##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2007.
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 FOR
THE TRANSITION PERIOD FROMTO
 Commission file number: 0-22187
 RENAISSANCE LEARNING, INC.
  Wisconsin
(State or other 
jurisdiction of incorporation)
    
    39-1559474
(I.R.S. Employer
Identification No.)
 2911 Peach Street
P.O. Box 8036
Wisconsin Rapids, Wisconsin
 54495-8036
 (715) 424-3636
 þ o
  o þ o
 o þ
  Outstanding atClass
    
    
    April 30, 2007Common Stock, $0.01 par value
    
    
    29,054,424




---



##### 



RENAISSANCE LEARNING, INC.
 INDEX TO FORM 10-Q
 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007
  
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets at March 31, 2007 and
December 31, 2006
    
    
    1Condensed Consolidated Statements of Income for the Three Months
Ended March 31, 2007 and 2006
    
    
    2Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2007 and 2006
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    7Item 3. Quantitative and Qualitative Disclosures About
Market Risk
    
    
    10Item 4. Controls and Procedures
    
    
    11PART II  OTHER INFORMATIONItem 1A. Risk Factors
    
    
    11Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    11Item 6. Exhibits
    
    
    12Fifth Amendment to Credit AgreementSection 302 CertificationSection 302 CertificationSection 906 CertificationSection 906 Certification




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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,
    
    
    December 31,2007
    
    
    2006(In Thousands, Except Share and PerShare Amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    22,123
    
    
    $
    25,978Investment securities
    
    
    2,005
    
    
    
    2,500Accounts receivable, less allowances of $1,068 and $1,133, respectively
    
    
    11,387
    
    
    
    10,528Inventories
    
    
    5,395
    
    
    
    4,108Prepaid expenses
    
    
    1,880
    
    
    
    1,895Income taxes receivable
    
    
    3,316
    
    
    
    4,104Deferred tax asset
    
    
    3,596
    
    
    
    3,596Other current assets
    
    
    140
    
    
    
    97Total current assets
    
    
    49,842
    
    
    
    52,806Investment securities
    
    
    6,592
    
    
    
    1,625Property, plant and equipment, net
    
    
    11,541
    
    
    
    11,811Goodwill
    
    
    46,977
    
    
    
    46,973Other intangibles, net
    
    
    5,975
    
    
    
    6,124Capitalized software, net
    
    
    608
    
    
    
    727Other non-current assets
    
    
    167
    
    
    
    457Total assets
    
    $
    121,702
    
    
    $
    120,523LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,905
    
    
    $
    2,782Deferred revenue
    
    
    23,731
    
    
    
    23,751Payroll and employee benefits
    
    
    4,092
    
    
    
    4,750Other current liabilities
    
    
    3,663
    
    
    
    3,429Total current liabilities
    
    
    35,391
    
    
    
    34,712Deferred revenue
    
    
    1,357
    
    
    
    885Deferred compensation and other employee benefits
    
    
    1,693
    
    
    
    1,665Deferred tax liability
    
    
    875
    
    
    
    878Income taxes payable
    
    
    3,083
    
    
    
    2,812Total liabilities
    
    
    42,399
    
    
    
    40,952Shareholders equity:Common
stock, $.01 par; shares authorized: 150,000,000; issued: 34,736,647 shares
at March 31, 2007 and December 31, 2006
    
    
    347
    
    
    
    347Additional paid-in capital
    
    
    55,431
    
    
    
    55,542Retained earnings
    
    
    123,884
    
    
    
    124,290Treasury stock, at cost: 5,709,162 shares at March 31, 2007
5,733,130 shares at December 31, 2006
    
    
    (98,793
    )
    
    
    (99,265
    )Unearned restricted stock compensation
    
    
    (1,651
    )
    
    
    (1,417
    )Accumulated other comprehensive income
    
    
    85
    
    
    
    74Total shareholders equity
    
    
    79,303
    
    
    
    79,571Total liabilities and shareholders equity
    
    $
    121,702
    
    
    $
    120,523
  - 1 -




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##### Table of Contents



RENAISSANCE LEARNING, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (unaudited)
 Three MonthsEnded March 31,2007
    
    
    2006(In Thousands, Except Per Share Amounts)Net sales:Products
    
    $
    21,701
    
    
    $
    25,323Services
    
    
    4,987
    
    
    
    5,794Total net sales
    
    
    26,688
    
    
    
    31,117Cost of sales:Products
    
    
    3,703
    
    
    
    4,328Services
    
    
    2,867
    
    
    
    2,806Total cost of sales
    
    
    6,570
    
    
    
    7,134Gross profit
    
    
    20,118
    
    
    
    23,983Operating expenses:Product development
    
    
    5,065
    
    
    
    4,182Selling and marketing
    
    
    9,406
    
    
    
    9,356General and administrative
    
    
    3,842
    
    
    
    5,205Total operating expenses
    
    
    18,313
    
    
    
    18,743Operating income
    
    
    1,805
    
    
    
    5,240Other income, net
    
    
    302
    
    
    
    282Income before taxes
    
    
    2,107
    
    
    
    5,522Income taxes
    
    
    790
    
    
    
    2,043Net Income
    
    $
    1,317
    
    
    $
    3,479Earnings per share:Basic
    
    $
    0.05
    
    
    $
    0.12Diluted
    
    $
    0.05
    
    
    $
    0.12Cash dividends declared per share
    
    $
    0.05
    
    
    $
    0.05
  - 2 -




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##### Table of Contents



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

(unaudited)
 For the Three Months EndedMarch 31,2007
    
    
    2006(In Thousands)Reconciliation of net income to net cash provided by operating activities:Net income
    
    $
    1,317
    
    
    $
    3,479Adjustments to arrive at cash provided by operating activities:Depreciation and amortization
    
    
    957
    
    
    
    895Amortization of investment discounts/premiums
    
    
    2
    
    
    
    58Share-based compensation expense
    
    
    330
    
    
    
    158Deferred income taxes
    
    
    (3
    )
    
    
    154Loss on sale of property
    
    
    5
    
    
    
    Excess tax benefits from share based payment arrangements
    
    
    
    
    
    
    (393
    )Change in assets and liabilities, excluding the effects of acquisitions and divestitures:Accounts receivable
    
    
    (859
    )
    
    
    (402
    )Inventories
    
    
    (1,287
    )
    
    
    683Prepaid expenses
    
    
    36
    
    
    
    (65
    )Income taxes
    
    
    788
    
    
    
    (414
    )Accounts payable and other liabilities
    
    
    620
    
    
    
    1,857Deferred revenue
    
    
    452
    
    
    
    (2,629
    )Other current assets
    
    
    (43
    )
    
    
    120Other
    
    
    268
    
    
    
    (66
    )Net cash provided by operating activities
    
    
    2,583
    
    
    
    3,435Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (416
    )
    
    
    (553
    )Purchase of investment securities
    
    
    (5,867
    )
    
    
    (222
    )Maturities/sales of investment securities
    
    
    1,500
    
    
    
    4,180Net cash (used) provided by investing activities
    
    
    (4,783
    )
    
    
    3,405Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    
    
    
    
    16Payment for cancellation of stock options
    
    
    
    
    
    
    (993
    )Excess tax benefits from share based payment arrangements
    
    
    
    
    
    
    393Dividends paid
    
    
    (1,451
    )
    
    
    (1,505
    )Purchase of treasury stock
    
    
    (204
    )
    
    
    (5,934
    )Net cash used by financing activities
    
    
    (1,655
    )
    
    
    (8,023
    )Net decrease in cash and cash equivalents
    
    
    (3,855
    )
    
    
    (1,183
    )Cash and cash equivalents, beginning of period
    
    
    25,978
    
    
    
    7,083Cash and cash equivalents, end of period
    
    $
    22,123
    
    
    $
    5,900
  - 3 -




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##### Table of Contents



RENAISSANCE LEARNING, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 1. Consolidation
  2. Basis of Presentation
   3. Earnings Per Common Share
   Three Months EndedMarch 31,2007
    
    2006Basic weighted average shares outstanding
    
    
    28,858,799
    
    
    
    30,144,940Dilutive effect of outstanding stock options
    
    
    6,004
    
    
    
    20,995Dilutive effect of restricted shares
    
    
    16,473
    
    
    
    60Diluted weighted average shares outstanding
    
    
    28,881,276
    
    
    
    30,165,995
  4. Comprehensive Income
  5. Goodwill and Other Intangible Assets
  - 4 -




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##### Table of Contents



March 31, 2007
    
    
    December 31, 2006Gross
    
    
    Accumulated
    
    
    
    
    
    
    Gross
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    NetTradename
    
    $
    3,000
    
    
    $
    
    
    
    $
    3,000
    
    
    $
    3,000
    
    
    $
    
    
    
    $
    3,000Customer relationships
    
    
    4,150
    
    
    
    1,175
    
    
    
    2,975
    
    
    
    4,150
    
    
    
    1,026
    
    
    
    3,124$
    7,150
    
    
    $
    1,175
    
    
    $
    5,975
    
    
    $
    7,150
    
    
    $
    1,026
    
    
    $
    6,124
 6. Share Based Compensation
     Weighted Average
    
    
    AggregateShares
    
    
    Value Per Share
    
    
    Intrinsic Value(In Thousands, except per share amount)Balance at January 1, 2007
    
    
    132
    
    
    $
    15.31
    
    
    $
    2,337Granted
    
    
    43
    
    
    
    14.21Vested
    
    
    
    *
    
    
    15.24Forfeitures
    
    
    (6
    )
    
    
    14.91Balance at March 31, 2007
    
    
    169
    
    
    $
    15.04
    
    
    $
    2,224
 
 *
    
    Rounds to less than 1,000 shares. 7. Dividends
  - 5 -




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8. Income Taxes
     - 6 -




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Results of Operations
     Three Months Ended March 31,2007
    
    
    2006
    
    
    Change(Dollars In Thousands)Net Sales:Products
    
    $
    21,701
    
    
    
    81.3
    %
    
    $
    25,323
    
    
    
    81.4
    %
    
    $
    (3,622
    )
    
    
    -14.3
    %Services
    
    
    4,987
    
    
    
    18.7
    %
    
    
    5,794
    
    
    
    18.6
    %
    
    
    (807
    )
    
    
    -13.9
    %Total net sales
    
    
    26,688
    
    
    
    100.0
    %
    
    
    31,117
    
    
    
    100.0
    %
    
    
    (4,429
    )
    
    
    -14.2
    %Cost of sales:Products
    
    
    3,703
    
    
    
    17.1
    %
    
    
    4,328
    
    
    
    17.1
    %
    
    
    (625
    )
    
    
    -14.4
    %Services
    
    
    2,867
    
    
    
    57.5
    %
    
    
    2,806
    
    
    
    48.4
    %
    
    
    61
    
    
    
    2.2
    %Total cost of sales
    
    
    6,570
    
    
    
    24.6
    %
    
    
    7,134
    
    
    
    22.9
    %
    
    
    (564
    )
    
    
    -7.9
    %Gross profit:Products
    
    
    17,998
    
    
    
    82.9
    %
    
    
    20,995
    
    
    
    82.9
    %
    
    
    (2,997
    )
    
    
    -14.3
    %Services
    
    
    2,120
    
    
    
    42.5
    %
    
    
    2,988
    
    
    
    51.6
    %
    
    
    (868
    )
    
    
    -29.0
    %Total gross profit
    
    
    20,118
    
    
    
    75.4
    %
    
    
    23,983
    
    
    
    77.1
    %
    
    
    (3,865
    )
    
    
    -16.1
    %Operating expenses:Product development
    
    
    5,065
    
    
    
    19.0
    %
    
    
    4,182
    
    
    
    13.4
    %
    
    
    883
    
    
    
    21.1
    %Selling and marketing
    
    
    9,406
    
    
    
    35.2
    %
    
    
    9,356
    
    
    
    30.0
    %
    
    
    50
    
    
    
    0.5
    %General and administrative
    
    
    3,842
    
    
    
    14.4
    %
    
    
    5,205
    
    
    
    16.7
    %
    
    
    (1,363
    )
    
    
    -26.2
    %Total operating expenses
    
    
    18,313
    
    
    
    68.6
    %
    
    
    18,743
    
    
    
    60.1
    %
    
    
    (430
    )
    
    
    -2.3
    %Operating income
    
    
    1,805
    
    
    
    6.8
    %
    
    
    5,240
    
    
    
    16.8
    %
    
    
    (3,435
    )
    
    
    -65.6
    %Other, net
    
    
    302
    
    
    
    1.1
    %
    
    
    282
    
    
    
    0.9
    %
    
    
    20
    
    
    
    7.1
    %Income before taxes
    
    
    2,107
    
    
    
    7.9
    %
    
    
    5,522
    
    
    
    17.7
    %
    
    
    (3,415
    )
    
    
    -61.8
    %Income taxes
    
    
    790
    
    
    
    3.0
    %
    
    
    2,043
    
    
    
    6.6
    %
    
    
    (1,253
    )
    
    
    -61.3
    %Net Income
    
    $
    1,317
    
    
    
    4.9
    %
    
    $
    3,479
    
    
    
    11.2
    %
    
    $
    (2,162
    )
    
    
    -62.1
    %
 - 7 -




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##### Table of Contents



Three Months Ended March 31, 2007 and 2006
 Net Sales
  Cost of Sales
  Product Development
 Selling and Marketing
 General and Administrative
 Operating Income
 Income Tax Expense.
 
 *  AR, AccelScan, Accelerated Math, Accelerated Reader, Accelerated Vocabulary, AlphaSmart,
Dana, English in a Flash, MathFacts in a Flash, Neo, Read Now, Renaissance, Renaissance Learning,
Renaissance Place, STAR Early Literacy, STAR Reading, STAR Math and 2Know! are
trademarks of Renaissance Learning, Inc. registered ®, common law or pending registration in the
United States and other countries. Other trademarks are the property of their respective owners.
 - 8 -




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##### Table of Contents



Liquidity and Capital Resources
    Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
  Operating Leases.
 Purchase Obligations.
  Contractual Obligations
    
    Payments due by Period(In thousands)
    
    
    
    
    Less than

    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1- 3 years
    
    
    3-5 years
    
    
    5 yearsOperating lease obligations
    
    $
    6,902
    
    
    $
    1,656
    
    
    $
    3,854
    
    
    $
    1,055
    
    
    $
    337Purchase obligations
    
    
    4,483
    
    
    
    4,467
    
    
    
    16
    
    
    
    
    
    
    
    Total
    
    $
    11,385
    
    
    $
    6,123
    
    
    $
    3,870
    
    
    $
    1,055
    
    
    $
    337
 Critical Accounting Policies and Estimates
  - 9 -




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Forward-Looking Statements
 Risk Factors
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
 Market Risk.
   Foreign Currency Exchange Rate Risk.
 - 10 -




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##### Table of Contents



Item 4. Controls and Procedures
    
 Part II  OTHER INFORMATION
 
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   MaximumTotal Number of
    
    
    Number of SharesShares Purchased as
    
    
    that May Yet BePart of Publicly
    
    
    Purchased UnderTotal Number of
    
    
    Average Price Paid
    
    
    Announced Plans or
    
    
    the Plans orPeriod
    
    Shares Purchased
    
    
    per Share
    
    
    Programs
    
    
    ProgramsJanuary 1-31, 2007
    
    
    0
    
    
    $
    0.00
    
    
    
    0
    
    
    
    389,311February 1-28, 2007
    
    
    13,395
    
    
    
    15.22
    
    
    
    13,395
    
    
    
    375,916March 1-31, 2007
    
    
    0
    
    
    
    0.00
    
    
    
    0
    
    
    
    375,916Total
    
    
    13,395
    
    
    $
    15.22
    
    
    
    13,395
 - 11 -




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##### Table of Contents



Item 6. Exhibits
  Exhibit No.
    
    Description10.1
    
    Fifth Amendment to Credit Agreement dated as of December 1, 2006 by and
between Wells Fargo Bank, National Association and Registrant31.1
    
    Section 302 certification by Terrance D. Paul31.2
    
    Section 302 certification by Mary T. Minch32.1
    
    Section 906 certification by Terrance D. Paul32.2
    
    Section 906 certification by Mary T. Minch
 - 12 -




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##### Table of Contents



SIGNATURES
  RENAISSANCE LEARNING, INC.

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




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Exhibit No.
    
    Description10.1
    
    Fifth Amendment to Credit Agreement dated as of December 1, 2006 by and
between Wells Fargo Bank, National Association and Registrant31.1
    
    Section 302 certification by Terrance D. Paul31.2
    
    Section 302 certification by Mary T. Minch32.1
    
    Section 906 certification by Terrance D. Paul32.2
    
    Section 906 certification by Mary T. Minch