The Aristotle Corporation (NASDAQ: ARTL; ARTLP) announced today its
results of operations for the second quarter and six months ended
June 30, 2005. For the three months ended June 30, 2005, net sales
increased 12.5% to $50.2 million from $44.6 million in the second
quarter of 2004. Earnings before income taxes increased 27.2% to
$7.8 million from $6.1 million in the 2004 second quarter, and net
earnings increased 27.6% to $4.8 million compared to $3.8 million
in the 2004 quarter. Net earnings applicable to common stockholders
in the second quarter of 2005 was $2.6 million, or $.15 per diluted
common share. In the 2004 second quarter, net earnings applicable
to common stockholders was $1.6 million, or $.09 per diluted common
share. Net earnings applicable to common stockholders in both the
2005 and 2004 periods include the accretion of $2.2 million
relating to the dividends on Aristotle's Series I and Series J
preferred stocks. For the six months ended June 30, 2005, net sales
increased 9.9% to $91.9 million from $83.6 million in the first six
months of 2004. Earnings before income taxes for year-to-date 2005
increased 17.2% to $13.0 million from $11.1 million in 2004, and
net earnings increased 17.3% to $8.0 million from $6.8 million. Net
earnings applicable to common stockholders for year-to-date 2005
was $3.7 million, or $.21 per diluted common share, compared to
$2.5 million or $.14 per diluted common share for year-to-date
2004. Net earnings applicable to common stockholders in both the
2005 and 2004 periods includes the accretion of $4.3 million
relating to Aristotle's preferred stock dividends. The reported net
earnings are shown after deduction for Federal, state and foreign
income tax provisions. The utilization of the Company's Federal net
operating tax loss carryforwards ("NOL's") resulted in the
reporting of approximately $2.2 million and $1.8 million in income
tax provisions in the 2005 and 2004 second quarters, respectively,
for the reduction in their previously recorded deferred tax asset.
For the year-to-date periods of 2005 and 2004, respectively, $3.8
million and $3.3 million of the reported tax provisions relate to
NOL utilization. The NOL utilization for the reported quarters and
year-to-date periods substantially eliminated Aristotle's current
Federal tax liability and allowed Aristotle to retain for other
business purposes the cash that would have been used for tax
payments. Except for Federal alternative minimum tax obligations
arising from limitations on the NOL's in future years, Aristotle
anticipates that the utilization of available NOL's will offset its
Federal taxable income through 2006. At June 30, 2005, the
Condensed Consolidated Balance Sheet contains a net deferred tax
asset of $16.6 million, of which $13.0 million relates to the
NOL's. Steven B. Lapin, Aristotle's President and Chief Operating
Officer, stated, "I am pleased to report 2005 second quarter
earnings of $.15 per diluted common share, which were driven
primarily by increased revenues. While the results of acquisitions
completed in the third quarter of 2004 certainly contributed, your
Company's organic revenue growth was an impressive 9.2%." Mr. Lapin
added, "We are particularly encouraged to see that revenue
improvement was significantly achieved in the Educational segment
throughout the first six months of 2005. Restrictions in state
education funding over the past several years significantly
hampered Aristotle's sales growth; your Company used that time
wisely, however, to concentrate on increasing its comprehensive
product offerings and customer service levels. Now that monies
appear to be moving once again into school budgets, Aristotle is
reaping the benefits of its employees' diligent efforts. At the
same time, business in your Company's health training sector
continues to thrive, and its Commercial segment remains on steady
ground." Dean T. Johnson, Aristotle's Chief Financial Officer,
noted, "The revenue growth has yielded an increase in 2005 second
quarter EBITDA of nearly 25% to $8.5 million. For the first six
months of this year, EBITDA has increased 14.4% to $14.4 million
from 2004. Throughout your Company, management continually
demonstrates prudent control of operating costs, limiting the
increase in selling and administrative expenses to 7.2% and 7.4% in
the 2005 second quarter and first six months as compared to the
prior year periods, respectively, versus substantially higher
revenue growth." Mr. Johnson continued, "Primarily as a result of
earnings and related benefit of the NOL utilization, the Company
generated cash from operations of $8.1 million in the second
quarter of 2005, compared to $5.9 million in the same period last
year. With the revenue growth realized in the second quarter, trade
accounts receivable are $2.2 million greater at June 30, 2005 than
one year ago. As these receivables are collected in the normal
course of business in the third quarter, cash provided by
operations for the remaining portion of 2005 should exceed 2004
levels. The $3.0 million increase in inventory compared to levels
at June 30, 2004 is attributed to approximately $1.4 million of
additional inventory to service the business from the CPR Prompt
and Ginsberg Scientific acquisitions completed in the third quarter
of 2004, with the remaining inventory growth related to accelerated
purchasing efforts to stock favorably priced inventory for the
anticipated 2005 summer peak season." In providing EBITDA
information, Aristotle offers a non-GAAP financial measure to
complement its condensed consolidated financial statements
presented in accordance with GAAP. This non-GAAP financial measure
is intended to supplement the reader's overall understanding of
Aristotle's current financial performance. However, this non-GAAP
financial measure is not intended to supercede or replace
Aristotle's GAAP results. A reconciliation of the non-GAAP results
to the GAAP results is provided in the "Reconciliation of GAAP Net
Earnings to EBITDA" schedule below. EBITDA is defined as earnings
before interest expense, other income and expense, income taxes,
depreciation and amortization. About Aristotle The Aristotle
Corporation, founded in 1986, and headquartered in Stamford, CT, is
a leading manufacturer and global distributor of educational,
health, medical technology and agricultural products. A selection
of over 80,000 items is offered, primarily through more than 45
separate catalogs carrying the brand of Nasco (founded in 1941), as
well as those bearing the brands of Life/Form(R), Whirl-Pak(R),
Simulaids, Triarco, Spectrum Educational Supplies, Hubbard
Scientific, Scott Resources, Haan Crafts, To-Sew, CPR Prompt(R),
Ginsberg Scientific and Summit Learning. Products include
educational materials and supplies for substantially all K-12
curricula, molded plastics, biological materials, medical
simulators and items for the agricultural, senior care and food
industries. Aristotle has approximately 800 employees at its
operations in Fort Atkinson, WI, Modesto, CA, Fort Collins, CO,
Plymouth, MN, Woodstock, NY, Chippewa Falls, WI, Otterbein, IN and
Newmarket, Ontario, Canada. There are approximately 17.2 million
shares outstanding of Aristotle common stock (NASDAQ: ARTL) and
approximately 1.1 million shares outstanding of 11%, cumulative,
convertible, voting, Series I preferred stock (NASDAQ: ARTLP);
there are also approximately 11.0 million privately-held shares
outstanding of 12%, cumulative, non-convertible, non-voting shares
of Series J preferred stock. Aristotle has about 4,000 stockholders
of record. Further information about Aristotle can be obtained on
its website, at www.aristotlecorp.net. Safe Harbor under the
Private Securities Litigation Reform Act of 1995 To the extent that
any of the statements contained in this release are
forward-looking, such statements are based on current expectations
that involve a number of uncertainties and risks that could cause
actual results to differ materially from those projected or
suggested in such forward-looking statements. Aristotle cautions
investors that there can be no assurance that actual results or
business conditions will not differ materially from those projected
or suggested in such forward-looking statements as a result of
various factors, including, but not limited to, the following: (i)
the ability of Aristotle to obtain financing and additional capital
to fund its business strategy on acceptable terms, if at all; (ii)
the ability of Aristotle on a timely basis to find, prudently
negotiate and consummate additional acquisitions; (iii) the ability
of Aristotle to manage any to-be acquired businesses; (iv) there is
not an active trading market for the Company's securities and the
stock prices thereof are highly volatile, due in part to the
relatively small percentage of the Company's securities which is
not held by the Company's majority stockholder and members of the
Company's Board of Directors and/or management; (v) the ability of
Aristotle to retain and utilize its Federal net operating tax loss
carryforward position; and (vi) other factors identified in Item 7,
Management's Discussion and Analysis of Financial Condition and
Results of Operations, "Forward-Looking Statements," contained in
the Company's Annual Report on Form 10-K for the year ended
December 31, 2004. As a result, Aristotle's future development
efforts involve a high degree of risk. For further information,
please see Aristotle's filings with the Securities and Exchange
Commission, including its Forms 10-K, 10-Q and 8-K. -0- *T THE
ARISTOTLE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (In thousands, except share and per share
data) (Unaudited Three Months Ended Six Months Ended June 30, June
30, ------------------------- ------------------------- 2005 2004
2005 2004 ------------ ------------ ------------ ------------ Net
sales $ 50,185 44,612 91,933 83,632 Cost of sales 30,938 27,781
56,623 51,612 ------------ ------------ ------------ ------------
Gross profit 19,247 16,831 35,310 32,020 Selling and administrative
expense 11,155 10,409 21,788 20,285 ------------ ------------
------------ ------------ Earnings from operations 8,092 6,422
13,522 11,735 Other expense (income): Interest expense 362 289 653
602 Interest income (12) (1) (12) (1) Other, net (73) (8) (143) 22
------------ ------------ ------------ ------------ 277 280 498 623
------------ ------------ ------------ ------------ Earnings before
income taxes 7,815 6,142 13,024 11,112 Income taxes: Current 757
578 1,222 1,034 Deferred 2,263 1,806 3,819 3,275 ------------
------------ ------------ ------------ 3,020 2,384 5,041 4,309
------------ ------------ ------------ ------------ Net earnings
4,795 3,758 7,983 6,803 Preferred dividends 2,158 2,158 4,316 4,321
------------ ------------ ------------ ------------ Net earnings
applicable to common stockholders $ 2,637 1,600 3,667 2,482
============ ============ ============ ============ Earnings per
common share: Basic $ .15 .09 .21 .15 Diluted $ .15 .09 .21 .14
Weighted average common shares outstanding: Basic 17,154,032
17,111,607 17,149,538 17,105,304 Diluted 17,394,146 17,289,123
17,399,309 17,284,349 RECONCILIATION OF GAAP NET EARNINGS TO EBITDA
(in thousands) (unaudited) Three Months Ended Six Months Ended June
30, June 30, ------------------ ----------------- 2005 2004 2005
2004 --------- -------- -------- -------- Net earnings $ 4,795
3,758 7,983 6,803 Add: Income taxes 3,020 2,384 5,041 4,309
Interest expense 362 289 653 602 Other expense (income) (85) (9)
(155) 21 Depreciation and amortization 461 444 890 860 ---------
-------- -------- -------- EBITDA $ 8,553 6,866 14,412 12,595
========= ======== ======== ======== THE ARISTOTLE CORPORATION AND
SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
June 30, December 31, June 30, Assets 2005 2004 2004 ------------
------------ ------------ (unaudited) (unaudited) Current assets:
Cash and cash equivalents 2,169 2,143 4,477 Investments $ 5,919
4,058 - Accounts receivable, net 19,857 12,592 17,651 Inventories
39,281 33,356 36,241 Prepaid expenses and other 4,231 6,665 3,889
Refundable income taxes - 49 - Deferred income taxes 9,825 9,825
8,184 ------------ ------------ ------------ Total current assets
81,282 68,688 70,442 Property, plant and equipment, net 18,343
17,405 17,065 Goodwill 13,634 13,707 11,393 Deferred income taxes
6,793 10,594 11,806 Other assets 439 511 409 ------------
------------ ------------ Total assets $ 120,491 110,905 111,115
============ ============ ============ Liabilities and
Stockholders' Equity Current liabilities: Current installments of
long-term debt $ 115 114 3,548 Trade accounts payable 11,015 7,192
11,048 Accrued expenses 5,736 5,833 5,067 Accrued dividends payable
2,158 2,158 2,158 Income taxes 124 - 16 ------------ ------------
------------ Total current liabilities 19,148 15,297 21,837
Long-term debt, less current installments 26,855 24,948 26,799
Stockholders' equity: Preferred stock, Series I 6,580 6,580 6,580
Preferred stock, Series J 65,760 65,760 65,760 Common stock 172 171
171 Additional paid-in capital 2,655 2,310 1,184 Accumulated
deficit (664) (4,331) (10,775) Accumulated other comprehensive
earnings (loss) (15) 170 (441) ------------ ------------
------------ Total stockholders' equity 74,488 70,660 62,479
------------ ------------ ------------ Total liabilities and
stockholders' equity $ 120,491 110,905 111,115 ============
============ ============ *T
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