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EX-31.1 - EX-31.1 - CAMBIUM LEARNING GROUP, INC.abcd-ex311_9.htm
EX-31.2 - EX-31.2 - CAMBIUM LEARNING GROUP, INC.abcd-ex312_6.htm
EX-32.2 - EX-32.2 - CAMBIUM LEARNING GROUP, INC.abcd-ex322_8.htm
EX-32.1 - EX-32.1 - CAMBIUM LEARNING GROUP, INC.abcd-ex321_7.htm

 

 

 

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, 2016

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 April 29, 2016 was 45,760,702.

 

 

 

 

 


 

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, 2016 and March 31, 2015

3

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2016 (Unaudited) and December 31, 2015

4

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2016 and March 31, 2015

6

 

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

7

 

 

 

 

Item 2.

 

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

16

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

25

 

 

 

 

Item 4.

 

Controls and Procedures

26

 

 

 

 

PART II

 

OTHER INFORMATION

26

 

 

 

 

Item 1.

 

Legal Proceedings

26

 

 

 

 

Item 1A.

 

Risk Factors

26

 

 

 

 

Item 6.

 

Exhibits

27

 

 

 

 

SIGNATURE PAGE

28

 

 

EXHIBITS

29

 

 

 

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,

 

 

 

2016

 

 

2015

 

 

Net revenues

$

33,674

 

 

$

31,471

 

 

Cost of revenues:

 

 

 

 

 

 

 

 

Cost of revenues

 

7,007

 

 

 

6,886

 

 

Amortization expense

 

3,650

 

 

 

4,003

 

 

Total cost of revenues

 

10,657

 

 

 

10,889

 

 

Research and development expense

 

3,120

 

 

 

2,477

 

 

Sales and marketing expense

 

12,311

 

 

 

10,644

 

 

General and administrative expense

 

5,002

 

 

 

5,215

 

 

Shipping and handling costs

 

159

 

 

 

174

 

 

Depreciation and amortization expense

 

841

 

 

 

993

 

 

Total costs and expenses

 

32,090

 

 

 

30,392

 

 

Income before interest, other income (expense)

   and income taxes

 

1,584

 

 

 

1,079

 

 

Net interest expense

 

(1,764

)

 

 

(3,674

)

 

Other income, net

 

 

 

 

215

 

 

Loss before income taxes

 

(180

)

 

 

(2,380

)

 

Income tax benefit (expense)

 

78

 

 

 

(118

)

 

Net loss

$

(102

)

 

$

(2,498

)

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

Amortization of net pension loss

 

37

 

 

 

56

 

 

Comprehensive loss

$

(65

)

 

$

(2,442

)

 

Net loss per common share:

 

 

 

 

 

 

 

 

Basic

$

(0.00

)

 

$

(0.05

)

 

Diluted

$

(0.00

)

 

$

(0.05

)

 

Average number of common shares and equivalents

   outstanding:

 

 

 

 

 

 

 

 

Basic

 

45,739

 

 

 

45,479

 

 

Diluted

 

45,739

 

 

 

45,479

 

 

 

 

 

 

 

 

 

 

 

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, 2016

 

 

December 31, 2015

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

4,900

 

 

$

8,645

 

Accounts receivable, net

 

9,574

 

 

 

14,640

 

Inventory

 

4,436

 

 

 

4,694

 

Restricted assets, current

 

1,254

 

 

 

1,265

 

Other current assets

 

9,383

 

 

 

9,981

 

Total current assets

 

29,547

 

 

 

39,225

 

Property, equipment and software at cost

 

58,182

 

 

 

55,824

 

Accumulated depreciation and amortization

 

(34,737

)

 

 

(33,284

)

Property, equipment and software, net

 

23,445

 

 

 

22,540

 

Goodwill

 

47,842

 

 

 

47,842

 

Acquired curriculum and technology intangibles, net

 

2,351

 

 

 

2,731

 

Acquired publishing rights, net

 

1,240

 

 

 

1,459

 

Other intangible assets, net

 

2,952

 

 

 

3,231

 

Pre-publication costs, net

 

16,913

 

 

 

16,441

 

Restricted assets, less current portion

 

2,814

 

 

 

3,099

 

Other assets

 

4,695

 

 

 

4,817

 

Total assets

$

131,799

 

 

$

141,385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2016

 

 

December 31, 2015

 

 

(Unaudited)

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

2,166

 

 

$

1,993

 

Accrued expenses

 

8,871

 

 

 

14,224

 

Revolving credit facility

 

10,500

 

 

 

 

Current portion of long-term debt

 

4,725

 

 

 

3,850

 

Deferred revenue, current

 

61,582

 

 

 

74,107

 

Total current liabilities

 

87,844

 

 

 

94,174

 

Long-term liabilities:

 

 

 

 

 

 

 

Long-term debt

 

96,269

 

 

 

97,872

 

Deferred revenue, less current portion

 

10,220

 

 

 

11,481

 

Other liabilities

 

11,451

 

 

 

12,027

 

Total long-term liabilities

 

117,940

 

 

 

121,380

 

 

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, 2016 and

   December 31, 2015)

 

 

 

 

 

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

   52,293 and 52,268 shares issued, and 45,761 and 45,736

   shares outstanding at March 31, 2016 and December 31, 2015,

   respectively)

 

52

 

 

 

52

 

Capital surplus

 

285,555

 

 

 

285,306

 

Accumulated deficit

 

(344,077

)

 

 

(343,975

)

Treasury stock at cost (6,532 shares at March 31, 2016

   and December 31, 2015)

 

(12,784

)

 

 

(12,784

)

Accumulated other comprehensive loss:

 

 

 

 

 

 

 

Pension and postretirement plans

 

(2,731

)

 

 

(2,768

)

Accumulated other comprehensive loss

 

(2,731

)

 

 

(2,768

)

Total stockholders' equity (deficit)

 

(73,985

)

 

 

(74,169

)

Total liabilities and stockholders' equity (deficit)

$

131,799

 

 

$

141,385

 

 

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

Net loss

$

(102

)

 

$

(2,498

)

Adjustments to reconcile net loss

   to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization expense

 

4,491

 

 

 

4,996

 

Amortization of note discount and deferred financing

   costs

 

280

 

 

 

304

 

Stock-based compensation and expense

 

208

 

 

 

135

 

Other

 

 

 

 

1

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable, net

 

5,066

 

 

 

2,301

 

Inventory

 

258

 

 

 

(188

)

Other current assets

 

598

 

 

 

(635

)

Other assets

 

77

 

 

 

(257

)

Restricted assets

 

296

 

 

 

306

 

Accounts payable

 

173

 

 

 

1,384

 

Accrued expenses

 

(5,353

)

 

 

(5,808

)

Deferred revenue

 

(13,786

)

 

 

(9,448

)

Other long-term liabilities

 

(539

)

 

 

(177

)

Net cash used in operating activities

 

(8,333

)

 

 

(9,584

)

Investing activities:

 

 

 

 

 

 

 

Expenditures for property, equipment, software and

   pre-publication costs

 

(4,990

)

 

 

(4,783

)

Net cash used in investing activities

 

(4,990

)

 

 

(4,783

)

Financing activities:

 

 

 

 

 

 

 

Principal payments under capital lease obligations

 

 

 

 

(264

)

Repayment of debt

 

(963

)

 

 

 

Borrowings under revolving credit facility

 

11,000

 

 

 

 

Payment of revolving credit facility

 

(500

)

 

 

 

Proceeds from exercise of stock options

 

41

 

 

 

19

 

Net cash provided by (used in) financing activities

 

9,578

 

 

 

(245

)

Change in cash and cash equivalents

 

(3,745

)

 

 

(14,612

)

Cash and cash equivalents, beginning of period

 

8,645

 

 

 

34,387

 

Cash and cash equivalents, end of period

$

4,900

 

 

$

19,775

 

 

 

 

 

 

 

 

 

 

 

 

 

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 sheet as of December 31, 2015 has 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, 2015.  Due to seasonality, the results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for any future interim period or for the year ending December 31, 2016.

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 all students 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 $0.2 million at March 31, 2016 and December 31, 2015.  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 appreciation 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

The following table presents our stock-based compensation expense resulting from stock options that are recorded in our condensed consolidated statements of operations and comprehensive loss for the periods presented:

 

 

Three Months Ended March 31,

 

 

(in thousands)

2016

 

 

2015

 

 

Cost of revenues

$

15

 

 

$

8

 

 

Research and development expense

 

41

 

 

 

28

 

 

Sales and marketing expense

 

48

 

 

 

33

 

 

General and administrative expense

 

104

 

 

 

66

 

 

Total

$

208

 

 

$

135

 

 

2016 Grants

In the first quarter 2016, the Company granted 290,000 options under the Incentive Plan with an exercise price of $4.50.  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 March 31, 2016.

 

 

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 2,885,243 for the three months ended March 31, 2016, and 2,612,281 for the three months ended March 31, 2015, 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)

2016

 

 

2015

 

 

Numerator:

 

 

 

 

 

 

 

 

Net loss

$

(102

)

 

$

(2,498

)

 

Denominator:

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

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

 

45,739

 

 

 

45,479

 

 

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

 

45,739

 

 

 

45,479

 

 

Net loss per common share:

 

 

 

 

 

 

 

 

Basic

$

(0.00

)

 

$

(0.05

)

 

Diluted

$

(0.00

)

 

$

(0.05

)

 

 

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, 2016, financial instruments include $4.9 million of cash and cash equivalents, restricted assets of $4.1 million, collateral investments of $1.8 million, $10.5 million of borrowings under the Revolving Credit Facility, and Senior Secured Credit Facility term loans, net of discount and deferred financing costs, of $101.0 million.  At December 31, 2015, financial instruments include $8.6 million of cash and cash equivalents, restricted assets of $4.4 million, collateral investments of $1.8 million, and Senior Secured Credit Facility term loans, net of discount and deferred financing costs, of $101.7 million.  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.  See Note 13 – Long-Term Debt for additional information regarding the Company’s Revolving Credit Facility and term loans.

 At March 31, 2016 and December 31, 2015, the carrying value of the Company’s Senior Secured Credit Facility term loans and Revolving Credit Facility approximates the fair value, as the borrowings are tied to the London Interbank Offered Rate (“LIBOR”) and are market sensitive.

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, 2016

 

 

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

$

4,068

 

 

$

4,068

 

 

$

 

 

$

 

Collateral Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market

 

905

 

 

 

905

 

 

 

 

 

 

 

Certificates of Deposit

 

879

 

 

 

879

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

Fair Value at Reporting Date Using

 

Description

December 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

$

4,364

 

 

$

4,364

 

 

$

 

 

$

 

Collateral Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market

 

905

 

 

 

905

 

 

 

 

 

 

 

Certificates of Deposit

 

878

 

 

 

878

 

 

 

 

 

 

 

 

 

(in thousands)

Total Gains (Losses) for the

Three Months Ended March 31,

 

Description

2016

 

 

2015

 

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, 2016

 

 

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

 

23,445

 

 

 

 

 

 

 

 

 

23,445

 

Pre-publication costs, net

 

16,913

 

 

 

 

 

 

 

 

 

16,913

 

Acquired curriculum and technology

     intangibles, net

 

2,351

 

 

 

 

 

 

 

 

 

2,351

 

Acquired publishing rights, net

 

1,240

 

 

 

 

 

 

 

 

 

1,240

 

Other intangible assets, net

 

2,952

 

 

 

 

 

 

 

 

 

2,952

 

 

 

 

 

(in thousands)

 

 

 

 

Fair Value at Reporting Date Using

 

Description

December 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

 

22,540

 

 

 

 

 

 

 

 

 

22,540

 

Pre-publication costs, net

 

16,441

 

 

 

 

 

 

 

 

 

16,441

 

Acquired curriculum and technology

     intangibles, net

 

2,731

 

 

 

 

 

 

 

 

 

2,731

 

Acquired publishing rights, net

 

1,459

 

 

 

 

 

 

 

 

 

1,459

 

Other intangible assets, net

 

3,231

 

 

 

 

 

 

 

 

 

3,231

 

 

 

(in thousands)

Total Gains (Losses) for the

Three Months Ended March 31,

 

Description

2016

 

 

2015

 

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, 2016 or 2015.

 

Note 6 — Other Current Assets

Other current assets at March 31, 2016 and December 31, 2015 consisted of the following:

 

(in thousands)

March 31, 2016

 

 

December 31, 2015

 

Deferred costs

$

7,144

 

 

$

8,514

 

Prepaid expenses

 

2,139

 

 

 

1,367

 

Other

 

100

 

 

 

100

 

Other current assets

$

9,383

 

 

$

9,981

 

 

 

10


 

Note 7 — Other Assets

Other assets at March 31, 2016 and December 31, 2015 consisted of the following:

 

(in thousands)

March 31, 2016

 

 

December 31, 2015

 

Collateral investments

$

1,784

 

 

$

1,783

 

Deferred costs, less current portion

 

1,311

 

 

 

1,479

 

Deferred financing costs - revolving credit facility

 

846

 

 

 

892

 

Other

 

754

 

 

 

663

 

Other assets

$

4,695

 

 

$

4,817

 

 

Deferred Financing Costs

Deferred financing costs relate to costs incurred with the issuance of the Senior Secured Credit Agreement.  See Note 13 – Long-Term Debt.  

Collateral Investments

The Company maintains certificates of deposit to collateralize its outstanding letters of credit associated with credit collections and workers’ compensation activity.  At March 31, 2016 and December 31, 2015, the Company had $0.9 million in certificates of deposit serving as collateral for its 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, 2016 and December 31, 2015.

 

 

Note 8 — Accrued Expenses

Accrued expenses at March 31, 2016 and December 31, 2015 consisted of the following:

 

(in thousands)

March 31, 2016

 

 

December 31, 2015

 

Salaries, bonuses and benefits

$

4,420

 

 

$

9,383

 

Pension and post-retirement benefit plans

 

1,093

 

 

 

1,093

 

Accrued royalties

 

740

 

 

 

1,201

 

Accrued interest

 

57

 

 

 

 

Other

 

2,561

 

 

 

2,547

 

Accrued expenses

$

8,871

 

 

$

14,224

 

 

Accrued Interest

Accrued interest at March 31, 2016 and December 31, 2015 relates to the Company’s Senior Secured Credit Agreement.  See Note 13 – Long-Term Debt.  

Pension and Post-Retirement Benefit Plans

See Note 10 – Pension Plan for additional information regarding the Company’s pension plan.

 

 

Note 9 — Other Liabilities

Other liabilities at March 31, 2016 and December 31, 2015 consisted of the following:

 

(in thousands)

March 31, 2016

 

 

December 31, 2015

 

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

$

9,723

 

 

$

9,903

 

Deferred rent

 

830

 

 

 

881

 

Long-term income tax payable

 

560

 

 

 

896

 

Long-term deferred compensation

 

338

 

 

 

347

 

Other liabilities

$

11,451

 

 

$

12,027

 

 

Pension and Post-Retirement Benefit Plans

See Note 10 – Pension Plan for additional information regarding the Company’s pension plan.

 

 

11


 

Note 10 — Pension Plan

The net pension costs of the Company’s defined benefit pension plan were comprised primarily of interest costs and totaled $0.1 million and $0.2 million, respectively, for the three months ended March 31, 2016 and 2015.  The net pension costs for the three months ended March 31, 2016 and 2015 included the amortization of accumulated net loss of $37 thousand and $0.1 million, respectively. 

 

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 $6.0 million at March 31, 2016 and $6.2 million at December 31, 2015.

Included in the balance of unrecognized tax benefits at March 31, 2016 are approximately $0.6 million of tax benefits that, if recognized, would affect the effective tax rate.  The recognition of the remaining uncertain tax positions would not affect the effective tax rate, but would instead increase or would have increased available tax attributes.  However, the recognition of the tax attribute would be offset by an increase in the deferred tax asset valuation allowance resulting in no net impact in the effective tax rate.

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, 2016.  At March 31, 2016, the Company has liabilities of $0.1 million for penalties (gross) and $0.1 million for interest (gross).  During the three months ended March 31, 2016, UTBs were decreased by $0.3 million for effectively settled tax positions.

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, 2016.

Letters of Credit

The Company has letters of credit outstanding at March 31, 2016 in the amount of $0.9 million to support credit collections and workers’ compensation activity.  The Company maintains certificates of deposit of $0.9 million as collateral for the letters of credit as well as an additional deposit to support Automated Clearing House processing and credit card collections. 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.  

 

 

12


 

Note 13 — Long-Term Debt

Long-term debt at March 31, 2016 and December 31, 2015 consisted of the following: 

(in thousands)

March 31, 2016

 

 

December 31, 2015

 

Senior secured credit facility term loans maturing December 10, 2020

$

104,037

 

 

$

105,000

 

Less: Unamortized discount

 

(1,725

)

 

 

(1,856

)

Less: Unamortized deferred financing costs

 

(1,318

)

 

 

(1,422

)

Total debt

 

100,994

 

 

 

101,722

 

Less: current portion of long-term debt

 

4,725

 

 

 

3,850

 

Long-term debt

$

96,269

 

 

$

97,872

 

 

Senior Secured Credit Facility

On December 10, 2015, Cambium Learning, Inc. (the “Borrower”), a wholly-owned subsidiary of Cambium Learning Group, Inc., entered into a $135.0 million Senior Secured Credit Agreement (the “Credit Agreement”) among the Borrower, the Company,  Webster Bank, N.A., as Administrative Agent, L/C Issuer and a Lender, and the other Lenders party thereto, with Webster Bank, N.A., as Joint Lead Arranger, the Governor and Company of the Bank of Ireland, as a Joint Lead Arranger and Syndication Agent, and Capital One National Association, and Babson Capital Finance, LLC, as Co-Documentation Agents (the “Senior Secured Credit Facility”).  The Senior Secured Credit Facility consists of a term loan A in an initial amount of $70.0 million (“Term Loan A”), a term loan B in an initial amount of $35.0 million (“Term Loan B”) and a $30.0 million revolving credit facility (the “Revolving Credit Facility”), secured by a lien on substantially all assets and capital stock of the Company, the Borrower and the Borrower’s subsidiaries (collectively, the “Loan Parties”).  The Senior Secured Credit Facility matures on December 10, 2020.

Borrowings under the Senior Secured Credit Facility bear interest equal to either a Base Rate, as defined in the Credit Agreement, or the LIBOR rate (subject to a 1.0% floor), at the Borrower’s option, plus an applicable margin.   The applicable margin for the Term Loan A and Revolving Credit Facility ranges between 2.75% and 3.50% for Base Rate loans and 3.75% and 4.50% for LIBOR loans.  The applicable margin for the Term Loan A and Revolving Credit Facility is based on a leverage calculation; however, the highest level of margin is applicable until the Company completes its second quarter 2016 leverage calculation.  The applicable margin for the Term Loan B is 4.25% for Base Rate loans and 5.25% for LIBOR loans.  From the inception of the Senior Secured Credit Facility to the end of the first quarter 2016, an interest rate of 5.5% applied to the Term Loan A and Revolving Credit Facility and an interest rate of 6.25% applied to the Term Loan B.  Additionally, unused borrowing capacity under the Revolving Credit Facility is subject to a commitment fee of 0.5%.  Interest is payable quarterly in arrears, or earlier for loans with shorter interest periods.

The Credit Agreement contains affirmative, negative and financial covenants customary for financings of this type, including, among other things, limits on the creation of liens, limits on the incurrence indebtedness, restrictions on investments and dispositions, limitations on fundamental changes to the Loan Parties, a maximum consolidated net leverage ratio, and minimum fixed charge coverage ratio. Upon an event of default, and after any applicable cure period, the Administrative Agent can accelerate the maturity of the loan. Events of default include customary items, such as failure to pay principal and interest in a timely manner and breach of covenants.  At March 31, 2016, the Company was in compliance with all covenants related to the Credit Facility.  

The principal balances of the Senior Secured Credit Facility were issued at a discount, representing fees paid to lenders, which are amortized over the life of the debt using the effective interest rate method.  Unamortized discount at March 31, 2016 and December 31, 2015 was $1.7 million and $1.9 million, respectively.

The Company incurred debt issuance costs associated with the Senior Secured Credit Facility, which were deferred and are amortized over the term of the related debt using the effective interest method.  Unamortized deferred financing costs related to the Term Loan A and Term Loan B totaled $1.3 million and $1.4 million at March 31, 2016 and December 31, 2015 and are presented as a reduction to Long-term Debt in the Consolidated Balance Sheets.  Unamortized deferred financing costs related to the Revolving Credit Facility totaled $0.8 million and $0.9 million at March 31, 2016 and December 31, 2015, respectively, and are classified as Other Assets in the Consolidated Balance Sheets.

At March 31, 2016, the Company had outstanding principal balances of $69.1 million of Term Loan A, $34.9 million of Term Loan B, and $10.5 million under the Revolving Credit Facility, and had $19.5 million borrowing availability under the Revolving Credit Facility.

 

In February 2016, the Company paid $0.1 million to enter into interest rate cap agreements for approximately half of its outstanding Term Loan A and Term Loan B loans, less required amortization, for a three year period.  Under the interest rate cap agreements, the Company will receive payments for any period that the three-month LIBOR rate exceeds 2.5%.

 

Note 14 — Segment Reporting

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

13


 

Learning A-Z Segment

Learning A-Z is a PreK-6 education technology provider of digitally delivered resources and tools that support instruction and student growth in reading, writing, and science.  Founded in 2002, Learning A-Z believes that an enlightened approach to literacy —which starts with reading and writing, but also includes the development of key 21st century skills like communication, creativity, collaboration, and critical-thinking — is the foundation to all learning. With a robust library of incredibly effective and flexible curriculum resources, Learning A-Z provides the tools teachers need to deliver personalized instruction for a wide range of student needs, including English language learners, intervention, special education, and daily instruction. Learning A-Z’s resources are currently used in more than half the districts across the United States and Canada and in over 180 countries worldwide.  Learning A-Z is committed to:

 

·

Delivering unmatched value, whereby high-quality resources are affordable for every individual classroom

 

·

Making personalized learning easier, giving teachers what they need to deliver the just-right instructional resources to every student

 

·

Empowering teachers as the foundation of student achievement, ensuring that teachers are given the support they need to be effective and efficient

Learning A-Z operates seven subscription-based websites: Reading A-Z, Raz-Kids®, Headsprout®, Science A-Z®, Writing A-Z, Vocabulary A-Z™, and ReadyTest A-Z.  These websites can be purchased stand-alone or in collections, 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 includes 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 meet and surpass their goals for student achievement.  The Voyager Sopris Learning suite of instructional and service solutions is not only research based, but also evidence based — proven to increase student achievement and educator effectiveness.  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 — both comprehensive intervention and supplemental — and resources to build a positive school climate.  

Kurzweil Education Brand

The Kurzweil Education brand delivers educational technology that solves real problems.  The Kurzweil Education literacy and learning solutions offer learners a way up and a path forward.  Students’ varying needs, their challenges, and their potential to achieve drive Kurzweil Education, which continues to develop literacy-boosting solutions that directly enhance opportunities to learn and achieve. Using the principles of Universal Design for Learning, Kurzweil’s solutions deliver content and tools that enable all learners to read, understand, and demonstrate their learning using technology-based tools.

ExploreLearning Segment

ExploreLearning develops online solutions to improve student learning in math and science.  ExploreLearning has two products: Gizmos, which the Company believes is the world’s best library of interactive, online simulations for math and science in grades 3-12; and Reflex, a powerful solution for math fact fluency development for grades 2-8.

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.

14


 

The following tables present 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, 2016

 

(in thousands)

Learning

A-Z

 

 

Voyager Sopris

Learning

 

 

ExploreLearning

 

 

Other

 

 

Consolidated

 

Net revenues

$

15,728

 

 

$

12,336

 

 

$

5,610

 

 

$

 

 

$

33,674

 

Cost of revenues

 

635

 

 

 

5,359

 

 

 

1,013

 

 

 

 

 

 

7,007

 

Amortization expense

 

 

 

 

 

 

 

 

 

 

3,650

 

 

 

3,650

 

Total cost of revenues

 

635

 

 

 

5,359

 

 

 

1,013

 

 

 

3,650

 

 

 

10,657

 

Other operating expenses

 

7,168

 

 

 

7,026

 

 

 

2,772

 

 

 

3,626

 

 

 

20,592

 

Depreciation and amortization expense

 

 

 

 

 

 

 

 

 

 

841

 

 

 

841

 

Total costs and expenses

 

7,803

 

 

 

12,385

 

 

 

3,785

 

 

 

8,117

 

 

 

32,090

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before interest, other

    income (expense) and income taxes

 

7,925

 

 

 

(49

)

 

 

1,825

 

 

 

(8,117

)

 

 

1,584

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest expense

 

 

 

 

 

 

 

 

 

 

(1,764

)

 

 

(1,764

)

Income tax benefit

 

 

 

 

 

 

 

 

 

 

78

 

 

 

78

 

Segment net income (loss)

$

7,925

 

 

$

(49

)

 

$

1,825

 

 

$

(9,803

)

 

$

(102

)

Expenditures for property, equipment,

    software and pre-publication costs

 

2,095

 

 

$

2,159

 

 

 

610

 

 

 

126

 

 

$

4,990

 

 

 

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