis and amend SFAS 157 to exclude FASB Statement No. 13 and its related interpretive accounting pronouncements that address leasing transactions.

SCHOLASTIC CORPORATION

Item 2. MD&A

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

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

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

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

The Company’s assets and liabilities measured at fair value on a qualifying position is the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with a taxing authority having full knowledge of all relevant information. Priorrecurring basis subject to the ~~issuance~~presentation requirements of ~~FIN 48, an uncertain tax position would not be recorded unless it was “probable” that a loss or reduction~~SFAS 157 at February 28, 2009 consisted of ~~benefits would occur. Under FIN 48, the liability for unrecognized tax benefits is classified~~cash and cash equivalents and foreign currency forward contracts, neither of which were material as ~~noncurrent unless the liability is expected to be settled in cash within twelve months~~ of the reporting date. Cash and cash equivalents are comprised of bank deposits and short-term investments, such as money market funds, the fair value of which is based on quoted market prices, a Level 1 fair value measure. The fair values of foreign currency forward contracts, used by the Company to manage foreign exchange impact to the financial statements, are based on quotations from financial institutions, a Level 2 fair value measure.

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

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

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

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

Forward Looking Statements

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

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

SCHOLASTIC CORPORATION

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company conducts its business in various foreign countries, and as such, its cash flows and earnings are subject to fluctuations from changes in foreign currency exchange rates. ~~Management believes that the impact of currency fluctuations does not represent a significant risk to the Company given the size and scope of its current international operations.~~ The Company manages its exposures to this market risk through internally established procedures and, when deemed appropriate, through the use of short-term forward exchange contracts. All foreign exchange hedging transactions are supported by an identifiable commitment or a forecasted transaction. The Company does not enter into derivative transactions or use other financial instruments for trading or speculative purposes.

Market risks relating to the Company’s operations result primarily from changes in interest rates, which are managed through the mix of variable-rate versus fixed-rate borrowings. Additionally, financial instruments, including swap agreements, have been used to manage interest rate exposures. Approximately ~~54%~~50% of the Company’s debt at February ~~29, 2008~~28, 2009 bore interest at a variable rate and was sensitive to changes in interest rates, compared to approximately ~~28%~~55% at May 31, ~~2007~~2008 and approximately ~~50%~~54% at February ~~28, 2007.~~29, 2008. The ~~increase~~decrease in variable-rate debt as of February ~~29, 2008~~28, 2009 compared to May 31, ~~2007~~2008 and February 29, 2008 was primarily due to repayments made on the ~~$200.0 million variable-rate~~ Term Loan ~~drawn to finance~~and a repurchase of 5% Notes on the ~~ASR in June 2007.~~open market. The Company is subject to the risk that market interest rates and its cost of borrowing will increase and thereby increase the interest charged under its variable-rate debt.

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

The following table sets forth information about the Company’s debt instruments as of February ~~29, 2008~~28, 2009 (see Note 4 of Notes to Condensed Consolidated Financial Statements - Unaudited in Item 1, “Financial Statements”):


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

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


Debt Obligations
Lines of credit	$	10.7		$	—		$	—		$	—		$	—		$	—		$	10.7
Lines of Credit																					$	9.8		$	—		$	—		$	—		$	—		$	—	$	9.8
Average interest rate		7.5	%																			3.8	%

Long-term debt including current portion:	$
Long-term debt including current
Fixed-rate debt		—		$	—		$	—		$	—		$	—		$	175.0		$	175.0	$	—		$	—		$	—		$	—		$	160.0		$	—	$	160.0
Average interest rate																	5.0	%
Interest rate																																		5.0	%

Variable-rate debt	$	10.7		$	42.8		$	42.8		$	42.8		$	42.8		$	7.4	⁽¹⁾	$	189.3
Average interest rate⁽²⁾		4.0	%		4.0	%		4.0	%		4.0	%		4.0	%		4.0	%
Variable rate debt																					$	10.7		$	42.8		$	42.8		$	42.8		$	7.4	⁽¹⁾	$	—	$	146.5
Interest rate⁽²⁾																						1.4	%		1.4	%		1.4	%		1.4	%		1.4	%


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

(2)	Represents the interest rate under the Term Loan at February ~~29, 2008;~~28, 2009; the interest rate is subject to change over the life of the Term Loan.

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

SCHOLASTIC CORPORATION

Item 4. Controls and Procedures

The Chief Executive Officer and the Chief Financial Officer of the Corporation, after conducting an evaluation, together with other members of the Company’s management, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as of February ~~29, 2008,~~28, 2009, have concluded that the Corporation’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Corporation in its reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and accumulated and communicated to members of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. There was no change in the Corporation’s internal control over financial reporting that occurred during the quarter ended February ~~29, 2008~~28, 2009 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

~~PART II – OTHER INFORMATION~~

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

~~For information concerning previously reported actions filed by each of the Alaska Laborers Employee Retirement Fund and Paul Baicu, which were consolidated on November 8, 2007 and entitledAlaska Laborers Employment Retirement Fund v. Scholastic Corporation, see “Part II – Other Information, Item 1. Legal Proceedings” in the Company’s Quarterly Report on Form 10-Q for the period ended August 31, 2007.~~

~~For information concerning a previously reported action entitledRoot v. Scholastic Corporation, see “Part II – Other Information, Item 1. Legal Proceedings” in the Company’s Quarterly Report on Form 10-Q for the period ended November 30, 2007.~~

~~SCHOLASTIC CORPORATION~~
~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~

PART II – OTHER INFORMATION

SCHOLASTIC CORPORATION

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

The following table provides information with respect to repurchases of shares of Common Stock by the Corporation during the ~~quarter~~nine months ended February ~~29, 2008:~~28, 2009:

Issuer Purchases of Equity Securities

(Dollars in millions except per share amounts)

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



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


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

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

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

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

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

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

December 1, 2008 through December 31, 2008	426,979		$	13.83	426,979		$	4.0	⁽¹⁾

January 1, 2009 through January 31, 2009	314,600		$	12.61	314,600		$	—	⁽¹⁾

February 1, 2009 through February 28, 2009	154,066		$	10.89	154,066		$	3.4	⁽¹⁾

Total	1,704,520		$	18.56	1,704,520		$	3.4	⁽¹⁾

(1)

On ~~December 20, 2007,~~May 28, 2008, the ~~Corporation~~Company announced that its Board of Directors had authorized a new program to ~~repurchase~~purchase up to $20.0 million of Common Stock, from time to time as conditions allow, on the open market or through negotiated private transactions. On November 20, 2008 and February 4, 2009, the Board of Directors authorized further programs to repurchase up to an additional $10.0 million and $5.0 million, respectively, of its Common Stock, which will be funded with available cash and pursuant to which the Company may purchase shares from time to time as conditions allow on the open market.

SCHOLASTIC CORPORATION

Item 6. Exhibits

~~SCHOLASTIC CORPORATION~~
~~Item 6. Exhibits~~

Exhibits:



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

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

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

~~SCHOLASTIC CORPORATION~~
~~SIGNATURES~~

SCHOLASTIC CORPORATION

SIGNATURES

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


		SCHOLASTIC CORPORATION
			(Registrant)

Date: April 9, ~~2008~~2009	By:	~~By:~~	/s/ Richard Robinson


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



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


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

SCHOLASTIC CORPORATION

QUARTERLY REPORT ON FORM 10-Q, DATED FEBRUARY 28, 2009

Exhibits Index

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


Exhibit Number
~~Number~~		Description of Document

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


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


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

2830

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

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


Total current assets		1,099.6			904.7			1,000.6

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


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


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


Total current liabilities		581.6			414.1			409.4

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


Total noncurrent liabilities		497.7			334.6			453.8

*Commitments and Contingencies*		—			—			—

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

Total stockholders’ equity		953.1			1,129.0			1,089.2

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

See accompanying notes

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


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


Total	$	260.4		$	261.6	$	249.8


	Nine months ended February 28, 2009

Balance at May 31, 2008		$	0.4
Accruals			19.8
Payments			(17.3	)

Balance at February 28, 2009		$	2.9

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

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

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

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

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