ARTLP The Aristotle (MM)

The Aristotle Corporation (NASDAQ: ARTL; ARTLP) announced today its results of operations for the quarter ended March 31, 2006. First Quarter 2006 Results For the three months ended March 31, 2006, net sales increased 10.6% to $46.2 million from $41.7 million in the first quarter of 2005. Earnings before income taxes increased 24.3% to $6.5 million from $5.2 million in the 2005 first quarter, and net earnings increased 24.2% to $4.0 million from $3.2 million in the 2005 first quarter. Net earnings applicable to common stockholders in the first quarter of 2006 were $1.8 million, or $.10 per diluted common share, compared to net earnings applicable to common stockholders of $1.0 million, or $.06 per diluted common share, in the 2005 first quarter. Net earnings applicable to common stockholders in both the 2006 and 2005 periods were reduced by the accretion of $2.2 million for dividends on Aristotle's Series I and Series J preferred stocks. The reported net earnings are shown after deduction for Federal, state and foreign income tax expenses. Approximately $1.9 million and $1.6 million of the income tax provision for the 2006 and 2005 first quarters, respectively, relate to the non-cash charge for utilization of Federal net operating tax loss carryforwards ("NOL's"). The utilization of NOL's for the reported quarters reduces Aristotle's current Federal tax liability, thereby conserving cash. Except for Federal alternative minimum tax obligations arising from limitations on the use of NOL's in future periods, Aristotle anticipates that the utilization of available NOL's will offset its Federal taxable income through 2006. At March 31, 2006, the Condensed Consolidated Balance Sheet includes a net deferred tax asset of $12.2 million, of which $8.0 million relates to the NOL's. Steven B. Lapin, Aristotle's President and Chief Operating Officer, stated, "The corporate-wide sales growth achieved in this year's first quarter is exceptional for the markets that Aristotle serves. Your Company's largest business segment, focused on K-12 level classroom educational materials primarily distributed in the U.S. and Canada, experienced a revenue increase of nearly 12% compared to the same quarter last year. And, the Commercial segment achieved an approximate 5% revenue growth this quarter." "At the same time, selling and administrative expenses have increased only 4.2% in the comparable periods. The combined effect of your Company's sales growth, stable gross margins and controlled expenses yielded an EBITDA increase of 18.7% to $7.0 million in the first quarter of 2006 compared to $5.9 million in the first quarter of 2005." Dean Johnson, Aristotle's Chief Financial Officer, commented, "Like many other businesses, your Company is concerned about the potential negative impact of high petroleum prices which, among other things, affect plastic material costs and shipping expenses. And, although Aristotle has performed well in this environment during recent quarters, management is well aware that it must continue to employ procurement practices designed to maximize inventory investment returns, creative product development efforts to meet its customer needs, and prudent operating expense controls in order to build upon the success realized to date." 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 net earnings before income taxes, interest expense, other income and expense, and 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, health care products and items for the agricultural, senior care and food industries. Aristotle has approximately 800 full-time employees at its operations in Fort Atkinson, WI, Modesto, CA, Fort Collins, CO, Plymouth, MN, Saugerties, NY, Chippewa Falls, WI, Otterbein, IN and Newmarket, Ontario, Canada. There are approximately 17.3 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 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 1A, Risk Factors, contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2005. 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 March 31, ----------------------- 2006 2005 ----------- ----------- Net sales $ 46,164 41,748 Cost of sales 28,565 25,685 ----------- ----------- Gross profit 17,599 16,063 Selling and administrative expense 11,082 10,633 ----------- ----------- Earnings from operations 6,517 5,430 Other income (expense): Interest expense (447) (291) Other, net 405 70 ----------- ----------- (42) (221) ----------- ----------- Earnings before income taxes 6,475 5,209 Income taxes: Current 722 465 Deferred 1,792 1,556 ----------- ----------- 2,514 2,021 ----------- ----------- Net earnings 3,961 3,188 Preferred dividends 2,159 2,158 ----------- ----------- Net earnings applicable to common stockholders $ 1,802 1,030 =========== =========== Earnings per common share: Basic $ .10 .06 Diluted $ .10 .06 Weighted average common shares outstanding: Basic 17,249,302 17,144,992 Diluted 17,494,518 17,407,253 RECONCILIATION OF GAAP NET EARNINGS TO EBITDA (in thousands) (unaudited) Three Months Ended March 31, ----------------------------- 2006 2005 -------------- ------------- Net earnings $ 3,961 3,188 Add: Income taxes 2,514 2,021 Interest expense 447 291 Other, net (405) (70) Depreciation and amortization 435 429 -------------- ------------- EBITDA $ 6,952 5,859 ============== ============= THE ARISTOTLE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) March 31, December 31, March 31, Assets 2006 2005 2005 ----------- ------------ ----------- (unaudited) (unaudited) Current assets: Cash and cash equivalents $ 1,999 1,803 795 Investments 13,258 12,856 4,131 Accounts receivable, net 19,381 14,530 16,866 Inventories 38,222 35,579 36,848 Prepaid expenses and other 7,013 8,026 6,032 Deferred income taxes 9,501 11,279 9,825 ----------- ------------ ----------- Total current assets 89,374 84,073 74,497 Property, plant and equipment, net 23,045 22,361 17,901 Goodwill 13,872 13,799 13,685 Deferred income taxes 2,712 2,712 9,047 Other assets 373 408 463 ----------- ------------ ----------- Total assets $ 129,376 123,353 115,593 =========== ============ =========== Liabilities and Stockholders' Equity Current liabilities: Current installments of long- term debt $ 589 606 115 Trade accounts payable 9,704 9,013 7,789 Accrued expenses 5,488 6,779 4,954 Accrued dividends payable - 2,159 - ----------- ------------ ----------- Total current liabilities 15,781 18,557 12,858 Long-term debt, less current installments 31,268 24,350 30,910 Stockholders' equity: Preferred stock, Series I 6,601 6,601 6,580 Preferred stock, Series J 65,760 65,760 65,760 Common stock 173 172 171 Additional paid-in capital 3,219 3,119 2,483 Retained earnings (accumulated deficit) 6,693 4,891 (3,301) Accumulated other comprehensive earnings (loss) (119) (97) 132 ----------- ------------ ----------- Total stockholders' equity 82,327 80,446 71,825 ----------- ------------ ----------- Total liabilities and stockholders' equity $ 129,376 123,353 115,593 =========== ============ =========== *T