ARTLP The Aristotle (MM)

The Aristotle Corporation (NASDAQ: ARTL; ARTLP) announced today its results of operations for the quarter and calendar year ended December 31, 2006. Results for Quarter and Calendar Year ended December 31, 2006 For the calendar year ended December 31, 2006, net sales increased 7.5% to $203.0 million from $188.8 million for the calendar year ended December 31, 2005, and earnings before income taxes increased 13.3% to $30.8 million from $27.2 million. For the quarter ended December 31, 2006, net sales increased 8.6% to $41.5 million from $38.2 million for the quarter ended December 31, 2005, and earnings before income taxes declined 3.0% to $3.9 million from $4.1 million. Earnings before income taxes for the quarter and calendar year ended December 31, 2006 were unfavorably impacted by approximately $1.0 million of pension expense principally incurred as a result of a partial settlement of benefit obligations in 2006. Net earnings applicable to common stockholders for the calendar year ended December 31, 2006 were $15.2 million, or $.87 per diluted common share (including $5.5 million, or $.31 per diluted common share, related to the reversal of the valuation allowance that had previously been recorded for Federal net operating tax loss carryforwards (�NOLs�)), compared to $9.2 million, or $.53 per diluted common share (including $1.2 million, or $.07 per diluted common share, related to the utilization of NOLs), for the calendar year ended December 31, 2005. Net earnings applicable to common stockholders for the quarter ended December 31, 2006 were $4.5 million, or $.26 per diluted common share (including $4.7 million, or $.27 per diluted common share, related to the utilization of NOLs), versus $1.5 million, or $.09 per diluted common share (including $1.2 million, or $.07 per diluted common share, related to the utilization of NOLs), for the quarter ended December 31, 2005. In the quarter ended December 31, 2006, the Company entered into certain transactions which resulted in taxable income and the utilization of NOLs. The reported net earnings are shown after deduction for Federal, state and foreign income tax provisions. Approximately $6.3 million and $1.0 million in deferred income tax expense in the quarters ended December 31, 2006 and 2005, respectively, relate to the non-cash charge for utilization of NOLs. For the calendar years ended December 31, 2006 and 2005, respectively, $14.2 million and $8.0 million of the reported deferred income tax expense relate to current year NOL utilization. The NOL utilization for the reported quarters and calendar year 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. Although certain NOLs expired at December 31, 2006, deferred tax assets reported at that date include approximately $1.3 million related to NOLs which the Company will utilize in 2007. Steven B. Lapin, Aristotle�s President and Chief Operating Officer, stated, �The Company is proud to report that net revenues surpassed the $200 million mark for calendar year 2006, a record total since the Aristotle/Nasco merger in June 2002. While acquisitions of complementary business units have aided this achievement, Aristotle continues to increase revenues through its fundamental educational and commercial lines. Net revenues for calendar year 2006 reflect 7.5% organic growth from 2005, as the Company did not add new business units from the prior period.� Dean Johnson, Aristotle�s Chief Financial Officer, added, �For calendar year 2005, the Company�s EBITDA margin, as a financial performance measurement, reflected an impressive 15.8% of net revenues. Therefore, Aristotle is delighted to report that its calendar year 2006 EBITDA margin reached an exceptional 16.1% of net revenues. Management believes that the combination of revenue and EBITDA margin growth is a clear measure of the Company�s success in providing unsurpassed products and services to its customers through business practices designed to yield value for all shareholders.� 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 850 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 other deferred tax positions; 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, 2006. 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 Twelve Months Ended December 31, December 31, 2006� 2005� 2006� 2005� � Net sales $ 41,490� 38,210� 202,978� 188,769� Cost of sales 25,739� 23,374� 125,906� 117,219� Gross profit 15,751� 14,836� 77,072� 71,550� � Selling and administrative expense 11,951� 10,772� 46,392� 43,620� Earnings from operations 3,800� 4,064� 30,680� 27,930� � Other (expense) income: Interest expense (287) (347) (1,648) (1,369) Interest income 24� 11� 44� 34� Other, net 402� 334� 1,737� 593� 139� (2) 133� (742) Earnings before income taxes 3,939� 4,062� 30,813� 27,188� � Income tax expense (benefit): Current 1,450� 161� 4,420� 2,447� Deferred (4,158) 219� 2,592� 6,884� (2,708) 380� 7,012� 9,331� Net earnings 6,647� 3,682� 23,801� 17,857� � Preferred dividends 2,159� 2,159� 8,635� 8,635� Net earnings applicable to common stockholders $ 4,488� 1,523� 15,166� 9,222� � Earnings per common share: Basic $ .26� .09� .88� .54� Diluted $ .26� .09� .87� .53� � Weighted average common shares outstanding: Basic 17,268,758� 17,207,115� 17,263,675� 17,167,769� Diluted 17,518,302� 17,437,124� 17,508,631� 17,393,966� RECONCILIATION OF GAAP NET EARNINGS TO EBITDA (in thousands) (unaudited) � Three Months Ended Twelve Months Ended December 31, December 31, 2006� 2005� 2006� 2005� � Net earnings $ 6,647� 3,682� 23,801� 17,857� Add: Income tax expense (benefit) (2,708) 380� 7,012� 9,331� Interest expense 287� 347� 1,648� 1,369� Other (income) expense (426) (345) (1,781) (627) Depreciation and amortization 499� 458� 1,905� 1,820� EBITDA $ 4,299� 4,522� 32,585� 29,750� THE ARISTOTLE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) � Assets December 31, 2006 December 31, 2005 � Current assets: Cash and cash equivalents $ 5,814� 1,803� Investments � 14,586� 12,856� Accounts receivable, net 15,458� 14,530� Inventories, net 37,487� 35,579� Prepaid expenses and other 8,123� 8,026� Deferred income taxes 4,051� 11,279� Total current assets 85,519� 84,073� � Property, plant and equipment, net 25,426� 22,361� � Goodwill 13,860� 13,799� Deferred income taxes 8,188� 2,712� Other assets 328� 408� Total assets $ 133,321� 123,353� � Liabilities and Stockholders' Equity Current liabilities: Current installments of long-term debt $ 287� 606� Trade accounts payable 9,440� 9,013� Accrued expenses 6,729� 5,736� Income taxes 1,478� 185� Accrued dividends payable 2,159� 2,159� Total current liabilities 20,093� 17,699� � Long-term debt, less current installments 11,985� 24,350� Long-term pension obligations 4,469� 858� Other long-term accruals 2,383� -� Total liabilities 38,930� 42,907� � Stockholders' equity: Preferred stock, Series I 6,601� 6,601� Preferred stock, Series J 65,760� 65,760� Common stock 172� 172� Additional paid-in capital 3,106� 3,119� Retained earnings 20,057� 4,891� Accumulated other comprehensive loss (1,305) (97) Total stockholders' equity 94,391� 80,446� Total liabilities and stockholders' equity $ 133,321� 123,353�