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þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010.

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________

Wisconsin	39-1559474
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)

Class		Outstanding at October 29, 2010
Common Stock, $0.01 par value		29,267,401

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		Page
Item 1.   Financial Statements
	Condensed Consolidated Balance Sheets at September 30, 2010 and December 31, 2009	1
	Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2010 and 2009	2
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations		8
Item 3.   Quantitative and Qualitative Disclosures About Market Risk		15
Item 4.   Controls and Procedures		16
PART II - OTHER INFORMATION
Item 1A.   Risk Factors		16
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds		16
Item 6.   Exhibits		17

(unaudited)

(In Thousands, Except Share and Per Share Amounts)		September 30, 2010				December 31, 2009
ASSETS
Current assets:
Cash and cash equivalents		$	57,795			$	36,207
Investment securities			6,634				3,278
Accounts receivable, less allowance of $1,238 and $1,392, respectively			20,864				10,535
Inventories			3,247				4,290
Prepaid expenses			1,657				1,962
Income taxes receivable			1,668				3,679
Deferred tax asset			3,827				3,827
Other current assets			723				629
Total current assets			96,415				64,407
Investment securities			5,653				4,650
Property, plant and equipment, net			6,849				6,848
Deferred tax asset			2,466				2,808
Goodwill			2,838				2,827
Other intangibles, net			737				897
Capitalized software, net			-				22
Other non-current assets			509				807
Total assets		$	115,467			$	83,266
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	2,181			$	921
Deferred revenue			72,947				54,224
Payroll and employee benefits			6,327				5,404
Other current liabilities			2,370				2,648
Total current liabilities			83,825				63,197
Deferred revenue			7,735				5,262
Deferred compensation and other employee benefits			2,233				1,871
Income taxes payable			3,765				4,801
Other noncurrent liabilities			248				184
Total liabilities			97,806				75,315
Shareholders' equity:
Common stock, $.01 par; shares authorized: 150,000,000; issued: 34,736,647 shares at September 30, 2010 and December 31, 2009			347				347
Additional paid-in capital			50,789				51,159
Retained earnings			59,847				50,255
Treasury stock, at cost: 5,478,802 shares at September 30, 2010; 5,461,905 shares at December 31, 2009			(93,194	)			(93,659	)
Accumulated other comprehensive income (loss)			(128	)			(151	)
Total shareholders' equity			17,661				7,951
Total liabilities and shareholders' equity		$	115,467			$	83,266

(unaudited)

		Three Months Ended September 30,								Nine Months Ended September 30,
(In Thousands, Except per Share Amounts)		2010				2009				2010				2009
Net Sales:
Products		$	21,150			$	21,941			$	64,504			$	63,811
Services			11,451				9,813				31,368				25,278
Total net sales			32,601				31,754				95,872				89,089
Cost of sales:
Products			3,274				3,693				10,472				10,603
Services			3,659				3,419				10,099				8,771
Total cost of sales			6,933				7,112				20,571				19,374
Gross profit			25,668				24,642				75,301				69,715
Operating expenses:
Product development			4,130				4,110				12,426				12,488
Selling and marketing			9,342				9,558				29,846				26,882
General and administrative			3,464				3,397				9,977				10,030
Total operating expenses			16,936				17,065				52,249				49,400
Operating income			8,732				7,577				23,052				20,315
Other (expense) income, net			(37	)			218				225				401
Income before taxes			8,695				7,795				23,277				20,716
Income taxes			2,469				2,590				6,964				7,474
Net income		$	6,226			$	5,205			$	16,313			$	13,242
Earnings per share:
Basic and diluted		$	0.21			$	0.18			$	0.56			$	0.45
Cash dividends declared per share		$	0.08			$	0.07			$	0.23			$	0.21

 

 

Weighted average shares outstanding:
		Three Months ended September 30,								Nine Months ended September 30,
		2010				2009				2010				2009
Basic weighted average shares outstanding			29,313,436				29,224,309				29,304,005				29,208,957
Dilutive effect of non-participating restricted shares			282				67				521				28
Dilutive weighted average shares outstanding			29,313,718				29,224,376				29,304,526				29,208,985

 

Customer Relationships
(In Thousands)		September 30, 2010				December 31, 2009
Gross amount		$	3,200			$	3,200
Accumulated amortization			(2,463	)			(2,303	)
Net carrying value		$	737			$	897

 

 

Nonvested Restricted Stock Awards		Shares				Weighted average grant date fair value				Aggregate intrinsic value
Balance at January 1, 2010			319,551			$	11.70			$	3,630,099	(1)
Granted			100,318				13.13
Vested			(74,439	)			14.83
Forfeitures			(1,037	)			11.56
Balance at September 30, 2010			344,393			$	11.44			$	3,509,365	(2)

(1) Calculated at the 12/31/09 closing market price at $11.36 per share

(2) Calculated at the 9/30/10 closing maket price at $10.19 per share

The table below provides fair value measurement information for securities held as of September 30, 2010 and 2009.  The carrying values of cash and cash equivalents, accounts receivable, and accounts payable (including income taxes payable and accrued expenses), approximated fair value at September 30, 2010 and 2009.

										Fair Value Measurements Using
(In Thousands)		Carrying Amount				Total Fair Value				Level 1 Inputs				Level 2 Inputs				Level 3 Inputs
2010
Current investment securities		$	5,086			$	5,086			$	-			$	5,086			$	-
Non-current investment securities			1,137				1,138				-				1,138				-
Assets held related to SERP plan			1,932				1,932				1,932				-				-
2009
Current investment securities		$	3,120			$	3,138			$	-			$	3,138			$	-
Non-current investment securities			415				415				-				415				-
Assets held related to SERP plan			1,750				1,750				1,750				-				-

Segment Revenues:
		Three Months Ended September 30,								Nine Months Ended September 30,
(In Thousands)		2010				2009				2010				2009
Educational Software and Services		$	28,462			$	25,773			$	80,674			$	71,666
Educational Hardware			4,139				5,981				15,198				17,423
Consolidated Revenue		$	32,601			$	31,754			$	95,872			$	89,089

 

Segment Gross Profit and Reconciliation to Net Income Before Taxes:
		Three Months Ended September 30,								Nine Months Ended September 30,
(In Thousands)		2010				2009				2010				2009
Educational Software and Services		$	23,885			$	21,582			$	68,093			$	60,924
Educational Hardware			1,783				3,060				7,208				8,791
Consolidated Gross Profit			25,668				24,642				75,301				69,715
Consolidated Operating Expenses			16,936				17,065				52,249				49,400
Other (Expense) Income			(37	)			218				225				401
Consolidated Net Income Before Taxes		$	8,695			$	7,795			$	23,277			$	20,716

 

 

 

Customer orders for our products and services increased by approximately $13.8 million, or 13%, to $118.7 million in the first nine months of 2010 compared to $104.9 million in the first nine months of 2009. Renewal rates remained strong and new adoptions and customer upgrades to Renaissance Place were good, particularly considering the economic environment. These factors along with the subscription price increase implemented late in 2009 associated with new product reports and features, all contributed to the strong order performance, partially offset by weak hardware orders. We believe that our orders for 2010 and the second half of 2009 were positively affected by educational funds provided by the American Recovery and Reinvestment Act, which generally first became available to schools during the third quarter of 2009. We also believe that the year-over-year comparison was enhanced due to the weak order levels we experienced in the first half of 2009 as a result of the economic recession, which put pressure on school budgets and caused our customers to be very cautious with their spending plans.

Consolidated income statement data:
		Three Months Ended September 30,								Nine Months Ended September 30,
		2010				2009				2010				2009
Net Sales:
Products			64.9	%			69.1	%			67.3	%			71.6	%
Services			35.1	%			30.9	%			32.7	%			28.4	%
Total net sales			100.0	%			100.0	%			100.0	%			100.0	%
Cost of sales:
Products			15.5	%			16.8	%			16.2	%			16.6	%
Services			32.0	%			34.8	%			32.2	%			34.7	%
Total cost of sales			21.3	%			22.4	%			21.5	%			21.7	%
Gross profit:
Products			84.5	%			83.2	%			83.8	%			83.4	%
Services			68.0	%			65.2	%			67.8	%			65.3	%
Total gross profit			78.7	%			77.6	%			78.5	%			78.3	%
Operating expenses:
Product development			12.7	%			12.9	%			13.0	%			14.0	%
Selling and marketing			28.6	%			30.1	%			31.1	%			30.2	%
General and administrative			10.6	%			10.7	%			10.4	%			11.3	%
Total operating expenses expenses			51.9	%			53.7	%			54.5	%			55.5	%
Operating income			26.8	%			23.9	%			24.0	%			22.8	%
Other, net			-0.1	%			0.7	%			0.2	%			0.5	%
Income before taxes			26.7	%			24.6	%			24.2	%			23.3	%
Income tax provision			7.6	%			8.2	%			7.3	%			8.4	%
Net Income			19.1	%			16.4	%			16.9	%			14.9	%

 

 

 

 

Income Tax. Income tax expense of $2.5 million was recorded in the third quarter of 2010 at an effective income tax rate of 37.0% of pre-tax income, less a tax benefit of $0.7 million primarily relating to the lapse of the statute of limitations on various tax positions.  This compares to $2.6 million that was recorded in the third quarter of 2009 at an effective income tax rate of 38.0% of pre-tax income, less a tax benefit of $0.4 million relating to the lapse of the statue of limitation on various tax positions

Product revenue increased by $0.7 million, or 1.1%, to $64.5 million in the first nine months of 2010 from $63.8 million in the first nine months of 2009 due to an increase of $3.6 million in software products which is a result of both strong orders in the period and revenue recognized from prior period’s subscription orders. This was offset by a decrease in hardware products of $2.9 million due to low demand related to the difficult funding environment and to a price decrease that went into effect at the beginning of 2010.

 

 
 

 
 

 

Results of Operations – Segments

Educational Hardware. This segment derives its revenue from our NEOs, 2Know! classroom response systems, and services such as professional development, and extended support plans sold in connection with these hardware products.

Segment results:
		Three months ended September 30,								Nine months ended September 30,
(Dollars in Thousands)		2010				2009				2010				2009
Educational Software and Services Segment:
Revenues		$	28,462			$	25,773			$	80,674			$	71,666
Gross profit			23,885				21,582				68,093				60,924
Gross profit %			83.9	%			83.7	%			84.4	%			85.0	%
Educational Hardware Segment:
Revenues		$	4,139			$	5,981			$	15,198			$	17,423
Gross profit			1,783				3,060				7,208				8,791
Gross profit %			43.1	%			51.1	%			47.4	%			50.5	%

 

Gross profit increased by $7.2 million to $68.1 million in 2010 from $60.9 million in 2009.  As a percentage of revenue, gross profit was relatively unchanged at 84.4% in 2010 compared to 85.0% in the prior year.

 

 

 

 

On April 17, 2002, our Board of Directors authorized a repurchase program which provides for the repurchase of up to 5.0 million shares of our common stock. On February 9, 2005, our Board of Directors authorized the repurchase of an additional 3.0 million shares under the stock repurchase program. On February 6, 2008, our Board of Directors authorized the repurchase of an additional 1.0 million shares under the stock repurchase program.

 

 

Payments Due by Period
(In Thousands)		Total				Less than 1 year				1-3 years				3-5 years				More than  5 years
Operating lease obligations		$	2,937			$	361			$	1,848			$	727			$	1
Tax audit related payments			-				-				-				-				-
Purchase obligations			7,547				7,532				15				-				-
Total		$	10,484			$	7,893			$	1,863			$	727			$	1

 

 

The following table shows information relating to the repurchase of shares of our common stock during the three months ended September 30, 2010:

Period		Total number  of shares repurchased				Average  price paid per share				Total number of shares purchased  as part of publicly announced plans or programs				Maximum number   of shares that may  yet be purchased under the plans or programs
July 1-31			8,300			$	14.42				8,300				1,191,287
August 1-31			-				-				-				1,191,287
September 1-30			94,722				9.82				94,722				1,096,565
Total			103,022								103,022

Exhibit No.	Description
31.1	Section 302 certification by Glenn R. James
31.2	Section 302 certification by Mary T. Minch
32.1	Section 906 certification by Glenn R. James
32.2	Section 906 certification by Mary T. Minch

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	RENAISSANCE LEARNING, INC.
	(Registrant)
November 5, 2010	/s/ Glenn R. James
Date	Glenn R. James
	Chief Executive Officer and a Director (Principal Executive Officer)
November 5, 2010	/s/ Mary T. Minch
Date	Mary T. Minch
	Executive Vice President-Finance, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)

Index to Exhibits

Exhibit No.	Description
31.1	Section 302 certification by Glenn R. James
31.2	Section 302 certification by Mary T. Minch
32.1	Section 906 certification by Glenn R. James
32.2	Section 906 certification by Mary T. Minch

 

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