ARTLP The Aristotle (MM)

The Aristotle Corporation (NASDAQ: ARTL; ARTLP) announced today its results of operations for the third quarter and nine months ended September 30, 2006. For the three months ended September 30, 2006, net sales increased 5.5% to $61.8 million from $58.6 million in the third quarter of 2005, and earnings before income taxes increased 13.2% to $11.4 million from $10.1 million. For the nine months ended September 30, 2006, net sales increased 7.3% to $161.5 million from $150.6 million for the nine months ended September 30, 2005, and earnings before income taxes increased 16.2% to $26.9 million from $23.1 million. Net earnings applicable to common stockholders in the third quarter of 2006 were $5.5 million, or $.32 per diluted common share, versus $4.0 million, or $.23 per diluted common share, in the third quarter of 2005. Net earnings applicable to common stockholders for the first nine months of 2006 were $10.7 million, or $.61 per diluted common share, compared to $7.7 million, or $.44 per diluted common share, for the comparable nine months of 2005. Net earnings applicable to common stockholders in each of the three and nine month periods of 2006 were favorably impacted by approximately $.4 million (or $.02 per diluted common share) as a net result of (i) a decrease in the valuation allowance that was established to reflect the estimate of Aristotle�s Federal net operating tax loss carryforwards (�NOL�s�) that were expected to expire unutilized at December 31, 2006 and (ii) expenses incurred by the Company in connection with Geneve Corporation�s merger proposal which was withdrawn on September 18, 2006. In the quarter ended September 30, 2006, the valuation allowance was reduced by $.7 million to $5.8 million. The change in the valuation allowance, related to the projected utilization of NOL�s, was due primarily to current estimates of 2006 taxable income, driven in large part by the Company�s third quarter results. No change in the valuation allowance had been made in the quarter and nine months ended September 30, 2005. The reported net earnings are shown after deduction for Federal, state and foreign income tax provisions. Approximately $3.4 million and $3.0 million in deferred income tax expense in the 2006 and 2005 third quarters, respectively, relate to the non-cash charge for utilization of NOL�s. For the first nine months of 2006 and 2005, respectively, $7.9 million and $7.0 million of the reported deferred income tax expense relate to current year NOL utilization. The NOL utilization for the reported quarters and year-to-date periods substantially eliminated Aristotle�s current Federal income 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 utilization of the NOL�s, Aristotle anticipates that the utilization of available NOL�s will offset its Federal taxable income through 2006. At September 30, 2006, the Condensed Consolidated Balance Sheet contains a net deferred tax asset of $7.3 million, of which $2.9 million relates to the NOL�s. Steven B. Lapin, Aristotle�s President and Chief Operating Officer, stated, �Further to the excellent reported third quarter numbers for the Company�s peak season, which continued the favorable results of the first six months, the 5.5% organic revenue growth produced EBITDA of $11.8 million, which reflects a 9.4% increase over EBITDA for the quarter ended September 30, 2005. In major part, the earnings growth was achieved through careful management of gross margins, including prudent purchasing practices and strategic pricing structures designed to provide unsurpassed value and service to our customers.� Dean T. Johnson, Aristotle�s Chief Financial Officer, added, �Excluding the effect of the adjustment to the NOL valuation at September 30, 2006, earnings per diluted common share for the quarter ended September 30, 2006 still increased more than 20% compared to the third quarter of 2005.� 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 the Company�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 income taxes, interest expense, other income and expense, 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�, Whirl-Pak�, Simulaids, Triarco, Spectrum Educational Supplies, Hubbard Scientific, Scott Resources, Haan Crafts, To-Sew, CPR Prompt�, 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 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-K/A, 10-Q and 8-K. THE ARISTOTLE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) (Unaudited) � Three Months Ended Nine Months Ended September 30, September 30, 2006� 2005� 2006� 2005� � Net sales $ 61,843� 58,626� 161,488� 150,559� Cost of sales 38,516� 37,222� 100,167� 93,845� Gross profit 23,327� 21,404� 61,321� 56,714� � Selling and administrative expense 12,000� 11,060� 34,441� 32,848� Earnings from operations 11,327� 10,344� 26,880� 23,866� � Other (expense) income: Interest expense (413) (369) (1,361) (1,022) Interest income 18� 11� 20� 23� Other, net 507� 116� 1,335� 259� 112� (242) (6) (740) Earnings before income taxes 11,439� 10,102� 26,874� 23,126� � Income tax expense: Current 1,215� 1,064� 2,970� 2,286� Deferred 2,531� 2,846� 6,750� 6,665� 3,746� 3,910� 9,720� 8,951� Net earnings 7,693� 6,192� 17,154� 14,175� � Preferred dividends 2,158� 2,160� 6,476� 6,476� Net earnings applicable to common stockholders $ 5,535� 4,032� 10,678� 7,699� � Earnings per common share: Basic $ .32� .23� .62� .45� Diluted $ .32� .23� .61� .44� � Weighted average common shares outstanding: Basic 17,269,846� 17,164,155� 17,261,961� 17,154,462� Diluted 17,529,652� 17,422,089� 17,511,332� 17,404,363� RECONCILIATION OF GAAP NET EARNINGS TO EBITDA (in thousands) (unaudited) � Three Months Ended Nine Months Ended September 30, September 30, 2006� 2005� 2006� 2005� � Net earnings $ 7,693� 6,192� 17,154� 14,175� Add: Income tax expense 3,746� 3,910� 9,720� 8,951� Interest expense 413� 369� 1,361� 1,022� Other (income) expense (525) (127) (1,355) (282) Depreciation and amortization 511� 472� 1,406� 1,362� EBITDA $ 11,838� 10,816� 28,286� 25,228� THE ARISTOTLE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) � Assets Sept. 30, 2006 Dec. 31, 2005 Sept. 30, 2005 (unaudited) (unaudited) Current assets: Cash and cash equivalents Investments $ 3,306 14,172� 1,803 12,856� 3,011 6,019� Accounts receivable, net 27,261� 14,530� 25,013� Inventories, net 36,296� 35,579� 34,963� Prepaid expenses and other 4,818� 8,026� 5,255� Deferred income taxes 4,562� 11,279� 9,825� Total current assets 90,415� 84,073� 84,086� � Property, plant and equipment, net 23,873� 22,361� 20,421� � Goodwill 14,018� 13,799� 13,818� Deferred income taxes 2,712� 2,712� 3,969� Other assets 327� 408� 416� Total assets $ 131,345� 123,353� 122,710� � Liabilities and Stockholders' Equity Current liabilities: Current installments of long-term debt $ 165� 606� 119� Trade accounts payable 10,939� 9,013� 9,436� Accrued expenses 6,516� 6,594� 4,747� Income Taxes 688� 185� 385� Accrued dividends payable -� 2,159� -� Total current liabilities 18,308� 18,557� 14,687� � Long-term debt, less current installments 21,297� 24,350� 28,839� � Stockholders' equity: Preferred stock, Series I 6,601� 6,601� 6,601� Preferred stock, Series J 65,760� 65,760� 65,760� Common stock 173� 172� 172� Additional paid-in capital 3,327� 3,119� 2,773� Retained earnings 15,569� 4,891� 3,368� Accumulated other comprehensive earnings (loss) 310� (97) 510� Total stockholders' equity 91,740� 80,446� 79,184� Total liabilities and stockholders' equity $ 131,345� 123,353� 122,710� The Aristotle Corporation (NASDAQ: ARTL; ARTLP) announced today its results of operations for the third quarter and nine months ended September 30, 2006. For the three months ended September 30, 2006, net sales increased 5.5% to $61.8 million from $58.6 million in the third quarter of 2005, and earnings before income taxes increased 13.2% to $11.4 million from $10.1 million. For the nine months ended September 30, 2006, net sales increased 7.3% to $161.5 million from $150.6 million for the nine months ended September 30, 2005, and earnings before income taxes increased 16.2% to $26.9 million from $23.1 million. Net earnings applicable to common stockholders in the third quarter of 2006 were $5.5 million, or $.32 per diluted common share, versus $4.0 million, or $.23 per diluted common share, in the third quarter of 2005. Net earnings applicable to common stockholders for the first nine months of 2006 were $10.7 million, or $.61 per diluted common share, compared to $7.7 million, or $.44 per diluted common share, for the comparable nine months of 2005. Net earnings applicable to common stockholders in each of the three and nine month periods of 2006 were favorably impacted by approximately $.4 million (or $.02 per diluted common share) as a net result of (i) a decrease in the valuation allowance that was established to reflect the estimate of Aristotle's Federal net operating tax loss carryforwards ("NOL's") that were expected to expire unutilized at December 31, 2006 and (ii) expenses incurred by the Company in connection with Geneve Corporation's merger proposal which was withdrawn on September 18, 2006. In the quarter ended September 30, 2006, the valuation allowance was reduced by $.7 million to $5.8 million. The change in the valuation allowance, related to the projected utilization of NOL's, was due primarily to current estimates of 2006 taxable income, driven in large part by the Company's third quarter results. No change in the valuation allowance had been made in the quarter and nine months ended September 30, 2005. The reported net earnings are shown after deduction for Federal, state and foreign income tax provisions. Approximately $3.4 million and $3.0 million in deferred income tax expense in the 2006 and 2005 third quarters, respectively, relate to the non-cash charge for utilization of NOL's. For the first nine months of 2006 and 2005, respectively, $7.9 million and $7.0 million of the reported deferred income tax expense relate to current year NOL utilization. The NOL utilization for the reported quarters and year-to-date periods substantially eliminated Aristotle's current Federal income 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 utilization of the NOL's, Aristotle anticipates that the utilization of available NOL's will offset its Federal taxable income through 2006. At September 30, 2006, the Condensed Consolidated Balance Sheet contains a net deferred tax asset of $7.3 million, of which $2.9 million relates to the NOL's. Steven B. Lapin, Aristotle's President and Chief Operating Officer, stated, "Further to the excellent reported third quarter numbers for the Company's peak season, which continued the favorable results of the first six months, the 5.5% organic revenue growth produced EBITDA of $11.8 million, which reflects a 9.4% increase over EBITDA for the quarter ended September 30, 2005. In major part, the earnings growth was achieved through careful management of gross margins, including prudent purchasing practices and strategic pricing structures designed to provide unsurpassed value and service to our customers." Dean T. Johnson, Aristotle's Chief Financial Officer, added, "Excluding the effect of the adjustment to the NOL valuation at September 30, 2006, earnings per diluted common share for the quarter ended September 30, 2006 still increased more than 20% compared to the third quarter of 2005." 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 the Company'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 income taxes, interest expense, other income and expense, 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 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-K/A, 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 Nine Months Ended September 30, September 30, ------------------------ ----------------------- 2006 2005 2006 2005 ----------- ----------- ----------- ----------- Net sales $ 61,843 58,626 161,488 150,559 Cost of sales 38,516 37,222 100,167 93,845 ----------- ----------- ----------- ----------- Gross profit 23,327 21,404 61,321 56,714 Selling and administrative expense 12,000 11,060 34,441 32,848 ----------- ----------- ----------- ----------- Earnings from operations 11,327 10,344 26,880 23,866 Other (expense) income: Interest expense (413) (369) (1,361) (1,022) Interest income 18 11 20 23 Other, net 507 116 1,335 259 ----------- ----------- ----------- ----------- 112 (242) (6) (740) ----------- ----------- ----------- ----------- Earnings before income taxes 11,439 10,102 26,874 23,126 Income tax expense: Current 1,215 1,064 2,970 2,286 Deferred 2,531 2,846 6,750 6,665 ----------- ----------- ----------- ----------- 3,746 3,910 9,720 8,951 ----------- ----------- ----------- ----------- Net earnings 7,693 6,192 17,154 14,175 Preferred dividends 2,158 2,160 6,476 6,476 ----------- ----------- ----------- ----------- Net earnings applicable to common stockholders $ 5,535 4,032 10,678 7,699 =========== =========== =========== =========== Earnings per common share: Basic $ .32 .23 .62 .45 Diluted $ .32 .23 .61 .44 Weighted average common shares outstanding: Basic 17,269,846 17,164,155 17,261,961 17,154,462 Diluted 17,529,652 17,422,089 17,511,332 17,404,363 *T -0- *T RECONCILIATION OF GAAP NET EARNINGS TO EBITDA (in thousands) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------ 2006 2005 2006 2005 ------------------- ------------------ Net earnings $ 7,693 6,192 17,154 14,175 Add: Income tax expense 3,746 3,910 9,720 8,951 Interest expense 413 369 1,361 1,022 Other (income) expense (525) (127) (1,355) (282) Depreciation and amortization 511 472 1,406 1,362 ------------------- ------------------ EBITDA $ 11,838 10,816 28,286 25,228 =================== ================== *T -0- *T THE ARISTOTLE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) Sept. 30, Dec. 31, Sept. 30, Assets 2006 2005 2005 ------------ -------- ----------- (unaudited) (unaudited) Current assets: Cash and cash equivalents 3,306 1,803 3,011 Investments $ 14,172 12,856 6,019 Accounts receivable, net 27,261 14,530 25,013 Inventories, net 36,296 35,579 34,963 Prepaid expenses and other 4,818 8,026 5,255 Deferred income taxes 4,562 11,279 9,825 ------------ -------- ----------- Total current assets 90,415 84,073 84,086 Property, plant and equipment, net 23,873 22,361 20,421 Goodwill 14,018 13,799 13,818 Deferred income taxes 2,712 2,712 3,969 Other assets 327 408 416 ------------ -------- ----------- Total assets $ 131,345 123,353 122,710 ============ ======== =========== Liabilities and Stockholders' Equity Current liabilities: Current installments of long-term debt $ 165 606 119 Trade accounts payable 10,939 9,013 9,436 Accrued expenses 6,516 6,594 4,747 Income Taxes 688 185 385 Accrued dividends payable - 2,159 - ------------ -------- ----------- Total current liabilities 18,308 18,557 14,687 Long-term debt, less current installments 21,297 24,350 28,839 Stockholders' equity: Preferred stock, Series I 6,601 6,601 6,601 Preferred stock, Series J 65,760 65,760 65,760 Common stock 173 172 172 Additional paid-in capital 3,327 3,119 2,773 Retained earnings 15,569 4,891 3,368 Accumulated other comprehensive earnings (loss) 310 (97) 510 ------------ -------- ----------- Total stockholders' equity 91,740 80,446 79,184 ------------ -------- ----------- Total liabilities and stockholders' equity $ 131,345 123,353 122,710 ============ ======== =========== *T