Scholastic Corporation <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SCHL)") else Response.Write("(Nasdaq: SCHL)") end if %>
555 Broadway
New York, NY 10012
(212) 343-6100
http://www.scholastic.com

UNION CITY, Ca., December 22, 1996/FOOLWIRE/ --- Scholastic Corporation released their second quarter results recently. The company reported that revenues are up 16% and 17% for the 6 months to date. In dollars that represents increases of $48 million in the quarter and $71 million for the 6 months ended November.

Operating income for the quarter is up 24% from the prior year and 16% year to date. Net income for the quarter is up 23% and the fully diluted earnings per share was $2.21 versus $1.81 from last year, an increase of 22%. Operating results for the quarter and year to date are in line with their plan with a shift in the revenue mix. The $48 million revenue increase consists of $23 million from domestic book publishing; $12 million from media, TV, movie productions, and licensing; and $12 million from international. Each of these business segments has over 10% revenue growth with international up 27% and the media/TV/movie/licensing up 129%. Domestic book publishing is up 11% in the quarter, commendable against a strong 20% growth they saw in last year's second quarter.

TRADE BUSINESS. This was a critical quarter for Scholastic as they were able to successfully integrate the Trumpet Book Clubs domestically as well as the Pages Book Fairs in the UK and in Canada. Trade business was equal to last year's level and up 21% year to date. Trade sales of new and back Goosebumps titles were up modestly from the year ago quarter, significant because the year ago quarter included a large one-time load up of Goosebumps inventory as the new retailers began marketing the product for the first time. This was also fueled by the late October/November purchasing by retailers to stock the product concurrent with the launch and heavy promotion of the Goosebumps TV series, which was launched by Fox and scored very high in the ratings. Overall Goosebumps continues to be the star in juvenile publishing with the rest of the industry being relatively flat. Their trade sales for the first six months are flowing in a more traditional industry pattern this year with the retailers buying in advance of the Christmas period in the June to September time frame rather than the large surge they experienced in late October and November of last year. That is important because their projections for the rest of the year is based on a growing consumer sell-through of Goosebumps combined with the success of new programs being offered in the trade.

BOOK CLUBS AND PROGRAMS. Book clubs and continuity programs were up slightly less than 10% year to date. They have achieved one of their main goals of integrating Trumpet which they acquired in January. They have integrated it with their existing clubs including the promotional plans, product offerings, and shipments. This growth seen in the clubs area is primarily attributable to the impact of the Trumpet sales. Book fair sales growth was up 16% in the quarter. This growth was split between an increase in the number of fairs as well as increased revenue per fair.

MAGAZINE BUSINESS. In their magazine business they had an increase of 3% in the quarter. Home Office Computing advertising revenues in sponsored programs performed quite well. In their classroom magazine business, they have seen an increase in circulation levels for the first time in recent years.

INTERNATIONAL. International had a strong showing, realizing a 27% or $12 million revenue growth in the quarter. Their UK subsidiary was a major contributor to this growth in part due to its acquisition of Aegis Book Clubs last January and strong UK trade sales. Canada also experienced good growth with significant increases in their book fairs and trade categories. On November 19th, Scholastic announced that it had reached an agreement to acquire Red House Books, Ltd. in the UK. Red House is a direct marketing company that specializes in children's and family books with a home book club, a party plan, and school and international book club businesses. They are looking forward to this opportunity to further strengthen and expand their direct marketing of books to children and their families, both at home and at school.

OPERATING INCOME. The mix of sales including the increased licensing royalties and gross margin improvement in international and domestic results in operating income growth that was higher than their comparable sales growth in the quarter. Operating income for the quarter was $66 million, up 23% over the prior year. For the first 6 months, operating income was up $46 million, a 16% increase over the prior year. For the 6 months, operating income growth has been comparable to sales growth, benefitting from high margin licensing royalties received in this second quarter, offset by the absence of the profit from the Early Childhood Workshop sales which occurred in the Summer of 1995.

INCOME STATEMENT HIGHLIGHTS. Interest expense in the quarter was $4 million versus $3 million last year. The higher interest expense is due to higher debt levels to fund working capital growth, pre-publication spending, and acquisitions. Scholastic filed a shelf registration with the SEC covering up to $150 million in securities. The company expects that offerings under this registration statement would consist primarily of debt securities to replace existing floating rate debt. Their tax rate in the quarter is slightly over 37%. They estimate it will come in between 37% and 38% for the year. Their net income was up 23% or $7 million in the quarter and 15% or $3 million year to date. Fully diluted earnings per share for the quarter was $2.21 versus $1.81 last year, a 22% increase. Earnings per share for the six months was $1.47 versus $1.31 last year, a 12% increase.

PRODUCTION AND LICENSING ACTIVITIES. Revenue in the media, TV, movie productions, and licensing group is up 129% or $9 million over the same quarter in the previous year. This increase is primarily due to merchandise and licensing royalties from Goosebumps as well as increased film production of the Goosebumps TV show combined with increased software sales, primarily through their student software clubs. They are very excited about the success they have experienced in the merchandising and licensing of Goosebumps products this past quarter. The results reflect having over 1000 different products produced, distributed, and marketed by 46 licensees. The success of programming and licensing relationships they have developed through Goosebumps will be helpful in the development of other Scholastic properties such as Animorphs and Clifford in the future. Scholastic Productions continues to build on the media base they have established with Goosebumps and the Magic School Bus television programming in order to develop new projects. They are currently in development on Animorphs and Clifford the Big Red Dog for television targetting 1998 and they have a number of original projects also in development.

MAGIC SCHOOL BUS. The third season of Magic School Bus began this Fall on PBS and the show, which is now airing daily, is PBS's number one show for school age children. They are in the process of producing a fourth season which will be completed for next Fall and this will bring the total number of episodes to 52. Their fifth Magic School Bus CD-ROM, which they are doing with Microsoft, entitled Dinosaurs was released this Fall and their next one on rain forests will be released in the Spring. Again, they have won multiple awards and Microsoft has sold well over 1 million units of this CD-ROM series.

GOOSEBUMPS TELEVISION SHOW. With respect to Goosebumps television, they are in their second season on Fox and are negotiating their third season which will be a minimum of 14 episodes next Fall. The show continues to be the number one rated show on kid's TV and video sales of their episodes remain strong. Production with Dreamworks on their Goosebumps CD-ROM is now complete. The title Escape from Horror Land hit the stores Thanksgiving weekend and sales are good. They expect additional very strong sales on this title in the first quarter of next year. The recent reviews in Time magazine and the syndicated reviews have all given this title a 10 out of 10 and recommended it as one of the best for the year. With respect to other consumer products, for Goosebumps the board games, t-shirts, and electronic toys remain some of the most successful categories in that marketplace. They feel that this was an unusually strong quarter for Goosebumps merchandising due to the seasonal nature of this property and the enthusiasm of the retailers to promote this for the back-to-school and Halloween season. They anticipate much more significant competition in the marketplace with all the youth-oriented Summer movies coming out later this Spring. But, in general they are very happy with this performance.

CHILDREN'S BOOK BUSINESS. The children's book business across all channels is up about 10% for the quarter and15% for the first half of the fiscal year against tough comparisons and an overall trade market which has experienced slow growth. Overall they are pleased that they successfully integrated the Trumpet clubs with their business. Trade sales in the quarter matched last year's which had been up 100% over the preceeding year and continued solid growth in book fairs. Simultaneous with this release they announced a new multi-year agreement that secures continued exclusive worldwide publishing, television, interactive media, and video rights to Scholastic's popular Goosebumps franchise. They have now secured publishing rights for Goosebumps books 60-101. This is the best selling series in the juvenile book business by far. In conjunction with this deal, they agreed with Goosebumps and Parachute that they would split up some of the responsibilities for managing and administrating some of the ancillary rights such as merchandising. Parachute will be handling the merchandising category although Scholastic is continuing to participate in the economics of that.

FUTURE PLANS FOR CHILDREN'S BOOK BUSINESS. In their club business, they will continue to create special offers and preview mailings to increase the number of times teachers order per year. Looking past this year, their strategic focus is to develop plans to re-establish the growth rate for this very large and profitable business. With respect to the trade business, they feel good about successfully replacing the spike of sales which occurred in last year's second quarter initial stocking of new retailers with Goosebumps. Continued growth in trade and the flat, sluggish children's trade environment is based on maintaining the current sell-through of Goosebumps and maintaining diversity of their new series and other book offerings. New release orders for the December and January trade business are up over last year and they are anticipating pre-sales of the new series Animorphs and Dear America and books such as the Miss Spider board book which they will be releasing later this Spring. They are also working on some strategic alliances -- the National Basketball Association & Warner Brothers Space Jam which they just released, Tonka Trucks, and a Lucasfilm re-releasing Star Wars are all coming up in the next quarter. Their book fair business continues to achieve solid performance with growth in both the number of fairs and the revenue per fair. Revenue per fair is driven in part by their Books on Tour program which remains strong. They are going to run over 13,000 Books on Tour fairs this year, up from 10,000 last year. In the second quarter they ran 5,800 Books on Tour fairs versus 4,000 last year. They are also testing a corporate book fair plan and expect a modest rollout of this next year.

THE INSTRUCTIONAL PUBLISHING BUSINESS. With respect to instructional publishing, this quarter is a relatively small quarter for the entire year. Revenues for the quarter were up 17%, largely due to this year's sales of Literacy Place combined with sales of Science Place and Wiggle Works and some post-Summer sales into Florida. They think they are having a very promising Fall with the Literacy Place product. They won Green Bay Wisconsin who adopted it for K-3. They just got the results in from Naples Florida which was a second-year adopting district and they came in number one selling school-to-school among the publishers who were licensed to sell there. They also were adopted in Manatee County and are working other counties in Florida right now including Tampa. They are one of three in Baltimore County where they are selling school-to-school among their 96 buildings, one of three in Tucson Arizona, and are in the finals in many other places around the country. Even more exciting to them is their start in California. The official state listing was scheduled to take place as the first action item at the California State School Board Meeting in Sacramento. They fully expect to be listed. Meanwhile, the campaign has started. They are fully staffed with 16 reps and consultants and are busy presenting and sampling districts every day. They believe they have the right product and the right authorship team to meet California's agenda. Their phonics author is part of a small team of educators selected by the state and being paid by the state to train teachers in workshops around California in phonics. To the best of their knowledge, Literacy Place is in the most cuts of any program to date. These cuts include Oakland which is one of the largest districts in California as well as other A account districts like Capistrano and Fremont. It is really too early to know where this is all going to come out, but the signs are good.

ESTIMATES FOR Q3. The company stated that they are comfortable with the low end of the range of estimates that are out there for Q3. To make their numbers for the year, they need to continue growth in the trade sales similar to what they had in the first half of the year, which is down significantly from the growth rates they have had the past two years. This growth is dependent upon Goosebumps and other properties and how they fare in the holiday season. They are anticipating and need continued growth in their book fair business and they have good visibility on that and feel good about that. In the club area, including Trumpet, they haven't been overly aggressive and just want to be flat with last year in the second half. In California with Literacy Place, California traditionally has purchased somewhere between 20% and 30% of their Summer sales prior to May 31st and they are counting on this pattern to continue. They feel very good about their opportunities in California. And they will have and are counting on an increase in merchandising and licensing royalties over last year's initial Goosebumps level. So, that is the basis for their plan for the rest of the year and they have a plan on a business by business basis that gets them to the lower end of the analyst estimate range.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.