##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED JUNE 30, 2007.
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM  TO
 Commission file number: 0-22187
 RENAISSANCE LEARNING, INC.
  Wisconsin
(State or other 
jurisdiction of incorporation)
    
    39-1559474
(I.R.S. Employer
Identification No.)
 2911 Peach Street
P.O. Box 8036
Wisconsin Rapids, Wisconsin
 54495-8036
 (715) 424-3636
 þ o
  o þ o
 o þ
  Class
    
    Outstanding at
July 31, 2007Common Stock, $0.01 par value
    
    29,014,599




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##### 



RENAISSANCE LEARNING, INC.
 INDEX TO FORM 10-Q
 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007
  
 PagePART I  FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets at June 30, 2007 and
December 31, 2006
    
    
    1Condensed Consolidated Statements of Income for the Three Months and Six Months
Ended June 30, 2007 and 2006
    
    
    2Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2007 and 2006
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    7Item 3.
    
    Quantitative and Qualitative Disclosures About
Market Risk
    
    
    11Item 4.
    
    Controls and Procedures
    
    
    12PART II  OTHER INFORMATIONItem 1A.
    
    Risk Factors
    
    
    12Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    12Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    13Item 6.
    
    Exhibits
    
    
    14CertificationCertificationCertificationCertification
  -Index-




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 RENAISSANCE LEARNING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 June 30,
    
    
    December 31,2007
    
    
    2006(In Thousands, Except Share and PerShare Amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    8,005
    
    
    $
    5,953Investment securities
    
    
    14,536
    
    
    
    22,525Accounts receivable, less allowance of
$1,102 and $1,133, respectively
    
    
    14,404
    
    
    
    10,528Inventories
    
    
    5,268
    
    
    
    4,108Prepaid expenses
    
    
    1,638
    
    
    
    1,896Income taxes receivable
    
    
    2,231
    
    
    
    1,291Deferred tax asset
    
    
    3,599
    
    
    
    3,596Other current assets
    
    
    288
    
    
    
    97Total current assets
    
    
    49,969
    
    
    
    49,994Investment securities
    
    
    10,303
    
    
    
    1,625Property, plant and equipment, net
    
    
    11,455
    
    
    
    11,811Deferred tax asset
    
    
    264
    
    
    
    Goodwill
    
    
    47,022
    
    
    
    46,973Other intangibles, net
    
    
    5,826
    
    
    
    6,124Capitalized software, net
    
    
    490
    
    
    
    727Other non-current assets
    
    
    85
    
    
    
    457Total assets
    
    $
    125,414
    
    
    $
    117,711LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,969
    
    
    $
    2,782Deferred revenue
    
    
    27,751
    
    
    
    23,751Payroll and employee benefits
    
    
    5,062
    
    
    
    4,750Other current liabilities
    
    
    3,457
    
    
    
    3,429Total current liabilities
    
    
    38,239
    
    
    
    34,712Deferred revenue
    
    
    1,895
    
    
    
    885Deferred compensation and other employee benefits
    
    
    1,822
    
    
    
    1,665Deferred tax liability
    
    
    
    
    
    
    878Income taxes payable
    
    
    4,193
    
    
    
    Other noncurrent liabilities
    
    
    208
    
    
    
    Total liabilities
    
    
    46,357
    
    
    
    38,140Shareholders equity:Common stock, $.01 par value; shares authorized: 150,000,000;
issued: 34,736,647 shares at June 30, 2007 and December 31, 2006
    
    
    347
    
    
    
    347Additional paid-in capital
    
    
    55,248
    
    
    
    55,542Retained earnings
    
    
    124,611
    
    
    
    124,290Treasury stock, at cost: 5,766,518 shares at June 30, 2007;
5,733,130 shares at December 31, 2006
    
    
    (99,393
    )
    
    
    (99,265
    )Unearned restricted stock compensation
    
    
    (1,913
    )
    
    
    (1,417
    )Accumulated other comprehensive income
    
    
    157
    
    
    
    74Total shareholders equity
    
    
    79,057
    
    
    
    79,571Total liabilities and shareholders equity
    
    $
    125,414
    
    
    $
    117,711
  -1-




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RENAISSANCE LEARNING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
 Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In Thousands, Except Per Share Amounts)Net sales:Products
    
    $
    22,206
    
    
    $
    24,925
    
    
    $
    43,908
    
    
    $
    50,249Services
    
    
    4,971
    
    
    
    4,394
    
    
    
    9,957
    
    
    
    10,188Total net sales
    
    
    27,177
    
    
    
    29,319
    
    
    
    53,865
    
    
    
    60,437Cost of sales:Products
    
    
    4,490
    
    
    
    4,982
    
    
    
    8,193
    
    
    
    9,311Services
    
    
    2,443
    
    
    
    1,875
    
    
    
    5,310
    
    
    
    4,681Total cost of sales
    
    
    6,933
    
    
    
    6,857
    
    
    
    13,503
    
    
    
    13,992Gross profit
    
    
    20,244
    
    
    
    22,462
    
    
    
    40,362
    
    
    
    46,445Operating expenses:Product development
    
    
    4,636
    
    
    
    4,305
    
    
    
    9,702
    
    
    
    8,487Selling and marketing
    
    
    8,835
    
    
    
    7,389
    
    
    
    18,240
    
    
    
    16,744General and administrative
    
    
    3,612
    
    
    
    3,692
    
    
    
    7,455
    
    
    
    8,898Total operating expenses
    
    
    17,083
    
    
    
    15,386
    
    
    
    35,397
    
    
    
    34,129Operating income
    
    
    3,161
    
    
    
    7,076
    
    
    
    4,965
    
    
    
    12,316Other income, net
    
    
    324
    
    
    
    343
    
    
    
    626
    
    
    
    625Income before taxes
    
    
    3,485
    
    
    
    7,419
    
    
    
    5,591
    
    
    
    12,941Income taxes
    
    
    1,307
    
    
    
    2,745
    
    
    
    2,096
    
    
    
    4,788Net income
    
    $
    2,178
    
    
    $
    4,674
    
    
    $
    3,495
    
    
    $
    8,153Earnings per share:Basic
    
    $
    0.08
    
    
    $
    0.16
    
    
    $
    0.12
    
    
    $
    0.27Diluted
    
    $
    0.08
    
    
    $
    0.16
    
    
    $
    0.12
    
    
    $
    0.27Cash dividends declared per share
    
    $
    0.07
    
    
    $
    0.05
    
    
    $
    0.12
    
    
    $
    0.10
  -2-




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RENAISSANCE LEARNING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 For the Six Months EndedJune 30,2007
    
    
    2006(In Thousands)Reconciliation of net income to net cash provided by operating activities:Net income
    
    $
    3,495
    
    
    $
    8,153Adjustments to arrive at cash provided by operating activities:Depreciation and amortization
    
    
    1,913
    
    
    
    1,791Amortization of investment discounts/premiums
    
    
    26
    
    
    
    134Share-based compensation expense
    
    
    485
    
    
    
    223Deferred income taxes
    
    
    (1,145
    )
    
    
    1,862Loss on sale of property
    
    
    32
    
    
    
    17Excess tax benefits from share based payment arrangements
    
    
    
    
    
    
    (393
    )Change in assets and liabilities, excluding the effects of acquisitions and divestitures:Accounts receivable
    
    
    (3,876
    )
    
    
    (1,904
    )Inventories
    
    
    (1,160
    )
    
    
    814Prepaid expenses
    
    
    311
    
    
    
    (142
    )Income taxes
    
    
    2,982
    
    
    
    (2,728
    )Accounts payable and other liabilities
    
    
    (345
    )
    
    
    (189
    )Deferred revenue
    
    
    5,010
    
    
    
    (614
    )Other
    
    
    129
    
    
    
    (49
    )Net cash provided by operating activities
    
    
    7,857
    
    
    
    6,975Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (1,591
    )
    
    
    (1,373
    )Purchase of investment securities
    
    
    (20,729
    )
    
    
    (284
    )Maturities/sales of investment securities
    
    
    20,250
    
    
    
    11,359Net proceeds from sale of property
    
    
    566
    
    
    
    Net cash (used) provided by investing activities
    
    
    (1,504
    )
    
    
    9,702Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    8
    
    
    
    16Payment for cancellation of stock options
    
    
    
    
    
    
    (993
    )Excess tax benefits from share based payment arrangements
    
    
    
    
    
    
    393Dividends paid
    
    
    (2,902
    )
    
    
    (3,007
    )Purchase of treasury stock
    
    
    (1,407
    )
    
    
    (14,933
    )Net cash used by financing activities
    
    
    (4,301
    )
    
    
    (18,524
    )Net increase (decrease) in cash and cash equivalents
    
    
    2,052
    
    
    
    (1,847
    )Cash and cash equivalents, beginning of period
    
    
    5,953
    
    
    
    7,083Cash and cash equivalents, end of period
    
    $
    8,005
    
    
    $
    5,236
  -3-




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RENAISSANCE LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 1. Consolidation
  2. Basis of Presentation
   3. Earnings Per Common Share
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Basic weighted average shares outstanding
    
    
    28,809,707
    
    
    
    29,830,082
    
    
    
    28,834,117
    
    
    
    29,986,642Dilutive effect of outstanding stock options
    
    
    1,370
    
    
    
    6,559
    
    
    
    3,530
    
    
    
    9,226Dilutive effect of restricted shares
    
    
    17,211
    
    
    
    564
    
    
    
    17,211
    
    
    
    564Diluted weighted average shares outstanding
    
    
    28,828,288
    
    
    
    29,837,205
    
    
    
    28,854,858
    
    
    
    29,996,432
  4. Comprehensive Income
  5. Goodwill and Other Intangible Assets
  -4-




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June 30, 2007
    
    
    December 31, 2006Gross
    
    
    Accumulated
    
    
    
    
    
    
    Gross
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    NetTradename
    
    $
    3,000
    
    
    $
    
    
    
    $
    3,000
    
    
    $
    3,000
    
    
    $
    
    
    
    $
    3,000Customer relationships
    
    
    4,150
    
    
    
    1,324
    
    
    
    2,826
    
    
    
    4,150
    
    
    
    1,026
    
    
    
    3,124$
    7,150
    
    
    $
    1,324
    
    
    $
    5,826
    
    
    $
    7,150
    
    
    $
    1,026
    
    
    $
    6,124
 6. Share Based Compensation
     WeightedAverage
    
    AggregateValue
    
    IntrinsicShares
    
    Per Share
    
    Value(In Thousands, except per share amount)Balance at January 1, 2007
    
    
    132
    
    
    $
    15.31
    
    
    $
    2,337Granted
    
    
    78
    
    
    
    13.34Vested
    
    
    (13
    )
    
    
    12.33Forfeitures
    
    
    (7
    )
    
    
    14.79Balance at June 30, 2007
    
    
    190
    
    
    $
    14.72
    
    
    $
    2,498
 7. Dividends
  -5-




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##### Table of Contents



8. Income Taxes
     9. Subsequent Event
  -6-




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Results of Operations
     Three Months Ended June 30,
    
    Six Months Ended June 30,2007
    
    2006
    
    2007
    
    2006Net Sales:Products
    
    
    81.7
    %
    
    
    85.0
    %
    
    
    81.5
    %
    
    
    83.1
    %Services
    
    
    18.3
    %
    
    
    15.0
    %
    
    
    18.5
    %
    
    
    16.9
    %Total net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales:Products
    
    
    20.2
    %
    
    
    20.0
    %
    
    
    18.7
    %
    
    
    18.5
    %Services
    
    
    49.2
    %
    
    
    42.7
    %
    
    
    53.3
    %
    
    
    45.9
    %Total cost of sales
    
    
    25.5
    %
    
    
    23.4
    %
    
    
    25.1
    %
    
    
    23.2
    %Gross profit:Products
    
    
    79.8
    %
    
    
    80.0
    %
    
    
    81.3
    %
    
    
    81.5
    %Services
    
    
    50.8
    %
    
    
    57.3
    %
    
    
    46.7
    %
    
    
    54.1
    %Total gross profit
    
    
    74.5
    %
    
    
    76.6
    %
    
    
    74.9
    %
    
    
    76.8
    %Operating expenses:Product development
    
    
    17.1
    %
    
    
    14.7
    %
    
    
    18.0
    %
    
    
    14.0
    %Selling and marketing
    
    
    32.6
    %
    
    
    25.2
    %
    
    
    33.9
    %
    
    
    27.7
    %General and administrative
    
    
    13.2
    %
    
    
    12.6
    %
    
    
    13.8
    %
    
    
    14.7
    %Total operating expenses
    
    
    62.9
    %
    
    
    52.5
    %
    
    
    65.7
    %
    
    
    56.4
    %Operating income
    
    
    11.6
    %
    
    
    24.1
    %
    
    
    9.2
    %
    
    
    20.4
    %Other, net
    
    
    1.2
    %
    
    
    1.2
    %
    
    
    1.2
    %
    
    
    1.0
    %Income before taxes
    
    
    12.8
    %
    
    
    25.3
    %
    
    
    10.4
    %
    
    
    21.4
    %Income taxes
    
    
    4.8
    %
    
    
    9.4
    %
    
    
    3.9
    %
    
    
    7.9
    %Net Income
    
    
    8.0
    %
    
    
    15.9
    %
    
    
    6.5
    %
    
    
    13.5
    %
 -7-




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Three Months Ended June 30, 2007 and 2006
 Net Sales
  Cost of Sales
  Product Development
 Selling and Marketing
 General and Administrative
 Operating Income
 Income Tax Expense.
 -8-




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##### Table of Contents



Six Months Ended June 30, 2007 and 2006
 Net Sales
  Cost of Sales
  Product Development
 Selling and Marketing
 General and Administrative
 Operating Income
 Income Tax Expense
 -9-




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Liquidity and Capital Resources
     Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
  Operating Leases.
 Purchase Obligations.
  Contractual Obligations
    
    Payments due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More than(In thousands)
    
    Total
    
    
    1 year
    
    
    1- 3 years
    
    
    3-5 years
    
    
    5 yearsOperating lease obligations
    
    $
    6,359
    
    
    $
    1,113
    
    
    $
    3,854
    
    
    $
    1,055
    
    
    $
    337Purchase obligations
    
    
    5,594
    
    
    
    5,462
    
    
    
    132
    
    
    
    
    
    
    
    Total
    
    $
    11,953
    
    
    $
    6,575
    
    
    $
    3,986
    
    
    $
    1,055
    
    
    $
    337
 Critical Accounting Policies and Estimates
  -10-




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Forward-Looking Statements
 Risk Factors
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
 Market Risk.
   Foreign Currency Exchange Rate Risk.
 -11-




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##### Table of Contents



Item 4. Controls and Procedures
    
 Part II  OTHER INFORMATION
 
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   Total
    
    
    MaximumNumber
    
    
    Numberof Shares
    
    
    of SharesPurchased
    
    
    that Mayas Part of
    
    
    Yet BeTotal
    
    
    Average
    
    
    Publicly
    
    
    PurchasedNumber
    
    
    Price
    
    
    Announced
    
    
    Under theof Shares
    
    
    Paid per
    
    
    Plans or
    
    
    Plans orPeriod
    
    Purchased
    
    
    Share
    
    
    Programs
    
    
    ProgramsApril 1-30, 2007
    
    
    13,066
    (1)
    
    $
    12.24
    
    
    
    8,066
    
    
    
    367,850May 1-31, 2007
    
    
    62,760
    (2)
    
    
    11.84
    
    
    
    57,795
    
    
    
    310,055June 1-30, 2007
    
    
    36,027
    
    
    
    11.64
    
    
    
    36,027
    
    
    
    274,028Total
    
    
    111,853
    
    
    $
    11.82
    
    
    
    101,888
 
 (1)
    
    Includes 5,000 shares purchased in an open-market transaction by one of our directors,
Addison L. Piper.(2)
    
    Includes 4,965 shares purchased in a series of open-market transactions by one of our
directors, Gordon H. Gunnlaugsson. -12-




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
 (a)
    
    On April 18, 2007, the Company held its Annual Meeting of Shareholders.(b)
    
    Not applicable.(c)
    
    Set forth below is a description of the matter voted upon at the Annual Meeting of
Shareholders and the number of votes cast for and against/withheld, as to such matter.
 1.
    
    Seven directors were elected to serve until the 2008 Annual Meeting of Shareholders and
until their successors are elected and qualified. The results of this proposal are as
follows:
 Against/For
    
    
    Withheld(1) Judith A. Paul
    
    
    28,542,395
    
    
    
    23,432(2) Terrance D. Paul
    
    
    28,542,355
    
    
    
    23,472(3) John H. Grunewald
    
    
    28,508,420
    
    
    
    57,407(4) Gordon H. Gunnlaugsson
    
    
    28,527,703
    
    
    
    38,124(5) Harold E. Jordan
    
    
    28,529,018
    
    
    
    36,809(6) Addison L. Piper
    
    
    28,546,133
    
    
    
    19,694(7) Judith A. Ryan
    
    
    28,526,396
    
    
    
    39,431
 (d)
    
    Not applicable.
 -13-




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Item 6. Exhibits
  Exhibit No.
    
    Description31.1
    
    Section 302 certification by Terrance D. Paul31.2
    
    Section 302 certification by Mary T. Minch32.1
    
    Section 906 certification by Terrance D. Paul32.2
    
    Section 906 certification by Mary T. Minch
 -14-




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SIGNATURES
  RENAISSANCE LEARNING, INC.
(Registrant)August 8, 2007
    /s/ Terrance D. PaulDate
    Terrance D. PaulChief Executive Officer and a Director
(Principal Executive Officer)August 8, 2007
    /s/ Mary T. MinchDate
    Mary T. MinchSenior Vice President-Finance, Chief Financial Officer and Secretary (Principal
Financial and Accounting Officer)




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##### Table of Contents



Exhibit No.
    
    Description31.1
    
    Section 302 certification by Terrance D. Paul31.2
    
    Section 302 certification by Mary T. Minch32.1
    
    Section 906 certification by Terrance D. Paul32.2
    
    Section 906 certification by Mary T. Minch