Attached files
| file | filename |
|---|---|
| EX-99.2 - EX-99.2 - Houghton Mifflin Harcourt Co | d622083dex992.htm |
| EX-2.1B - EX-2.1B - Houghton Mifflin Harcourt Co | d622083dex21b.htm |
| 8-K - 8-K - Houghton Mifflin Harcourt Co | d622083d8k.htm |
Exhibit 99.1
Houghton Mifflin Harcourt Company
Unaudited Pro Forma Condensed Consolidated Financial Statements
On October 1, 2018, Houghton Mifflin Harcourt Publishing Company (“HMH Sub”), a wholly owned subsidiary of Houghton Mifflin Harcourt Company (the “Company” and together with HMH Sub, the “Sellers”) completed the previously announced sale of all of the assets, including intellectual property, used primarily in its Riverside clinical and standardized testing business (the “Business”) pursuant to the Asset Purchase Agreement, dated September 12, 2018 and as amended on October 1, 2018 (the “Agreement”) with Riverside Assessments, LLC (the “Purchaser”), for cash consideration received by the Sellers of approximately $140.0 million and the Purchaser’s assumption of all liabilities relating to the Business subject to specified exceptions (collectively, the “Transaction”). The results of the Business were previously reported in the Company’s Education segment.
The foregoing description is qualified in its entirety by reference to the Agreement, a copy of which is filed as an exhibit to the Company’s Current Report on Form 8-K filed on October 5, 2018.
The following unaudited pro forma condensed consolidated financial statements are presented to comply with Article 11 of Regulation S-X and follow prescribed SEC regulations. The unaudited condensed consolidated pro forma financial statements do not purport to present what the Company’s results would have been had the disposition actually occurred on the dates indicated or to project what the Company’s results of operations or financial position would have been for any future period. The prescribed regulations limit pro forma adjustments to those that are directly attributable to the disposition on a factually supported basis. Consequently, the Company was not permitted within the condensed consolidated pro forma financial statements to allocate to the disposed operations any indirect corporate overhead or costs, such as administrative corporate functions or any other costs that were shared with the retained business of the Company. As a result, such costs are not reflected in the pro forma adjustments and are included in the retained business of the Company. The pro forma adjustments are described in the notes to the unaudited condensed consolidated pro forma financial statements.
The unaudited condensed consolidated pro forma financial statements have been prepared for informational purposes and to assist in the analysis of the Company’s sale of the Business to the Purchaser. This information should be read together with the historical consolidated financial statements and related notes of Houghton Mifflin Harcourt Company included in its Annual Report on Form 10-K for the year ended December 31, 2017 and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2018.
The unaudited pro forma condensed consolidated statements of operations for the six months ended June 30, 2018 and the years ended December 31, 2017, December 31, 2016 and December 31, 2015, assume the sale occurred on the first day of the earliest fiscal period presented. The unaudited pro forma condensed consolidated balance sheet as of June 30, 2018, assumes the sale occurred on June 30, 2018. The unaudited pro forma condensed consolidated financial statements are derived from the historical consolidated financial statements of the Company and are based on assumptions that management believes are reasonable in the circumstances.
Houghton Mifflin Harcourt Company
Pro Forma Condensed Consolidated Balance Sheets (Unaudited)
At June 30, 2018
| (in thousands of dollars) | HMH | Pro Forma Adjustments |
HMH Pro Forma |
|||||||||||||
| Assets |
||||||||||||||||
| Current assets |
||||||||||||||||
| Cash and cash equivalents |
$ | 30,709 | $ | 135,015 | A | $ | 165,724 | |||||||||
| Accounts receivable, net |
293,693 | (6,047 | ) | B | 287,646 | |||||||||||
| Inventories |
212,436 | (4,075 | ) | B | 208,361 | |||||||||||
| Prepaid expenses and other assets |
30,888 | (600 | ) | B | 30,288 | |||||||||||
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|
|||||||||||
| Total current assets |
567,726 | 124,293 | 692,019 | |||||||||||||
| Property, plant, and equipment, net |
149,137 | (5,233 | ) | B | 143,904 | |||||||||||
| Pre-publication costs, net |
341,474 | (11,206 | ) | B | 330,268 | |||||||||||
| Royalty advances to authors, net |
49,964 | — | 49,964 | |||||||||||||
| Goodwill |
783,073 | (70,000 | ) | B | 713,073 | |||||||||||
| Other intangible assets, net |
578,133 | (27,375 | ) | B | 550,758 | |||||||||||
| Deferred income taxes |
3,593 | — | 3,593 | |||||||||||||
| Deferred commissions |
22,598 | — | 22,598 | |||||||||||||
| Other assets |
28,658 | — | 28,658 | |||||||||||||
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| Total assets |
$ | 2,524,356 | $ | 10,479 | $ | 2,534,835 | ||||||||||
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| Liabilities and Stockholders’ Equity |
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| Current liabilities |
||||||||||||||||
| Revolving credit facility |
$ | 50,000 | $ | — | $ | 50,000 | ||||||||||
| Current portion of long-term debt |
8,000 | — | 8,000 | |||||||||||||
| Accounts payable |
94,920 | (1,266 | ) | B | 93,654 | |||||||||||
| Royalties payable |
67,085 | (4,902 | ) | B | 62,183 | |||||||||||
| Salaries, wages, and commissions payable |
39,938 | (1,117 | ) | B | 38,821 | |||||||||||
| Deferred revenue |
240,355 | (6,486 | ) | B | 233,869 | |||||||||||
| Interest payable |
293 | — | 293 | |||||||||||||
| Severance and other charges |
6,760 | — | 6,760 | |||||||||||||
| Accrued postretirement benefits |
1,618 | — | 1,618 | |||||||||||||
| Other liabilities |
30,378 | (1,954 | ) | B | 28,424 | |||||||||||
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|||||||||||
| Total current liabilities |
539,347 | (15,725 | ) | 523,622 | ||||||||||||
| Long-term debt, net of discount and issuance costs |
757,922 | — | 757,922 | |||||||||||||
| Long-term deferred revenue |
400,803 | (260 | ) | B | 400,543 | |||||||||||
| Accrued pension benefits |
23,476 | — | 23,476 | |||||||||||||
| Accrued postretirement benefits |
19,041 | — | 19,041 | |||||||||||||
| Deferred income taxes |
28,144 | (1,050 | ) | B | 27,094 | |||||||||||
| Other liabilities |
21,364 | (2,167 | ) | B | 19,197 | |||||||||||
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| Total liabilities |
1,790,097 | (19,202 | ) | 1,770,895 | ||||||||||||
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| Stockholders’ equity |
734,259 | 29,681 | C | 763,940 | ||||||||||||
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| Total liabilities and stockholders’ equity |
$ | 2,524,356 | $ | 10,479 | $ | 2,534,835 | ||||||||||
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See the accompanying notes which are an integral part of these unaudited pro forma condensed consolidated financial statements.
Houghton Mifflin Harcourt Company
Pro Forma Consolidated Statements of Operations (Unaudited)
Six Months Ended June 30, 2018
| (in thousands of dollars, except per share data) | HMH | Pro Forma Adjustments |
HMH Pro Forma |
|||||||||||
| Net sales |
$ | 595,349 | $ | (38,225 | ) | D | $ | 557,124 | ||||||
| Costs and expenses |
||||||||||||||
| Cost of sales, excluding publishing rights and pre-publication amortization |
272,921 | (13,130 | ) | D | 259,791 | |||||||||
| Publishing rights amortization |
18,238 | — | 18,238 | |||||||||||
| Pre-publication amortization |
54,315 | (2,362 | ) | D | 51,953 | |||||||||
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| Cost of sales |
345,474 | (15,492 | ) | 329,982 | ||||||||||
| Selling and administrative |
325,006 | (10,156 | ) | D | 314,850 | |||||||||
| Other intangible asset amortization |
14,292 | (750 | ) | D | 13,542 | |||||||||
| Severance and other charges |
6,018 | — | 6,018 | |||||||||||
| Loss on sale of assets |
384 | — | 384 | |||||||||||
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| Operating loss |
(95,825 | ) | (11,827 | ) | (107,652 | ) | ||||||||
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| Other income (expense) |
||||||||||||||
| Retirement benefits non-service income |
640 | — | 640 | |||||||||||
| Interest expense |
(22,408 | ) | — | (22,408 | ) | |||||||||
| Interest income |
623 | — | 623 | |||||||||||
| Change in fair value of derivative instruments |
(725 | ) | — | (725 | ) | |||||||||
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| Loss before taxes |
(117,695 | ) | (11,827 | ) | (129,522 | ) | ||||||||
| Income tax expense |
6,888 | (1,435 | ) | E | 5,453 | |||||||||
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| Net loss |
$ | (124,583 | ) | $ | (10,392 | ) | $ | (134,975 | ) | |||||
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| Net loss per share attributable to common stockholders |
||||||||||||||
| Basic |
$ | (1.01 | ) | $ | (1.09 | ) | ||||||||
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| Diluted |
$ | (1.01 | ) | $ | (1.09 | ) | ||||||||
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See the accompanying notes which are an integral part of these unaudited pro forma condensed consolidated financial statements.
Houghton Mifflin Harcourt Company
Pro Forma Consolidated Statements of Operations (Unaudited)
Year Ended December 31, 2017
| (in thousands of dollars, except per share data) | HMH | Pro Forma Adjustments |
HMH Pro Forma |
|||||||||||
| Net sales |
$ | 1,407,511 | $ | (80,482 | ) | D | $ | 1,327,029 | ||||||
| Costs and expenses |
||||||||||||||
| Cost of sales, excluding publishing rights and pre-publication amortization |
617,802 | (29,284 | ) | D | 588,518 | |||||||||
| Publishing rights amortization |
46,238 | — | 46,238 | |||||||||||
| Pre-publication amortization |
126,038 | (6,130 | ) | D | 119,908 | |||||||||
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| Cost of sales |
790,078 | (35,414 | ) | 754,664 | ||||||||||
| Selling and administrative |
658,346 | (22,020 | ) | D | 636,326 | |||||||||
| Other intangible asset amortization |
30,748 | (1,500 | ) | D | 29,248 | |||||||||
| Impairment charge for pre-publication costs |
3,980 | — | 3,980 | |||||||||||
| Restructuring |
40,653 | (2,878 | ) | D | 37,775 | |||||||||
| Severance and other charges |
713 | (536 | ) | D | 177 | |||||||||
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| Operating loss |
(117,007 | ) | (18,134 | ) | (135,141 | ) | ||||||||
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| Other income (expense) |
||||||||||||||
| Retirement benefits non-service income |
3,486 | — | 3,486 | |||||||||||
| Interest expense |
(42,805 | ) | — | (42,805 | ) | |||||||||
| Interest income |
1,338 | — | 1,338 | |||||||||||
| Change in fair value of derivative instruments |
1,366 | — | 1,366 | |||||||||||
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| Loss before taxes |
(153,622 | ) | (18,134 | ) | (171,756 | ) | ||||||||
| Income tax (benefit) expense |
(50,435 | ) | 19,280 | E | (31,155 | ) | ||||||||
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| Net loss |
$ | (103,187 | ) | $ | (37,414 | ) | $ | (140,601 | ) | |||||
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| Net loss per share attributable to common stockholders |
||||||||||||||
| Basic |
$ | (0.84 | ) | $ | (1.14 | ) | ||||||||
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| Diluted |
$ | (0.84 | ) | $ | (1.14 | ) | ||||||||
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See the accompanying notes which are an integral part of these unaudited pro forma condensed consolidated financial statements.
Houghton Mifflin Harcourt Company
Pro Forma Consolidated Statements of Operations (Unaudited)
Year Ended December 31, 2016
| (in thousands of dollars, except per share data) | HMH | Pro Forma Adjustments |
HMH Pro Forma |
|||||||||||
| Net sales |
$ | 1,372,685 | $ | (80,707 | ) | D | $ | 1,291,978 | ||||||
| Costs and expenses |
||||||||||||||
| Cost of sales, excluding publishing rights and pre-publication amortization |
610,715 | (32,398 | ) | D | 578,317 | |||||||||
| Publishing rights amortization |
61,351 | — | 61,351 | |||||||||||
| Pre-publication amortization |
130,243 | (8,377 | ) | D | 121,866 | |||||||||
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| Cost of sales |
802,309 | (40,775 | ) | 761,534 | ||||||||||
| Selling and administrative |
703,797 | (22,627 | ) | D | 681,170 | |||||||||
| Other intangible asset amortization |
26,750 | (375 | ) | D | 26,375 | |||||||||
| Impairment charge for intangible assets |
139,205 | (9,000 | ) | D | 130,205 | |||||||||
| Restructuring |
— | — | — | |||||||||||
| Severance and other charges |
15,650 | (279 | ) | D | 15,371 | |||||||||
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| Operating loss |
(315,026 | ) | (7,651 | ) | (322,677 | ) | ||||||||
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| Other income (expense) |
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| Retirement benefits non-service income |
4,253 | — | 4,253 | |||||||||||
| Interest expense |
(39,181 | ) | — | (39,181 | ) | |||||||||
| Interest income |
518 | — | 518 | |||||||||||
| Change in fair value of derivative instruments |
(614 | ) | — | (614 | ) | |||||||||
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| Loss before taxes |
(350,050 | ) | (7,651 | ) | (357,701 | ) | ||||||||
| Income tax (benefit) expense |
(65,492 | ) | 13,936 | E | (51,556 | ) | ||||||||
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| Net loss |
$ | (284,558 | ) | $ | (21,587 | ) | $ | (306,145 | ) | |||||
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| Net loss per share attributable to common stockholders |
||||||||||||||
| Basic |
$ | (2.32 | ) | $ | (2.50 | ) | ||||||||
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| Diluted |
$ | (2.32 | ) | $ | (2.50 | ) | ||||||||
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See the accompanying notes which are an integral part of these unaudited pro forma condensed consolidated financial statements.
Houghton Mifflin Harcourt Company
Pro Forma Consolidated Statements of Operations (Unaudited)
Year Ended December 31, 2015
| (in thousands of dollars, except per share data) | HMH | Pro Forma Adjustments |
HMH Pro Forma |
|||||||||||
| Net sales |
$ | 1,416,059 | $ | (96,643 | ) | D | $ | 1,319,416 | ||||||
| Costs and expenses |
||||||||||||||
| Cost of sales, excluding publishing rights and pre-publication amortization |
622,668 | (40,257 | ) | D | 582,411 | |||||||||
| Publishing rights amortization |
81,007 | — | 81,007 | |||||||||||
| Pre-publication amortization |
120,506 | (7,614 | ) | D | 112,892 | |||||||||
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| Cost of sales |
824,181 | (47,871 | ) | 776,310 | ||||||||||
| Selling and administrative |
683,911 | (28,024 | ) | D | 655,887 | |||||||||
| Other intangible asset amortization |
22,038 | — | 22,038 | |||||||||||
| Severance and other charges |
4,767 | (621 | ) | D | 4,146 | |||||||||
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| Operating loss |
(118,838 | ) | (20,127 | ) | (138,965 | ) | ||||||||
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| Other income (expense) |
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| Retirement benefits non-service income |
2,787 | — | 2,787 | |||||||||||
| Interest expense |
(32,254 | ) | — | (32,254 | ) | |||||||||
| Interest income |
209 | — | 209 | |||||||||||
| Change in fair value of derivative instruments |
(2,362 | ) | — | (2,362 | ) | |||||||||
| Loss on extinguishment of debt |
(3,051 | ) | — | (3,051 | ) | |||||||||
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| Loss before taxes |
(153,509 | ) | (20,127 | ) | (173,636 | ) | ||||||||
| Income tax (benefit) expense |
(19,640 | ) | (771 | ) | E | (20,411 | ) | |||||||
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| Net loss |
$ | (133,869 | ) | $ | (19,356 | ) | $ | (153,225 | ) | |||||
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| Net loss per share attributable to common stockholders |
||||||||||||||
| Basic |
$ | (0.98 | ) | $ | (1.12 | ) | ||||||||
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| Diluted |
$ | (0.98 | ) | $ | (1.12 | ) | ||||||||
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See the accompanying notes which are an integral part of these unaudited pro forma condensed consolidated financial statements.
1. Description of Transaction
On October 1, 2018, Houghton Mifflin Harcourt Publishing Company (“HMH Sub”), a wholly owned subsidiary of Houghton Mifflin Harcourt Company (the “Company” and together with HMH Sub, the “Sellers”) closed the previously announced sale of all of the assets, including intellectual property, used primarily in its Riverside clinical and standardized testing business (the “Business”) pursuant to the Asset Purchase Agreement, dated September 12, 2018 and as amended on October 1, 2018 (the “Agreement”) with Riverside Assessments, LLC (the “Purchaser”), for cash consideration received by the Sellers of approximately $140.0 million and the Purchaser’s assumption of all liabilities relating to the Business subject to specified exceptions (collectively, the “Transaction”).
2. Pro Forma Adjustments
The pro forma adjustments made to the historical condensed consolidated financial statements of the Company are described as follows:
| A. | Reflects proceeds of $140.0 million received in cash from the sale adjusted for the expenses related to the Transaction of approximately $5.0 million. |
| B. | Reflects the adjustments to eliminate the assets and liabilities sold related to the Business. Goodwill represents a preliminary estimate of fair value of the Business relative to other components of the Company’s business. |
| C. | Represents the cash proceeds of the transaction and the net asset value transferred to the Purchaser. |
| D. | Represents the revenue and expenses directly attributable to the Business operations. The pro forma adjustments exclude the indirect and fixed costs allocated to the sold business. |
| E. | The effective tax rates differ from the blended federal and state statutory rate of 26.2% for the six months ended June 30, 2018, 26.4%, 39.3% and 38.7% for the years ended December 31, 2017, 2016 and 2015, respectively. Differences are due to the reclassification of intangibles from indefinite-lived to definite-lived and the effects of an impairment on indefinite-lived intangible assets during the year ended December 31, 2016, and the impact of US Tax Reform for the year ended December 31, 2017. |