##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549



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FORM 10-Q



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| |  |   |  |                                                                                                                                                                                   
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED MARCH 31, 2003.                                            
| |  |   |  |                                                                                                                                                                                   
| |  |   |  | 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.
(Exact name of Registrant as Specified in its Charter)

|                                                         |  |                                                
|-------------------------------------------------------- |  | -----------------------------------------------
|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
(Address of principal executive offices)

54495-8036
(Zip Code)

(715) 424-3636
(Registrants telephone number, including area code)

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. Yes x No o

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes x No o

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

|                              |  |                              
|----------------------------- |  | -----------------------------
|Class                         |  | Outstanding at
April 30, 2003
|                              |  |                              
|Common Stock, $0.01 par value |  | 30,973,574                   





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TABLE OF CONTENTS



|                                                                                              |                                                                                                    |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION                                                               
|Item 1. Financial Statements                                                                 
|                                                                                              | Condensed Consolidated Balance Sheets at March 31, 2003 and December 31, 2002                     
|                                                                                              | Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2003 and 2002    
|                                                                                              | Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002
|                                                                                              | Notes to Unaudited Condensed Consolidated Financial Statements                                    
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|Item 4. Controls and Procedures                                                              
|Part II  OTHER INFORMATION                                                                  
|Item 6. Exhibits and Reports on Form 8-K                                                     
|EX-99.1 Section 906 Certification                                                            
|EX-99.2 Section 906 Certification                                                            



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##### Table of Contents



RENAISSANCE LEARNING, INC.

INDEX TO FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003

|                               |  |                                                                                                    |  |     
|------------------------------ |  | -------------------------------------------------------------------------------------------------- |  | ----
|PART I - FINANCIAL INFORMATION
|                               |  |                                                                                                    |  | Page
|                               |  |                                                                                                    |  |     
|Item 1.                        |  | Financial Statements                                                                               |  |     
|                               |  |                                                                                                    |  |     
|                               |  | Condensed Consolidated Balance Sheets at March 31, 2003
and December 31, 2002                      |  | 1   
|                               |  |                                                                                                    |  |     
|                               |  | Condensed Consolidated Statements of Income for the Three Months
Ended March 31, 2003 and 2002     |  | 2   
|                               |  |                                                                                                    |  |     
|                               |  | Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2003 and 2002 |  | 3   
|                               |  |                                                                                                    |  |     
|                               |  | Notes to Unaudited Condensed Consolidated Financial Statements                                     |  | 4   
|                               |  |                                                                                                    |  |     
|Item 2.                        |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations              |  | 7   
|                               |  |                                                                                                    |  |     
|Item 3.                        |  | Quantitative and Qualitative Disclosures About
Market Risk                                         |  | 11  
|                               |  |                                                                                                    |  |     
|Item 4.                        |  | Controls and Procedures                                                                            |  | 11  
|                               |  |                                                                                                    |  |     
|PART II - OTHER INFORMATION    | 
|                               |  |                                                                                                    |  |     
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                                   |  | 12  

- 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)

|                                           |                                                                                                                       |                                                                                         |                                      |        |         |                                                    |         |        |                   |   |  | 
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | ------------------------------------ | ------ | ------- | -------------------------------------------------- | ------- | ------ | ----------------- | - |  | 
|                                           |                                                                                                                       |                                                                                         |                                      |        |         | March 31, 2003                                     |         |        | December 31, 2002 |  
|                                           |                                                                                                                       |                                                                                         |                                      |        |         |                                                    |         |        |                   |  
|                                           |                                                                                                                       |                                                                                         |                                      |        |         | (In Thousands, Except Share and Per Share Amounts) |        
|                                           |                                                                                                                       |                                                                                         |                                      | ASSETS |         |                                                    |         |        |                   |   |  | 
|Current assets:                            |                                                                                                                       |                                                                                         |                                      |        |         |                                                    |         |       
|                                           | Cash and cash equivalents                                                                                             |                                                                                         | $                                    | 18,695 |         |                                                    | $       | 18,220 |                  
|                                           | Investment securities                                                                                                 |                                                                                         |                                      | 59,602 |         |                                                    |         | 60,269 |                  
|                                           | Accounts receivable, less allowances of $1,649 in 2003 and $1,654 in 2002                                             |                                                                                         |                                      | 10,731 |         |                                                    |         | 12,619 |                  
|                                           | Inventories                                                                                                           |                                                                                         |                                      | 1,722  |         |                                                    |         | 1,724  |                  
|                                           | Prepaid expenses                                                                                                      |                                                                                         |                                      | 1,209  |         |                                                    |         | 1,411  |                  
|                                           | Deferred tax asset                                                                                                    |                                                                                         |                                      | 3,741  |         |                                                    |         | 3,710  |                  
|                                           | Other current assets                                                                                                  |                                                                                         |                                      | 1,255  |         |                                                    |         | 1,331  |                  
|                                           |                                                                                                                       |                                                                                         |                                      |        |         |                                                   
|                                           |                                                                                                                       | Total current assets                                                                    |                                      |        | 96,955  |                                                    |         |        | 99,284            |  
|Investment securities                      |                                                                                                                       |                                                                                         | 15,917                               |        |         |                                                    | 21,347  |       
|Property, plant and equipment, net         |                                                                                                                       |                                                                                         | 21,897                               |        |         |                                                    | 21,085  |       
|Deferred tax asset                         |                                                                                                                       |                                                                                         | 1,997                                |        |         |                                                    | 1,942   |       
|Goodwill                                   |                                                                                                                       |                                                                                         | 2,313                                |        |         |                                                    | 2,313   |       
|Other intangibles, net                     |                                                                                                                       |                                                                                         | 740                                  |        |         |                                                    | 874     |       
|Capitalized software, net                  |                                                                                                                       |                                                                                         | 583                                  |        |         |                                                    | 659     |       
|Other non-current assets                   |                                                                                                                       |                                                                                         | 34                                   |        |         |                                                    | 107     |       
|                                           |                                                                                                                       |                                                                                         |                                      |        |         |                                                   
|                                           |                                                                                                                       | Total assets                                                                            |                                      | $      | 140,436 |                                                    |         | $      | 147,611           |  
|                                           |                                                                                                                       |                                                                                         |                                      |        |         |                                                   
|                                           |                                                                                                                       |                                                                                         | LIABILITIES AND SHAREHOLDERS EQUITY |        |         |                                                    |         |        |                   |   | 
|Current liabilities:                       |                                                                                                                       |                                                                                         |                                      |        |         |                                                    |         |       
|                                           | Accounts payable                                                                                                      |                                                                                         | $                                    | 3,408  |         |                                                    | $       | 3,643  |                  
|                                           | Deferred revenue                                                                                                      |                                                                                         |                                      | 9,464  |         |                                                    |         | 10,397 |                  
|                                           | Payroll and employee benefits                                                                                         |                                                                                         |                                      | 3,963  |         |                                                    |         | 4,263  |                  
|                                           | Income taxes payable                                                                                                  |                                                                                         |                                      | 3,759  |         |                                                    |         | 2,372  |                  
|                                           | Other current liabilities                                                                                             |                                                                                         |                                      | 4,295  |         |                                                    |         | 4,605  |                  
|                                           |                                                                                                                       |                                                                                         |                                      |        |         |                                                   
|                                           |                                                                                                                       | Total current liabilities                                                               |                                      |        | 24,889  |                                                    |         |        | 25,280            |  
|                                           | Deferred revenue                                                                                                      |                                                                                         |                                      | 777    |         |                                                    |         | 930    |                  
|                                           |                                                                                                                       |                                                                                         |                                      |        |         |                                                   
|                                           |                                                                                                                       | Total liabilities                                                                       |                                      |        | 25,666  |                                                    |         |        | 26,210            |  
|Minority interest                          |                                                                                                                       |                                                                                         | 160                                  |        |         |                                                    | 165     |       
|Shareholders equity:                      |                                                                                                                       |                                                                                         |                                      |        |         |                                                    |         |       
|                                           | Common stock, $.01 par; shares authorized: 150,000,000;
issued: 34,736,647 shares at Dec. 31, 2002 and March 31, 2003 |                                                                                         |                                      | 347    |         |                                                    |         | 347    |                  
|                                           |                                                                                                                       | Additional paid-in capital                                                              |                                      |        | 54,288  |                                                    |         |        | 54,423            |  
|                                           |                                                                                                                       | Retained earnings                                                                       |                                      |        | 123,715 |                                                    |         |        | 116,055           |  
|                                           |                                                                                                                       | Treasury stock, at cost 3,535,073 shares March 31, 2003;
2,737,672 shares Dec. 31, 2002 |                                      |        | (63,560 | )                                                  |         |        | (49,480           | )
|                                           |                                                                                                                       | Accumulated other comprehensive loss                                                    |                                      |        | (180    | )                                                  |         |        | (109              | )
|                                           |                                                                                                                       |                                                                                         |                                      |        |         |                                                   
|                                           |                                                                                                                       | Total shareholders equity                                                              |                                      |        | 114,610 |                                                    |         |        | 121,236           |  
|                                           |                                                                                                                       |                                                                                         |                                      |        |         |                                                   
|Total liabilities and shareholders equity |                                                                                                                       | $                                                                                       | 140,436                              |        |         | $                                                  | 147,611 |       
|                                           |                                                                                                                       |                                                                                         |                                      |        |         |                                                   

See accompanying notes to condensed consolidated financial statements.

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RENAISSANCE LEARNING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)

|                     |                            |                          |        |                                          |        |   |        |        |        | 
|-------------------- | -------------------------- | ------------------------ | ------ | ---------------------------------------- | ------ | - | ------ | ------ | ------ | 
|                     |                            |                          |        | For the Three Months Ended               |       
|                     |                            |                          |        | March 31,                                |       
|                     |                            |                          |        | 2003                                     |        |   | 2002   |       
|                     |                            |                          |        |                                          |        |   |        |       
|                     |                            |                          |        | (In Thousands, Except Per Share Amounts) |       
|Net sales:           |                            |                          |        |                                          |        |   |        |       
|                     | Products                   |                          | $      | 27,190                                   |        |   | $      | 28,885 |       
|                     | Services                   |                          |        | 7,036                                    |        |   |        | 5,804  |       
|                     |                            |                          |        |                                          |        |  
|                     |                            | Total net sales          |        |                                          | 34,226 |   |        |        | 34,689 | 
|                     |                            |                          |        |                                          |        |  
|Cost of sales:       |                            |                          |        |                                          |        |   |        |       
|                     | Products                   |                          |        | 3,169                                    |        |   |        | 2,864  |       
|                     | Services                   |                          |        | 3,356                                    |        |   |        | 3,232  |       
|                     |                            |                          |        |                                          |        |  
|                     |                            | Total cost of sales      |        |                                          | 6,525  |   |        |        | 6,096  | 
|                     |                            |                          |        |                                          |        |  
|                     |                            | Gross profit             |        |                                          | 27,701 |   |        |        | 28,593 | 
|Operating expenses:  |                            |                          |        |                                          |        |   |        |       
|                     | Product development        |                          |        | 4,463                                    |        |   |        | 4,446  |       
|                     | Selling and marketing      |                          |        | 8,102                                    |        |   |        | 8,491  |       
|                     | General and administrative |                          |        | 3,463                                    |        |   |        | 3,963  |       
|                     |                            |                          |        |                                          |        |  
|                     |                            | Total operating expenses |        |                                          | 16,028 |   |        |        | 16,900 | 
|                     |                            |                          |        |                                          |        |  
|                     |                            | Operating income         |        |                                          | 11,673 |   |        |        | 11,693 | 
|Other income:        |                            |                          |        |                                          |        |   |        |       
|                     | Interest income            |                          |        | 555                                      |        |   |        | 862    |       
|                     | Other, net                 |                          |        | 177                                      |        |   |        | 96     |       
|                     |                            |                          |        |                                          |        |  
|Income before taxes  |                            |                          | 12,405 |                                          |        |   | 12,651 |       
|Income tax provision |                            |                          | 4,745  |                                          |        |   | 4,896  |       
|                     |                            |                          |        |                                          |        |  
|Net income           |                            | $                        | 7,660  |                                          |        | $ | 7,755  |       
|                     |                            |                          |        |                                          |        |  
|Earnings per share:  |                            |                          |        |                                          |        |   |        |       
|                     | Basic                      |                          | $      | 0.24                                     |        |   | $      | 0.22   |       
|                     | Diluted                    |                          | $      | 0.24                                     |        |   | $      | 0.22   |       

See accompanying notes to condensed consolidated financial statements.

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RENAISSANCE LEARNING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

|                                                                           |                                                    |                                           |                                                  |                                                |        |                            |        |         |       |         |        |  
|-------------------------------------------------------------------------- | -------------------------------------------------- | ----------------------------------------- | ------------------------------------------------ | ---------------------------------------------- | ------ | -------------------------- | ------ | ------- | ----- | ------- | ------ | -
|                                                                           |                                                    |                                           |                                                  |                                                |        | For the Three Months Ended |       
|                                                                           |                                                    |                                           |                                                  |                                                |        | March 31,                  |       
|                                                                           |                                                    |                                           |                                                  |                                                |        | 2003                       |        |         | 2002  |        
|                                                                           |                                                    |                                           |                                                  |                                                |        |                            |        |         |       |        
|                                                                           |                                                    |                                           |                                                  |                                                |        | (In Thousands)             |       
|Reconciliation of net income to net cash provided by operating activities: |                                                    |                                           |                                                  |                                                |        |                            |        |        
|                                                                           | Net income                                         |                                           | $                                                | 7,660                                          |        |                            | $      | 7,755   |      
|                                                                           | Noncash (income) expenses included in net income - |                                           |                                                  |                                                |        |                            |        |         |      
|                                                                           |                                                    |                                           | Depreciation and amortization                    |                                                |        | 1,099                      |        |         |       | 1,216   |       
|                                                                           |                                                    |                                           | Amortization of investment discounts/premiums    |                                                |        | 500                        |        |         |       | 503     |       
|                                                                           |                                                    |                                           | Deferred income taxes                            |                                                |        | (86                        | )      |         |       | (49     | )     
|                                                                           | Change in assets and liabilities -                 |                                           |                                                  |                                                |        |                            |        |         |      
|                                                                           |                                                    |                                           |                                                  | Accounts receivable                            |        |                            | 1,888  |         |       |         | (3,372 | )
|                                                                           |                                                    |                                           |                                                  | Inventories                                    |        |                            | 2      |         |       |         | 101    |  
|                                                                           |                                                    |                                           |                                                  | Prepaid expenses                               |        |                            | 202    |         |       |         | 124    |  
|                                                                           |                                                    |                                           |                                                  | Accounts payable and other current liabilities |        |                            | 366    |         |       |         | 3,298  |  
|                                                                           |                                                    |                                           |                                                  | Deferred revenue                               |        |                            | (1,086 | )       |       |         | (773   | )
|                                                                           |                                                    |                                           |                                                  | Other current assets                           |        |                            | 75     |         |       |         | (378   | )
|                                                                           |                                                    |                                           |                                                  | Other                                          |        |                            | 2      |         |       |         | 109    |  
|                                                                           |                                                    |                                           |                                                  |                                                |        |                           
|                                                                           |                                                    | Net cash provided by operating activities |                                                  |                                                | 10,622 |                            |        |         | 8,534 |        
|                                                                           |                                                    |                                           |                                                  |                                                |        |                           
|Cash flows from investing activities:                                      |                                                    |                                           |                                                  |                                                |        |                            |        |        
|                                                                           | Purchase of property, plant and equipment          |                                           |                                                  | (1,637                                         | )      |                            |        | (469    | )    
|                                                                           | Purchase of investment securities                  |                                           |                                                  | (14,208                                        | )      |                            |        | (27,004 | )    
|                                                                           | Maturities/sales of investment securities          |                                           |                                                  | 19,805                                         |        |                            |        | 12,941  |      
|                                                                           | Capitalized software development costs             |                                           |                                                  | (69                                            | )      |                            |        | (104    | )    
|                                                                           |                                                    |                                           |                                                  |                                                |        |                           
|                                                                           |                                                    |                                           | Net cash provided (used) by investing activities |                                                |        | 3,891                      |        |         |       | (14,636 | )     
|                                                                           |                                                    |                                           |                                                  |                                                |        |                           
|Cash flows from financing activities:                                      |                                                    |                                           |                                                  |                                                |        |                            |        |        
|                                                                           | Proceeds from issuance of stock                    |                                           |                                                  | 1,047                                          |        |                            |        | 1,066   |      
|                                                                           | Proceeds from exercise of stock options            |                                           |                                                  | 105                                            |        |                            |        | 358     |      
|                                                                           | Purchase of treasury stock                         |                                           |                                                  | (15,190                                        | )      |                            |        |        |      
|                                                                           |                                                    |                                           |                                                  |                                                |        |                           
|                                                                           |                                                    |                                           | Net cash (used) provided by financing activities |                                                |        | (14,038                    | )      |         |       | 1,424   |       
|                                                                           |                                                    |                                           |                                                  |                                                |        |                           
|Net increase (decrease) in cash                                            |                                                    |                                           | 475                                              |                                                |        |                            | (4,678 | )      
|Cash and cash equivalents, beginning of period                             |                                                    |                                           | 18,220                                           |                                                |        |                            | 35,904 |        
|                                                                           |                                                    |                                           |                                                  |                                                |        |                           
|Cash and cash equivalents, end of period                                   |                                                    | $                                         | 18,695                                           |                                                |        | $                          | 31,226 |        
|                                                                           |                                                    |                                           |                                                  |                                                |        |                           

See accompanying notes to condensed consolidated financial statements.

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RENAISSANCE LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.     Consolidation

The condensed consolidated financial statements include the financial
results of Renaissance Learning, Inc. (Renaissance Learning) and our
subsidiaries. Our significant subsidiaries include Renaissance Corporate
Services, Inc. and Generation21 Learning Systems, LLC (Generation21). All
significant intercompany transactions have been eliminated in the condensed
consolidated financial statements.

2.     Basis of Presentation

The condensed consolidated financial statements reflect all adjustments
(consisting only of normal recurring adjustments) which are, in our opinion,
necessary for a fair presentation of the results of the interim periods, and
are presented on an unaudited basis. These financial statements should be read
in conjunction with the financial information contained in our Annual Report on
Form 10-K for the year ended December 31, 2002, which is on file with the U.S.
Securities and Exchange Commission.

The results of operations for the three-month periods ended March 31, 2003
and 2002 are not necessarily indicative of the results to be expected for the
full year.

3.     Earnings Per Common Share

Basic earnings per common share is computed by dividing income available
to common shareholders by the weighted average number of common shares
outstanding during the period. Shares issued and shares reacquired during the
period are weighted for the portion of the period they were outstanding.
Diluted earnings per common share has been computed based on the weighted
average number of common shares outstanding, increased by the number of
additional common shares that would have been outstanding if the dilutive
potential common shares had been issued.

On April 17, 2002, our Board of Directors authorized a new repurchase
program which provides for the repurchase of up to 5,000,000 shares of our
common stock. No time limit was placed on the duration of the repurchase
program. Repurchased shares will become treasury shares and will be used for
stock-based employee benefit plans and for other general corporate purposes.
During the period of January 1, 2003 through March 31, 2003, we repurchased
868,000 shares at a cost of $15.4 million under the current repurchase program.
Through March 31, 2003, the cumulative shares repurchased under the current
program were 3,581,000 at a cost of $64.5 million.

The weighted average shares outstanding are as follows:

|                                            |  |                    |            |  |                    |  |            | 
|------------------------------------------- |  | ------------------ | ---------- |  | ------------------ |  | ---------- | 
|                                            |  | Three Months Ended |            |  | Three Months Ended | 
|                                            |  | March 31, 2003     |            |  | March 31, 2002     | 
|                                            |  |                    |            |  |                    | 
|Basic weighted average shares outstanding   |  |                    | 31,655,298 |  |                    |  | 34,644,242 | 
|Dilutive effect of stock options            |  |                    | 112,282    |  |                    |  | 274,205    | 
|Diluted weighted average shares outstanding |  |                    | 31,767,580 |  |                    |  | 34,918,447 | 

4.     Comprehensive Income

Total comprehensive income was $7,589,000 and $7,604,000 in the first
quarter of 2003 and 2002, respectively. Our comprehensive income includes
foreign currency translation adjustments. In 2002, our comprehensive income
also included the remaining unamortized balance of unrealized gains and losses
on our held-to-maturity securities that were previously classified as
available-for-sale.

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5.     Goodwill and Other Intangible Assets

In accordance with SFAS No. 142 Goodwill and Other Intangible Assets,
goodwill is not amortized but is tested at least annually for impairment. Our
other intangible assets have finite lives and are amortized over their
estimated useful lives of four years for algorithms and software code, and five
years for the non-compete agreement.

For the three months ended March 31, 2003 and 2002, we recognized
amortization expense on other intangibles of $134,000 and $135,000,
respectively. No goodwill or other intangibles were acquired or impaired
during the first quarter of 2003. Other intangibles consisted of the following
(in thousands):

|                             |  |                |       |  |                   |   |       |             |       |   |          |       |  |              |       |  |             |   |       |  |  |   |     | 
|---------------------------- |  | -------------- | ----- |  | ----------------- | - | ----- | ----------- | ----- | - | -------- | ----- |  | ------------ | ----- |  | ----------- | - | ----- |  |  | - | --- | 
|                             |  | March 31, 2003 |       |  | December 31, 2002 |  
|                             |  |                |       |  |                   |  
|                             |  | Gross          |       |  |                   |   |       |             | Other |   |          | Gross |  |              |       |  |             |   | Other | 
|                             |  | Carrying       |       |  | Accumulated       |   |       | Intangibles |       |   | Carrying |       |  | Accumulated  |       |  | Intangibles |  
|                             |  | Amount         |       |  | Amortization      |   |       | Net         |       |   | Amount   |       |  | Amortization |       |  | Net         |  
|                             |  |                |       |  |                   |   |       |             |       |   |          |       |  |              |       |  |             |  
|Algorithms and software code |  | $              | 2,124 |  |                   | $ | 1,961 |             |       | $ | 163      |       |  | $            | 2,124 |  |             | $ | 1,882 |  |  | $ | 242 | 
|Non-compete agreement        |  |                | 1,100 |  |                   |   | 523   |             |       |   | 577      |       |  |              | 1,100 |  |             |   | 468   |  |  |   | 632 | 
|                             |  |                |       |  |                   |   |       |             |       |   |          |       |  |              |       |  |             |  
|Other intangibles            |  | $              | 3,224 |  |                   | $ | 2,484 |             |       | $ | 740      |       |  | $            | 3,224 |  |             | $ | 2,350 |  |  | $ | 874 | 
|                             |  |                |       |  |                   |   |       |             |       |   |          |       |  |              |       |  |             |  

Other intangibles are scheduled to be fully amortized by 2006 with
corresponding amortization estimated to be $261,000, $286,000, and $193,000,
for the remainder of 2003 and the years ended 2004, and 2005, respectively.

6.     Stock Option Plan

We have established the 1997 Stock Incentive Plan for our officers, key
employees, non-employee directors and consultants. Had compensation cost been
determined for our stock option portion of the plan based on the fair value at
the grant dates for awards consistent with the alternative method set forth
under SFAS 123, our net income and earnings per share would have been adjusted
to the pro forma amounts indicated below:

|                    |                                                                                                                    |             |   |                                          |      |  |      |       |      | 
|------------------- | ------------------------------------------------------------------------------------------------------------------ | ----------- | - | ---------------------------------------- | ---- |  | ---- | ----- | ---- | 
|                    |                                                                                                                    |             |   | For the Three Months Ended               |     
|                    |                                                                                                                    |             |   | March 31,                                |     
|                    |                                                                                                                    |             |   | 2003                                     |      |  | 2002 |      
|                    |                                                                                                                    |             |   |                                          |      |  |      |      
|                    |                                                                                                                    |             |   | (In thousands, except per share amounts) |     
|Net Income:         |                                                                                                                    |             |   |                                          |      |  |      |      
|                    | As reported                                                                                                        |             | $ | 7,660                                    |      |  | $    | 7,755 |     
|                    | Deduct: total stock-based compensation
expense determined under fair-value based
method for all awards, net of tax |             |   | 917                                      |      |  |      | 1,107 |     
|                    |                                                                                                                    |             |   |                                          |      | 
|                    | Pro forma                                                                                                          |             | $ | 6,743                                    |      |  | $    | 6,648 |     
|                    |                                                                                                                    |             |   |                                          |      | 
|Earnings per share: |                                                                                                                    |             |   |                                          |      |  |      |      
|                    | Basic:                                                                                                             |             |   |                                          |      |  |      |       |     
|                    |                                                                                                                    | As reported |   | $                                        | 0.24 |  |      | $     | 0.22 | 
|                    |                                                                                                                    | Pro forma   |   |                                          | 0.21 |  |      |       | 0.19 | 
|                    | Diluted:                                                                                                           |             |   |                                          |      |  |      |       |     
|                    |                                                                                                                    | As reported |   | $                                        | 0.24 |  |      | $     | 0.22 | 
|                    |                                                                                                                    | Pro forma   |   |                                          | 0.21 |  |      |       | 0.19 | 

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions for the first quarters of 2003 and 2002 respectively:
dividend yield of 0% and 0%, expected volatility of 77.39% and 81.64%,
risk-free interest rates of 2.97% and 4.63%, and expected lives of 6 years and
6 years for the options.

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7.     Segment Reporting

Our reportable segments are strategic business units that offer different
products and services. We have two reportable segments: software and
training.

Summarized financial information concerning our reportable segments is
shown in the following table:

|                         |  |                    |        |  |      |   |        |  
|------------------------ |  | ------------------ | ------ |  | ---- | - | ------ | -
|                         |  | Three Months Ended |       
|                         |  | March 31,          |       
|                         |  | 2003               |        |  | 2002 |  
|                         |  |                    |        |  |      |  
|                         |  | (In thousands)     |       
|Revenues:                |  |                    |        |  |      |   |        |  
|Software                 |  | $                  | 28,613 |  |      | $ | 29,707 |  
|Training                 |  |                    | 5,613  |  |      |   | 4,982  |  
|                         |  |                    |        |  |      |  
|Total revenues           |  | $                  | 34,226 |  |      | $ | 34,689 |  
|                         |  |                    |        |  |      |  
|Operating income (loss): |  |                    |        |  |      |   |        |  
|Software                 |  | $                  | 11,511 |  |      | $ | 12,528 |  
|Training                 |  |                    | 162    |  |      |   | (835   | )
|                         |  |                    |        |  |      |  
|Total operating income   |  | $                  | 11,673 |  |      | $ | 11,693 |  
|                         |  |                    |        |  |      |  

At this time, revenues derived outside the United States are not material.

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Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations

Results of Operations

The following table sets forth certain consolidated income statement data
in dollars and as a percentage of net sales, except that individual components
of costs of sales and gross profit are shown as a percentage of their
corresponding component of net sales:

|                     |                            |                          |        |                              |        |  |      |      |       |        |        |                        |        |  |      |      |       |   |      |        |      |   |      |       |       |  
|-------------------- | -------------------------- | ------------------------ | ------ | ---------------------------- | ------ |  | ---- | ---- | ----- | ------ | ------ | ---------------------- | ------ |  | ---- | ---- | ----- | - | ---- | ------ | ---- | - | ---- | ----- | ----- | -
|                     |                            |                          |        | Three Months Ended March 31, |        |  |      |      |       |        |        |                        |       
|                     |                            |                          |        |                              |        |  |      |      |       |        |        |                        |       
|                     |                            |                          |        | 2003                         |        |  | 2002 |      |       | Change |       
|                     |                            |                          |        |                              |        |  |      |      |       |        |       
|                     |                            |                          |        |                              |        |  |      |      |       |        |        | (Dollars In Thousands) |        |  |      |      |       |   |      |        |     
|Net Sales:           |                            |                          |        |                              |        |  |      |      |       |        |        |                        |        |  |      |      |       |   |      |        |      |   |      |      
|                     | Products                   |                          | $      | 27,190                       |        |  |      | 79.4 | %     |        | $      | 28,885                 |        |  |      | 83.3 | %     |   | $    | (1,695 | )    |   |      | -5.9  | %    
|                     | Services                   |                          |        | 7,036                        |        |  |      | 20.6 | %     |        |        | 5,804                  |        |  |      | 16.7 | %     |   |      | 1,232  |      |   |      | 21.2  | %    
|                     |                            |                          |        |                              |        |  |      |      |       |        |        |                        |        |  |      |      |       |   |     
|                     |                            | Total net sales          |        |                              | 34,226 |  |      |      | 100.0 | %      |        |                        | 34,689 |  |      |      | 100.0 | % |      |        | (463 | ) |      |       | -1.3  | %
|                     |                            |                          |        |                              |        |  |      |      |       |        |        |                        |        |  |      |      |       |   |     
|Cost of sales:       |                            |                          |        |                              |        |  |      |      |       |        |        |                        |        |  |      |      |       |   |      |        |      |   |      |      
|                     | Products                   |                          |        | 3,169                        |        |  |      | 11.7 | %     |        |        | 2,864                  |        |  |      | 9.9  | %     |   |      | 305    |      |   |      | 10.6  | %    
|                     | Services                   |                          |        | 3,356                        |        |  |      | 47.7 | %     |        |        | 3,232                  |        |  |      | 55.7 | %     |   |      | 124    |      |   |      | 3.8   | %    
|                     |                            |                          |        |                              |        |  |      |      |       |        |        |                        |        |  |      |      |       |   |      |        |     
|                     |                            | Total cost of sales      |        |                              | 6,525  |  |      |      | 19.1  | %      |        |                        | 6,096  |  |      |      | 17.6  | % |      |        | 429  |   |      |       | 7.0   | %
|                     |                            |                          |        |                              |        |  |      |      |       |        |        |                        |        |  |      |      |       |   |      |        |     
|Gross profit:        |                            |                          |        |                              |        |  |      |      |       |        |        |                        |        |  |      |      |       |   |      |        |      |   |      |      
|                     | Products                   |                          |        | 24,021                       |        |  |      | 88.3 | %     |        |        | 26,021                 |        |  |      | 90.1 | %     |   |      | (2,000 | )    |   |      | -7.7  | %    
|                     | Services                   |                          |        | 3,680                        |        |  |      | 52.3 | %     |        |        | 2,572                  |        |  |      | 44.3 | %     |   |      | 1,108  |      |   |      | 43.1  | %    
|                     |                            |                          |        |                              |        |  |      |      |       |        |        |                        |        |  |      |      |       |   |      |        |     
|                     |                            | Total gross profit       |        |                              | 27,701 |  |      |      | 80.9  | %      |        |                        | 28,593 |  |      |      | 82.4  | % |      |        | (892 | ) |      |       | -3.1  | %
|                     |                            |                          |        |                              |        |  |      |      |       |        |        |                        |        |  |      |      |       |   |      |        |     
|Operating expenses:  |                            |                          |        |                              |        |  |      |      |       |        |        |                        |        |  |      |      |       |   |      |        |      |   |      |      
|                     | Product development        |                          |        | 4,463                        |        |  |      | 13.0 | %     |        |        | 4,446                  |        |  |      | 12.8 | %     |   |      | 17     |      |   |      | 0.4   | %    
|                     | Selling and marketing      |                          |        | 8,102                        |        |  |      | 23.7 | %     |        |        | 8,491                  |        |  |      | 24.5 | %     |   |      | (389   | )    |   |      | -4.6  | %    
|                     | General and administrative |                          |        | 3,463                        |        |  |      | 10.1 | %     |        |        | 3,963                  |        |  |      | 11.4 | %     |   |      | (500   | )    |   |      | -12.6 | %    
|                     |                            |                          |        |                              |        |  |      |      |       |        |        |                        |        |  |      |      |       |   |      |        |     
|                     |                            | Total operating expenses |        |                              | 16,028 |  |      |      | 46.8  | %      |        |                        | 16,900 |  |      |      | 48.7  | % |      |        | (872 | ) |      |       | -5.2  | %
|                     |                            |                          |        |                              |        |  |      |      |       |        |        |                        |        |  |      |      |       |   |      |        |     
|                     |                            | Operating income         |        |                              | 11,673 |  |      |      | 34.1  | %      |        |                        | 11,693 |  |      |      | 33.7  | % |      |        | (20  | ) |      |       | -0.2  | %
|Other income:        |                            |                          |        |                              |        |  |      |      |       |        |        |                        |        |  |      |      |       |   |      |        |      |   |      |      
|                     | Interest income            |                          |        | 555                          |        |  |      | 1.6  | %     |        |        | 862                    |        |  |      | 2.5  | %     |   |      | (307   | )    |   |      | -35.6 | %    
|                     | Other, net                 |                          |        | 177                          |        |  |      | 0.5  | %     |        |        | 96                     |        |  |      | 0.3  | %     |   |      | 81     |      |   |      | 84.4  | %    
|                     |                            |                          |        |                              |        |  |      |      |       |        |        |                        |        |  |      |      |       |   |      |        |     
|                     |                            | Total other income       |        |                              | 732    |  |      |      | 2.1   | %      |        |                        | 958    |  |      |      | 2.8   | % |      |        | (226 | ) |      |       | -23.6 | %
|                     |                            |                          |        |                              |        |  |      |      |       |        |        |                        |        |  |      |      |       |   |      |        |     
|Income before taxes  |                            |                          | 12,405 |                              |        |  | 36.2 | %    |       |        | 12,651 |                        |        |  | 36.5 | %    |       |   | (246 | )      |      |   | -1.9 | %    
|Income tax provision |                            |                          | 4,745  |                              |        |  | 13.9 | %    |       |        | 4,896  |                        |        |  | 14.1 | %    |       |   | (151 | )      |      |   | -3.1 | %    
|                     |                            |                          |        |                              |        |  |      |      |       |        |        |                        |        |  |      |      |       |   |      |        |     
|Net income           |                            | $                        | 7,660  |                              |        |  | 22.4 | %    |       | $      | 7,755  |                        |        |  | 22.4 | %    |       | $ | (95  | )      |      |   | -1.2 | %    
|                     |                            |                          |        |                              |        |  |      |      |       |        |        |                        |        |  |      |      |       |   |      |        |     

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Three Months Ended March 31, 2003 and 2002

Net Sales. Our net sales decreased by $463,000, or 1.3%, to $34.2 million
in the first quarter of 2003 from $34.7 million in the first quarter of 2002.
Product sales decreased by $1.7 million, or 5.9%, to $27.2 million in the first
quarter of 2003 from $28.9 million in the first quarter of 2002. Revenues
decreased for nearly all of our established products due to the continued
negative trend in the school funding environment which has resulted in lowered
demand for our products. Sales of our six new products, which were introduced
in 2002, were not sufficient to fully offset the decline in revenues from our
established products.

Service revenue, which consists of revenue from sales of training
sessions, our annual National Conference, and software support agreements, for
the first quarter of 2003 was $7.0 million, an increase of $1.2 million from
the first quarter 2002 revenues of $5.8 million. Both software support
agreement revenues, and revenues from training sessions (which include the
National Conference), grew by slightly more than 20% over the first quarter
2002. Our training business benefited from increased levels of school
districts under contract for professional development services. Additionally,
software support revenues have remained strong despite the market downturn as
our customers continue to renew support plans on products they have previously
purchased.

We are expecting second quarter sales to be approximately flat compared to
our prior year sales as school funding pressures are anticipated to continue.
For the full year 2003, we continue to expect slight growth in sales and
earnings with the growth in the second half of the year coming from new
products and the expansion of our field sales force. Accelerated Grammar and
Spellingis expected to be ready to ship by the beginning of the 2003-2004
school year. Accelerated Grammar and Spelling, which replaces our Perfect Copy
software product, provides teachers with information to closely monitor
students progress in writing skills, including grammar, usage, mechanics, and
spelling.

Cost of Sales. The cost of sales of products increased by $305,000, or
10.6%, to $3.2 million in the first quarter of 2003 from $2.9 million in the
first quarter of 2002. As a percentage of product sales, the cost of sales of
products increased to 11.7% in the first quarter of 2003 from 9.9% in the first
quarter of 2002. This increase is partly due to a slight reduction in scanner
profitability. We reduced the pricing on our new scanner model twice during
2002. The cost of sales of services increased by $124,000, or 3.8%, to $3.4
million in the first quarter of 2003 from $3.2 million in the first quarter of
2002. As a percentage of sales of services, the cost of sales of services
decreased to 47.7% in the first quarter of 2003 from 55.7% in the first quarter
of 2002. This decrease is mainly attributable to lower costs at our annual
National Renaissance Conference held in Nashville versus costs in San Antonio
last year. Our overall gross profit margin was 80.9% in the first quarter of
2003, compared to 82.4% in the first quarter of 2002. This decline in gross
profit margin is primarily related to services making up a larger portion of
the total sales for the first quarter in 2003 as compared to 2002.

Product Development. Product development expenses were $4.5 million in
the first quarter of 2003, which was essentially flat compared to the first
quarter of 2002. We continue to invest in product development related to (i)
the development of additional Accelerated Readerquizzes, StandardsMaster
content, and content libraries for our other software products, (ii) enhanced
versions of our existing products, (iii) new products at various stages of
development which we expect to announce in the future, and (iv) the development
of tools to increase the efficiency of product development. As a percentage of
net sales, product development costs increased to 13.0% in the first quarter of
2003 from 12.8% in the first quarter of 2002 primarily due to the decline in
sales. We expect product development costs to continue at approximately the
same level as first quarter 2003 for the near-term.

Selling and Marketing. Selling and marketing expenses of $8.1 million in
the first quarter of 2003 were down by $389,000, or 4.6%, from $8.5 million in
the first quarter of 2002. As a percentage of net sales, selling and marketing
expenses decreased to 23.7% in the first quarter of 2003 from 24.5% in the
first quarter of 2002. The reduction in selling and marketing expenses was the
result of increased internal efficiencies including the consolidation of our
inside sales forces of our K-12 training and software businesses. Second
quarter 2003 selling and marketing costs are expected to be at approximately
the same level as the second quarter 2002.

General and Administrative. General and administrative expenses decreased
by $500,000, or 12.6%, to $3.5 million in the first quarter of 2003 from $4.0
million in the first quarter of 2002. These costs, which represent the
expected approximate level of quarterly general and administrative costs over
the near-term, were lower than last year due to some increased wages and
related benefit costs, and higher professional fees in the first quarter 2002.
As a percentage of net sales, general and administrative costs decreased to
10.1% in the first quarter of 2003 compared to 11.4% in the first quarter of
2002.

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Operating Income. Operating income remained relatively constant at $11.7
million in the first quarter of 2003, the same as reported in the first quarter
of 2002. As a percentage of net sales, operating income increased to 34.1% in
the first quarter of 2003 compared to 33.7% in the first quarter of 2002.

Income Tax Expense. Income tax expense of $4.7 million was recorded in
the first quarter of 2003 at an effective income tax rate of 38.3% of pre-tax
income, compared to $4.9 million, or 38.7% of pre-tax income in the first
quarter of 2002. We expect to maintain our effective tax rate at or below
38.5% for the balance of 2003.

Liquidity and Capital Resources

As of March 31, 2003, our cash, cash equivalents and investment securities
were $94.2 million, down $5.6 million from the December 31, 2002 total of $99.8
million. The decrease of $5.6 million in the first quarter of 2003 is
primarily due to $10.6 million in net cash provided by operating activities
offset by cash paid for stock repurchases of $15.2 million during the first
quarter of 2003. Our operating cash flow during the first quarter of 2003
benefited from exceptionally strong accounts receivable collections and
favorable timing of contract payment terms on district contracts. We believe
our strong cash position coupled with cash flow from operations will be
sufficient to meet both our short-term and long-term working capital
requirements.

At March 31, 2003, we had a $15.0 million unsecured revolving line of
credit with a bank that is available until March 31, 2004. The line of credit
bears interest at either a floating rate based on the prime rate less 1.0%, or
a fixed rate for a period of up to 90 days based on LIBOR plus 1.25%. The rate
is at our option and is determined at the time of borrowing. We also have a
$2.0 million unsecured revolving line of credit with a bank, which is available
until April 30, 2004. The line of credit bears interest based on the prime
rate less 1.0%. As of March 31, 2003, the lines of credit had not been used.

On April 17, 2002, our Board of Directors authorized the repurchase of up
to 5,000,000 shares of our common stock. No time limit was placed on the
duration of the repurchase program. Repurchased shares will become treasury
shares and will be used for stock-based employee benefit plans and for other
general corporate purposes. During the period of January 1, 2003 through March
31, 2003, we repurchased 868,000 shares at a cost of $15.4 million under this
repurchase program. Subsequently, during the period of April 1 through April
30, 2003, we repurchased 258,000 shares at a cost of $4.7 million.

Off-Balance Sheet Arrangements

We do not utilize any special purpose entities or other off-balance sheet
arrangements.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make judgments, estimates and assumptions that affect the amounts
reported in the financial statements. Actual results could differ from those
estimates. We have not made any changes in judgments, estimates or assumptions
since December 31, 2002 that had a significant effect on the reported amounts.
The following represents a summary of our critical accounting policies defined
as those policies that we believe are the most important to the portrayal of
our financial condition and results of operations and/or require managements
significant judgments and estimates.

Revenue Recognition.We recognize revenue in accordance with Statement of
Position No. 97-2 Software Revenue Recognition issued by the Accounting
Standards Executive Committee of the AICPA. Under this accounting standard,
revenue is recognized when the following have occurred: persuasive evidence of
an arrangement exists, product delivery and acceptance has occurred or a
service has been performed, pricing is fixed and determinable, and
collectibility is probable. Revenue is recognized as follows: (i) at the time
of shipment to customers for off-the-shelf software products and related
telephone support with a duration of 12 months or less sold with the product,
(ii) on the percentage of completion basis for software products which require
significant customization or modification, (iii) as seminars are performed for
training, (iv) straight-line over the term of the support agreement for
separately sold software support agreements, and (v) as the service is
performed or on a straight-line basis over the contractual period for
consulting services, and (vi) straight-line over the subscription period for
subscription based products. Accordingly, management is required to make
judgments as to whether pricing is fixed and determinable, whether
collectibility is reasonably assured and the percentage of completion as of the
financial reporting date.

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Expenses are recognized and matched against revenues for the reporting
period presented in the financial statements. We record accruals for sales
returns and doubtful accounts at the time of revenue recognition based upon
historical experience. Changes in such allowances may be required if future
returns or bad debt activity differs from historical experience.

Impairment of Long-Lived Assets.We evaluate the recoverability of the
carrying amount of long-lived assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be fully
recoverable. We evaluate the recoverability of goodwill and other intangible
assets with indefinite useful lives annually or more frequently if events or
circumstances indicate that an asset may be impaired. Management uses
judgement when applying impairment rules to determine when an impairment test
is necessary. Examples of factors which could trigger an impairment review
include a significant decrease in the market value of an asset, a significant
change in the extent or manner in which an asset is used, and significant
adverse changes in legal factors or the business climate that impact the value
of an asset.

Impairment losses are measured as the amount by which the carrying value
of an asset exceeds its estimated fair value. We are required to make
estimates of future cash flows related to the asset subject to review. These
forecasts require assumptions about demand for our products and services,
future market conditions and technological developments. Other assumptions
include determining the discount rate and future growth rates. Changes to
these assumptions could result in an impairment charge in future periods.

Software Support and Warranty Obligations.We record a liability for the
estimated cost of software support and warranty obligations at the time of
sale. Estimated costs are based upon our historical cost experience of
fulfilling these obligations as well as other factors that in our judgment
could reasonably be expected to affect those costs, such as trends in the cost
of providing telephone support and anticipated hardware warranty claim rates.
If the actual costs of fulfilling these obligations differ from our estimates,
it could result in additional charges to cost of sales in future periods.

Software Development Costs.We capitalize certain software development
costs incurred after technological feasibility is achieved. Capitalized
software development costs are amortized on a product-by-product basis using
the straight-line method over the estimated economic life of the products,
which is generally estimated to be 24 months. Amortization begins when the
products are available for general release to customers. If the actual
economic life of our products is shorter than our estimates, it could result in
an impairment charge in future periods.

Taxes.At the end of each interim reporting period, we estimate the
effective income tax rate expected to be applicable for the full fiscal year.
The estimated effective income tax rate contemplates the expected jurisdiction
where income is earned (e.g., United States compared to non-United States) as
well as tax planning strategies. If the actual distribution of taxable income
by jurisdiction varies from our expectations or if the results of tax planning
strategies are different from our estimates, adjustments to the effective
income tax rate may be required in the period such determination is made.

We record a liability for potential tax assessments based on our estimate
of the potential exposure. Due to the subjectivity and complex nature of the
underlying issues, actual payments or assessments may differ from estimates and
require tax provision adjustments in future periods.

Forward-Looking Statements

In accordance with the Private Securities Litigation Reform Act of 1995,
we can obtain a safe-harbor for forward-looking statements by identifying
those statements and by accompanying those statements with cautionary
statements which identify factors that could cause actual results to differ
materially from those in the forward-looking statements. Accordingly, the
foregoing Managements Discussion and Analysis of Financial Condition and
Results of Operations contains certain forward-looking statements relating to
growth plans, projected sales, revenues, earnings and costs, and product
development schedules and plans. Our actual results may differ materially from
those contained in the forward-looking statements herein. Factors which may
cause such a difference to occur include (i) a delay or reduction in school
purchases of our products due to state budgetary constraints resulting in a
reduction in the funds available to schools and (ii) those factors identified
in Item 1, Business, Forward-Looking Statements, contained in our Form 10-K for
the year ended December 31, 2002, which factors are incorporated herein by
reference to such Form 10-K.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk. Our exposure to market interest rate risk consists
of: (i) the increase or decrease in the amount of interest income we can earn
on our investment portfolio, and (ii) the decrease or increase in value of our
investment security portfolio if market interest rates increase or decrease,
respectively. We anticipate that we will have sufficient liquidity to hold our
investments to maturity, therefore, we do not expect to recognize any material
losses or gains related to an increase or decrease in market interest rates.

Market Risk.Our exposure to market risk relates to the quality of the
holdings in our investment security portfolio. The fair market value of our
investments is subject to increases or decreases in value resulting from the
performance of the securities issuer and from upgrades or downgrades in the
credit worthiness of the securities issuer. We seek to manage our exposure to
market risk by investing according to our board-approved investment policy
which has the following goals: (i) preservation of capital, (ii) provision of
adequate liquidity to meet projected cash requirements, (iii) minimization of
risk of principal loss through diversified short and medium term investments,
and (iv) maximization of yields in relationship to the guidelines, risk, market
conditions and tax considerations.

Our investment policy specifically defines that our investments (i) have a
maximum maturity of 36 months or less, (ii) meet a minimum portfolio liquidity
requirement that 10% of the portfolio shall be available on 30 days notice and
not more than 30% of the portfolio will have a maturity in excess of 24 months,
(iii) meet minimum credit quality requirements specified in the plan based on
the type of investment, (iv) meet the concentration limit of not more than 10%
in any one issuer other than the US Treasury or its agencies, or money market
funds, and (v) meet certain maximum maturity or tender option limits based on
the issuers credit rating. As of March 31, 2003 our investment securities had
a market value of approximately $76,020,000 and a carrying value of
$75,519,000.

Our investment policy parameters preclude investment in equity securities
and require that the Board of Directors review the policy annually and on an
interim basis as required.

Foreign Currency Exchange Rate Risk.The financial position and results
of operations of our foreign subsidiaries are measured using local currency.
Revenues and expenses of such subsidiaries have been translated into U.S.
dollars at average exchange rates prevailing during the period. Assets and
liabilities have been translated at the rates of exchange at the balance sheet
date. Translation gains or losses are deferred as a separate component of
shareholders equity. Aggregate foreign currency transaction gains and losses
are included in determining net income. As such, our operating results are
affected by fluctuations in the value of the U.S. dollar compared to the
Australian dollar, British pound, Canadian dollar, and Indian Rupee. At this
time, foreign operations are not material.




Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our reports filed under the
Securities Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the Securities and
Exchange Commission, and that such information is accumulated and communicated
to our management, including our Chief Executive Officer (CEO) and Chief
Financial Officer (CFO), as appropriate, to allow timely decisions regarding
required disclosures. In designing and evaluating the companys disclosure
controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control procedures and management
was necessarily required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.

Within 90 days prior to the filing date of this report, an evaluation was
performed under the supervision and with the participation of management,
including our CEO and CFO, of the effectiveness of the design and operation of
our disclosure controls and procedures. Based on that evaluation, management,
including the CEO and CFO, concluded that our disclosure controls and
procedures are effective to ensure that information required to be disclosed by
us in reports that we file or submit under the Securities Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission. There have
been no significant changes in our internal controls or in other factors that
could significantly affect these controls subsequent to the evaluation,
including any corrective actions with regard to significant deficiencies or
material weaknesses.

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Part II  OTHER INFORMATION




Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits.

|            |  |                                               
|----------- |  | ----------------------------------------------
|Exhibit No. |  | Description                                   
|            |  |                                               
|99.2        |  | Section 906 certification by Terrance D. Paul 
|99.2        |  | Section 906 certification by Steven A. Schmidt

(b)  Forms 8-K. The following Form 8-K filing was made during the three months
ended March 31, 2003:

1.     Form 8-K dated January 29, 2003 (filed on January 30, 2003).
Press release regarding financial results for the fourth quarter and year
ended December 31, 2002.

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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.

| |  |              |  |                                                       
| |  | ------------ |  | ------------------------------------------------------
| |  |              |  | RENAISSANCE LEARNING, INC.                            
| |  |              |  | (Registrant)                                          
| |  |              |  |                                                       
| |  | May 12, 2003 |  | /s/ Terrance D. Paul                                  
| |  |              |  |                                                       
| |  | Date         |  | Terrance D. Paul                                      
| |  |              |  | Chief Executive Officer                               
| |  |              |  | (Principal Executive Officer)                         
| |  |              |  |                                                       
| |  | May 12, 2003 |  | /s/ Steven A. Schmidt                                 
| |  |              |  |                                                       
| |  | Date         |  | Steven A. Schmidt                                     
| |  |              |  | Secretary, Vice President, and Chief Financial Officer
| |  |              |  | (Principal Financial and Accounting Officer)          

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Section 302 Certification of Periodic Report

I, Terrance D. Paul, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Renaissance Learning,
Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 12, 2003



| | /s/ Terrance D. Paul

Terrance D. Paul
Chief Executive Officer
| | --------------------------------------------------------------

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Section 302 Certification of Periodic Report

I, Steven A. Schmidt, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Renaissance Learning,
Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 12, 2003



| | /s/ Steven A. Schmidt

Steven A. Schmidt
Chief Financial Officer, Secretary and Vice President
| | ----------------------------------------------------------------------------------------------

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Index to Exhibits

|            |  |                                               
|----------- |  | ----------------------------------------------
|Exhibit No. |  | Description                                   
|            |  |                                               
|99.1        |  | Section 906 certification by Terrance D. Paul 
|99.2        |  | Section 906 certification by Steven A. Schmidt

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