##### 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 PERIODENDED MARCH 31, 2008.
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITIONPERIOD
FROMTO
 Commission file number: 0-22187
 RENAISSANCE LEARNING, INC.
  Wisconsin
    
    39-1559474(State or other 
jurisdiction of incorporation)
    
    (I.R.S. Employer
Identification No.)
 2911 Peach Street
P.O. Box 8036
Wisconsin Rapids, Wisconsin
 54495-8036
 (715) 424-3636
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  Class
    
    Outstanding at
April 30, 2008Common Stock, $0.01 par value
    
    29,095,703




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##### 



RENAISSANCE LEARNING, INC.
 INDEX TO FORM 10-Q
 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets at March 31, 2008 and
December 31, 2007
    
    
    1Condensed Consolidated Statements of Income for the Three Months
Ended March 31, 2008 and 2007
    
    
    2Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2008 and 2007
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    5Item 3. Quantitative and Qualitative Disclosures About
Market Risk
    
    
    9Item 4. Controls and Procedures
    
    
    9PART II  OTHER INFORMATIONItem 1A. Risk Factors
    
    
    10Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    10Item 6. Exhibits
    
    
    11Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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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 31,2008
    
    
    2007(In Thousands, Except Share and Per Share Amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    7,975
    
    
    $
    7,337Investment securities
    
    
    7,786
    
    
    
    8,136Accounts receivable, less allowance of $1,100
    
    
    9,477
    
    
    
    8,791Inventories
    
    
    5,981
    
    
    
    6,273Prepaid expenses
    
    
    1,976
    
    
    
    2,197Income taxes receivable
    
    
    137
    
    
    
    1,450Deferred tax asset
    
    
    4,432
    
    
    
    4,406Other current assets
    
    
    268
    
    
    
    300Total current assets
    
    
    38,032
    
    
    
    38,890Investment securities
    
    
    6,955
    
    
    
    8,982Property, plant and equipment, net
    
    
    10,186
    
    
    
    10,578Deferred tax asset
    
    
    1,551
    
    
    
    1,587Goodwill
    
    
    47,241
    
    
    
    47,065Other intangibles, net
    
    
    5,456
    
    
    
    5,579Capitalized software, net
    
    
    612
    
    
    
    452Other non-current assets
    
    
    189
    
    
    
    167Total assets
    
    $
    110,222
    
    
    $
    113,300LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,193
    
    
    $
    2,011Deferred revenue
    
    
    30,682
    
    
    
    35,675Payroll and employee benefits
    
    
    4,424
    
    
    
    4,184Other current liabilities
    
    
    3,693
    
    
    
    3,563Total current liabilities
    
    
    41,992
    
    
    
    45,433Deferred revenue
    
    
    2,723
    
    
    
    2,707Deferred compensation and other employee benefits
    
    
    1,543
    
    
    
    1,933Income taxes payable
    
    
    4,721
    
    
    
    5,104Other noncurrent liabilities
    
    
    100
    
    
    
    136Total liabilities
    
    
    51,079
    
    
    
    55,313Shareholders equity:Common stock, $.01 par value; shares authorized: 150,000,000;
issued: 34,736,647 shares at March 31, 2008
and December 31, 2007
    
    
    347
    
    
    
    347Additional paid-in capital
    
    
    52,747
    
    
    
    52,683Retained earnings
    
    
    103,475
    
    
    
    102,887Treasury stock, at cost: 5,673,141 shares at March 31, 2008;
5,703,450 shares at December 31, 2007
    
    
    (97,598
    )
    
    
    (98,123
    )Accumulated other comprehensive income
    
    
    172
    
    
    
    193Total shareholders equity
    
    
    59,143
    
    
    
    57,987Total liabilities and shareholders equity
    
    $
    110,222
    
    
    $
    113,300
   -1-




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RENAISSANCE LEARNING, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (unaudited)
 Three MonthsEnded March 31,2008
    
    
    2007(In Thousands, Except Per Share Amounts)Net sales:Products
    
    $
    22,205
    
    
    $
    21,701Services
    
    
    7,181
    
    
    
    4,987Total net sales
    
    
    29,386
    
    
    
    26,688Cost of sales:Products
    
    
    4,035
    
    
    
    3,703Services
    
    
    3,762
    
    
    
    2,867Total cost of sales
    
    
    7,797
    
    
    
    6,570Gross profit
    
    
    21,589
    
    
    
    20,118Operating expenses:Product development
    
    
    4,032
    
    
    
    5,065Selling and marketing
    
    
    9,373
    
    
    
    9,406General and administrative
    
    
    4,129
    
    
    
    3,842Total operating expenses
    
    
    17,534
    
    
    
    18,313Operating income
    
    
    4,055
    
    
    
    1,805Other income, net
    
    
    168
    
    
    
    302Income before taxes
    
    
    4,223
    
    
    
    2,107Income taxes
    
    
    1,605
    
    
    
    790Net income
    
    $
    2,618
    
    
    $
    1,317Earnings per share:Basic
    
    $
    0.09
    
    
    $
    0.05Diluted
    
    $
    0.09
    
    
    $
    0.05Cash dividends declared per share
    
    $
    0.07
    
    
    $
    0.05
   -2-




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RENAISSANCE LEARNING, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
 For the Three Months EndedMarch 31,2008
    
    
    2007(In Thousands)Reconciliation of net income to net cash provided by operating activities:Net income
    
    $
    2,618
    
    
    $
    1,317Adjustments to arrive at cash provided by operating activities:Depreciation and amortization
    
    
    964
    
    
    
    957Amortization of investment discounts/premiums
    
    
    29
    
    
    
    2Share-based compensation expense
    
    
    383
    
    
    
    330Deferred income taxes
    
    
    9
    
    
    
    (3
    )Loss on sale of property
    
    
    
    
    
    
    5Excess tax benefits from share based payment arrangements
    
    
    (13
    )
    
    
    Change in assets and liabilities, excluding the effects of
acquisitions and divestitures:Accounts receivable
    
    
    (687
    )
    
    
    (859
    )Inventories
    
    
    291
    
    
    
    (1,287
    )Prepaid expenses
    
    
    251
    
    
    
    36Income taxes
    
    
    943
    
    
    
    788Accounts payable and other liabilities
    
    
    1,517
    
    
    
    620Deferred revenue
    
    
    (4,977
    )
    
    
    452Other current assets
    
    
    32
    
    
    
    (43
    )Other
    
    
    (365
    )
    
    
    268Net cash provided by operating activities
    
    
    995
    
    
    
    2,583Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (345
    )
    
    
    (416
    )Purchase of investment securities
    
    
    
    
    
    
    (11,367
    )Maturities/sales of investment securities
    
    
    2,000
    
    
    
    16,625Capitalized software development costs
    
    
    (267
    )
    
    
    Net cash provided by investing activities
    
    
    1,388
    
    
    
    4,842Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    293
    
    
    
    Excess tax benefits from share based payment arrangements
    
    
    13
    
    
    
    Dividends paid
    
    
    (2,030
    )
    
    
    (1,451
    )Purchase of treasury stock
    
    
    (21
    )
    
    
    (204
    )Net cash used by financing activities
    
    
    (1,745
    )
    
    
    (1,655
    )Net increase in cash and cash equivalents
    
    
    638
    
    
    
    5,770Cash and cash equivalents, beginning of period
    
    
    7,337
    
    
    
    5,953Cash and cash equivalents, end of period
    
    $
    7,975
    
    
    $
    11,723
   -3-




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RENAISSANCE LEARNING, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 1. Consolidation
  2. Basis of Presentation
  3. Earnings Per Common Share
   Three Months Ended March 31,2008
    
    
    2007Basic weighted average shares outstanding
    
    
    28,759,046
    
    
    
    28,858,799Dilutive effect of outstanding stock options
    
    
    3,624
    
    
    
    6,004Dilutive effect of restricted shares
    
    
    80,261
    
    
    
    16,473Diluted weighted average shares outstanding
    
    
    28,842,931
    
    
    
    28,881,276
  4. Comprehensive Income
  5. Goodwill and Other Intangible Assets
   March 31, 2008
    
    
    December 31, 2007Gross
    
    
    Accumulated
    
    
    
    
    
    
    Gross
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    Net(In Thousands)Tradename
    
    $
    3,000
    
    
    $
    
    
    
    $
    3,000
    
    
    $
    3,000
    
    
    $
    
    
    
    $
    3,000Customer relationships
    
    
    4,150
    
    
    
    1,694
    
    
    
    2,456
    
    
    
    4,150
    
    
    
    1,571
    
    
    
    2,579$
    7,150
    
    
    $
    1,694
    
    
    $
    5,456
    
    
    $
    7,150
    
    
    $
    1,571
    
    
    $
    5,579
  -4-




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6. Recent Accounting Pronouncements
 Fair Value Measurements
 7. Share Based Compensation
    Weighted Average
    
    
    AggregateShares
    
    
    Value Per Share
    
    
    Intrinsic Value(In Thousands, Except Per Share Amounts)Balance at January 1, 2008
    
    
    250
    
    
    $
    14.16
    
    
    $
    3,498Granted
    
    
    15
    
    
    
    13.05Vested
    
    
    (8
    )
    
    
    14.27Balance at March 31, 2008
    
    
    257
    
    
    $
    13.76
    
    
    $
    3,597
  8. Dividends
   
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Results of Operations
    -5-




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Three Months Ended March 31,2008
    
    
    2007
    
    
    Change(Dollars In Thousands)Net Sales:Products
    
    $
    22,205
    
    
    
    75.6
    %
    
    $
    21,701
    
    
    
    81.3
    %
    
    $
    504
    
    
    
    2.3
    %Services
    
    
    7,181
    
    
    
    24.4
    %
    
    
    4,987
    
    
    
    18.7
    %
    
    
    2,194
    
    
    
    44.0
    %Total net sales
    
    
    29,386
    
    
    
    100.0
    %
    
    
    26,688
    
    
    
    100.0
    %
    
    
    2,698
    
    
    
    10.1
    %Cost of sales:Products
    
    
    4,035
    
    
    
    18.2
    %
    
    
    3,703
    
    
    
    17.1
    %
    
    
    332
    
    
    
    9.0
    %Services
    
    
    3,762
    
    
    
    52.4
    %
    
    
    2,867
    
    
    
    57.5
    %
    
    
    895
    
    
    
    31.2
    %Total cost of sales
    
    
    7,797
    
    
    
    26.5
    %
    
    
    6,570
    
    
    
    24.6
    %
    
    
    1,227
    
    
    
    18.7
    %Gross profit:Products
    
    
    18,170
    
    
    
    81.8
    %
    
    
    17,998
    
    
    
    82.9
    %
    
    
    172
    
    
    
    1.0
    %Services
    
    
    3,419
    
    
    
    47.6
    %
    
    
    2,120
    
    
    
    42.5
    %
    
    
    1,299
    
    
    
    61.3
    %Total gross profit
    
    
    21,589
    
    
    
    73.5
    %
    
    
    20,118
    
    
    
    75.4
    %
    
    
    1,471
    
    
    
    7.3
    %Operating expenses:Product development
    
    
    4,032
    
    
    
    13.7
    %
    
    
    5,065
    
    
    
    19.0
    %
    
    
    (1,033
    )
    
    
    -20.4
    %Selling and marketing
    
    
    9,373
    
    
    
    31.9
    %
    
    
    9,406
    
    
    
    35.2
    %
    
    
    (33
    )
    
    
    -0.4
    %General and administrative
    
    
    4,129
    
    
    
    14.1
    %
    
    
    3,842
    
    
    
    14.4
    %
    
    
    287
    
    
    
    7.5
    %Total operating expenses
    
    
    17,534
    
    
    
    59.7
    %
    
    
    18,313
    
    
    
    68.6
    %
    
    
    (779
    )
    
    
    -4.3
    %Operating income
    
    
    4,055
    
    
    
    13.8
    %
    
    
    1,805
    
    
    
    6.8
    %
    
    
    2,250
    
    
    
    124.7
    %Other, net
    
    
    168
    
    
    
    0.6
    %
    
    
    302
    
    
    
    1.1
    %
    
    
    (134
    )
    
    
    -44.4
    %Income before taxes
    
    
    4,223
    
    
    
    14.4
    %
    
    
    2,107
    
    
    
    7.9
    %
    
    
    2,116
    
    
    
    100.4
    %Income taxes
    
    
    1,605
    
    
    
    5.5
    %
    
    
    790
    
    
    
    3.0
    %
    
    
    815
    
    
    
    103.2
    %Net Income
    
    $
    2,618
    
    
    
    8.9
    %
    
    $
    1,317
    
    
    
    4.9
    %
    
    $
    1,301
    
    
    
    98.8
    %
  -6-




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Three Months Ended March 31, 2008 and 2007
 Net Sales
  Cost of Sales
  Product Development
 Selling and Marketing
 General and Administrative
 Operating Income
 Income Tax Expense.
 Liquidity and Capital Resources
    -7-




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Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
  Operating Leases.
 Purchase Obligations.
 Tax audit settlements and deposits.
  Contractual Obligations
    
    Payments Due by PeriodLess than 1
    
    
    
    
    
    
    
    
    
    
    More than(In Thousands)
    
    Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsOperating lease obligations
    
    $
    5,980
    
    
    $
    1,693
    
    
    $
    2,597
    
    
    $
    1,286
    
    
    $
    404Tax audit related payments
    
    
    1,200
    
    
    
    1,200
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations
    
    
    2,560
    
    
    
    2,560
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    9,740
    
    
    $
    5,453
    
    
    $
    2,597
    
    
    $
    1,286
    
    
    $
    404
 Critical Accounting Policies and Estimates
   -8-




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Forward-Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
 Market Risk.
   Foreign Currency Exchange Rate Risk.
 
 Item 4. Controls and Procedures
   -9-




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##### Table of Contents



Part II  OTHER INFORMATION
 
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   Total Number ofShares Purchased as
    
    
    Maximum Number ofTotal Number
    
    
    Average Price
    
    
    Part of Publicly
    
    
    Shares that May Yet Beof Shares
    
    
    Paid per
    
    
    Announced Plans
    
    
    Purchased Under the PlansPeriod
    
    Purchased
    
    
    Share
    
    

or Programs
    
    
    or ProgramsJanuary 1-31, 2008
    
    
    1,376
    
    
    $
    14.51
    
    
    
    1,376
    
    
    
    245,355February 1-29, 2008
    
    
    95
    
    
    
    13.47
    
    
    
    95
    
    
    
    1,245,260
    *March 1-31, 2008
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,245,260Total
    
    
    1,471
    
    
    $
    14.44
    
    
    
    1,471
 *
    
    On February 6, 2008, our Board of Directors authorized the purchase of additional shares under the stock
repurchase program.  -10-




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##### Table of Contents



Item 6. Exhibits
  Exhibit No.
    
    Description31.1
    
    Section 302 certification by Terrance D. Paul31.2
    
    Section 302 certification by Mary T. Minch32.1
    
    Section 906 certification by Terrance D. Paul32.2
    
    Section 906 certification by Mary T. Minch
  -11-




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##### Table of Contents



SIGNATURES
  RENAISSANCE LEARNING, INC.
(Registrant)Date: May 5, 2008
    /s/ Terrance D. PaulTerrance D. PaulChief Executive Officer and a Director
(Principal Executive Officer) Date: May 5, 2008
    /s/ Mary T. MinchMary T. MinchSenior Vice President-Finance, Chief Financial Officer and
Secretary (Principal  Financial and Accounting Officer)




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