UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM10-K

For the fiscal year ended December 31, 20162017

Commission file number001-36166

Houghton Mifflin Harcourt Company

(Exact name of registrant as specified in its charter)

125 High Street

Boston, MA 02110

(617)351-5000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒

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  ☒    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 RegulationS-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  ☒    No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to thisForm 10-K.  ☐☒

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The aggregate market value of the voting stock held bynon-affiliates of the Registrant as of June 30, 2016,2017, was approximately $1.6$1.3 billion.

The number of shares of common stock, par value $0.01 per share, outstanding as of February 3, 20172, 2018 was 123,082,650.123,430,481.

Documents incorporated by reference and made a part of this Form10-K:

The information required by Part III of this Form10-K, to the extent not set forth herein, is incorporated herein by reference from the Registrant’s Definitive Proxy Statement for its 20172018 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2016.2017.

Table of Contents

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The statements contained herein include forward-looking statements, which involve risks and uncertainties. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “projects,” “anticipates,” “expects,” “could,” “intends,” “may,” “will” or“will,” “should,” “forecast,” “intend,” “plan,” “potential,” “project,” “target” or, in each case, their negative, or other variations or comparable terminology. These forward-lookingForward-looking statements include all mattersstatements that are not statements of historical facts. They include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations,operations; financial condition, liquidity,condition; liquidity; prospects, growth strategies,and strategies; our competitive strengths; the industry in which we operate,operate; the impact of new accounting guidance expenses,and tax laws; expenses; effective tax rates,rates; future liabilities,liabilities; the outcome and impact of pending or threatened litigation; decisions of our customers,customers; education expenditures,expenditures; population growth,growth; state curriculum adoptions and purchasing cycles,cycles; the impact of acquisitions and other investments,investments; our share repurchase programprogram; the timing, structure and expected impact of our operational efficiency and cost-reduction initiatives and the estimated savings and amounts expected to be incurred in connection therewith; and potential business decisions. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are based upon information available to us on the date of this report.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained herein. In addition, even if ouractual results of operations, financial condition and liquidity and the development of the industry in which we operate are consistent with the forward lookingforward-looking statements contained herein, those results or developments may not be indicative of results or developments in subsequent periods.

Important factors that could cause ouractual results to vary from expectations include, but are not limited to: changes in state and local education funding and/or related programs, legislation and procurement processes; changes in state academic standards; industry cycles and trends; the rate and state of technological change; state requirements related to digital instructional materials; changes in product distribution channels and concentration of retailer power; changes in our competitive environment;environment, including free and low-cost open educational resources; periods of operating and net losses; our ability to enforce our intellectual property and proprietary rights; risks based on information technology systems and potential breaches of those systems; dependence on a small number of print and paper vendors; third-party software and technology development; possible defects in digital products; our ability to identify, complete, or achieve the expected benefits of, acquisitions; our ability to execute on our long-term growth strategy; increases in our operating costs; exposure to litigation; major disasters or other external threats; contingent liabilities; risks related to our indebtedness; future impairment charges; changes in school district payment practices; a potential increase in the portion of our sales coming from digital sales; risks related to doing business abroad; changes in tax law or interpretation; management and personnel changes; the resultstiming, higher costs and timingunintended consequences of our transition to a new Chief Executive Officer;operational efficiency and cost-reduction initiatives; and other factors discussed in the “Risk Factors” section of thisour Annual Report on Form10-K (this “Annual Report”). In light of these risks, uncertainties and assumptions, the forward-looking events described herein may not occur.

We undertake no obligation, and do not expect, to publicly update or publicly revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained herein.

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Item 1. Business

As used in this Annual Report, the terms “we,” “us,” “our,” “HMH” and the “Company” refer to Houghton Mifflin Harcourt Company, formerly known as HMH Holdings (Delaware), Inc., and its consolidated subsidiaries, unless otherwise expressly stated or the context otherwise requires.

Our Company

Overview of Houghton Mifflin Harcourt

We are is a global learning company specializing in world-class content, services and cutting-edge technologycommitted to delivering integrated solutions that enable learning in a changing landscape.engage learners, empower educators and improve student outcomes. We provide dynamic, engaging, and effective solutions across a variety of media and in three key focus areas: early learning,K-12, and beyond the classroom, reachingserve over 50 million students and three million teachers in more than 150 countries worldwide.

TheHMH focuses on the kindergarten through 12^th grade(“K-12”) market is our primary market, and, in the United States, we are a leading provider of educational content by market share. Someleader. We specialize in comprehensive core curriculum, supplemental and intervention solutions, as well as provide ongoing support in professional learning, coaching and technical services for educators and administrators. HMH offerings are rooted in learning science, and we work with research partners, universities and third-party organizations as we design, build, implement and iterate our offerings to maximize their effectiveness. We are purposeful about innovation, leveraging technology to create engaging and immersive experiences designed to deepen learning experiences for students and to extend teachers’ capabilities so that they can focus on making meaningful connections with their students.

HMH’s diverse portfolio enables us to help ensure that every student and teacher has the tools needed for success. We are able to build deep partnerships with school districts and leverage the scope of our core educational offerings includeHMH Science Dimensions,Collections,GO! Math,Read 180 Universal,to provide holistic solutions at scale with the support of ourfar-reaching sales force andJourneys. talented field-based specialists and consultants. We believe our long-standing reputationprovide print, digital and trusted brand enable ushybrid solutions that are tailored to capitalize on trends in the education market through our existinga district’s needs, goals and developing channels.technological readiness.

Furthermore, forFor nearly two centuries, we have publishedHMH’s Trade Publishing division has brought renowned and awarded children’s, fiction, nonfiction, culinary and reference titles enjoyed byto readers throughout the world. Our distinguished author list includes ten Nobel Prize winners, forty-eight Pulitzer Prize winners, and fifteen National Book Award winners. We are home to popular characters and titles such as Curious George, Carmen Sandiego,The Lord of the Rings, The Whole 30,The Best American Series, the Peterson Field Guides, CliffsNotes, andThe Polar Express, and publisheddistinguished authors such as Philip Roth, Temple Grandin, Tim O’Brien, Amos Oz, Kwame Alexander, Lois Lowry, and Chris Van Allsburg.

We sell our productsMarket Overview

HMH operates predominantly within the U.S.K-12 Education market, which represents over $600 billion of total spending annually, and specifically within the U.S. market forK-12 instructional materials and services, across multiple mediawhich we estimate to be approximately $11.0 billion in size. Internationally, we export and distribution channels. Leveraging our portfolio of content, including some of our best-known children’s brands and titles, such as Carmen Sandiego and Curious George, we create interactive digital content, mobile applications and educational games that can be used by families at home or on the go.

Our digital products portfolio, combined with our content development or distribution agreements with recognized technology leaders, such as Apple, Google, Intel and Microsoft, enable us to bring our next-generation educational solutions and content to learners across virtually all platforms and devices. Additionally, we believe our technology and development capabilities allow us to enhance content engagement and effectiveness with embedded assessment, interactivity and personalized adaptable content as well as increased accessibility.

Market Opportunity

U.S.sellK-12 Market is LargeEnglish language education products to premium private schools that utilize the U.S. curriculum, located primarily in Asia, the Pacific, the Middle East, Latin America, the Caribbean and Growing

InAfrica. We also participate in the United States,U.S. Trade publishing market, which is our primaryestimated to be approximately $16.0 billion according to the Association of American Publishers.

The U.S. Education market in which we sell educational content for bothcomprises approximately 13,600K-12 public school districts, 132,800 public and private schools, theK-12 education market represents one of the largest industry segments, accounting for over $696 billion of expenditures, or about 4.0% of the 2011 U.S. gross domestic product as measured by the U.S Education’s National Center for Education Statistics (“NCES”) for the 2014-2015 school year. The instructional supplies3.5 million teachers and services component of this market was estimated to be approximately $30 billion in 201155.8 million total student enrollment across public, private and is expected to continue growing as a result of several secular and cyclical factors. From 2000-2001 to 2010-2011, current expenditures per student in public elementary and secondary schools increased by 14%, after adjusting for inflation. However, there can be no assurance that the U.S.K-12 market will grow.

In addition to its size, the U.S.K-12 education market is highly decentralized and is characterized by complex content adoption processes. It is comprised of approximately 13,500 public school districts across the 50 states and 132,000 public and private elementary and secondarycharter schools. While we believe certain initiatives in the education sector such as the Common Core State Standards, a set of mathematics and English language arts standards, and Next Generation Science Standards, a set of science standards, each benchmarked to international standards, have increased standardization inK-12 education content, we also believe significant state standard specific customization still exists, and we believe the need to address customization provides an ongoing need for companies in the industry to maintain relationships with individual state and district policymakers and expertise in state-varying academic standards.

Growth in the U.S.K-12 market for educational materials and services is driven by, among other factors, the fiscal condition of state governments and school districts and, in particular, by the level of funding for public education generated by state and local tax collections. While the market has historically grown above the pace of inflation, averaging 7.2% growth annually since 1969, the sharp declines in tax revenues stemming from the 2008-2009 recession created a difficult operating environment for states and school districts, leading many to defer spending on educational materials and services. State and local tax receipts began to rebound in 2010 and have continued to grow, driving seven consecutive years of higher state general revenue spending and a much improved funding environment forK-12 institutions, although there are some indications that the rate of growth may be slowing, according to the National Association of State Budget Officers’ Fall 2016 Fiscal Survey of the States and there can be no assurance of any further improvement or that it will be significant.

State adoptions of instructional materials, which were often deferred during the recession, have for the most part returned to regular,pre-recession cyclical patterns. California purchased English language arts materials in 2016 and will continue such purchases in 2017 and 2018; Texas is scheduled to purchase in world languages in 2017, and is scheduled to adopt English language arts in 2018 (for purchase in 2019 and subsequent years); and Florida is slated to purchase new social studies programs in 2017 and subsequent years, and to adopt science programs in 2017 (for purchase in 2018 and subsequent years). We also expect modest growth in open territories.

Long-term growth in the U.S.K-12 education market is positively correlated with student enrollments. From 2013-2014 to 2025-2026, total public school enrollment, a major long-term driver of growth in theK-12 Education market, is projected to increase by 3% to 51.4 million students, according to NCES.the National Center for Education Statistics.

The primary sources of funding for public schools in the U.S. are state and local tax collections, with Federal funding accounting for slightly less than 10% of public education spending nationally. Consequently, general or localized economic conditions as well as legislative and political decisions which affect the ability of

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state and school districts to raise revenue through tax collections can have a significant impact on spending and growth in theK-12 Education market. PublicK-12 education has been, and remains, a high priority for political leaders, accounting for more thanone-fifth of all state and local government spending.

Education policy and curriculum choices have traditionally been local prerogatives in the U.S., but Federal law and policy also play an important role. The Elementary and Secondary Education Act, reauthorized in 2015 by the Every Student Succeeds Act (“ESSA”), requires that states, as a condition to receiving Federal education funds, adopt challenging academic content standards, administer annual student tests aligned to those standards, develop systems of accountability tied to specific goals for student achievement, and take measures to identify and support low performing schools. ESSA gives states more flexibility than they had under prior law but still requires standards-based, largely assessment-driven accountability with a focus on the achievement of students in all demographic subgroups.

One important change brought about by ESSA is that states are now permitted to use growth in student achievement as measured by statewide assessments, in addition to grade-level proficiency, as an academic indicator for purposes of accountability. Instructional solutions that incorporate interim assessments and data analytics to help monitor student performance in real time will be especially useful in states that incorporate student growth as a significant element of their accountability systems. Other changes brought about by ESSA include a greater emphasis on English language learners, with progress towards English proficiency now a required element of state accountability plans, a requirement that products and solutions paid for with Federal education funds have evidence of effectiveness, and new requirements and expectations for Federally funded educator professional learning programs. The new law also gives states and school districts greater flexibility in how they spend Federal dollars and how they demonstrate that Federal funds are used to supplement and not supplant state and local spending.

Title I, the largest program within ESSA, and other ESSA programs also provide targeted funding for specific activities, such as early childhood education, school improvement, dropout prevention, and before- and after-school programs. The Individuals with Disabilities Education Act (“IDEA”) governs how states and public agencies provide early intervention, special education and related services to children with disabilities. In addition, increased investmentschool districts in many states are now able to spend educational funds on “instructional materials” that include core and supplemental materials, computer software, digital media, digital courseware, and online services.

Academic content standards, which are grade-level expectations for student learning, are established at the state level. States generally review and revise standards in each of the various subject areas of government policy focus is expectedevery six to further drive market growth. We believeeight years, and the revision or adoption of new academic standards in manytypically gives rise to the need for new instructional materials and services aligned to the new or revised standards. A large percentage of states including states that have adopted the Common Core State Standards (“CCSS”) in mathematics and English language arts and mathematics or standards largely based on the Common Core, and, as of December 2017, nineteen states adopting or contemplating adoption of thehad adopted Next Generation Science Standards is also expanding(“NGSS”). Both the marketCCSS and NGSS are products ofstate-led collaborations. The adoption of these standards has led to greater uniformity among states but has not completely eliminated differences or the need for teacher professional development and school improvement services.

We estimate that our U.S.K-12 educational addressable market is expected to be approximately in the range of $2.6 billion to $3.2 billion from 2015 through 2019. We define our addressable market as the market that we primarily compete in with our products, with the exception of our trade products, our cognitive and summative assessment products, professional development products and products sold internationally.customized state-specific instructional materials.

Expansion of Market Opportunities

In the U.S. educational market, intervention and supplemental materials, professional services and “early learning”(pre-K) programs have demonstrated growth in recent years. Demand for intervention materials is significant and growing in the United States. More than 60 percent of students enrolled in the public school environment perform below their grade level and are strong candidates for intervention programs both in literacy and in mathematics. Demand for teacher training and professional development opportunities tied to the implementation of new or revised standards at the state level is expected to continue as there will be a significant

number of new teachers entering the workforce over the next several years. Also, according to a January 2016 report from the Education Commission of the States, state funding forpre-K programs in FY 2015 totaled nearly $7 billion, representing a 12% increase over the prior year. This growing emphasis on early childhood education is further evidenced by language in recently enacted legislation to reauthorize the Elementary and Secondary Education Act (“ESEA”) now known as the Every Student Succeeds Act (“ESSA”), that authorizes continued funding for Preschool Development Grants, with an increased focus on coordinating programs, ensuring quality, and broadening access to early childhood education.

Increasing Focus on Accountability and Student Outcomes

U.S.K-12 education has come under significant political scrutiny in recent years, due to recognition of its importance to the U.S. society at large and concern over the perceived decline in U.S. students’ competitiveness relative to their international peers. An independent task force report published in March of 2012 by the Council on Foreign Relations, anon-partisan membership organization and think tank, observed that American students rank far behind global leaders in international tests of literacy, math and science, and concluded that the current state of U.S. education severely impairs the United States’ economic, military and diplomatic security as well as broader components of America’s global leadership.

These concerns helped lead to the passage in 2002 of the No Child Left Behind Act (“NCLB”), which ushered in an era of stricter accountability, higher standards and increased transparency in education. Since the enactment of NCLB, states have been required to measure progress towards these standards through annual student testing and make results, disaggregated by demographicsub-group, publicly available. In 2010 the Common Core State Standards, new academic standards in math and English language arts developed under the auspices of governors and state chief school officers, were released.Forty-six states and the District of Columbia initially adopted the new standards. The Every Student Succeeds Act (“ESSA”), which reauthorized and overhauled the ESEA and replaced the NCLB, allows states greater flexibility in how to carry out federal mandates but retain NCLB’s focus on accountability, standards and transparency, including NCLB’s requirements for annual student testing and disaggregated score reporting.

This heightened focus on accountability and international competitiveness and the adoption of new, more rigorous standards has elevated the importance of, and helped drive demand for, high-quality content that is aligned with these standards and empowers educators to meet new requirements. Schools have also increased their expenditures on services and professional development for educators that support teachers in implementing new programs effectively and provide district and school leaders with data management and assessment capabilities to measure progress. Although this trend may lead to increases in spending by schools and districts, educational mandates and expenditures can also be affected by other factors.

Growing Shift Towards Digital Materials

In the U.S.K-12 education market, an increasing number of schools are utilizing digital content in their classrooms and implementing online or blended learning environments, which mix the use of print and digital educational materials in the classroom. Technologies are also being adapted for educational uses via digital platforms, which permit the sharing of digital files and programs among multiple computers, mobile, or other devices in real time through a virtual network.

While the speed of technology adoption within the U.S.K-12 education market differs across districts and states due to varying resources and infrastructure, most schools are implementing more technology and are seeking partners to help them create effective digital learning environments. In some cases, districts are requiring providers of instructional materials to include flexible digital components in their offerings, and are exploring subscription-based models for acquiring content. Many educators also believe that the increased implementation of digital learning environments will enable the widespread use of learning analytics, which enhance the ability

to monitor effectiveness and learning outcomes to ultimately help schools build better pedagogical methods, personalize learning, identify and supportat-risk students and improve student retention. As demand for digital content and personalized learning solutions is growing, traditional distinctions between core, supplemental and intervention materials and assessments are blurring.

Rising Global Demand for Education

The global education market, especially in Asia and the Middle East, is experiencing rising enrollments and increasing government and consumer spending driven by the close connection between levels of educational attainment, evolving standards, personal career prospects and economic growth that will increase the demand for English language products. Population growth is a leading indicator forpre-primary school enrollments, which have a subsequent impact on secondary and higher education enrollments. Globally, according to United Nations Educational, Scientific and Cultural Organization (“UNESCO”), rapid population growth has causedpre-primary enrollments in recent decades—in 2012, 184 million children were enrolled inpre-primary education worldwide, an increase of nearlytwo-thirds since 1999. Additionally, according to the United Nations, the world population of 7.4 billion in 2016 is projected to reach 9.9 billion by 2050, up 33% from 2016, as countries develop and improvements in medical conditions increase the birth rate.

Currently, we focus our offerings in international markets on English language education and instructional products.

Our Industry

K-12 Instructional MaterialsSegments

Core Instructional MaterialsCurriculum

In the U.S.,K-12 core curriculum programs provides educational content and assessments to over 55.055.8 million students across approximately 132,000132,800 public and private elementary and secondary schools. Core programs cover curriculum standards in a particular subject and include a comprehensive offering of teacher and student materials necessary to conduct the class throughout the year. Products and services include students’ print and digital offerings and a variety of supporting materials such as teacher’s editions, formative assessments, supplemental materials, whole group instruction materials, practice aids, educational games and services.

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Core curriculum programs traditionally have been the primary resource for classroom instruction in mostK-12 academic subjects, and as a result, enrollment trends are a major driver of industry growth. Although economic cycles may affect short-term buying patterns, school enrollments, a driver of growth in the educational content industry, are highly predictable and are expected to trend upward over the longer term.

Demand for core curriculum programs is also affected by changes in state curriculum standards, which drive instruction, assessment, and accountability in each state. A significant change in state curriculum standards requires that assessments, teacher training programs, and instructional materials be revised or replaced to align to the new standards, which historically has driven demand for new comprehensive curriculum programs.

The majority of states have recently transitioned to orIn the U.S., core instructional material programs are in the process of transitioning to new curriculum standards in two of the most important subject areas, mathematics and English language arts. For the most part, these new standards are based on the Common Core State Standards, the product of a multi-state effort to establish a single set of content standards in mathematics and English language arts for gradesK-12.Forty-six states and the District of Columbia initially adopted the Common Core State Standards, and, while some states have nominally moved away from the standards, a majority of the original adopting states continue to use Common Core State Standards or curriculum standards closely based on them. Many states also have recently adopted or are in the process of developing new science standards, including 16 states that have adopted the multi-state Next Generation Science Standards. Most of these states are administering new student assessments aligned to the new standards.

Instructional Material Adoption Process

The process through which materials and curricula aretypically selected and procured for classroom use varies throughoutpurchased at the United States.school district level and, in some cases, at the individual school level. In nineteen states, known as adoption states, newbefore districts make their selections, programs are first evaluated at the state level usually every six to eight years, for alignment to state academic standards and other criteria. Individual school districts then purchase instructional materials for local use, typically from the state-approved list, although inThese states are commonly referred to as “adoption states,” while states that do not have a state level review process are called “open states” or “open territory.” In some adoption states, districts are permittedrequired to purchase instructionalselect materials that are not onfrom the state-adopted list; in others the state list including textbooks, supplementalis just a recommendation, and districts are free to purchase and use whatever materials digital media, digital coursewarethey choose, whether or not adopted by the state. Adoption states typically review materials in the various subject areas on asix- to eight-year cycle. School districts in those states tend to follow the state review cycle and online services.replace core programs in the year or years immediately following state adoption. In all remaining states, known as open states, or open territories, each individual school or school district evaluates and purchases materials independently, and at any time, typically according to a fivefive- to ten yearten-year cycle. As a result, in individual adoption states, purchases of core instructional materials in a particular subject area tend to be clustered in a window of one to three years, while in individual open territory states they may be spread over several years.

The following chart illustrates the current adoption and open territory states:

The formal determination whether to approve a program for state adoption is typically made by the state board of education or chief state school officer, informed by recommendations by one or more instructional materials review committees comprised of educators, curriculum specialists, and or subject area experts. The district level selection process varies but, in both adoption and open states, usually entails presentation to and evaluation by a committee of educators. State level evaluations typically focus primarily on alignment to state academic standards, whereas local evaluators consider, in addition to standards alignment, more subjective factors such as ease of use and suitability for particular student populations. Providers of instructional content often, although not always, customize their programs for particular states, including both adoption and open states, to strengthen alignment to state standards and assessments and/or to address specific needs and preferences of students and educators in a state.

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The student population in adoption states represents approximately 50%53% of the U.S. elementary and secondaryschool-age population. A number of adoption states, and a few open territory states, provide categorical state funding for instructional materials; that is, funds that cannot be used for any purpose other than to purchase instructional content or, in some cases, technology equipment used to deliver instruction. In some states, categorical instructional materials funds can be used only for the purchase of materials on the state-approved list. In states that do not provide categorical state instructional materials funding, districts pay for materials primarily out of general purpose state formula aid and/or local funds.

In adoption states, the state education board’s decision to approveSupplemental

Supplemental resources encompass a certain program developed by an educational content provider depends on recommendations from instructionalwide variety of targeted solutions that enrich learning and support student achievement beyond core curriculum. Supplemental resources can be print and/or digital, and can include workbooks, test-prep materials, review committees, which are often comprised of educatorssoftware, games and curriculum specialists. Such committees typically recommend a program if it aligns to the state’s educational content standards. To ensure the approval and subsequent success of a new instructional materials program, educational content providers conduct extensive market research, which may include: discussions of the plannedapps. Many teachers augment their core curriculum with state-level curriculum advisors to secure their support; developmentsupplemental resources for additional practice and personalized instruction around particular areas of prototype instructional materials that are focus-tested with educators, often against competing programs, to gather feedback on the program’s content and design; and incorporation of qualitative input from existing customers in terms of classroom needs.

In open territory states, the procurement process is typically characterized by a presentation and the provision of sample materials to district-level instructional materials selection committees, which subsequently evaluate and recommend a particular program to district officials and school boards. Products are generally customized to meet the states’ curriculum standards with similar research methods as in adoption states.

We believe that a content provider’s ultimate success in a given state will depend on a variety of factors, including the quality of its programs and materials, alignment with state standards and the effectiveness of its marketing and sales efforts. As a result, educational content providers often implement formal market research efforts that include educator focus groups, prototypes of student and ancillary materials and comparisons against

competing products. At the same time, marketing and editorial staffs work closely together to incorporate the results of research into products, while developing the mostup-to-date, research- and needs-based curricula.

Intervention and Supplemental Materials

Intervention and supplemental materials include a wide range of product offerings targeted at addressing specific needs in key subject areas,need, such as literacywriting or vocabulary. Supplemental materials are purchased by individual teachers, schools and mathematics. They provide students in need of targeted support with additional instruction, knowledgedistricts whose purchases are not tied to adoption schedules and practice as well as supplemental materialswho use funding from local, state and solutions that educators can use in addition to core curriculum to tailor education programs for their classrooms. federal sources.

Intervention

Intervention solutions are generally purchased by individual schools or districts, while supplemental materials are generally purchased by individual teachers whose purchases are not tied to adoption schedules.districts. Demand for intervention materials is significant and growing in the United States. MoreIn the latest NAEP (National Assessment of Educational Progress) assessments conducted in 2015, more than 60 percent of students enrolled in the public school environment performstudents performed below their grade levelproficiency in both literacy and mathematics. These students are strong candidates for intervention programs both in literacythat are focused on improving outcomes and mathematics.ensuring students perform at grade level. As demand for digital content and personalized learning solutions is growing, traditional distinctions between core, supplemental and intervention materials and assessments are blurring.

Intervention and supplemental products and services are funded through state and local funding as well as federal funding allocations pursuant to the ESSA and the Individuals with Disabilities Education Act (“IDEA”).IDEA. Title I the largest program within ESSA, provides funding to schools and school districts with high concentrations of students from low income families.families and is often used to purchase intervention products and services.

Assessment

The assessment market segment includes summative, formative orin-classroom, and cognitive assessments. Summative assessments are concluding or “final” exams that measure students’ proficiency in a particular subject or group of subjects on an aggregate level or against state standards. Formative assessments areon-going,in-classroom tests that occur throughout the school year and monitor progress in certain subjects or curriculum units. Diagnostic and cognitive assessments are designed to pinpoint areas of need and are often administered by specialists to identify learning difficulties and qualify individuals for special services under the requirements IDEA.

ESSA requires annual summative testing in reading and mathematics at grades 3 through 8 and one grade level of high school, as well as testing in science at a minimum of three grade levels. Under ESSA, states have greater flexibility than under the previous No Child Left Behind Act in choosing their assessment approach and how they intervene with the lowest performing schools. In addition, the law prohibits federal incentives for states to adopt any particular set of standards, including the Common Core State Standards, and assessments. Several states that had initially participated in the Common Core-based Smarter Balanced Assessment Consortium (“SBAC”) and the Partnership Assessment of Readiness for College and Careers (“PARCC”) have since dropped out of the consortia and decided to use other assessments to measure student achievement. Major challenges facing the future of the consortia are testing time, cost, and dependency for online assessment delivery.

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As states plan for and implement new assessments and districts continue to transition to new standards, demand for quality measures and reporting systems that help educators prepare students for the content coverage and item types anticipated on the new assessments should continue to increase.

States rely heavily on large federal programs, such as Title I and other ESSA programs also provide targeted fundingIDEA to augment their contributions for specific activities, such as early childhood education, school improvement, response to intervention, dropout prevention,assessments. Classroom assessment decisions are primarily made at the district level, relying on state and before- and after-school programs. IDEA governs how states and public agencies provide early intervention, special education and related services to children with disabilities. In addition, school districts in many states are now able to spend educational funds on “instructional materials” that include core and supplemental materials, computer software, digital media, digital courseware, and online services.local funding.

Professional ServicesLearning

The Professional Servicesprofessional learning market segment includes consulting and support services to assist individual schools and school districts in raising student achievement, implementing new programs and technology effectively, developing effective teachers, principals and leaders, as well as school and school-district turnaround and improvement solutions. We believe all districts and schools contract for some level of professional services. These services may include support forup-front training,in-classroom coaching, institutes, author workshops, professional learning communities, leadership development, technical support and maintenance, and program management. Historically, it has been challenging to measure the success of these investments or sustain their effects owing to the fragmented nature of initiatives and providers in a single district as well as the lack of sustained plans.

Professional developmentlearning is directly addressed in ESSA. ESSA restructured Title II, the section of the law addressing teacher quality, and authorized over $2 billion in grants to support activities that promote teacher and principal effectiveness. ESSA also eliminated federal “highly qualified teacher” requirements andrequirements. ESSA prohibits U.S. Department of Education mandates and incentives to evaluate teachers based on the basis of student test scores, which in recent years have channeled resources and attention to the development of educator evaluation systems, measurement tools, and related training. Title II now focuses instead on the role of the profession in improving student achievement, including new requirements to ensure professional development is not only sustained (“noone-day workshops”), but also“job-embedded”, “data-driven,” and “personalized.” It is expected that school districts will need to focus their applications for teacher training to ensure teacher alignment with high quality standards as well as priorities for funds tolow-performing schools where comprehensive support and improvement plans are in place. There are also significant funding opportunities for professional developmentlearning as part of state programs, especially in states where they have consolidated program funding and want solutions that are “evidence-based.”

The professional developmentlearning services segment, which is relatively fragmented in the United States, is expected to grow as the transition to digital learning in classrooms increases the need for technology

training and implementation support for educators. We believe that the use of interim data, differentiation, teacher content knowledge (in mathematics) and the use of technology in the classroom are the areas in which teachers and leaders are most seeking support. Also, demand for teacher training and professional development opportunities tied to the implementation of new or revised standards at the state level is expected to continue. In addition, there is expected to be a need to develop new teachers as the next several years are expected to continue to see the “greening” of the teaching force, with approximately 200,000 new teachers entering the work force every year and roughly 50% attrition rate among new teachers.

Assessment

The assessment segment includes summative, formative orin-classroom, and cognitive assessments. Summative assessments are concluding or “final” exams that measure students’ proficiency in a particular subject or group of subjects on an aggregate level or against state standards. Formative assessments areon-going,in-classroom tests that occur throughout the school year and monitor progress in certain subjects or curriculum units. Cognitive assessments are designed to pinpoint areas of need and are often administered by specialists to identify learning difficulties and qualify individuals for special services under the requirements IDEA.

Many states and districts are currently utilizing teacher evaluation systems that measure teacher performance based on standardized test scores and other elements required to meet certain benchmarks set by policymakers. Additionally, Federal education policymakers have shifted the focus to children at even younger ages to provide intervention before significant achievement gaps are realized. As a result, this has led to additional opportunities in the early childhood assessment and intervention segments.

ESSA requires annual summative testing in reading and mathematics at grades 3 through 8 and one grade level of high school, as well as testing in science at a minimum of three grade levels. Under ESSA, states have greater flexibility than under NCLB in choosing their assessment approach and how they intervene with the lowest performing schools. In addition, the law prohibits federal incentives for states to adopt any particular set of standards, including the Common Core State Standards, and assessments. Several states that had initially participated in the Common Core-based Smarter Balanced Assessment Consortium (“SBAC”) and the Partnership Assessment of Readiness for College and Careers (“PARCC”) have since dropped out of the consortia and decided to use other assessments to measure student achievement. Major challenges facing the future of the consortia are testing time, cost, and dependency for online assessment delivery.

As states plan for and implement new assessments and districts continue to transition to new standards, demand for quality measures and reporting systems that help educators prepare students for the content coverage and item types anticipated on the new assessments should continue to increase.

International

Internationally, we predominantly export and sellK-12 English language education products to premium private schools that utilize the U.S. curriculum, which are located primarily in Asia, the Pacific, the Middle East, Latin America, the Caribbean and Africa. Our international sales team utilizes a global network of distributors in local markets around the world.

Our immediate international strategy is to expand our addressable market through offering private schools in targeted international markets educational solutions comprising print and digital content, professional development services and a wide array of supplemental, intervention and assessment products, which are aimed at improving learning outcomes.

Early Learning

Over the last decade, the early childhood segment has seen significant growth in enrollments and increases in state and federal funding. These increases are driven by increased awareness of the value of qualitypre-K

experiences to educational achievement, its economic benefits, as well as the growth in breadth and depth of state early learning standards. For example, ESSA, while eliminating and consolidating programs in other areas, created a new national program for early childhood education. The Preschool Development Grants program, with authorized annual funding of $250 million, provides grants to support the expansion of qualitypre-K programs servinglow-income and disadvantaged children. The program builds upon and codifies a similar grant program formerly administered by the U.S. Department of Education. We believe the key to the overall success ofpre-K is the quality of the experience, from environments to teachers, with a special focus on instructional materials, an area in which we believe we are well-positioned to grow.

Trade Publishing

Trade Publishing market includes children’s, fiction, nonfiction, culinary and reference titles. While digital formats have gained some traction in this market, print remains the primary format in which trade books are produced and distributed, demand for trade titlesdistributed. In recent years, eBooks sales in digital format, primarilye-books, has developed rapidly over the past several years, as the industry evolves to embrace new technologies for developing, producing, marketing and distributing trade works.have declined while the market overall grew.

Our Products and Services

We areHMH is organized along two reportablereporting segments: Education and Trade Publishing. Our primary segment measures are net sales and Adjusted EBITDA. The Education segment is our largest business, representing approximately 87% of our total net sales for the year ended December 31, 2017 and 88% of our total net sales for each of the years ended December 31, 2016 2015 and 2014.2015.

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Education

Our Education segment provides educational content, services,integrated solutions that engage learners, empower educators and technology solutions to meet the diverse needs of today’s classrooms.improve student outcomes. The principalprinciple customers for our Education products areK-12 school systems,districts, which purchase core curriculum, materials,supplemental and intervention solutions and supplemental materials, professional development and school turnaround services, and an array of highly regarded assessment products. Additionally, we believe our increasing portfolio of educational content in the early learning anddirect-to-consumer spaces puts us in a strong position for growth in these areas.services.

The Education segment net sales and Adjusted EBITDA were $1,223.0 million and $253.6 million, $1,207.1 million and $225.7 million, and $1,251.1 million and $269.4 million, and $1,209.1 million and $298.5 million for the years ended December 31, 2017, 2016 2015 and 2014,2015, respectively.

Our Education productsofferings consist of the following offerings:following:

professional books and developmental resources aimed at empoweringpre-K-12 teachers; ourBenchmark Assessment System, which allows teachers to evaluate students’ reading levels three times a year; and ourLeveled Literacy Intervention System, which is a supplementary intervention program for children struggling with reading and writing.. The intervention and supplemental materials group generatesproducts within this area generate net sales and earnings that do not vary greatly with the adoption cycle. In addition, the development of interventioncycle and supplemental materials tends to require significantly less capital investment than the development of a core curriculum program. However, as demand for personalized learning solutions is growing, traditional distinctions between core, supplemental and intervention materials and assessments are blurring.

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Trade Publishing

Our Trade Publishing segment, which dates back tofounded in 1832, primarily develops, markets and sells consumer books in print and digital formats and licenses book rights to other publishers and electronic businesses in the United States and abroad. The principalprinciple distribution channels for Trade Publishing products are retail stores (both physical and online) and wholesalers. Reference materials are also sold to schools, colleges, libraries, office supply distributors and other businesses.

Our Trade Publishing segment offers an extensive library of general interest, young readers and reference works that include well-known characters and brands. Our award-winning general interest titles include literary fiction, culinary, andnon-fiction in hardcover,e-book and paperback formats, including the Mariner Books paperback line. Among the general interest properties are the popular J.R.R. Tolkien titles, and the prolific The Best American Series. The general interest group also publishes the CliffsNotes series of test prepSeries and study guides, branded field guides, such as the Peterson Field Guides and extensive culinary works. In culinary, our catalog now includes major cookbook brands such as Betty Crocker and Better Homes and Gardens in addition to

recent best sellers including theHow to Cook Everything series and Whole30. Our catalog features numerous Nobel and Pulitzer Prize winners and Newbery and Caldecott medal winners, including a 2015 Newbery Medal winner, a 2014 and 2013 Caldecott Honor winner and a 2014 Pulitzer Prize winner.Whole30. In young readers publishing, our list addresses a broad age group and includes an array of products for preschool/early learning programs, including board books, picture books and workbooks. This list includes recognized characters and titles such as Curious George and Martha Speaks, both successful television programs featured on PBS, Five Little Monkeys, Gossie & Friends, Polar Express, Little Blue Truck, and many more. We also publish novels for young adults, a growing genre, including titles from Lois Lowry, author ofThe Giver, and Kwame Alexander. In the reference category, we are the publisher of the American Heritage and Webster’s New World dictionaries, and related titles.

In addition to traditional conversions of print to digital content, we develop our content digitally in various formats with minimal incremental investment. As such, we have an established and flexible solution for converting, manipulating and distributing trade content to the many digital consumer platforms such ase-readers and tablets. We continue to actively publish into the sizable consumer market fore-books, book or character-based applications and other digital products with net sales frome-books reaching $15.0 million for the year ended December 31, 2016, representing approximately 9% of our Trade Publishing segment net sales for the same period. We continue to focus on the development of innovative new digital products which capitalize on our content, our digital expertise, and the growing consumer demand for these products. In addition, we are increasingly leveraging the strength of our Trade Publishing brands and characters, such as Curious George, together with our expertise in developing educational solutions, to further penetrate the large and growing consumer market forat-home educational products and services.

For the years ended December 31, 2017, 2016 2015 and 2014,2015, Trade Publishing net sales and Adjusted EBITDA were approximately $184.5 million and $16.1 million, $165.6 million and $6.3 million, and $164.9 million and $7.7 million, and $163.2 million and $12.7 million, respectively.

Seasonality

Approximately 88%87% of our net sales for the year ended December 31, 20162017 were derived from our Education segment, which is a markedly seasonal business. Schools conduct the majority of their purchases in the second and third quarters of the calendar year in preparation for the beginning of the school year. Thus, over our latest three completed fiscal years, approximately 68% of consolidated net sales were realized in the second and third quarters. Sales ofK-12 instructional materials and customized assessment products are also cyclical, with some years offering more sales opportunities than others. The amount of funding available at the state level for educational materials also has a significant effect onyear-to-year net sales. Although the loss of a single customer would not have a material adverse effect on our business, schedules of school adoptions and market acceptance of our products can materially affectyear-to-year net sales performance.

Competition

We sell our products in highly competitive markets. In these markets, product quality, innovation and customer service are major differentiating factors between companies. Other factors affecting competition include: (i) competitive pricing, sampling and gratis costs; (ii) digitization and innovative delivery; and (iii) educational effectiveness of the program. In addition to national curriculum publishers, we also compete with a variety of specialized or regional publishers that focus on select disciplines and/or geographic regions in theK-12 market. There are also multiple competitors in the Trade Publishing, supplemental and assessment segments offering content that school districts increasingly are using as part of their core classroom instructional materials. In addition, school districts in many states are able to spend educational funds on “instructional materials” that include core and supplemental materials, computer software, digital media, digital courseware, and online services. Our larger competitors in the educational market include Pearson Education, Inc., McGraw Hill Education, Cengage Learning, Inc., Scholastic Corporation, K12 Inc., John Wiley & Sons, Inc., The College

Board, Inc., Curriculum Associates, LLC, Benchmark Education, LLC, Accelerate Learning, Inc., Discovery Education, Cambium Learning Group, Inc., Carnegie Learning, Inc.,and Amplify Education, Inc., New Mountain Learning, LLC and Great Minds, Inc. Additionally, the trend towards digitalization of content and proliferation of distribution channels and learning management Also competing in our market as a substitute are open educational resources. These resources are free, digital solutions and courseware systems has created additional opportunities for new entrants.that range from supplemental resources to full Core Solutions programs.

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Printing and binding; raw materials

We outsource the printing and binding of our products, with approximately 55%50% of our printing requirements handled by one major supplier. We have procurement agreements that provide volume and scheduling flexibility and price predictability. We have a longstanding relationship with these parties. Approximately 20%18% of our printed materials (consisting primarily of teacher’s editions and other ancillary components) are printed outside of the United States and approximately 80%82% of our printed materials (including most student editions) are printed within the United States. Paper is one of our principal raw materials. We purchase our paper primarily through one paper merchant and also directly through suppliers for limited product types. We maintain various agreements that protect against supply availability and unbound price increases. We manage our paper supply concentration by having primary and secondary sources and staying ahead of dramatic market changes.

Distribution

We operate three distribution facilities from which we coordinate our own distribution process: one each in Indianapolis, Indiana; Geneva, Illinois; and Troy, Missouri. We also utilize select suppliers to assist us with coordinating the distribution process for a limited number of product types. Additionally, some adoption states require us to usein-state textbook depositories for educational materials sold in that particular state. We utilize delivery firms including United Parcel Service Inc., FedEx Freight, CH Robinson Worldwide Inc., YRC Freight, SAIA and USF Holland, Inc. to facilitate the principally ground transportation of products.

Employees

As of December 31, 2016,2017, we had approximately 4,5003,800 employees, none of which were covered by collective bargaining agreements. These employees are substantially located in the United States with 243218 employees located outside of the United States. We believe that relations with employees are generally good.

Intellectual property

Our principal intellectual property assets consist of our trademarks and copyrights in our content. Substantially all of our publications are protected by copyright, whether registered or unregistered, either in our name as the author of a work made for hire or the assignee of copyright, or in the name of an author who has licensed us to publish the work. Ownership of such copyrights secures the exclusive right to publish the work in the United States and in many countries abroad for specified periods: in the United States, in most cases, either 95 years from publication or for the author’s life plus 70 years, but in any event a minimum of 28 years for works published prior to 1978 and 35 years for works published thereafter. In most cases, the authors who retain ownership of their copyright have licensed to us exclusive rights for the full term of copyright. Under U.S. copyright law, for licenses granted by an author during or after 1978, such exclusive licenses are subject to termination by the author or certain of the author’s heirs for a five year period beginning at the end of 35 years after the date of publication of the work or 40 years after the date of the license grant, whichever term ends earlier.

We do not own any material patents, franchises or concessions, but we have registered certain trademarks and service marks in connection with our publishing businesses. We believe we have taken, and take in the ordinary course of business, appropriate available legal steps to reasonably protect our intellectual property in all material jurisdictions.

Environmental matters

We generally contract with independent printers and binders for their services, and our operations are generally not otherwise affected by environmental laws and regulations. However, as the owner and lessee of real property, we are subject to environmental laws and regulations, including those relating to the discharge of hazardous materials into the environment, the remediation of contaminated sites and the handling and disposal of

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wastes. It is possible that we could face liability, regardless of fault, and can be held jointly or severally liable, if contamination were to be discovered on the properties that we own or lease or on properties that we have formerly owned or leased. We are currently unaware of any material environmental liabilities or other material environmental issues relating to our properties or operations and anticipate no material expenditures for compliance with environmental laws or regulations.

Additional information

Houghton Mifflin Harcourt Company was incorporated as a Delaware corporation on March 5, 2010, and was established as the holding company of the current operating group. Houghton Mifflin Harcourt was formed in December 2007 with the acquisition of Harcourt Education Group, then the second-largestK-12 U.S. publisher, by Houghton Mifflin Group. We are headquartered in Boston, Massachusetts. Our corporate website iswww.hmhco.com. We make available our annual reports on Form10-K, quarterly reports on Form10-Q, current reports on Form8-K and amendments to these reports, as well as other information, free of charge through our corporate website under the “Financial Information” link located at: ir.hmhco.com, as soon as reasonably practicable after being filed with or furnished to the Securities and Exchange Commission (the “SEC”). The information found on our website or any other website we refer to in this Annual Report is not part of this Annual Report or any other report we file with or furnish to the SEC.

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Item 1A. Risk Factors

Our business and results of operations may be adversely affected by many factors outside of our control, including changes in federal, state and local education funding, and changes in legislation and public policy.

A majority of our sales are to public school districts in the United States, most of which rely primarily on a combination of local tax revenues and state legislative appropriations for general operating funds and to pay for purchases of goods and services, including instructional materials. Funding for public schools at both the state and local levels can be affected by tax collections, which are typically sensitive to general economic conditions, and/or the loosening of restrictions on the use of state educational funding currently dedicated to instructional material purchases.

The performance and growth of our U.S. educational businesses depend in part on federal,by political and policy choices made by state and local educationgovernments. A reduction in funding which in turn is dependent in part on the robustnesslevels, whether due to an economic downturn or legislative action, or a failure of federal, state and local finances and the level ofprojected funding allocatedincreases to educational programs. Most publicmaterialize, can constrain resources available to school districts the primary customers forK-12 products and services, depend largely on state and local funding to purchase instructional materials. In school districts in states that primarily rely on local tax proceeds, significant reductions in those proceeds for any reason can severely restrict districtmaking purchases of instructional materials. In school districts inmaterials and adversely affect our business and results of operations.

Some states, that primarily rely onincluding a majority of adoption states, provide dedicated state funding for the purchase of instructional content and/or classroom technology, and expenditures for instructional materials a reduction in state fundsthose states tend to be highly dependent on appropriation of those funds. If dedicated funding is not appropriated, or loosening ofif the amount is substantially less than anticipated or legislative action is taken to lift restrictions on the use of those funds, then purchases of instructional materials may reduceto be significantly reduced and our net sales. Additionally,sales may be adversely impacted.

In addition, many school districts, including most large urban districts, receive substantial amountsfederal funding through FederalTitle I of the Elementary and Secondary Education Act (“ESEA”), the Individuals with Disabilities Act (“IDEA”), and other federal education programs. These funds supplement state and local funding and are used primarily to serve specific populations, such aslow-income students and families, students with disabilities, and English language learners as well as to support programs to improve the quality of instruction, including educator professional learning. The funding for which may be reduced as a result of these programs is subject to Congressional budget actions.appropriation. A significant reduction in appropriation levels could have an adverse effect on our sales, particularly sales of intervention and professional learning products and services.

Federal and/orand state legislative and policy changes can also affect our business. For example, recent changes to federal education law in the funding availableEvery Student Succeeds Act (“ESSA”) give states greater latitude in how they approach assessment and accountability, support and improvement of low performing schools, as well as accounting for the expenditure of federal program funds. The recent changes in ESSA also provided for new requirements regarding evidence of effectiveness of educational expenditure, which include the impact of education reform,products and services purchased with federal funds. The recent changes in ESSA and state legislation and administrative policy decisions on matters such as ESSAassessment and the implementation of Common Core State Standardsaccountability, curriculum and new science standards. The ESSA legislation consolidates funding for a number of existing federal programs into a single block grant and makes other significant changes to the law, including significant changes to state accountability requirements and increased flexibility in use of federal funds, thatintervention with respect thereto could affect demand for our products and services. Moreover, federal educational funding is subject to the Congressional appropriations process and, accordingly, could result in program funding at or below authorized or historical levels, which could adversely affect sources of funding for our products and services. There can be no assurances that states or districts will have sufficient funding to purchase our products and services, that we will win their business in our competitive marketplace or that schools or districts that have historically purchased our products and services will do so again in the future.

Recent changes in leadership of the executive branch of the federal government, including new leadership at the Department of Education, could bring about changes in federal education policy, including shifts or reductions in federal funding, with the potential to affect our customers and/or the way we deliver educational materials and services, in ways we cannot foresee at this time.

Decreases in federal, state and/or local education funding available to school districts, the loosening of restrictions on the use of state educational funding currently dedicated to instructional materials purchases, federal and/or state legislative changes and/or negative trends or changes in general economic conditions could have a material adverse effect on our business, results of operations and financial condition.products.

State changes to curriculum standards, such as Common Core State Standards, or procurement processes and/or our ability to do well in state adoptions may have a material adverse effect on our business, results of operations and our financial condition.

Changes in state curriculum standards, such as Common Core State Standards and new science standards, may affect our market and sales. Delays or controversies in connections with the adoption of new standards could disrupt local adoptions of instructional materials and require modifications to our programs offeredadoptions, which account for sale in states that adopt such changes, which may have a material adverse effect on our business and results of operations. Further, the ESSA legislation consolidates funding for a number of existing federal programs into a single block grant and makes other significant changes to the law, including significant changes to state accountability requirements and increased flexibility in the use of federal education funds, which could affect demand for our educational products and services.

Similarly, changes in the state procurement process for instructional, assessment and supplemental materials, particularly in adoption states, can also affect our markets and sales. A significant portion of our net

sales is derived from sales ofK-12 instructional materials, pursuant topre-determined adoption schedules. are highly cyclical and pose significant inherent risks that could materially impact our results of operations.

Due to the revolving and staggered nature of “predetermined” state adoption schedules, sales ofK-12 instructional materials have traditionally been cyclical, with some years offering more and/or larger sales opportunities than others. Since a large portion of our sales are derived from state adoptions, our overall results can be materially affected from year to year by the adoption schedule, particularly in large adoption states. For example, over the next few years adoptions are scheduled or have already begun in one or more of the primary subjects of reading, language arts and literature, social studies, science and mathematics in, among others, theother states, of California, Florida and Texas, and Florida,which are the three largest adoption states. Adoption states, at times, can delay, postponeOur failure to secure approval for our programs or cancel anperform according to our expectations in larger new adoption after we have invested considerable development expenditures in anticipation of a specific discipline adoption and school districts at times, can decline to purchase new instructional materials. This could have a direct impact on overall investment returns and both our timing and amount of net sales. The inability to succeed in adoption states, or reductions in their anticipated funding levels,opportunities could materially and adversely affect our net sales for the year of the adoption and in subsequent years. Further, allowing

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In any state adoption, there is the inherent the risk that one or more of our programs will not be approved by a particular state board of education or other adopting authority. For example, ourK-8 social studies materials were not adopted in California in 2017. While school districts flexibilityin most adoption states, including California, are not precluded from purchasing materials that have not been approved by the state, in many cases, exclusion of a program on the state-adopted list can materially and adversely impact our ability to usecompete effectively at the school district level. Moreover, even if our program is approved by the state, funds currentlywe face significant competition and there is no guarantee that school districts will select our program or that we will be able to capture a meaningful share of the sales in such state.

State adoptions can be delayed, postponed or cancelled – sometimes with little or no warning and after we have made significant investments in anticipation of the adoption – due to various reasons, such as funding shortfalls, delays in development and approval of state academic standards and specifications, competing priorities or school readiness. In addition, individual school districts may decline to purchase new programs in accordance with the state’s adoption schedule. A substantial delay, postponement or cancellation of a larger adoption opportunity can adversely affect the amount and timing of our net sales return on investment for the affected product, our business and our results of operations.

Further, the timing of the legislative appropriations process in most states is such that it is often impossible to know with certainty whether implementation of an adoption will be funded until after products have been submitted for review. By that time, investments have been made for product development and substantial expenses incurred for sales, marketing and other costs. If the legislature in a state that provides dedicated exclusively to the purchase offunding for instructional materials decides not to appropriate those funds or appropriates substantially less than anticipated, due to a revenue shortfall or other reasons, or if the legislature lifts restrictions on other itemsuse of those funds, then implementation of that adoption could be substantially compromised or delayed and our net sales and return on investment could be adversely affected.

Changes in state academic standards could affect our market and require investment in development of new programs or modifications to our existing programs and any delays or controversies in the implementation of such as technology equipmentstandards could impact our results of operations.

States may adopt new academic standards or revise existing standards, which may affect our market and trainingrequire investment in the development of new programs or modifications to our existing programs offered for sale in states that adopt such changes. Delays or controversies in the implementation of the adoption of new or revised academic standards may result in insufficient lead time before the deadline to submit instructional materials for an adoption. As a result, we may have to invest more than planned in order to complete product development or make the modifications in the compressed timeframe to bring our program into alignment with the new or revised standards, which could adversely affect district expendituresour return on state-adopted instructional materialsinvestment. Alternatively, we may determine that completing product development or making the modifications within the available timeframe is not practicable, and elect not to participate in the future.

State changes to curriculum standards, such as Common Core State Standards, or procurement process, particularly in adoption, states,forgoing what might have been a significant sales opportunity which could materially and adversely affect our markets,net sales for the year of the adoption and subsequent years.

We may not be able to execute on our long-term growth strategy or achieve expected benefits from actions taken in furtherance of our strategy, which could materially and adversely affect our business, financial condition and results of operations. For example, states have at times changed their standards afteroperations and/or our growth.

If we have investedare not able to customize a program to meet their original standards. If these changes occur late in the process, this can significantly impact our ability to deliver a program on the original timeline. Our failure to do well in state adoptions could have a material adverse effectexecute on our long-term growth strategy or achieve expected benefits from our actions in furtherance of our strategy, it could materially and adversely affect our business, financial condition and results of operations and/or our growth. In any event, actions taken in furtherance of our strategy, such as transitioning to new business models or entering into new market segments could adversely impact our cash flow and financial condition.our business in unforeseen ways.

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Introduction ofOur investments in new products, services service offerings, platforms and/or technologies could impact our profitability.

We operate in highly competitive markets that continue to change to adapt to customer needs. These needs include an increasing demand for digitalized and personalizedintegrated learning solutions. In order to maintain a competitive position,address these needs, we must continue to investare investing in new content,products, new technology and infrastructure, and technology, anda new wayscommon platform to deliverintegrate our products, services and services.solutions. These investments may not be profitable or may be less profitable than what we have experienced historically. In particular, in the context of our current focus on key digital opportunities, the market is evolving, and wehistorically, may be unsuccessful in establishing ourselves as a significant competitor. New distribution channels, such as digital platforms, courseware and-learning management solutions, the internet, online retailers and delivery platforms (e.g., tablets ande-readers), present both threats and opportunities to our traditional publishing models, potentially impacting both sales volumes and pricing.

Our operating results fluctuate on a seasonal and quarterly basis and our business is dependent on our results ofconsume substantial financial resources and/or may divert management’s attention from existing operations, for the third quarter.

Our business is seasonal. For the year ended December 31, 2016, we derived approximately 88% of net sales from our Education Segment, which is a markedly seasonal business. Typically, purchases of educational products are made primarily in the second and third quarters of the calendar year in preparation for the beginning of the school year, though assessment net sales are primarily generated in the second and fourth quarters. We typically realize a significant portion of net sales during the third quarter, making third-quarter results material to full-year performance. This sales seasonality affects operating cash flow from quarter to quarter. We typically incur a net cash deficit from all of our activities through the middle of the third quarter of the year. We cannot make assurances that our second and third quarter net sales will continue to be sufficient to fund our business and meet our obligations or that they will be higher than our net sales in prior-year or consecutive quarters. In the event that we do not derive sufficient net sales for the second and third quarter, we may have a liquidity shortfall and may not be able to fund our business and/or meet our debt service requirements and other obligations.

In addition, changes in our customers’ ordering patterns may impact the comparison of results for a period with the same prior-year or consecutive period and may make it increasingly difficult for us to forecast the timing of customer purchases and assess our financial performance until later in the year.

Our business is and will continue to be impacted by the rate and state of technological change, including the digital evolution and other disruptive technologies, and the presence and development of open-sourced content could continue to increase, which could materially and adversely affect our net sales.

Our industry has been impacted by the digitalization of content and proliferation of distribution channels, either over the internet, or via other electronic means, replacing traditional print formats. The digital migration brings the need for change in product distribution, consumers’ perception of value and the publisher’s position between retailers and authors. Such digitalization increases competitive threats both from large media and technology players and from smaller businesses, online and mobile portals.

Free or relatively inexpensive educational products are becoming increasingly available, particularly in digital formats and through the internet. For example, some governmental and regulatory agencies have increased the amount of information they make publicly available for free. In addition, in recent years, there have been initiatives bynon-profit organizations such as the Gates Foundation and the Hewlett Foundation to develop educational content that can be “open sourced” and made available to educational institutions for free or nominal cost. To the extent that such open sourced content is developed and made available to educational customers and is competitive with our instructional materials, our sales opportunities and net sales could be adversely affected. Technological changes and the availability of free or relatively inexpensive information and materials may also affect changes in customer behavior and expectations. Public and private sources of free or relatively inexpensive information and lower pricing for digital products may reduce demand, and impact the prices we can charge for, our products. To the extent that technological changes and the availability of free or relatively inexpensive information and materials limit demand or the prices we can charge for our products, our business, financial position and results of operations may be materially adversely affected.

Changes in product distribution channels and concentration of retailer power may restrict our ability to grow and affect our profitability in our Trade Publishing segment.

Distribution channels such as online retailers and ecommerce sites, evolving digital delivery platforms, expanding social media, digital discovery and marketing platforms, combined with the increased concentration of retailer power, pose threats and provide opportunities to our traditional consumer publishing models in our Trade Publishing segment, potentially impacting both sales volumes and profitability. The continued reduction in “brick and mortar” booksellers, the resulting concentration of power held by our largest retailers, and the increased concentration of consumer book spending on best-selling titles could negatively affect our business, financial condition and results of operations.

We operate in a highly competitive environment that is subject to rapid change and we must continue to adapt to remain competitive.

We operate in highly competitive markets with competitors such as Pearson Education, Inc., McGraw Hill Education, Cengage Learning, Inc., Scholastic Corporation, K12 Inc., John Wiley & Sons, Inc. , The College Board, Inc., Curriculum Associates, LLC, Benchmark Education, LLC, Accelerate Learning, Inc., Discovery Education, Cambium Learning Group, Inc., Carnegie Learning, Inc., Amplify Education, Inc., New Mountain Learning, LLC and Great Minds, Inc. Some of these established competitors may have greater resources and less debt than us and, therefore, may be able to adapt more quickly to new or emerging technologies and changes in customer requirements or devote greater resources to the development, promotion and sale of their products and services than we can.

The risks of competition are intensified in the current environment where investment in new technology is ongoing and there are rapid changes in the products and services our customers are seeking and our competitors are offering, as well as new technologies, sales and distribution channels. As a result, we could experience threats to our existing businesses from the rise of new competitors due to the rapidly changing environment within which we operate.

For example, while our educational content is protected by copyright law, there is nothing to prevent technology companies from developing their own educational digital products and content and offering them to schools. Technology companies are free to distribute materials with and on their technology devices and platforms. Many technology companies have substantial resources that they could devote to expand their business, including the development of educational digital products. Furthermore, while we have entered into digital distribution agreements with a number of technology companies, our agreements arenon-exclusive arrangements and there is nothing to prevent such technology companies from developing and distributing their own or other publishers’ educational content to theK-12 market. There is a risk that a technology company with significant resources could license or acquire their own educational content and compete with us, which could negatively affect our business, financial condition and results of operations.

There is also a risk of further disintermediation, which is the occurrence of state, district and other customers contracting directly with technology companies. As a result, there is a risk that technology companies may own direct relationships with our customers, and accordingly, they may have a significant influence over access to, pricing and distribution of digital and print education materials.

Our history of operations includes periods of operating and net losses, and we may incur operating and net losses in the future. Such losses may impact our liquidity. Our significant net losses and our significant amount of indebtedness led us to declare bankruptcy in 2012.

For the years ended December 31, 2016, 2015 and 2014, we generated operating losses of $310.8 million, $116.1 million, and $85.4 million, respectively, and net losses of $284.6 million, $133.9 million, and $111.5 million, respectively. If we continue to suffer operating and net losses, our liquidity may suffer and we may not be able to fund all of our obligations. Furthermore, the trading price of our common stock may decline significantly.

In addition, we had a significant amount of indebtedness prior to May 2012. During May 2012, as a result of our financial position, results of operations and significant amount of indebtedness, we filed a voluntary petition for bankruptcy under Chapter 11 of the United States Bankruptcy Code. On June 22, 2012, we emerged from bankruptcy pursuant to apre-packaged plan of reorganization with $250.0 million of indebtedness. In connection with the closing of our EdTech Acquisition we increased our indebtedness by $575.0 million. Although we have significantly less interest expense now than we did prior to emerging from bankruptcy, we may not generate sufficient net sales in future periods to pay for all of our operating or other expenses, which could have a material adverse effect on our business, results of operations and financial condition.

Our ability to enforce our intellectual property and proprietary rights may be limited, which may harm our competitive position and materially and adversely affect our business and results of operations.

Our products are largely comprised of intellectual property content delivered through a variety of media, including print, digital andweb-based media. We rely on copyright, trademark and other intellectual property laws and rights to establish and protect our proprietary rights in these products. However, our efforts to protect our intellectual property and proprietary rights may not be sufficient and we cannot make assurances that our proprietary rights will not be challenged, invalidated or circumvented. Moreover, we conduct business in certain other countries where the extent of effective legal protection for intellectual property rights is uncertain. We may also be required to initiate expensive and time-consuming litigation to maintain, defend or enforce our intellectual property.

Moreover, despite the existence of copyright and trademark protection under applicable laws, third parties may nonetheless violate our intellectual property rights, and our ability to remedy such violations, including in certain foreign countries where we conduct or seek to conduct business, may be limited. In addition, the copying and distribution of content over the Internet creates additional challenges for us in protecting our proprietary rights.

If we are unable to adequately protect and enforce our intellectual property and proprietary rights, our competitive position may be harmed and our business and financial results could be materially and adversely affected.

We are subject to risks based on Information Technology (“IT”) systems. A major data privacy breach or unanticipated IT system failure could interrupt the availability of our internet-based products and services, result in corruption /and/or loss of data or breach in security and cause liability, reputational damage to our brands and/or financial loss.

Our business is dependent on information technology systems to support our complex operational and logistical arrangements across our businesses. We provide software and/or internet-based products and services to our customers. We also use complex information technology systems and products to support our business activities, particularly in infrastructure and as we move our products and services to an increasingly digital delivery platform.

We face several technological risks associated with software and/or internet-based product and service delivery in our educational businesses, including with respect to information technology capability, reliability and security, enterprise resource planning, system implementations and upgrades. Failures of our information technology systems and products (including as a result of operational failure, natural disaster, computer virus or hacker attacks) could interrupt the availability of our internet-based products and services, result in corruption or loss of data or breach in security and result in liability, reputational damage to our brands and/or adversely impact our operating results.

Across our businesses we hold large volumes of personal data, including that of employees, customers and students, and are subject to privacy laws, rules, regulations and standards in U.S. federal, state and local jurisdictions as well as in foreign jurisdictions where we conduct business, including (i) the Children’s Online Privacy Protection Act and state student data privacy laws in connection with access to, collection of, and use of personally identifiable information of students, (ii) the Health Insurance Portability and Accountability Act in connection with our self-insured health plan and assessment products, (iii) the Payment Card Industry Data Security Standards in connection with collection of credit card information from customers, and (iv) various EU data protection laws resulting from the EU Privacy Directive. Our brands and customer relationships are important assets. Failure to adequately protect such personal data could lead to penalties, significant remediation costs, reputational damage to our brands and customer relationships, potential cancellation of existing business and diminished ability to compete for future business.

While we have policies, processes, internal controls and cybersecurity mechanisms in place intended to ensure the stability of our information technology, provide security from unauthorized access to our systems and maintain business continuity, no mechanisms are entirely free from the risk of failure and we have no guarantee that our security mechanisms will be adequate to prevent all possible security threats. Our operating results may be adversely impacted by unanticipated system failures, corruption or loss of data or breaches in security.

We are dependent on a small number of third parties to print and bind our products and to supply paper, a principal material for our products. If we were to lose our relationship with our print vendor and/or paper merchant, our business and results of operations may be materially and adversely affected.

We outsource the printing and binding of our products and currently rely on one key third-party print vendor that handles approximately 55% of our printing requirements, and we expect a small number of print vendors will continue to account for a substantial portion of our printing requirements for the foreseeable future. The loss of, or a significant adverse change in our relationship with, our key print vendor could have a material adverse effect on our business and cost of sales. In addition, we purchase paper, a principal raw material for our print products, primarily through one paper merchant. There can be no assurance that our relationships with our print vendor and/or paper merchant will continue or that their business or operations will not be affected by major disasters or other external factors. The loss of our key print vendor and/or paper merchant, a material change in our relationship with them, a material disruption in their business or their failure to otherwise perform in the expected manner could cause disruptions in our business that may materially and adversely affect our results of operations and financial condition.

We rely on third-party software and technology development as part of our digital platform.

We rely on third parties for some of our software and technology development. For example, some of the technologies and software that compose our instruction and assessment technologies are developed by third parties. We rely on those third parties for the development of future components and modules. Thus, we face risks associated with technology and software product development and the ability of those third parties to meet our needs and their obligations under our contracts with them. In addition, we rely on third parties for our internet-based product hosting. The loss of one or more of these third-party partners, a material disruption in their business or their failure to otherwise perform in the expected manner could cause disruptions in our business that may materially and adversely affect our results of operations and financial condition.

Defects in our digital products and platforms could cause financial loss and reputational damage.

In the fast-changing digital marketplace, demand for innovative technology has generally resulted in short lead times for producing products that meet customer needs. Growing demand for innovation and additional functionality in digital products increases the risk that our digital products and platforms may contain flaws or corrupted data that may only become apparent after product launch, particularly for new products and platforms and new features for existing products and platforms that are developed and brought to market under tight time constraints. Problems with the performance of our digital products and platforms could result in liability, loss of revenue or harm to our reputation.

Some states and school districts require that newly purchased digital instructional materials conform to certain technical standards for accessibility by persons with disabilities, which could have an adverse effect on our net sales and/or lead us to incur additional costs.

Some states and school districts have adopted certain technical standards for accessibility by persons with disabilities that apply to school websites and electronically-delivered content. While we are committed to designing and developing our electronically-delivered products for theK-12 market in a manner accessible to persons with disabilities and strive to conform to relevant technical standards, it is possible that some of our digital products may be deemed to benon-conforming with those standards in all respects. This could limit our ability to compete for sales in states and districts that have adopted those standards, which could have an adverse effect on our net sales. To the extent that we decide to add accessibility features to existing products, we may incur costs that we would not otherwise have incurred.

Changes in product distribution channels and concentration of retailer power may restrict our ability to grow and affect our profitability in our Trade Publishing segment.

Distribution channels such as online retailers and ecommerce sites, digital delivery platforms, expanding social media, digital discovery and marketing platforms, combined with the increased concentration of retailer power, pose threats and provide opportunities to traditional consumer publishing models of our Trade Publishing segment, potentially impacting both sales volume and profitability. The reduction in “brick and mortar” booksellers, the resulting concentration of power held by our largest retailers, and the increased concentration of consumer book spending on best-selling titles could negatively affect our business, financial condition and results of operations.

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We operate in a highly competitive environment where the risks from competition are intensified due to rapid changes in our markets and industry; as a result we must continue to adapt to remain competitive.

We operate in highly competitive markets. The risks of competition are intensified in the current environment where investment in new technology is ongoing and there are rapid changes in the products and services our customers are seeking and our competitors are offering, as well as new technologies, sales and distribution channels. In addition to national curriculum publishers, we compete with a variety of specialized or regional publishers that focus on select disciplines and/or geographic regions in theK-12 market. There are multiple competitors in the Trade Publishing, supplemental and assessment segments offering content that school districts increasingly are using as part of their core classroom instructional materials. Our larger competitors in the educational market include Pearson Education, Inc., McGraw Hill Education, Cengage Learning, Inc., Scholastic Corporation, Curriculum Associates, LLC, Benchmark Education, LLC, Accelerate Learning, Inc., and Amplify Education, Inc. Some of these established competitors may have greater resources and less debt than us and, therefore, may be able to adapt more quickly to new or emerging technologies and changes in customer requirements or devote greater resources to the development, promotion and sale of their products and services than we can. Also competing in our market as a substitute are open educational resources. In addition, the market shift toward digital education solutions has induced both established technology companies and newstart-up companies to enter certain segments of our market. These new competitors have the possible advantage of not needing to transition from a print business to a digital business. In addition, many established technology companies have substantial resources that they could devote to developing or acquiring digital educational products and/or content and, distributing their own and/or aggregated educational content to theK-12 market, which could negatively affect our business, financial condition and results of operations. There is also a risk of further disintermediation, which is the occurrence of state, district and other customers contracting directly with technology companies, enabling technology companies to develop direct relationships with our customers, and accordingly, have significant influence over access to and, pricing and distribution of digital and print education materials. We may not be able to adapt as needed to remain competitive in the market given the foregoing factors.

The availability of free andlow-cost open education resources could adversely affect our net sales and exert downward pressure on prices for our education products.

In theK-12 market, we face growing competition from free, openly licensed content, often referred to as open education resources (“OER”). Free orlow-cost OER content is typically delivered via the internet, and in some cases print versions and related services are available for purchase. A number of states support the use of OER by providing curated resources and a few, including New York and Texas, are funding development of OER or have done so in the past. Twenty states have signed on to the U.S Department of Education’s GoOpen campaign, which seeks to support users of OER and promote coordination and sharing of OER among states. The increased availability of free andlow-cost OER could negatively affect our customers’ perception of the value of our content, reduce demand for our educational products, and/or exert downward pressure on prices for our products, and adversely impact our net sales.

Our operating results fluctuate on a seasonal and quarterly basis and our business has historically been dependent on our results of operations for the third quarter.

Our business is seasonal. Approximately 87% of our net sales for the year ended December 31, 2017 were derived from our Education segment, which is a markedly seasonal business. Purchases ofK-12 products are typically made in the second and third quarters of the calendar year in preparation for the beginning of the school year, though assessment purchases have modest seasonality in the second and fourth quarters. We typically realize a significant portion of net sales during the third quarter, making third-quarter results material to full-year performance. This sales seasonality affects operating cash flow from quarter to quarter. We typically incur a net cash deficit from all of our activities through the middle of the third quarter of the year. We cannot be sure that our second and third quarter net sales will continue to be sufficient to fund our business and meet our obligations

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or that they will be higher than our net sales for our other quarters or in the prior-year periods. In the event that we do not derive sufficient net sales for the second and third quarter, we may have a liquidity shortfall and be unable to fund our business and/or meet our debt service requirements and other obligations.

Our net sales, operating profit or loss and net cash provided or used by operations are impacted by the inherent seasonality of the academic calendar. As purchases ofK-12 products are typically made in the second and third quarters of a given calendar year, changes in our customers’ ordering patterns may impact the comparison of results between a quarter and the same quarter of the prior year, between a quarter and the prior consecutive quarter or between a fiscal year and the prior fiscal year, which can make it difficult for us to forecast the timing of customer purchases and assess our financial performance until late in the year.

Our history of operations includes periods of operating and net losses, and we may incur operating and net losses in the future. Such losses may impact our liquidity.

For the years ended December 31, 2017, 2016 and 2015, we generated operating losses of $113.5 million, $310.8 million and $116.1 million, respectively, and net losses of $103.2 million, $284.6 million and $133.9 million, respectively. If we continue to suffer operating and net losses, our liquidity may suffer and we may not be able to fund our business and/or meet our debt service requirements and other obligations. Furthermore, the market price of our common stock may decline significantly.

Our ability to enforce our intellectual property and proprietary rights may be limited, which may harm our competitive position and materially and adversely affect our business and results of operations.

Our products are largely comprised of intellectual property content delivered through a variety of media, including print, digital andweb-based media. We rely on a combination of copyright, trademark and other intellectual property laws and rights as well as employee agreements and other contracts to establish and protect our proprietary rights in our products and technology. However, our efforts to protect our intellectual property and proprietary rights may not be sufficient and we cannot make assurances that our proprietary rights will not be challenged, invalidated or circumvented. Moreover, we conduct business in certain other countries where the extent of effective legal protection for intellectual property rights is uncertain. It is possible we could be involved in expensive and time-consuming litigation to maintain, defend or enforce our intellectual property.

Furthermore, despite the existence of copyright and trademark protection under applicable laws, third parties may nonetheless violate our intellectual property rights, and our ability to remedy such violations, including in certain foreign countries where we conduct or seek to conduct business, may be limited. In addition, the copying and distribution of content over the Internet creates additional challenges for us in protecting our proprietary rights. If we are unable to adequately protect and enforce our intellectual property and proprietary rights, our competitive position may be harmed, and our business and financial results could be materially and adversely affected.

Failure to comply with privacy laws or adequately protect personal data could cause financial loss and reputational damage.

Across our businesses we hold large volumes of personal data, including that of employees, customers and students. We are subject to a wide array of different privacy laws, rules, regulations and standards in the U.S. as well as in foreign jurisdictions where we conduct business, including but not limited to (i) the Children’s Online Privacy Protection Act and state student data privacy laws in connection with personally identifiable information of students, (ii) the Health Insurance Portability and Accountability Act in connection with our self-insured health plan and certain of our products, (iii) the Payment Card Industry Data Security Standards in connection with collection of credit card information from customers, and (iv) various EU data protection and privacy laws. Our brands and customer relationships are important assets. Our failure to comply with applicable privacy laws, rules, regulations and standards or adequately prevent the improper use or disclosure of the personal data we hold

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could lead to penalties, significant remediation costs, reputational damage to our brands and customer relationships, potential cancellation of existing business and diminished ability to compete for future business.

We are subject to risks based on Information Technology systems. A major breach in security or information technology system failure could interrupt the availability of our internet-based products and services, result in corruption and/or loss of data cause liability, reputational damage to our brands and business and/or result in financial loss.

Our business is dependent on information technology systems to support our complex operational and logistical arrangements across our businesses. We provide software and/or internet-based products and services to our customers. We also use complex information technology systems and products to support our business activities, particularly in infrastructure and as we move our products and services to an increasingly digital delivery platform.

We face several technological risks associated with software and/or internet-based product and service delivery in our educational businesses, including with respect to information technology capability, reliability and security, enterprise resource planning, system implementations and upgrades. Failures of our information technology systems and products (including because of operational failure, natural disaster, computer virus or hacker attacks) could interrupt the availability of our internet-based products and services, result in corruption or loss of data or breach in security and result in liability, reputational damage to our brands and/or adversely impact our operating results.

While we have policies, processes, internal controls and cybersecurity mechanisms in place intended to ensure the stability of our information technology, provide security from unauthorized access to our systems and maintain business continuity, no mechanisms are entirely free from the risk of failure and we have no guarantee that our security mechanisms will be adequate to prevent all possible security threats. Our brand, reputation, especially in theK-12 market, and consequently our operating results may be adversely impacted by unanticipated system failures, corruption, loss of data and/or breaches in security.

Failure to prevent or detect a malicious cyber-attack on our information technology systems could result in liability, reputational damage, loss of revenue and/or financial loss.

Cyber-attacks and hackers are becoming more sophisticated and pervasive. Our business is dependent on information technology systems to support our complex operational and logistical arrangements across our businesses. We provide software and/or internet-based products and services to our customers. We also use complex information technology systems and products to support our business activities, particularly in infrastructure and as we move our products and services to an increasingly digital delivery platform. Across our businesses we hold large volumes of personal data, including that of employees, customers and students.

Efforts to prevent cyber-attacks and hackers from entering our systems are expensive to implement and may limit the functionality of our systems. Individuals may try to gain unauthorized access to our systems and data for malicious purposes, and our security measures may fail to prevent such unauthorized access. Cyber-attacks and/or intentional hacking of our systems could adversely affect the performance or availability of our products, result in loss of customer data, adversely affect our ability to conduct business, or result in theft of our funds or proprietary information, the occurrence of which could result in liability, reputational damage, loss of revenue and/or financial loss.

We are dependent on a small number of third parties to print and bind our products and to supply paper, a principal material for our products. If we were to lose our relationship with our print vendor and/or paper merchant, our business and results of operations may be materially and adversely affected.

We outsource the printing and binding of our products and currently rely on one key third-party print vendor that handles approximately 50% of our printing requirements, and we expect a small number of print vendors

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will continue to account for a substantial portion of our printing requirements for the foreseeable future. The loss of, or a significant adverse change in our relationship with our key print vendor could have a material adverse effect on our business and cost of sales.

In addition, we purchase paper, a principal raw material for our print products, primarily through one paper merchant. Further, paper merchants, including our paper merchant, rely on paper mills to produce the paper that they broker. There can be no assurance that our relationships with our print vendor and/or paper merchant will continue or that their business or operations will not be affected by disruptions in the industries that they rely on, including a disruption in the paper mill industry, major disasters or other external factors. The loss of our key print vendor and/or paper merchant, a material change in our relationship with them, a material disruption in their business or their failure to otherwise perform in the expected manner could cause disruptions in our business that may materially and adversely affect our results of operations and financial condition.

We may not be able to identify and complete any future acquisitions or achieve the expected benefits from any previous or future acquisitions, which could materially and adversely affect our business, financial condition and results of operations and/or our growth.

We have at times used acquisitions as a means of expanding our business and technologies, and expect that we will continue to do so in the future as part of our capital allocation strategy. We may be unable to identify suitable acquisition opportunities and, even if we were able to do so, we may not be able to finance or complete any such future acquisition on terms satisfactory to us, if at all.us. Further, we may not be able to successfully integrate previous or future acquisitions into our existing business, achieve anticipated operating advantages and/or realize anticipated cost savings or other synergies. The acquisition and integration of businesses involve a number of risks, including: use of available cash, issuance of equity or debt securities, incurrence of new indebtedness or borrowings under our revolving credit facility to consummate the acquisition and/or integrate the acquired business; diversion of management’s attention from existing operations of our existing businesses and those of the acquired business to the integration; integration of complex systems, technologies and networks into our existing systems; difficulties in the assimilation and retention of employees; unexpected costs, delays or other risks related to transition support services provided under any transition services agreement that may be executed as part of the acquisition;acquisition. These transactions may create multiple and overlapping product lines that are offered, priced and supported differently, which could cause customer confusion and delays in service. The demands on our management related to the increase in our size after an acquisition; andacquisition also may have potential adverse effects on our operating results.

If we are unable to finance or complete any future acquisition on terms satisfactory to us (or at all) and/or we are unable to successfully integrate any previous or future acquisitions into our existing business, achieve anticipated operating advantages and/or realize anticipated cost savings or other synergies from any such acquired business, it could materially and adversely affect our business, financial condition and results of operations.

For example, we completed the acquisition of EdTech on May 29, 2015. Significant management attention and resources have been and continue to be devoted to integrating the business practices and operations of EdTech with our Company. This integration has proven to be more costly and time-consuming than expected, which has in the short term caused and could continue to cause us not to realize some or all of the anticipated benefits from the acquisition. Further, we currently expect to achieve certain benefits as a result of the acquisition of EdTech, including revenue and cost synergies, and we have made certain projections about the performance of EdTech. There can be no assurances that we will realize the expected benefits currently anticipated from the acquisition or that EdTech will perform according to our current projections. A failure to achieve any of the anticipated benefits of the acquisition of EdTech or a failure of EdTech to perform according to our projections could materially and adversely affect our financial condition and results of operations.

If we are unable to attract, retain and focus a strong leadership team, a dynamic sales force, software engineers and other key personnel, it could have an adverse effect on our business and ability to remain competitive, and on our business, financial condition and results from operations.

Our success depends, in part, on our ability to continue to attract, focus and retain a strong leadership team, a dynamic sales force, software engineers and focusother key personnel.personnel at economically reasonable compensation levels. We operate in highly competitive industry segments that continue to change to adapt to customer needs and

technological advances and wherein which there is intense competition for experienced and highly effective personnel. If we are unable to timely attract retain and focusretain key personnel with relevant skills for our evolving industry segment, including executive officers and other key members of management,segments it could adversely affect our business and ability to remain competitive, financial condition and results of operations.

For example,

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In late summer / early fall of 2017, we recently madeadded, through new hires and promotion, seven new members to our executive leadership team to serve under our President and Chief Executive Officer, who assumed his role in April 2017. Additional changes to our executive managementleadership team and recently announcedin the upcoming appointmentfuture could slow implementation of a new Chief Executive Officer. The transition to a successor Chief Executive Officer maykey initiatives, lead to inefficiencieschanges in our ability runor create uncertainty about our business execute on Company initiativesstrategies and/or result in uncertainty among our employees and investors concerning our future direction and performance. It may also impact our abilitymanagement’s attention to attract and retain other key personnel until the transition is complete.operations. Any such inefficiencies and uncertainty, as well as any failure of our new leadership team to timely and successfully transition to our successor Chief Executive Officerinto their roles could have a material adverse effect on our business, financial condition and results from operations and/or increase volatility in our stock price.

In addition, our business results depend largely upon the experience and knowledge of local market dynamics and long-standing customer relationships of our sales personnel. Our inability to attract, retain and focus effective sales and other key personnel at economically reasonable compensation levels could materially and adversely affect our ability to operate profitably and grow our business.

AIf we fail to maintain strong relationships with our authors, illustrators and other creative talent, as well as to develop relationships with new creative talent, our net sales and results of operations could be adversely affected.

Our Trade publishing business and certain aspects of ourK-12 business are highly dependent on maintaining strong relationships with the authors, illustrators and other creative talent who produce books and other products sold to our customers. We operate in a number of highly visible industry segments where there is intense competition for successful authors, illustrators and other creative talent. Any overall weakening of these relationships, or the failure to develop successful new relationships, could have an adverse effect on our net sales and results of operations.

Our major operating costs and expenses include employee compensation as well as paper, printing and binding costs and expenses for product-related manufacturing, and a significant increase in operatingsuch costs and expenses could have a material adverse effect on our profitability.

Our major operating costs and expenses include employee compensation as well as paper, printing and printing, paper and distributionbinding costs for product-related manufacturing.

We offer competitive salary and benefit packages in order to attract and retain the quality employees required to grow and expand our businesses. Compensation costs are influenced by general economic and business factors, including those affecting the cost of health insurance, payout of commissions and incentive compensation and post-retirement benefits, and anyas well as trends specific to the employee skillsets we require. We could experience changes in pension costs and funding requirements due to poor investment returns and/or changes in pension laws and regulations.

Paper is one of our principal raw materials. As a result, our business may be negatively impacted by an increase in paper prices. Paper prices fluctuate based on the worldwide demand for and supply forof paper in general and for the specific types of paper used by us.we use. The price of paper may fluctuate significantly in the future, and changes in the market supply of, or demand for paper, could affect delivery times and prices. Paper mills and other suppliers may consolidate or there may be disruptions in their industry and as a result, there may be future shortfalls in quality and quantity supplies necessary to meet the demands of the entire marketplace. Wemarketplace, including our demands. As a result, we may need to find alternative sources for paper from time to time. OurIn addition, we have extensive printing and binding requirements. We outsource the printing and binding of our books, workbooks and workbooks areother printed byproducts to third parties, and we typically haveunder multi-year contracts for the production of books and workbooks.contracts. Increases in any of ourthese operating costs and expenses could materially and adversely affect our business, profitability, and our business, financial condition and results of operations.

We make significant investments in information technology software and hardware, as well as significant investments in the development of programs for theK-12 marketplace. Although we believe we are prudent in our investment strategies and execution of our implementation plans, there is no assurance as to the ultimate recoverability of these investments.

We also have other significant operating costs, and unanticipated increases in these costs could adversely affect our operating margins. Higher Further, higher energy costs and other factors affecting the cost of publishing, transporting and distributing our products could adversely affect our financial results.

We also have other significant operating costs, and unanticipated increases in these costs could adversely affect our operating margins. Our inability to absorb the impact of increases in paper, printing and binding costs and other costs of publishing, transporting and distributing our products or any strategic determination not to pass on all or a portion of these increases to our customers could adversely affect our business, financial condition and results of operations.

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We may not realize expected benefits from our operational efficiency and cost-savings initiatives, including those under our 2017 Restructuring Plan, and such initiatives may lead to unintended consequences that could have a material effect on our results of operations.

On an ongoing basis, we assess opportunities for improved operational effectiveness and efficiency and better alignment of expenses with net sales, while preserving our ability to make the investments in content and our people that we believe are important to our long-term success. In March 2017, we committed to certain actions under the 2017 Restructuring Plan in order to improve our operational efficiency, better focus on the needs of our customers andright-size our cost structure to create long-term shareholder value. These actions include making organizational design changes across layers of the Company below the executive team and otherright-sizing initiatives expected to result in reductions in force, consolidating and/or subletting certain office space under real estate leases as well as other potential operational efficiency and cost-reduction initiatives. We have substantially completed the organizational design change actions and expect to complete the remaining actions by the end of 2018.

We estimate annualized cost savings of approximately $70.0 million to $80.0 million exiting 2018 as a result of these actions and estimate that implementation of these actions are expected to result in total charges of approximately $45.0 million to $49.0 million, of which approximately $35.0 million to $39.0 million of these charges are estimated to result in future cash outlays.

Expected costs, savings and operational efficiency benefits under such initiatives, including those under our 2017 Restructuring Plan, may differ materially from our estimates and expectations based on many factors, including timing of actions thereunder and higher than expected costs of implementation. In addition, such initiatives may lead to unintended consequences, such as management and employee distraction, inability to attract and retain key personnel, attrition beyond planned reductions, and reduced morale and productivity, which could have a material effect on our results of operations.

Exposure to litigation could have a material effect on our financial position and results of operations.

In the ordinary course of business, we are involved in legal actions, claims litigation and other matters arising from our business operations and face the risk that additional actions and claims will be filed in the future. Litigation alleging infringement of copyrights and other intellectual property rights, particularly with respect to proprietary photographs and images, has become extensiveis common in the educational publishing industry. For example, during the second quarter of 2016, we settled all such pending or actively threatened litigations alleging infringement of copyrights, and made total settlement payments of $10.0 million collectively, with $4.0 million paid during the third quarter of 2016 and $6.0 million paid during the fourth quarter of 2016. While management does not expect any of the existing legal actions and claims arising from our business operations to have a material adverse effect on our results of operations, financial position or cash flows, due to the inherent uncertainty of the litigation process, the costs of pursuing or defending against any particular legal proceeding, or the resolution of any particular legal proceeding or change in applicable legal standards could have a material effect on our financial position and results of operations.

We have insurance in such amounts and with such coverage and deductibles as management believes is reasonable. However, our coverage for certain business lines has been exceededexhausted and there can be no assurance that our liability insurance for other business lines will cover all events or that the limits of such coverage will be sufficient to fully cover all potential liabilities thereunder.

Operational disruption to our business caused by a major disaster or other external threats could restrict our ability to supply products and services to our customers.

Across all our businesses, we manage complex operational and logistical arrangements including distribution centers, data centers and large office facilities. Failure to recover from a major disaster (such as fire, flood or other natural disaster) or other external threat (such as terrorist attacks, strikes, weather or political unrest or other external factors) at a key center or facility could affect our business and employees, disrupt our daily business activities and/or restrict our ability to supply products and services to our customers.

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We are subject to contingent liabilities that may affect liquidity and our ability to meet our obligations.

In the ordinary course of business, we issue performance-related surety bonds and letters of credit posted as security for our operating activities, some of which obligate us to make payments if we fail to perform under certain contracts in connection with the sale of instructional materials and assessment programs. The surety bonds are partially backstopped by letters of credit. As of December 31, 2016,2017, our contingent liability for all letters of credit was approximately $31.7$25.2 million, of which $2.4$0.1 million were issued to backstop $4.1$2.5 million of surety bonds. The letters of credit reduce the borrowing availability on our revolving credit facility, which could affect liquidity and, therefore, our ability to meet our obligations. We may increase the number and amount of contracts that require the use of letters of credit, which may further restrict liquidity and, therefore, our ability to meet our obligations in the future.

Our substantial level of indebtedness could adversely affect our financial condition and results of operations.

As of December 31, 2016,2017, we had approximately $788.0$780.0 million ($772.7768.2 million, net of discount and issuance costs) outstanding under our term loan facility and no amounts outstanding under our revolving credit facility. Our substantial outstanding indebtedness could have important consequences, including the following:

Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, prospects and ability to satisfy our obligations. In addition, we may incur substantial additional indebtedness in the future. The terms of the agreements governing our existing indebtedness do not, and any future debt may not, fully prohibit us from doing so. If new indebtedness is added to our current indebtedness levels, the related risks that we now face could substantially intensify.

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We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments or to refinance our debt obligations and to fund planned capital expenditures and other growth initiatives depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flow from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness or to fund our other liquidity needs.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or seek to restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to sell material assets or operations to attempt to meet our debt service and other obligations. Our Senior Secured Credit Facilities restrict our ability to use the proceeds from asset sales. We may not be able to consummate those asset sales to raise capital or sell assets at prices that we believe are fair and proceeds that we do receive may not be adequate to meet any debt service obligations then due.

We may record future goodwill or additional indefinite-lived intangibles impairment charges related to our reporting units, which could have a material adverse impact on our results of operations.

We test our goodwill and indefinite-lived intangibles asset balances for impairment during the fourth quarter of each year, or more frequently if indicators are present or changes in circumstances suggest that impairment

may exist. We assess goodwill for impairment at the reporting unit level and, in evaluating the potential for impairment of goodwill, we make assumptions regarding estimated net sales projections, growth rates, cash flows and discount rates. Although we use consistent methodologies in developing the assumptions and estimates underlying the fair value calculations used in our impairment tests, these estimates are uncertain by nature and can vary from actual results. Declines in the future performance and cash flows of the reporting unit or small changes in other key assumptions may result in future impairment charges, which could have a material adverse impact on our results of operations.

We recorded anon-cash indefinite-lived asset impairment charge of $139.2 million and $0.4 million for the years ended December 31, 2016 and 2014, respectively. The indefinite-lived asset impairment charges related to four specific tradenames within the Education segment in 2016 and two specific tradenames within the Trade Publishing segment in 2014. In 2016, the impairment charges primarily resulted primarily from the strategic decision to market our products under the Houghton Mifflin Harcourt and HMH name rather than legacy imprints and certain declining sales projections. In 2014, the impairment charges resulted from a decline in revenue from previously projected amounts within the Trade Publishing segment. No indefinite-lived intangible assets were deemed to be impaired for the year ended December 31, 2015. We will continue to monitor and evaluate the carrying value of goodwill and indefinite-lived assets. If market and economic conditions or business performance deteriorate, this could increase the likelihood of us recording an impairment charge.

A change fromup-front payment by school districts for multi-year programs and actions taken in furtherance of our long-term growth strategy could adversely affect our cash flow.

In keeping with the past practice of payments, school districts typically payup-front when buying multi-year programs. If school districts changed their payment practices to spread their payments to us over the term of a program, our cash flow could be adversely affected. Further, as we execute on our long-term growth strategy, actions taken in furtherance of our strategy, such as transitioning to new business models could adversely impact our cash flow and our business in unforeseen ways.

The shift to sales of greater digital content or an increase in consumable print core programs may affect the comparability of our revenue to prior periods and cause increases or decreases in our sales to be reflected in our results of operations on a delayed basis.

AsK-12 instructional materials transition from printed to digital products, an increasing percentage of our revenues are derived from time-based digital products. Our customers typically pay for purchased productsup-front; however, we recognize a significant portion of our time-based digital sales over their respective terms, as required by Generally Accepted Accounting Principles in the United States. As a result, an increase in the portion of our sales coming from digital sales may impact the comparison of our revenue results for a period with the same prior-year or consecutive period. Further, sales of consumable print core programs typically result in net sales being recognized over a longer periods similar to time-based digital products. As more product offerings move to a consumable print format, more revenue will be deferred and recognized over a longer period of time.

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Another effect of recognizing revenue from digital and consumable print core program sales over their respective terms is that any increases or decreases in sales during a particular period may not translate into proportional increases or decreases in revenue during that period. Consequently, deteriorating sales activity may be less immediately observable in our results of operations.

Changes in U.S. federal, state and local or foreign tax law, interpretations of existing tax law, or adverse determinations by tax authorities, could increase our tax burden or otherwise adversely affect our financial condition or results of operations.

WeAs a global learning company, we are subject to taxation at the federal, state or provincial and local levels in the U.S. and various other countries and jurisdictions. The change in administrationAs a result, our effective tax rate is derived from a combination of applicable tax rates in the United Statesvarious places that we operate. Our effective tax rate, however, may lead to new tax legislative initiatives, such as the proposal for comprehensive tax reformbe different than experienced in the United States. As anypast due to numerous factors, including changes in the mix of our profitability from country to country, the results of examinations and audits of our tax reform may resultfilings, adjustments to the value of our uncertain tax positions, changes in furtheraccounting for income taxes and changes in tax laws, and related regulations, our financial results could be materially impacted. Givenincluding the unpredictability2017 Tax Act. Any of these possible changes and their potential interdependency, it is very difficultfactors could cause us to assess whether the overall effect of such potentialexperience an effective tax changes would be cumulatively positiverate significantly different from previous periods or negative for our earnings and cash flow, but such changes could adversely impact our financial results.current expectations.

We face risks of doing business abroad.

We conduct business in a number of regions outside of the U.S., including emerging markets in South America, Asia and the Middle East. Accordingly, we face exposure to the risks of doing business abroad, including, but not limited to, longer customer payment terms in certain countries; increased credit risk; difficulties in protecting intellectual property, enforcing or terminating agreements and collecting receivables under certain foreign legal systems; compliance under local privacy laws, rules, regulations and standards; the need to comply with U.S. Foreign Corrupt Practices Act and local laws, rules and regulations; and in some countries, a higher risk of political instability, economic volatility, terrorism, corruption, and social and ethnic unrest.

Item 1B. Unresolved Staff Comments

None.

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Item 2. Properties

Our principal executive office is located at 125 High Street, Boston, Massachusetts 02110. The following table describes the approximate building areas in square feet, principal uses and the years of expiration on leased premises of our significant operating properties as of December 31, 2016.2017. We believe that these properties are suitable and adequate for our present and anticipated business needs, satisfactory for the uses to which each is put, and, in general, fully utilized.

In addition, we lease several other offices that are not material to our operations and, in some instances, are partially or fully subleased. Portions of certain properties listed above are also subleased.

Item 3. Legal Proceedings

We are involved in legal actions, claims, litigation and other matters incidental to our business. Litigation alleging infringement of copyrights and other intellectual property rights, particularly with respect to proprietary photographs and images, has become extensiveis common in the educational publishing industry. Specifically, there have been various settled, pending and threatened litigation that allege we exceeded the print run limitation or other

restrictions in licenses granted to us to reproduce photographs in our instructional materials. During the second quarter of 2016, we settled all such pending or actively threatened litigations alleging infringement of copyrights, and made total settlement payments of $10.0 million collectively, with $4.0 million paid during the third quarter of 2016 and $6.0 million paid during the fourth quarter of 2016.

While management believes there is a reasonable possibility we may incur a loss associated with the existing legal actions, claims and litigation, we are not able to estimate such amount, but we do not expect any of these matters to have a material adverse effect on our results of operations, financial position or cash flows. We have insurance in such amounts and with such coverage and deductibles as management believes is reasonable. However, there can be no assurance that our liability insurance will cover all events or that the limits of such coverage will be sufficient to fully cover all potential liabilities thereunder.

Item 4. Mine Safety Disclosures

Not applicable.

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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and

Issuer Purchases of Equity Securities

Market information. Our common stock has been listed on the NASDAQNasdaq Global Select Market (“NASDAQ”Nasdaq”) under the symbol “HMHC” since November 14, 2013. The following table sets forth, for the periods indicated, the high and low closing sales prices for our common stock as reported by NASDAQ.Nasdaq.

The closing price of our common stock on NASDAQNasdaq on February 3, 2017,2, 2018, was $11.05$7.95 per share.

Holders. As of February 3, 2017,2, 2018, there were approximately 1416 stockholders of record of our common stock, one of which was Cede & Co., a nominee for The Depository Trust Company. All of our common stock held by brokerage firms, banks and other financial institutions as nominees for beneficial owners are considered to be held of record by Cede & Co., who is considered to be one stockholder of record. A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares of common stock are held of record by banks, brokers and other financial institutions. Because such shares of common stock are held on behalf of stockholders, and not by the stockholders directly, and because a stockholder can have multiple positions with different brokerage firms, banks and other financial institutions, we are unable to determine the total number of stockholders we have.

Dividends.We have never paid or declared any cash dividends on our common stock. At present, we intend to retain our future earnings, if any, to fund operations, the growth of our business and, as appropriate, execute our share repurchase program. Our future decisions concerning the payment of dividends on our common stock will depend upon our results of operations, financial condition and capital expenditure plans, as well as other factors as our board of directors, in its discretion, may consider relevant, and the extent to which the declaration or payment of dividends may be limited by agreements we have entered into or cause us to lose the benefits of certain of our agreements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

Securities authorized for issuance under equity compensation plans. The equity compensation plan information set forth in Part III, Item 12 of this Annual Report is incorporated by reference herein.

Performance Graph. The graph below matches the cumulative return of holders of the Company’s common stock with the cumulative returns of the Dow Jones Publishing index, the S&P 500 index, the NASDAQNasdaq Composite index, the Russell 2000 index, and a Peer Group index of certain public companies in the educational space, comprised of Pearson PLC, Scholastic Corporation,K-12 Inc., and John Wiley & Sons, Inc. The Russell 2000 index was included as the Company was added to that index during 2014. The graph assumes that the value of the investment in the Company’s common stock, in each index (including reinvestment of dividends) was $100 on November 14, 2013 and tracks it through February 3, 2017.2, 2018. All prices reflect closing prices on the last day of trading at the end of each period. Notwithstanding any general incorporation by reference of this Annual Report into any other document, the information contained in the graph shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Exchange Act or to the liabilities of Section 18 of the Exchange Act, except: (i) as expressly required by applicable law or regulation; or (ii) to the extent that the Company specifically requests that such information be treated as soliciting material or specifically incorporates it by reference into a filing under the Securities Act or the Exchange Act.

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The stock price performance shown on the graph is not necessarily indicative of future price performance. Information used in the graph was obtained from a source we believe to be reliable, but we do not assume responsibility for any errors or omissions in such information.

Recent sales of unregistered securities. There have been no sales of unregistered securities by the Company in the three year period ended December 31, 2016.2017.

Issuer Purchases of Equity Securities

There were no purchases of equity securities in the fourth quarter of 2016.2017 and for the year ended December 31, 2017. Our Board of Directors has authorized the repurchase of up to $1.0 billion in aggregate value of the Company’s common stock. As of December 31, 2016,2017, there was approximately $482.0 million available for share repurchases under this authorization. The aggregate share repurchase program may be executed through December 31, 2018. Repurchases under the program may be made from time to time in the open market (including under a trading plan) or in privately negotiated transactions. The extent and timing of any such repurchases would generally be at our discretion and subject to market conditions, applicable legal requirements and other considerations. Any repurchased shares may be used for general corporate purposes.

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Item 6. Selected Financial Data

The following table summarizes the consolidated historical financial data of Houghton Mifflin Harcourt Company. We derived the consolidated historical financial data as of December 31, 20162017 and 20152016 and for the years ended December 31, 2017, 2016, 2015, and 20142015 from our audited consolidated financial statements included in this Annual Report. We derived the consolidated historical financial statement data as of December 31, 2015, 2014 2013 and 20122013 and for the years ended December 31, 20132014 and 20122013 from our audited consolidated financial statements for such years, which are not included in this Annual Report. Historical results for any prior period are not necessarily indicative of results to be expected in any future period. The data set forth in the following table should be read together with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto.

		Years Ended December 31,
		2016 (4)				2015 (4)				2014				2013				2012
Other Data:
Capital expenditures:
Pre-publication capital expenditures			124,031				103,709				115,509				126,718				114,522
Property, plant, and equipment capital expenditures			105,553				82,987				67,145				59,803				50,943
Pre-publication amortization			130,243				120,506				129,693				121,715				137,729
Depreciation and intangible asset amortization			167,926				176,103				190,084				220,264				290,693

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to facilitate an understanding of our results of operations and financial condition and should be read in conjunction with our consolidated financial statements and the accompanying notes included elsewhere in this Annual Report. The following discussion and analysis of our financial condition and results of operations contains forward-looking statements about our business, operations and industry that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations and intentions. Actual results and the timing of events may differ materially from those expressed or implied in such forward-looking statements due to a number of factors, including those set forth under “Risk Factors” and elsewhere in this Annual Report. See “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”

Overview

We are a global learning company, specializing in education solutions across a variety of media, delivering content, services and technology to both educational institutions and consumers, reaching over 50 million students in more than 150 countries worldwide. In the United States, we are a leading provider ofK-12 educational content by market share. We believe our long-standing reputation and trusted brand enable us to capitalize on consumer and digital trends in the education market through our existing and developing channels. Furthermore, our trade and reference materials, including adult and children’s fiction andnon-fiction books, have won industry awards such as the Pulitzer Prize, Newbery and Caldecott medals and National Book Award.

Corporate History

Houghton Mifflin Harcourt Company was incorporated as a Delaware corporation on March 5, 2010, and was established as the holding company of the current operating group. Houghton Mifflin Harcourt was formed in December 2007 with the acquisition of Harcourt Education Group, then the second-largestK-12 U.S. publisher, by Houghton Mifflin Group. We are headquartered in Boston, Massachusetts.

Acquisition

On April 23, 2015, we entered into a stock and asset purchase agreement with Scholastic Corporation (“Scholastic”) to acquire certain assets (including the stock of two of Scholastic’s subsidiaries) comprising its Educational Technology and Services (“EdTech”) business. On May 29, 2015, we completed the acquisition and paid an aggregate purchase price of $574.8 million in cash to Scholastic, including adjustments for working capital. The EdTech acquisition provided us with a leading position in intervention curriculum and services and extendsextended our product offerings in key growthother areas, including educational technology, early learning, and education services, creating a more comprehensive offering for students, teachers and schools.

Key Aspects and Trends of Our Operations

Business Segments

We are organized along two business segments: Education and Trade Publishing. Our Education segment is our largest segment and represented approximately 87% of our total net sales for the year ended December 31, 2017 and 88% of our total net sales for each of the years ended December 31, 2016 2015 and 2014.2015. Our Trade Publishing segment represented approximately 13% of our total net sales for the year ended December 31, 2017 and 12% of our total net sales for each of the years ended December 31, 2016 2015 and 2014.2015. The Corporate and Other category represents certain general overhead costs not fully allocated to the business segments, such as legal, accounting, treasury, human resources and executive functions.

Net Sales

We derive revenue primarily from the sale of print and digital content and instructional materials, trade books, reference materials, multimedia instructional programs, license fees for book rights, content, software and

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services, test scoring, consulting and training. We primarily sell to customers in the United States. Our net sales are driven primarily as a function of volume and, to a certain extent, changes in price. Our net sales consist of our billings for products and services, less revenue that will be deferred until future recognition along with a provision for product returns. Deferred revenues primarily derive from online interactive digital content, digital and online learning components along with undelivered work-texts, workbooks and services. The work-texts, workbooks and services are deferred until delivered, which often extends over the life of the contract and theour hosted online and digital content is typically recognized ratably over the life of the contract. The digitalization of education content and delivery is driving a substantial shift in the education market. As theK-12 educational market transitions to purchasing more digital, personalized education solutions, we believe our ability now or in the future to offer embedded assessments, adaptive learning, real-time interaction and student specific personalization of educational content in a platform- and device-agnostic manner will provide new opportunities for growth. An increasing number of schools are utilizing digital content in their classrooms and implementing online or blended learning environments, which is altering the historical mix of print and digital educational materials in the classroom. As a result, our business model has shifted to more digital and online learning components to address the needs of the education marketplace; thus, often resulting in an increase in our billings being deferred compared to historical levels. The level of revenues being deferred can be fluctuatingfluctuate depending upon the mix of product offering between digital andnon-digital products, the length of programs and the mix of product delivered immediately or over time.

Core curriculum programs, which represent the most significant portion of our Education segment net sales, cover curriculum standards in a particularK-12 academic subject and include a comprehensive offering of teacher and student materials required to conduct the class throughout the school year. Products and services in these programs include print and digital offerings for students and a variety of supporting materials such as teacher’s editions, formative assessments, supplemental materials, whole group instruction materials, practice aids, educational games and professional services. The process through which materials and curricula are selected and procured for classroom use varies throughout the United States. Currently, nineteen states, known as adoption states, review and approve new programs usually every six to eight years on a state-wide basis. School districts in those states typically select and purchase materials from the state-approved list. The remaining states are known as open states or open territories. In those states, materials are not reviewed at the state level, and each individual school or school district is free to procure materials at any time, although most follow afive-to-ten year replacement cycle. The student population in adoption states represents over 50% of the U.S. elementary and secondaryschool-age population. Some adoption states provide “categorical funding” for instructional materials, which means that those state funds cannot be used for any other purpose. Our core curriculum programs, primarily in adoption states, typically have higher deferred sales than other parts of the business. The higher deferred sales are primarily due to the length of time that our programs are being delivered, along with greater component and digital product offerings. A significant portion of our Education segment net sales is dependent upon our ability to maintain residual sales, which are subsequent sales after the year of the original adoption, and our ability to continue to generate new business by developing new programs that meet our customers’ evolving needs. In addition, our market is affected by changes in state curriculum standards, which drive instruction, assessment and accountability in each state. Changes in state curriculum standards require that instructional materials be revised or replaced to align to the new standards, which historically has driven demand for core curriculum programs.

We also derive our Education segment net sales from the sale of summative, cognitive and formative orin-classroom assessments to districts and schools in all 50 states. Summative assessments are concluding or “final” exams that measure students’ proficiency in a particular academic subject or group of subjects on an aggregate level or against state standards. Formative assessments areon-going,in-classroom tests that occur throughout the school year and monitor progress in certain subjects or curriculum units. Additionally, our offerings include supplemental products that target struggling learners through comprehensive intervention solutions aimed at raising student achievement by providing solutions that combine technology, content and other educational products, as well as consulting and professional development services. We also offer products targeted at assisting English language learners.

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In international markets, we predominantly export and sellK-12 books to premium private schools that utilize the U.S. curriculum, which are located primarily in Asia, the Pacific, the Middle East, Latin America, the Caribbean and Africa. Our international sales team utilizes a global network of distributors in local markets around the world.

Our Trade Publishing segment sells works of fiction andnon-fiction in the General Interest and Young Reader’s categories, dictionaries and other reference works. While print remains the primary format in which trade books are produced and distributed, the market for trade titles in digital format, primarilye-books, has developed over the past several years, and generally represents approximately 10% of our annual Trade Publishing net sales.

Factors affecting our net sales include:

Education

Trade Publishing

State or districtper-student funding levels, which closely correlate with state and local receipts from income, sales and property taxes, impact our sales as institutional customers are affected by funding cycles. Most public school districts, the primary customers forK-12 products and services, are largely dependent on state and local funding to purchase materials. Recently, total educational materials expenditures by institutions in the United States have been rebounding in the wake of the economic recovery. Globally, education expenditures are projected to grow at 7% through 2018, according to GSV Asset Management.

We monitor the purchasing cycles for specific disciplines in the adoption states in order to manage our product development and to plan sales campaigns. Our sales may be materially impacted during the years that major adoption states, such as Florida, California and Texas, are or are not scheduled to make significant purchases. For example, Florida is adoptingadopted social studies materials in 2016, for purchase in 2017, and is scheduled to adoptadopted science in 2017 for purchase in 2018. Texas school districts purchased social studies and high school math materials in 2015 and will purchasepurchased materials for languages other than English and career and technical education in

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2017. The next major adoption in Texas is expected to be Reading/English language arts,Language Arts, currently scheduled for adoption in

2018 and purchase in 2019. California adopted English language artsLanguage Arts materials in 2015, for purchasewith purchases beginning in 2016 and continuing through 2018, and will adoptadopted history social science materials in 2017 for purchase in 2018 and continuing through 2020. Both Florida and Texas, along with several other adoption states, provide dedicated state funding for instructional materials and classroom technology, with funding typically appropriated by the legislature in the first half of the year in which materials are to be purchased. Texas has atwo-year budget cycle, and in the 2017 legislative session is expected to appropriateappropriated funds for purchases in 2017 and 2018. California funds instructional materials in part with a dedicated portion of state lottery proceeds and in part out of general formula funds, with the minimum overall level of school funding determined according to the Proposition 98 funding guarantee. Nationally, total state funding for public schools has been trending upward as state revenues recover from the lows of the 2008-2009 economic recession. While weWe do not currently have contracts with these states for future instructional materials adoptions and there is no guarantee that weour programs will continue to capturebe accepted by the same market sharestate (for example, ourK-8 social science materials were not adopted in the future, we have historically, although not always, captured a leading market shareCalifornia in these states in the years that they adopt educational materials for various subjects.2017).

Long-term growth in the U.S.K-12 market is positively correlated with student enrollments, which is a driver of growth in the educational publishing industry. Although economic cycles may affect short-term buying patterns, school enrollments are highly predictable and are expected to trend upward over the longer term. AccordingFrom 2013-2014 to NCES, student enrollments are expected to increase from 54.7 million2025-2026, total public school enrollment, a major long-term driver of growth in 2010, to over 57.0 million by the 2022 school year. Outside the United States, the global education market continues to demonstrate strong macroeconomic growth characteristics. Population growth is a leading indicator forpre-primaryK-12 school enrollments, which have a subsequent impact on secondary and higher education enrollments. Globally, according to UNESCO, rapid population growth has causedpre-primary enrollments to grow by 50.3% worldwide over the10-year period from 2004 to 2014. Additionally, according to the United Nations, the world population of 7.2 billion in 2013Education market, is projected to increase by 1 billion by 2025 and reach 9.9 billion by 2050, as countries develop and improvements in medical conditions increase3% to 51.4 million students, according to the birth rate.National Center for Education Statistics.

The digitalization of education content and delivery is also driving a substantial shift in the education market. As theK-12 educational market transitions to purchasing more digital solutions, we believe our ability to offer embedded assessments, adaptive learning, real-time interaction and student specific personalized learning and educational content in a platform- and device-agnostic manner will provide new opportunities for growth.

Our Trade Publishing segment is heavily influenced by the U.S. and broader global economy, consumer confidence and consumer spending. As the economy continues to recover, both consumer confidence and consumer spending have increased.

While print remains the primary format in which trade books are produced and distributed, the market for trade titles in digital format, primarilye-books, has developed over the past several years, as the industry evolved to embrace new technologies for developing, producing, marketing and distributing trade works. We continue to focus on the development of innovative new digital products which capitalize on our strong content, our digital expertise and the consumer demand for these products.

In the Trade Publishing segment, annual results can be driven by bestselling trade titles. Furthermore, backlist titles can experience resurgence in sales when made into films. Overfilms or series. In the past several years, a number of our backlist titles such asThe Hobbit,The Lord of the Rings,Life of Pi,Extremely Loud and Incredibly Close,The Handmaid’s Tale,The Polar Express, The Giver andThe Time Traveler’s Wife have benefited in popularity due to movie or series releases and have subsequently resulted in increased trade sales.

We employ several pricing models to serve various customer segments, including institutions, consumers, other government agencies (e.g., penal institutions, community centers, etc.) and other third parties. In addition to traditional pricing models where a customer receives a product in return for a payment at the time of product receipt, we currently use the following pricing models:

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Cost of sales, excluding publishing rights andpre-publication amortization

Cost of sales, excluding publishing rights andpre-publication amortization, include expenses directly attributable to the production of our products and services, including thenon-capitalizable costs associated with our content and platform development group. The expenses within cost of sales include variable costs such as paper, printing and binding costs of our print materials, royalty expenses paid to our authors, gratis costs or products provided at no charge as part of the sales transaction, and inventory obsolescence. Also included in cost of sales are labor costs related to professional services and thenon-capitalized costs associated with our content and platform development group. We also include amortization expense associated with our customer-facing software platforms. Certain products such as trade books and those products associated with our renowned authors carry higher royalty costs; conversely, digital offerings usually have a lower cost of sales due to lower costs associated with their production. Also, sales to adoption states usually contain higher cost of sales. A change in the sales mix of our products or services can impact consolidated profitability.

Publishing rights andPre-publication amortization

A publishing right is an acquired right whichthat allows us to publish and republish existing and future works as well as create new works based on previously published materials. As part of our March 9, 2010 restructuring, we recorded an intangible asset for publishing rights and amortize such asset on an accelerated basis over the useful lives of the various copyrights involved. This amortization will continue to decrease approximately 25% annually through March of 2023.

We capitalize the art, prepress, manuscript and other costs incurred in the creation of the master copy of our content, known as thepre-publication costs.Pre-publication costs are primarily amortized from the year of sale over five years using thesum-of-the-years-digits method, which is an accelerated method for calculating an asset’s amortization. Under this method, the amortization expense recorded for apre-publication cost asset is approximately 33% (year 1), 27% (year 2), 20% (year 3), 13% (year 4) and 7% (year 5). We utilize this policy for allpre-publication costs, except with respect to our Trade Publishing segment’s consumer books, which we generally expense such costs as incurred, our assessment products, which we use the straight-line amortization method and the acquired content of the EdTech business,our 2015 acquisition, which we amortize over 7 years using an accelerated amortization method. The amortization methods and periods chosen best reflect the pattern of expected sales generated from individual titles or programs. We periodically evaluate the remaining lives and recoverability of capitalizedpre-publication costs, which are often dependent upon program acceptance by state adoption authorities.

Selling and administrative expenses

Our selling and administrative expenses include the salaries, benefits and related costs of employees engaged in sales and marketing, fulfillment and administrative functions. Also included within selling and administrative costs are variable costs such as commission expense, outbound transportation costs and depository fees, which are fees paid to state-mandated depositories that fulfill centralized ordering and warehousing functions for specific states. Additionally, significant fixed and discretionary costs include facilities, telecommunications, professional fees, promotions, sampling and advertising.

Other intangible asset amortization

Our other intangible asset amortization expense primarily includes the amortization of acquired intangible assets consisting of tradenames, customer relationships, tradenames, content rights and licenses. The tradenames, customer

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relationships, tradenames, content rights and licenses are amortized over varying periods of 6 to 25 years. The expense for the year ending December 31, 20162017 was $26.8$30.7 million, of which $2.4$9.4 million related to the tradenames that were changed from indefinite-lived intangible assets to definite-lived intangible assets on October 1, 2016 due to the strategic decision to gradually migrate away from specific imprints, primarily the Holt McDougal and various supplemental brands, and to market our products under the corporate Houghton Mifflin Harcourt and HMH names.

Interest expense

Our interest expense includes interest accrued on our term loan facility along with, to a lesser extent, our revolving credit facility, capital leases, the amortization of any deferred financing fees and loan discounts, and payments in connection with interest rate hedging agreements. Our interest expense for the year ended December 31, 20162017 was $38.7$42.8 million.

Results of Operations

Consolidated Operating Results for the Years Ended December 31, 2017 and 2016

NM = not meaningful

Net sales for the year ended December 31, 2017 increased $34.8 million, or 2.5%, from $1,372.7 million for the same period in 2016 to $1,407.5 million. The net sales increase was driven by an $18.9 million increase in our Trade Publishing segment and a $15.9 million increase in our Education segment during the current period. Within our Trade business, the increase was primarily due to sales of the Whole30series and Tim Ferriss’Tribe of Mentors and Tools of Titans, stronger eBook sales, such asThe Handmaid’s Taleand 1984, and backlist print title sales, such asThe Polar Express andThe Giver,along with a lower product return rate and higher

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subrights income. Within our Education segment, the increase was primarily due to greater sales from our Extension businesses, which primarily consist of Heinemann, intervention, supplemental and assessment products as well as professional services. Extension businesses net sales for the current period increased $22.0 million from $565.0 million in 2016 to $587.0 million primarily driven by higher Heinemann and supplemental net sales in 2017. The primary drivers of the increase in our Heinemann net sales were sales of Classroom Libraries along with the introduction ofFountas & Pinnell Classroom product. The primary drivers of the increase in our supplemental net sales were sales of custom book bundles. Also within our Extension businesses, assessment and intervention net sales declined year over year, offsetting a portion of the above increases. Partially offsetting the increase in our Extension businesses net sales were lower Core Solutions sales, inclusive of international sales, which declined by $6.0 million from $642.0 million in the 2016 period to $636.0 million in the current period. The primary drivers of the decrease in our Core Solutions business were lower Reading and Math program net sales in open territory states, lower Math program sales in adoption states and lower sales from our international business, primarily due to a large Department of Defense order in 2016 not repeating in 2017. Partially offsetting the decrease in Core Solutions net sales was a $5.0 millionone-time fee we recognized in 2017 in connection with the expiration of a distribution agreement.

Operating loss for the year ended December 31, 2017 favorably changed by $197.3 million from a loss of $310.8 million for the same period in 2016 to a loss of $113.5 million, due primarily to the following:

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Interest expense for the year ended December 31, 2017 increased $3.6 million, or 9.2%, from $39.2 million for the same period in 2016 to $42.8 million, primarily due to $4.1 million of net settlement payments on our interest rate derivative instruments during the current period, offset by the lower outstanding balance on our term loan facility.

Interest income for the year ended December 31, 2017 increased $0.8 million from $0.5 million for the same period in 2016 to $1.3 million, primarily due to increases in interest rates on our investments.

Change in fair value of derivative instruments for the year ended December 31, 2017 favorably changed by $2.0 million from a loss of $0.6 million for the same period in 2016 to a gain of $1.4 million in 2017. The change in fair value of derivative instruments was related to foreign exchange forward contracts executed on the Euro that were favorably impacted by the weaker U.S. dollar against the Euro.

Income tax benefit for the year ended December 31, 2017 decreased $15.1 million, from a benefit of $65.5 million in 2016 to a benefit of $50.4 million in 2017. The 2017 income tax benefit was primarily related to the following effects of U.S. tax reform:

The 2017 income tax benefit was partially offset by movement in the deferred tax liability associated with tax amortization on indefinite-lived intangibles, and state and foreign taxes. The 2016 income tax benefit was primarily related to a change from indefinite-lived intangibles to definite-lived, partially offset by movement in the deferred tax liability associated with tax amortization on indefinite-lived intangibles, and state and foreign taxes. For both periods, the income tax benefit was impacted by certain discrete tax items including the accrual of potential interest and penalties on uncertain tax positions. Including the effects of these discrete items, the effective tax rate was 32.8% and 18.7% for years ended December 31, 2017 and 2016.

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Consolidated Operating Results for the Years Ended December 31, 2016 and 2015

NM = not meaningful

Net sales for the year ended December 31, 2016 decreased $43.4 million, or 3.1%, from $1,416.1 million for the same period in 2015 to $1,372.7 million. The net sales decrease was driven by a decline in the Company’s legacy basalCore Solutions and supplemental education business net sales of $108.0 million due to a smaller new adoption market in 2016 versus 2015 coupled with lower market share and $21.0 million of lower net sales from the assessment business, primarily clinical, due to natural attrition of sales over time following the initial release of a

new product version. Partially offsetting this decrease was a $49.0 million incremental contribution from the EdTech business which was acquired in May 2015. Further, there was an $18.0 million increase in net sales of our Heinemann intervention and professional publishing products, an $11.0 million increase in net sales of the international business due primarily to Department of Defense sales, and to a lesser extent, greater sales in Asia Pacific.

Operating loss for the year ended December 31, 2016 unfavorably changed $194.7 million from a loss of $116.1 million for the same period in 2015 to a loss of $310.8 million, due primarily to the following:

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Interest expense for the year ended December 31, 2016 increased $6.6$6.9 million, or 20.7%21.5%, from $32.0$32.3 million for the same period in 2015 to $38.7$39.2 million, primarily as a result of the increase to our outstanding term loan facility from $243.1 million to $800.0 million, all of which was drawn at closing of the EdTech acquisition in May of 2015. Further, interest expense increased $1.2 million in 2016 due to our interest rate derivative contracts.

Interest income for the year ended December 31, 2016 increased $0.3 million, from $0.2 million for the same period in 2015 to $0.5 million, primarily as a result of the increased investment in money market accounts and short term investments.

Change in fair value of derivative instruments for the year ended December 31, 2016 favorably changed by $1.7 million from an expense of $2.4 million in 2015 to an expense of $0.6 million in 2016. The current year loss on change in fair value of derivative instruments was related to unfavorable foreign exchange forward and option contracts executed on the Euro that were unfavorably impacted by the stronger U.S. dollar against the Euro. Although a similar instance existed in the prior year, the change of the U.S dollar against the Euro was greater than the current year based on the timing of the execution of the derivative instruments.

Loss on extinguishment of debt for the year ended December 31, 2015 consisted of a $2.2 millionwrite-off of the portion of the unamortized deferred financing fees associated with the portion of our previous term loan facility accounted for as an extinguishment. Further, there was a $0.9 millionwrite-off of the portion of the unamortized deferred financing fees associated with the portion of our previous revolving credit facility which was also accounted for as an extinguishment.

Income tax benefit for the year ended December 31, 2016 increased $45.9 million from a benefit of $19.6 million for the same period in 2015 to a benefit of $65.5 million in 2016. The 2016 income tax benefit was primarily related to a change from indefinite-lived intangibles to definite-lived, partially offset by movement in the deferred tax liability associated with tax amortization on indefinite-lived intangibles, and state and foreign taxes. The income tax benefit of $19.6 million for the year ended December 31, 2015 was primarily related to a $34.9 million release of an accrual for uncertain tax positions due to the lapsing of the statute, partially offset by movement in the deferred tax liability associated with tax amortization on indefinite-lived intangibles, and state and foreign taxes. For both periods, the income tax benefit was impacted by certain discrete tax items including the accrual of potential interest and penalties on uncertain tax positions. Including the tax effects of these discrete tax items, the effective tax rate was 18.7% and 12.8% for the years ended December 31, 2016 and 2015, respectively.

Consolidated Operating Results for the Years Ended December 31, 2015 and 2014

NM = not meaningful39

Net sales for the year ended December 31, 2015 increased $43.7 million, or 3.2%, from $1,372.3 million for the same period in 2014 to $1,416.1 million. The net sales increase was driven by the $148.0 million contribution from the acquired EdTech business. The increase was substantially offset by lower net sales of the domestic education business, which decreased by $98.0 million, due to the comparable 2014 Texas math and science adoptions, and to a lesser extent the Florida language arts adoption, all of which contributed to $90.0 million of higher net sales in 2014 compared to the same period in 2015, as the adoption market was substantially lower in 2015. Additionally, international net sales decreased $9.0 million from the prior year period due to the timing of purchases. Offsetting a portion of the lower domestic education sales for the 2015 period was a strong performance in the California math and West Virginia adoptions. There were net sales of $124.0 million during 2015 that were deferred, compared to net sales of $230.0 million in 2014, primarily due to the previously

mentioned large Texas Math and Science adoptions and Florida language arts adoption that existed in 2014. The deferred revenue will be recognized up to seven years rather than immediately as a result of the digital and subscription components within our programs along with the length of our programs. Our billings, which we define as net sales adjusted for the impact of deferred revenue, decreased $61.8 million, or 4%, from 2014 to 2015.

Operating loss for the year ended December 31, 2015 unfavorably changed $30.6 million from a loss of $85.4 million for the same period in 2014 to a loss of $116.1 million, due primarily to the following:

Interest expense for the year ended December 31, 2015 increased $13.8 million, or 75.6%, to $32.0 million from $18.2 million for the same period in 2014, primarily as a result of the increase to our outstanding term loan facility from $243.1 million to $800.0 million, all of which was drawn at closing of the EdTech acquisition in May of 2015. Further, interest expense increased as a result of expensing deferred financing costs of $2.0 million in 2015 due to the accelerated principal payment of $63.6 million required as of December 31, 2014 by the excess cash flow provision of our previous term loan facility.

Change in fair value of derivative instruments for the year ended December 31, 2015 unfavorably changed by $0.8 million from an expense of $1.6 million in 2014, to an expense of $2.4 million in 2015. The loss on change in fair value of derivative instruments was related to unfavorable foreign exchange forward and option contracts executed on the Euro that were adversely impacted by the stronger U.S. dollar against the Euro during the period compared to the same period last year.

Loss on extinguishment of debt for the year ended December 31, 2015 consisted of a $2.2 millionwrite-off of the portion of the unamortized deferred financing fees associated with the portion of our previous term loan facility accounted for as an extinguishment. Further, there was a $0.9 millionwrite-off of the portion of the unamortized deferred financing fees associated with the portion of our previous revolving credit facility which was also accounted for as an extinguishment.

Income tax expense for the year ended December 31, 2015 decreased $25.9 million from an expense of $6.2 million for the same period in 2014 to a benefit of $19.6 million in 2015. The 2015 income tax benefit was primarily related to a $34.9 million release of an accrual for uncertain tax positions due to the lapsing of the statute, partially offset by movement in the deferred tax liability associated with tax amortization on indefinite-lived intangibles, and state and foreign taxes. The income tax expense of $6.2 million for the year ended December 31, 2014 was primarily related to movement in the deferred tax liability associated with tax amortization on indefinite-lived intangibles. For both periods, the income tax expense was impacted by certain

discrete tax items including the accrual of potential interest and penalties on uncertain tax positions. Including the tax effects of these discrete tax items, the effective tax rate was 12.8% and (5.9)% for the years ended December 31, 2015 and 2014, respectively.

Adjusted EBITDA

To supplement our financial statements presented in accordance with GAAP, we have presented Adjusted EBITDA, which is not prepared in accordance with GAAP. This information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. Management believes that the presentation of Adjusted EBITDA provides useful information to investors regarding our results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business. Adjusted EBITDA provides an indicator of general economic performance that is not affected by debt restructurings, fluctuations in interest rates or effective tax rates,non-cash charges, or levels of depreciation or amortization along with costs such as severance, separation and facility closure costs, acquisition-related activity costs, restructuring costs and restructuring/integration costs. Accordingly, our management believes that this measurement is useful for comparing general operating performance from period to period. In addition, targets in Adjusted EBITDA (further adjusted to include changes in deferred revenue and excludepre-publication costs spend)revenue) are used as performance measures to determine certain compensation of management, and Adjusted EBITDA is used as the base for calculations relating to incurrence covenants in our debt agreements. Other companies may define Adjusted EBITDA differently and, as a result, our measure of Adjusted EBITDA may not be directly comparable to Adjusted EBITDA of other companies. Although we use Adjusted EBITDA as a financial measure to assess the performance of our business, the use of Adjusted EBITDA is limited because it does not include certain material costs, such as interest and taxes, necessary to operate our business. Adjusted EBITDA should be considered in addition to, and not as a substitute for, net loss/income in accordance with GAAP as a measure of performance. Adjusted EBITDA is not intended to be a measure of liquidity or free cash flow for discretionary use. You are cautioned not to place undue reliance on Adjusted EBITDA.

Below is a reconciliation of our net loss to Adjusted EBITDA for the years ended December 31, 2017, 2016 2015 and 2014:2015: