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EXCEL - IDEA: XBRL DOCUMENT - CAMBIUM LEARNING GROUP, INC.Financial_Report.xls

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to                 .

Commission File Number: 001-34575

 

Cambium Learning Group, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

   

27-0587428

(State or Other Jurisdiction of
Incorporation or Organization)

   

(I.R.S. Employer
Identification No.)

   

   

   

17855 Dallas Parkway, Suite 400, Dallas, Texas

   

75287

(Address of Principal Executive Offices)

   

(Zip Code)

Registrant’s telephone number, including area code: (888) 399-1995

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x      No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x      No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

   

¨

      

Accelerated filer

   

¨

 

 

 

 

 

 

 

Non-accelerated filer

   

¨  (Do not check if a smaller reporting company)

      

 

Smaller reporting company

   

x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨      No  x

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding as of May 7, 2015 was 45,487,385.

 

 

 

 

 


 

TABLE OF CONTENTS

 

 

 

 

Page

PART I

 

FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

 

Financial Statements

3

 

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) for the Three Months Ended March 31, 2015 and March 31, 2014

3

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2015 (Unaudited) and December 31, 2014

4

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2015 and March 31, 2014

6

 

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

7

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

28

 

 

 

 

Item 4.

 

Controls and Procedures

29

 

 

 

 

PART II

 

OTHER INFORMATION

29

 

 

 

 

Item 1.

 

Legal Proceedings

29

 

 

 

 

Item 1A.

 

Risk Factors

29

 

 

 

 

Item 6.

 

Exhibits

30

 

 

 

 

SIGNATURE PAGE

31

 

 

EXHIBITS

32

 

 

 

2


 

Item 1. Financial Statements.

Cambium Learning Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share data)

(Unaudited)

 

 

Three Months Ended March 31,

 

 

2015

 

 

2014

 

Net revenues

$

31,471

 

 

$

31,080

 

Cost of revenues:

 

 

 

 

 

 

 

Cost of revenues

 

6,886

 

 

 

9,011

 

Amortization expense

 

4,003

 

 

 

4,080

 

Total cost of revenues

 

10,889

 

 

 

13,091

 

Research and development expense

 

2,477

 

 

 

2,747

 

Sales and marketing expense

 

10,644

 

 

 

10,582

 

General and administrative expense

 

5,215

 

 

 

5,180

 

Shipping and handling costs

 

174

 

 

 

196

 

Depreciation and amortization expense

 

993

 

 

 

1,064

 

Total costs and expenses

 

30,392

 

 

 

32,860

 

Income (loss) before interest, other income (expense) and income taxes

 

1,079

 

 

 

(1,780

)

Net interest expense

 

(3,674

)

 

 

(4,738

)

Loss on extinguishment of debt

 

 

 

 

(213

)

Other income, net

 

215

 

 

 

215

 

Loss before income taxes

 

(2,380

)

 

 

(6,516

)

Income tax expense

 

(118

)

 

 

(71

)

Net loss

$

(2,498

)

 

$

(6,587

)

Other comprehensive loss:

 

 

 

 

 

 

 

Amortization of net pension loss

 

56

 

 

 

22

 

Comprehensive loss

$

(2,442

)

 

$

(6,565

)

Net loss per common share:

 

 

 

 

 

 

 

Basic

$

(0.05

)

 

$

(0.14

)

Diluted

$

(0.05

)

 

$

(0.14

)

Average number of common shares and equivalents outstanding:

 

 

 

 

 

 

 

Basic

 

45,479

 

 

 

45,685

 

Diluted

 

45,479

 

 

 

45,685

 

 

 

 

 

 

 

 

 

 

The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

 

 

3


 

Cambium Learning Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

  

 

March 31, 2015

 

 

December 31, 2014

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

19,775

 

 

$

34,387

 

Accounts receivable, net

 

12,003

 

 

 

14,304

 

Inventory

 

5,525

 

 

 

5,337

 

Restricted assets, current

 

1,345

 

 

 

1,345

 

Other current assets

 

8,803

 

 

 

8,168

 

Total current assets

 

47,451

 

 

 

63,541

 

Property, equipment and software at cost

 

54,018

 

 

 

51,298

 

Accumulated depreciation and amortization

 

(32,609

)

 

 

(30,442

)

Property, equipment and software, net

 

21,409

 

 

 

20,856

 

Goodwill

 

47,842

 

 

 

47,842

 

Acquired curriculum and technology intangibles, net

 

4,575

 

 

 

5,209

 

Acquired publishing rights, net

 

2,436

 

 

 

2,762

 

Other intangible assets, net

 

4,182

 

 

 

4,499

 

Pre-publication costs, net

 

15,580

 

 

 

15,070

 

Restricted assets, less current portion

 

3,846

 

 

 

4,152

 

Other assets

 

7,620

 

 

 

7,635

 

Total assets

$

154,941

 

 

$

171,566

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

 

4


 

Cambium Learning Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

  

 

March 31, 2015

 

 

December 31, 2014

 

 

(Unaudited)

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Capital lease obligations, current

$

1,091

 

 

$

1,076

 

Accounts payable

 

2,996

 

 

 

1,612

 

Accrued expenses

 

11,624

 

 

 

17,432

 

Deferred revenue, current

 

51,614

 

 

 

61,788

 

Total current liabilities

 

67,325

 

 

 

81,908

 

Long-term liabilities:

 

 

 

 

 

 

 

Long-term debt

 

139,755

 

 

 

139,723

 

Capital lease obligations, less current portion

 

664

 

 

 

943

 

Deferred revenue, less current portion

 

10,135

 

 

 

9,409

 

Other liabilities

 

14,405

 

 

 

14,638

 

Total long-term liabilities

 

164,959

 

 

 

164,713

 

 

Commitments and contingencies (See Note 12)

 

 

 

 

 

 

 

Stockholders' equity (deficit):

 

 

 

 

 

 

 

Preferred stock ($.001 par value, 15,000 shares authorized, zero

   shares issued and outstanding at March 31, 2015 and

   December 31, 2014)

 

 

 

 

 

Common stock ($.001 par value, 150,000 shares authorized,

   52,019 and 52,006 shares issued, and  45,487 and 45,474

   shares outstanding at March 31, 2015 and December 31, 2014,

   respectively)

 

52

 

 

 

52

 

Capital surplus

 

284,397

 

 

 

284,243

 

Accumulated deficit

 

(345,148

)

 

 

(342,650

)

Treasury stock at cost (6,532 shares at March 31, 2015

   and December 31, 2014)

 

(12,784

)

 

 

(12,784

)

Accumulated other comprehensive loss:

 

 

 

 

 

 

 

Pension and postretirement plans

 

(3,860

)

 

 

(3,916

)

Accumulated other comprehensive loss

 

(3,860

)

 

 

(3,916

)

Total stockholders' equity (deficit)

 

(77,343

)

 

 

(75,055

)

Total liabilities and stockholders' equity (deficit)

$

154,941

 

 

$

171,566

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

 

 

5


 

Cambium Learning Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited) 

 

 

Three Months Ended March 31,

 

 

2015

 

 

2014

 

Operating activities:

 

 

 

 

 

 

 

Net loss

$

(2,498

)

 

$

(6,587

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization expense

 

4,996

 

 

 

5,144

 

Loss on extinguishment of debt

 

 

 

 

213

 

Amortization of note discount and deferred financing costs

 

304

 

 

 

429

 

Stock-based compensation and expense

 

135

 

 

 

112

 

Other

 

1

 

 

 

22

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable, net

 

2,301

 

 

 

5,168

 

Inventory

 

(188

)

 

 

866

 

Other current assets

 

(635

)

 

 

(302

)

Other assets

 

(257

)

 

 

(2,450

)

Restricted assets

 

306

 

 

 

326

 

Accounts payable

 

1,384

 

 

 

400

 

Accrued expenses

 

(5,808

)

 

 

(9,360

)

Deferred revenue

 

(9,448

)

 

 

(10,424

)

Other long-term liabilities

 

(177

)

 

 

(206

)

Net cash used in operating activities

 

(9,584

)

 

 

(16,649

)

Investing activities:

 

 

 

 

 

 

 

Cash paid for acquisitions

 

 

 

 

(3,600

)

Expenditures for property, equipment, software and pre-publication costs

 

(4,783

)

 

 

(3,986

)

Net cash used in investing activities

 

(4,783

)

 

 

(7,586

)

Financing activities:

 

 

 

 

 

 

 

Principal payments under capital lease obligations

 

(264

)

 

 

(233

)

Repayment of debt

 

 

 

 

(1,985

)

Proceeds from exercise of stock options

 

19

 

 

 

 

Share repurchases

 

 

 

 

(301

)

Net cash used in financing activities

 

(245

)

 

 

(2,519

)

Change in cash and cash equivalents

 

(14,612

)

 

 

(26,754

)

Cash and cash equivalents, beginning of period

 

34,387

 

 

 

67,993

 

Cash and cash equivalents, end of period

$

19,775

 

 

$

41,239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

 

6


 

Cambium Learning Group, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

Note 1 — Basis of Presentation

Presentation

The Condensed Consolidated Financial Statements include the accounts of Cambium Learning Group, Inc. and its subsidiaries (the “Company”) and are unaudited.  The condensed consolidated balance sheets as of December 31, 2014 have been derived from audited financial statements.  All intercompany transactions have been eliminated.

As permitted under the Securities and Exchange Commission (“SEC”) requirements for interim reporting, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been omitted.  The Company believes that these financial statements include all necessary and recurring adjustments for the fair presentation of the interim period results.  These financial statements should be read in conjunction with the Consolidated Financial Statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014.  Due to seasonality, the results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results to be expected for any future interim period or for the year ending December 31, 2015.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Subsequent actual results may differ from those estimates.

Nature of Operations

The Company is a leading educational solutions and services company that is committed to helping every student reach their full potential.  The Company’s brands include:  Learning A–Z, Voyager Sopris Learning, ExploreLearning, and Kurzweil Education.  Together, these brands provide breakthrough technology solutions for online learning and professional support; best-in-class intervention and supplemental instructional materials; gold-standard professional development and school-improvement services; valid and reliable assessments; and proven materials to support a positive and safe school environment.  

These brands comprise three reportable segments with separate management teams and infrastructures that offer various products and services.  See Note 14 – Segment Reporting for further information on the Company’s segment reporting structure.  

 

Note 2 — Accounts Receivable

Accounts receivable are stated net of allowances for doubtful accounts and estimated sales returns.  The allowance for doubtful accounts and estimated sales returns totaled $0.5 million at March 31, 2015 and $0.4 million at December 31, 2014.  The allowance for doubtful accounts is based on a review of outstanding balances and historical collection experience.  The reserve for sales returns is based on historical rates of return as well as other factors that in the Company’s judgment, could reasonably be expected to cause sales returns to differ from historical experience.

 

Note 3 — Stock-Based Compensation and Expense

Cambium Learning Group, Inc. 2009 Equity Incentive Plan

In 2009, the Company adopted the Cambium Learning Inc. 2009 Equity Incentive Plan (“Incentive Plan”).  Under the Incentive Plan, 5,000,000 shares of common stock were reserved for issuance of awards which may be granted in the form of incentive stock options, non-statutory stock options, stock appreciate rights, restricted stock, restricted stock units, conversion stock options, conversion stock appreciation rights, and other stock or cash awards.  The Incentive Plan is administered by the board of directors which has the authority to establish the terms and conditions of awards granted under the Incentive Plan.


7


 

Stock-Based Compensation and Expense

Stock-based compensation and expense for the three months ended March 31, 2015 and 2014 was allocated as follows:

 

 

Three Months Ended March 31,

 

(in thousands)

2015

 

 

2014

 

Cost of revenues

$

8

 

 

$

9

 

Research and development expense

 

28

 

 

 

22

 

Sales and marketing expense

 

33

 

 

 

24

 

General and administrative expense

 

66

 

 

 

57

 

Total

$

135

 

 

$

112

 

Subsequent Event

On May 5, 2015, the Company granted 371,225 options under the Incentive Plan with an exercise price of $2.96.  The options vest in equal monthly installments on the last day of the month over a four year period, with an initial vesting date of May 31, 2015.

 

Note 4 — Net Loss per Common Share

Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period; including potential dilutive shares of common stock assuming the dilutive effect of outstanding stock options and restricted stock awards using the treasury stock method.  Weighted-average shares from common share equivalents in the amount of 2,612,281 and 2,478,737 for the three months ended March 31, 2015 and 2014, respectively, were excluded from the respective dilutive shares outstanding because their effect was anti-dilutive.

The following table presents the calculation of basic and diluted net loss per share:

 

 

Three Months Ended March 31,

 

(in thousands, except per share data)

2015

 

 

2014

 

Numerator:

 

 

 

 

 

 

 

Net loss

$

(2,498

)

 

$

(6,587

)

Denominator:

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

Weighted-average common shares used in computing basic net loss per share

 

45,479

 

 

 

45,685

 

Diluted:

 

 

 

 

 

 

 

Add weighted-average effect of dilutive securities:

 

 

 

 

 

 

 

Stock options and restricted stock awards

 

 

 

 

 

Weighted-average common shares used in computing diluted net loss per share

 

45,479

 

 

 

45,685

 

Net loss per common share:

 

 

 

 

 

 

 

Basic

$

(0.05

)

 

$

(0.14

)

Diluted

$

(0.05

)

 

$

(0.14

)

Common Stock Repurchases

During the three months ended March 31, 2014, the Company repurchased 167,961 shares of its outstanding common stock for $0.3 million.  The Company did not repurchase any of its outstanding common stock during the three months ended March 31, 2015.

 

Note 5 — Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability (exit price), in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  Valuation techniques are based on observable or unobservable inputs.  Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions.  These two types of inputs have created the following fair value hierarchy:

·

Level 1 — Quoted prices for identical instruments in active markets.

·

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant value drivers are observable.

·

Level 3 — Valuations derived from valuation techniques in which significant value drivers are unobservable.

8


 

Applicable guidance requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

At March 31, 2015, financial instruments include $19.8 million of cash and cash equivalents, restricted assets of $5.2 million, collateral investments of $3.6 million, and $139.8 million of senior secured notes.  At December 31, 2014, financial instruments include $34.4 million of cash and cash equivalents, restricted assets of $5.5 million, collateral investments of $3.6 million, and $139.7 million of senior secured notes.  The fair market values of cash equivalents, restricted assets, and collateral investments are equal to their carrying value, as these investments are recorded based on quoted market prices and/or other market data for the same or comparable instruments and transactions as of the end of the reporting period.   

At March 31, 2015 and December 31, 2014, the senior secured notes, with aggregate outstanding principal amount of $140.0 million, had a fair value of $137.2 million and $137.4 million, respectively, based on quoted market prices in active markets for these debt instruments when traded as assets (Level 1).

Assets and liabilities measured at fair value on a recurring basis are as follows:

 

(in thousands)

 

 

 

 

Fair Value at Reporting Date Using

 

Description

March 31, 2015

 

 

Quoted Prices

in Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Restricted Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market

$

5,191

 

 

$

5,191

 

 

$

 

 

$

 

Collateral Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market

 

904

 

 

 

904

 

 

 

 

 

 

 

Certificates of Deposit

 

2,721

 

 

 

2,721

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

Fair Value at Reporting Date Using

 

Description

December 31, 2014

 

 

Quoted Prices

in Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Restricted Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market

$

5,497

 

 

$

5,497

 

 

$

 

 

$

 

Collateral Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market

 

904

 

 

 

904

 

 

 

 

 

 

 

Certificates of Deposit

 

2,720

 

 

 

2,720

 

 

 

 

 

 

 

 

 

(in thousands)

Total Gains (Losses) for the

Three Months Ended March 31,

 

Description

2015

 

 

2014

 

Restricted Assets:

 

 

 

 

 

 

 

Money Market

$

 

 

$

 

Collateral Investments:

 

 

 

 

 

 

 

Money Market

 

 

 

 

 

Certificates of Deposit

 

 

 

 

 

 


9


 

Assets and liabilities measured at fair value on a non-recurring basis are listed below at their carrying values as of each reporting date:  

 

(in thousands)

 

 

 

 

Fair Value at Reporting Date Using

 

Description

March 31, 2015

 

 

Quoted Prices

in Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Goodwill

$

47,842

 

 

$

 

 

$

 

 

$

47,842

 

Property, equipment and software, net

 

21,409

 

 

 

 

 

 

 

 

 

21,409

 

Pre-publication costs, net

 

15,580

 

 

 

 

 

 

 

 

 

15,580

 

Acquired curriculum and technology

     intangibles, net

 

4,575

 

 

 

 

 

 

 

 

 

4,575

 

Acquired publishing rights, net

 

2,436

 

 

 

 

 

 

 

 

 

2,436

 

Other intangible assets, net

 

4,182

 

 

 

 

 

 

 

 

 

4,182

 

 

 

 

 

(in thousands)

 

 

 

 

Fair Value at Reporting Date Using

 

Description

December 31, 2014

 

 

Quoted Prices

in Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Goodwill

$

47,842

 

 

$

 

 

$

 

 

$

47,842

 

Property, equipment and software, net

 

20,856

 

 

 

 

 

 

 

 

 

20,856

 

Pre-publication costs, net

 

15,070

 

 

 

 

 

 

 

 

 

15,070

 

Acquired curriculum and technology

     intangibles, net

 

5,209

 

 

 

 

 

 

 

 

 

5,209

 

Acquired publishing rights, net

 

2,762

 

 

 

 

 

 

 

 

 

2,762

 

Other intangible assets, net

 

4,499

 

 

 

 

 

 

 

 

 

4,499

 

 

 

(in thousands)

Total Gains (Losses) for the

Three Months Ended March 31,

 

Description

2015

 

 

2014

 

Goodwill

$

 

 

$

 

Property, equipment and software, net

 

 

 

 

 

Pre-publication costs, net

 

 

 

 

 

Acquired curriculum and technology intangibles, net

 

 

 

 

 

Acquired publishing rights, net

 

 

 

 

 

Other intangible assets, net

 

 

 

 

 

 

There were no significant remeasurements of these assets during the three months ended March 31, 2015 or 2014.

 

Note 6 — Other Current Assets

Other current assets at March 31, 2015 and December 31, 2014 consisted of the following:

 

(in thousands)

March 31, 2015

 

 

December 31, 2014

 

Deferred costs

$

5,067

 

 

$

5,908

 

Prepaid expenses

 

3,020

 

 

 

1,714

 

Deferred taxes

 

546

 

 

 

546

 

Other

 

170

 

 

 

 

Other current assets

$

8,803

 

 

$

8,168

 

 

 

10


 

Note 7 — Other Assets

Other assets at March 31, 2015 and December 31, 2014 consisted of the following:

 

(in thousands)

March 31, 2015

 

 

December 31, 2014

 

Deferred financing costs

$

2,077

 

 

$

2,349

 

Collateral investments

 

3,625

 

 

 

3,624

 

Deferred costs, less current portion

 

1,101

 

 

 

828

 

Other

 

817

 

 

 

834

 

Other assets

$

7,620

 

 

$

7,635

 

 

Deferred Financing Costs

Deferred financing costs relate to costs incurred with the issuance of the 9.75% senior secured notes due 2017.  See Note 13 – Long-Term Debt.

Collateral Investments

The Company maintains certificates of deposit to collateralize its outstanding letters of credit associated with the build-to-suit lease, credit collections, and workers’ compensation activity.  At March 31, 2015 and December 31, 2014, the Company had $2.7 million in certificates of deposit serving as collateral for its outstanding letters of credit.

During the quarter ended March 31, 2014, the company purchased certificates of deposit of $2.1 million to serve as collateral for outstanding letters of credit previously collateralized by the ABL Facility that was terminated on March 26, 2014 as described in Note 13 – Long-Term Debt.  See Note 12 – Commitments and Contingencies for additional information regarding the Company’s outstanding letters of credit.

Additionally, the Company maintains a money market fund investment to serve as collateral for a travel card program.  The balance of the money market fund investment was $0.9 million at March 31, 2015 and December 31, 2014.

 

Note 8 — Accrued Expenses

Accrued expenses at March 31, 2015 and December 31, 2014 consisted of the following:

 

(in thousands)

March 31, 2015

 

 

December 31, 2014

 

Salaries, bonuses and benefits

$

4,415

 

 

$

6,439

 

Accrued interest

 

1,708

 

 

 

5,119

 

Pension and post-retirement benefit plans

 

1,173

 

 

 

1,173

 

Accrued royalties

 

891

 

 

 

1,369

 

Headsprout acquisition accrual

 

400

 

 

 

400

 

Other

 

3,037

 

 

 

2,932

 

Accrued expenses

$

11,624

 

 

$

17,432

 

 

Accrued Interest

Accrued interest at March 31, 2015 and December 31, 2014 primarily relates to the Company’s 9.75% senior secured notes. The senior secured notes require semi-annual interest payments in arrears on each February 15th and August 15th over the life of the notes.

Pension and Post-Retirement Benefit Plans

See Note 10 – Pension Plan for additional information regarding the Company’s pension and post-retirement benefit plans.

Headsprout Acquisition Accrual

In December 2013, LAZEL, Inc., a wholly owned subsidiary of the Company, completed the acquisition of certain assets of Headsprout for $4.0 million.  Of the total purchase price, $3.6 million was paid in January 2014 with the remaining $0.4 million to be paid 18 months after the closing date, subject to the holdback provisions of the purchase agreement.

 

11


 

Note 9 — Other Liabilities

Other liabilities at March 31, 2015 and December 31, 2014 consisted of the following:

 

(in thousands)

March 31, 2015

 

 

December 31, 2014

 

Pension and post-retirement benefit plans, long-term portion

$

11,261

 

 

$

11,440

 

Deferred rent

 

995

 

 

 

1,043

 

Long-term income tax payable

 

1,250

 

 

 

1,237

 

Long-term deferred tax liability

 

559

 

 

 

559

 

Long-term deferred compensation

 

340

 

 

 

359

 

Other liabilities

$

14,405

 

 

$

14,638

 

 

Pension and Post-Retirement Benefit Plans

See Note 10 – Pension Plan for additional information regarding the Company’s pension and post-retirement benefit plans.

 

 

Note 10 — Pension Plan

The net pension costs of the Company’s defined benefit pension plan were comprised primarily of interest costs and totaled $0.2 million and $0.1  million, respectively, for the three months ended March 31, 2015 and 2014.  The net pension costs for the three months ended March 31, 2015 included the amortization of accumulated net loss of $0.1 million while the net pension costs for the three months ended March 31, 2014 included an immaterial amount of amortization of accumulated net loss.  

 

Note 11 — Uncertain Tax Positions

The Company recognizes the financial statement impacts of a tax return position when it is more likely than not, based on technical merits, that the position will ultimately be sustained.  For tax positions that meet this recognition threshold, the Company applies judgment, taking into account applicable tax laws, experience managing tax audits and relevant GAAP, to determine the amount of tax benefits to recognize in its financial statements.  For each position, the difference between the benefit realized on the Company’s tax return and the benefit reflected in its financial statements is recorded to Other Liabilities in the Condensed Consolidated Balance Sheets as an unrecognized tax benefit (“UTB”).  The Company updates its UTBs at each financial statement date to reflect the impacts of audit settlements and other resolution of audit issues, expiration of statutes of limitation, developments in tax law and ongoing discussions with tax authorities.  The balance of UTBs was $6.5 million at March 31, 2015 and December 31, 2014.

The Company recognizes interest accrued related to its UTBs and penalties as income tax expense.  Related to the UTBs noted above, the Company recognized no penalties and immaterial interest during the three months ended March 31, 2015.  At March 31, 2015, the Company has liabilities of $0.3 million for penalties (gross) and $0.2 million for interest (gross).

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions.  All U.S. tax years prior to 2008 related to the Voyager Learning Company acquired entities have been audited by the Internal Revenue Service.  Cambium and its subsidiaries have been examined by the Internal Revenue Service through the end of 2006.  The Company has been audited by the various state tax authorities through 2007.  

 

Note 12 — Commitments and Contingencies

Legal Proceedings

The Company is involved in various legal proceedings incidental to its business.  Management believes that the outcome of these proceedings will not have a material adverse effect upon the Company’s consolidated operations or financial condition and the Company has recognized appropriate liabilities as necessary based on facts and circumstances known to management. The Company expenses legal costs related to legal contingencies as incurred.

Purchase Commitments

From time to time, the Company may enter into firm purchase commitments for printed materials included in inventory which the Company expects to use in the ordinary course of business.  These commitments are typically for terms less than one year and require the Company to buy minimum quantities of materials with specific delivery dates at a fixed price over the term. These open purchase commitments totaled $0.5 million as of March 31, 2015.


12


 

Letters of Credit

The Company has letters of credit outstanding at March 31, 2015 in the amount of $2.0 million to support the build-to-suit lease, credit collections, and workers’ compensation activity.  The Company maintains certificates of deposit as collateral for the letters of credit. The Company also maintains a $0.9 million money market fund investment as collateral for a travel card program. The certificates of deposit and money market fund investment are included in Collateral Investments in Note 7 — Other Assets.

 

Note 13 — Long-Term Debt

Long-term debt at March 31, 2015 and December 31, 2014 consisted of the following: 

(in thousands)

March 31, 2015

 

 

December 31, 2014

 

9.75% senior secured notes due February 15, 2017,

   interest payable semiannually

$

140,000

 

 

$

140,000

 

Less: Unamortized discount

 

(245

)

 

 

(277

)

Long-term debt

$

139,755

 

 

$

139,723

 

 

Senior Secured Notes Due 2017

In February 2011, the Company closed an offering of $175 million aggregate principal amount of 9.75% senior secured notes due 2017 (the “Notes”).  Deferred financing costs, net of accumulated amortization, are capitalized in Other Assets in the Condensed Consolidated Balance Sheets, and are amortized over the term of the related debt using the effective interest method.  Unamortized capitalized deferred financing costs at March 31, 2015 and December 31, 2014 were $2.1 million and $2.3 million, respectively, related to the Notes.  

Interest on the Notes accrues at a rate of 9.75% per annum from the date of original issuance and is payable semi-annually in arrears on each February 15th and August 15th to the holders of record of the Notes on the immediately preceding February 1st and August 1st.  No principal repayments are due until the maturity date of the Notes.

The Notes are secured by (i) a first priority lien on substantially all of the Company’s assets including capital stock of the guarantors (which are certain of the Company’s subsidiaries), and (ii) a second-priority lien, prior to the termination of the ABL Facility (as defined and described below), on substantially all of the inventory and accounts receivable and related assets of the ABL Credit Parties, in each case, subject to certain permitted liens.  The Notes also contain customary covenants, including limitations on the Company’s ability to incur debt, and events of default as defined by the agreement.  The Company may, at its option, redeem the Notes prior to their maturity based on the terms included in the agreement.

During the quarter ended March 31, 2014, the Company repurchased $2.0 million aggregate principal amount of Notes for approximately $2.0 million, plus accrued and unpaid interest.  The Company recognized an immaterial Loss on Extinguishment of Debt in connection with this repurchase, which was primarily due to the write-off of unamortized deferred financing costs.  

ABL Facility

In February 2011, the Company’s wholly owned subsidiary, Cambium Learning, Inc. (together with its wholly owned subsidiaries, the “ABL Credit Parties”), entered into a credit facility (the “ABL Facility”) pursuant to a Loan and Security Agreement (the “ABL Loan Agreement”), by and among the ABL Credit Parties, Harris N.A., individually and as Agent (the “Agent”) for any ABL Lender (as hereinafter defined) which is or becomes a party to said ABL Loan Agreement, certain other lenders party thereto (together with Harris N.A. in its capacity as a lender, the “ABL Lenders”), Barclays Bank PLC, individually and as Collateral Agent, and BMO Capital Markets and Barclays Capital, as Joint Lead Arrangers and Joint Book Runners. The ABL Facility consisted of a four-year $40.0 million revolving credit facility, which included a $5.0 million subfacility for swing line loans and a $5.0 million subfacility for letters of credit.  

The ABL Facility was, subject to certain exceptions, secured by a first-priority lien on the ABL Credit Parties’ inventory and accounts receivable and related assets and a second-priority lien (junior to the lien securing the ABL Credit Parties’ obligations with respect to the Notes) on substantially all of the ABL Credit Parties’ other assets.

The ABL Credit Parties were required to pay, quarterly in arrears, an unused line fee equal to the product of (x) either 0.375% or 0.50% (depending upon the ABL Credit Parties’ fixed charge coverage ratio at the time) and (y) the average daily unused amount of the revolver.  The ABL Facility contained a financial covenant that generally required the ABL Credit Parties to maintain, on a consolidated basis, either (i) excess availability of at least the greater of $8.0 million and 15% of the revolver commitment or (ii) a fixed charge coverage ratio of 1.1 to 1.0.  

During the quarter ended March 31, 2014, the Company’s excess availability and fixed charge coverage ratios fell below the required thresholds, which put the Company in a Trigger Period as defined under the ABL Facility agreement.  On March 26, 2014, the Company had no borrowings outstanding under the agreement and terminated the ABL Facility.  A Loss on Extinguishment of

13


 

Debt of approximately $0.2 million was recognized in connection with the termination related to the write-off of unamortized deferred financing costs.

 

Note 14 — Segment Reporting

The Company operates in three reportable segments with separate management teams and infrastructures that offer various products and services.

Reclassifications

Certain prior period reclassifications have been made to conform to the current period presentation.

Segment Aggregation

Prior to the first quarter of 2015, the Voyager Sopris Learning and Kurzweil Education operating segments were separately reported in the financial statements.  As permitted by GAAP, the Company elected to aggregate these two operating segments into a single reportable segment titled Voyager Sopris Learning.  The separate Voyager Sopris Learning and Kurzweil Education operating segments have similar economic characteristics as well as similar products and services, production processes, class of customers, and product and service distribution methods.  In addition, the Company believes the aggregated presentation is more useful to investors and other financial statement users because both units are in the midst of transitioning to higher concentrations of technology-enabled solutions and because of the relatively small financial contribution of Kurzweil Education to the consolidated results.

Operating Expenses and General Capital Expenditures

Certain operating expenses, such as rent, personnel and consulting fees, previously pooled and reported in Other in the segment information have been reclassified to the applicable reportable segment to which the expense directly supported.  Additionally, General Capital Expenditures, also previously reported in Other in the segment information, have been reclassified to the applicable reportable segment to which the expenditure related.  These reclassifications were made in order to provide a more complete depiction of the reportable segments as stand-alone operations.  Segment disclosures for the three months ended March 31, 2014 were conformed to the 2015 presentation.

The following table reports the effect of these reclassifications on prior period disclosures:

 

Three Months Ended March 31, 2014

 

(in thousands)

Learning

A-Z

 

 

Voyager Sopris

Learning

 

 

ExploreLearning

 

 

Other

 

 

Consolidated

 

Operating expense

$

33

 

 

$

173

 

 

$

 

 

$

(206

)

 

$

 

Expenditures for property, equipment, software

   and pre-publication costs

 

221

 

 

 

119

 

 

 

192

 

 

 

(532

)

 

 

 

Learning A-Z Segment

Learning A-Z is a preK-6 educational resource company specializing in online delivery of leveled readers and supplementary curriculum.  Founded in 2002 to help teachers differentiate instruction and meet the unique needs of all students, Learning A-Z’s resources are currently used in more than half the districts across the United States and Canada and in approximately 190 countries worldwide.  Serving a wide range of student needs, including English language learners, intervention, special education, and daily instruction, Learning A-Z’s value proposition focuses on three key elements:

·

Saving teachers time, giving them all the resources they need, all online, all accessible at the click of a mouse

·

Saving teachers money, delivering thousands of resources for a fraction of the cost of print and other online providers

·

Supporting student achievement through differentiated instruction, ensuring the right high-quality resources for every preK-6 student

Learning A-Z operates seven subscription-based websites: Reading A-Z, Raz-Kids, Vocabulary A-Z, Headsprout®, ReadyTest A-Z, Writing A-Z and Science A-Z. These websites are stand-alone or integrated, for a comprehensive solution that provides online supplemental books, lessons, assessments and other instructional resources for individual classrooms, schools, and districts.

Voyager Sopris Learning Segment

The Voyager Sopris Learning segment is comprised of the Company’s Voyager Sopris Learning and Kurzweil Education brands.

Voyager Sopris Learning Brand

The Voyager Sopris Learning brand is committed to partnering with school districts to overcome obstacles that students, teachers, and school leaders face every day. The suite of instructional and service solutions the Voyager Sopris Learning brand provides is not only research based, but also evidence based—proven to increase student achievement and educator effectiveness.

14


 

Voyager Sopris Learning’s solutions have been fully tested in the classroom, ensuring that they are easy to implement and teacher friendly. They are innovative, both in overall instructional approach and in the strategic use of technology in blended and 100% online solutions and are supported by an unparalleled commitment to build local capacity for sustained success. With a comprehensive suite of instructional resources, the Voyager Sopris Learning brand provides assessments, professional development and school improvement services, literacy and math instructional tools—comprehensive, intervention and supplemental—and resources to build a positive school climate.

Kurzweil Education Brand

The Kurzweil Education brand delivers award-winning educational technology that solves real problems.  The brand’s literacy and learning solutions offer learners a way up and a path forward.  Using the principals of Universal Design for Learning, the Kurzweil Education brand provides technology-based solutions that enable all learners to read, understand and demonstrate their learning using technology-based tools and resources.

ExploreLearning Segment

ExploreLearning develops online solutions to improve student learning in math and science.  ExploreLearning currently offers two supplemental programs: Gizmos, the world’s largest library of online simulations for math and science in grades 3-12 that help students gain a deep understanding of challenging concepts through active inquiry and exploration; and Reflex, a powerful adaptive online program that helps students in grades 2-8 develop math fact fluency through game-based instruction and practice.

Gizmos and Reflex bring research-proven, standards-aligned instructional strategies to classrooms around the world.  They support the tenets of the National Council of Teachers of Mathematics, the National Science Teachers Association and new rigorous state and national standards.  Additionally, new studies show students using Reflex are scoring higher and growing faster than their peers on standardized tests.

Other

Other consists of unallocated shared services, such as accounting, legal, human resources and corporate related items, as well as depreciation and amortization expense, other income and expense, and income taxes.  The Company does not allocate any of these costs to its segments, and the chief operating decision maker evaluates performance of operating segments excluding these items.

The following table presents the net revenues, operating expenses, income (loss) from operations, and capital expenditures which are used by the Company’s chief operating decision maker to measure the segments’ operating performance. The Company does not track assets directly by segment and the chief operating decision maker does not use assets to measure a segment’s operating performance, and therefore this information is not presented.

 

 

Three Months Ended March 31, 2015

 

(in thousands)

Learning

A-Z

 

 

Voyager Sopris

Learning

 

 

ExploreLearning

 

 

Other

 

 

Consolidated

 

Net revenues

$

12,935

 

 

$

13,746

 

 

$

4,790

 

 

$

 

 

$

31,471

 

Cost of revenues

 

466

 

 

 

5,742

 

 

 

678

 

 

 

 

 

 

6,886

 

Amortization expense

 

 

 

 

 

 

 

 

 

 

4,003

 

 

 

4,003

 

Total cost of revenues

 

466

 

 

 

5,742

 

 

 

678

 

 

 

4,003

 

 

 

10,889

 

Other operating expenses

 

5,596

 

 

 

6,648

 

 

 

2,597

 

 

 

3,669

 

 

 

18,510

 

Depreciation and amortization

   expense

 

 

 

 

 

 

 

 

 

 

993

 

 

 

993

 

Total costs and expenses

 

6,062

 

 

 

12,390

 

 

 

3,275

 

 

 

8,665

 

 

 

30,392

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before interest, other

   income (expense) and income taxes

 

6,873

 

 

 

1,356

 

 

 

1,515

 

 

 

(8,665

)

 

 

1,079

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest expense

 

 

 

 

 

 

 

 

 

 

(3,674

)

 

 

(3,674

)

Other income, net

 

 

 

 

 

 

 

 

 

 

215

 

 

 

215

 

Income tax expense

 

 

 

 

 

 

 

 

 

 

(118

)

 

 

(118

)

Segment net income (loss)

$

6,873

 

 

$

1,356

 

 

$

1,515

 

 

$

(12,242

)

 

$

(2,498

)

Expenditures for property, equipment,

   software and pre-publication costs

$

1,812

 

 

$

2,285

 

 

$

614

 

 

$

72

 

 

$

4,783

 

 

 

 

15


 

 

Three Months Ended March 31, 2014

 

(in thousands)

Learning

A-Z

 

 

Voyager Sopris

Learning

 

 

ExploreLearning

 

 

Other

 

 

Consolidated

 

Net revenues

$

10,181

 

 

$

16,425

 

 

$

4,474

 

 

$

 

 

$

31,080

 

Cost of revenues

 

422