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Registration No. 333-174004
$175,000,000 aggregate principal amount of 9.75% Senior Secured Notes due 2017
$175,000,000 aggregate principal amount of 9.75% Senior Secured Notes due 2017
registered under the Securities Act of 1933, as amended
on September 12, 2011, unless we extend it.
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• | Large and Growing Addressable Market: Total Pre-K through 12th grade enrollment was 56 million in 2008, with enrollments rising. It is estimated that at least 40% of these students require intervention and represent a large addressable market for us. Demand for intervention is expected to continue to increase since intervention is typically more cost effective than special education programs. We believe that, with more attention in general, increased analysis of U.S. student outcomes versus other countries, focus and likely inclusion of the graduation rate in the ESEA, and movement to national standards, the number of children deemed to need intervention is likely to increase from 40% to over 50%, as indicated by proficiency rates of the National Assessment of Educational Progress. | ||
• | Historically Stable Federal Funding Landscape: The funding environment for Pre-K through 12th grade education has historically been stable across economic cycles. While the recent downturn has pressured state and local budgets, the primary sources of federal funding for education (Title I and IDEA) have been maintained at historically high levels. Traditional federal funding sources for education have been temporarily augmented by ARRA funding from 2009 to 2011, including the “Race to the Top” program. | ||
• | Increasing Emphasis on Accountability and Measurement: The No Child Left Behind Act (“NCLB”) has been a key driver for increased accountability and a measurement of student performance. School districts are required to demonstrate adequate yearly progress (“AYP”) or risk a cut in funding. Intervention products help schools improve performance of the most challenged learners and meet stringent AYP criteria. Furthermore, there is greater emphasis on evaluating educators based on the performance of their students. The combination of these factors will continue to drive the demand for intervention and professional development products. | ||
• | Proven Return on Investment of Intervention Products: Numerous studies have demonstrated and quantified the benefits of intervention products for at-risk and special education students. We believe traditional educational materials are inadequate and not designed to meet their learning needs. Also, teachers are becoming better trained at utilizing intervention materials, which we expect will contribute to greater demand for such products. |
• | Voyager, our comprehensive intervention solutions; | ||
• | Sopris, our supplemental solutions; and | ||
• | CLT, our technology-based solutions. |
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• | Kurzweil 3000. Kurzweil 3000 is a reading, writing and learning software package for students with dyslexia, attention deficit disorder or other learning difficulties, including physical impairments or language learning needs. | ||
• | Kurzweil 1000. Kurzweil 1000 provides visually impaired users access to printed and electronic materials. Documents and digital files are converted from text to speech and read aloud in a variety of voices that can be modified to suit individual preferences. In addition, this software provides users with document creation and editing, studying and study skills for note-taking, summarizing and outlining text. |
• | IntelliKeys® USB, which is a programmable alternative keyboard with supporting software for students or adults who have difficulty using a standard keyboard. | ||
• | IntelliTools Classroom Suite, which is an authoring and application tool intended to boost achievement on standards-based tests and help meet adequate yearly progress goals under the No Child Left Behind Act. | ||
• | IntelliTools, which offers software products with a simple interface for students to use. The software includes lessons, activities and assessments that reinforce reading, writing and math skills with the capability to generate reports and provide detailed data tracking. |
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• | Traditional text book suppliers, which often offer intervention products as part of their core reading and math programs, including Houghton Mifflin/Harcourt, Pearson, The McGraw-Hill Companies, and Scholastic; | ||
• | Supplemental suppliers, a market segment that is quite fragmented, including the supplementary products divisions of the international textbook publishers named above, and others including Curriculum Associates, Teacher Created Materials, School Specialty, Haights Cross Communications and The Hampton-Brown Company; | ||
• | Technology suppliers, including Scholastic (Read 180, MiniBooks), Adaptive Curriculum, Carnegie Learning, Renaissance Learning, Don Johnston and TextHelp; and | ||
• | Service providers, including Americas Choice (recently purchased by Pearson), and research laboratories such as WestEd. |
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(1) | As of March 31, 2011, this entity, controlled by VSS (as defined below), remained our majority stockholder with approximately 62.4% beneficial ownership. |
(2) | Such entity will be a subsidiary guarantor of the exchange notes. |
(3) | VLCY is not a guarantor under the old notes, will not be a guarantor of the exchange notes and will be an unrestricted subsidiary under the terms of the exchange notes. VLCY is not a borrower under, or otherwise party to, the ABL Facility. |
(4) | Such entity is a co-borrower under the ABL Facility. |
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Exchange Notes | $175,000,000 aggregate principal amount of 9.75% Senior Secured Notes due 2017. The terms of the exchange notes are substantially identical to those of the old notes, except that the transfer restrictions and registration rights relating to the old notes will not apply to the exchange notes, and the exchange notes will not provide for the payment of additional interest in the event of a registration default. In addition, the exchange notes bear a different CUSIP number than the old notes. | |
Old Notes | $175,000,000 aggregate principal amount of 9.75% Senior Secured Notes due 2017, which were issued in a private placement on February 17, 2011. | |
The Exchange Offer | We are offering to exchange the exchange notes for a like principal amount of the old notes. | |
In the exchange offer, we will exchange registered 9.75% Senior Secured Notes due 2017 for old 9.75% Senior Secured Notes due 2017. | ||
We will accept any and all old notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on September 12, 2011. Holders may tender some or all of their old notes pursuant to the exchange offer. However, old notes may be tendered only in denominations of $2,000 and integral multiples of $1,000. | ||
In order to be exchanged, an outstanding old note must be properly tendered and accepted. All old notes that are validly tendered and not withdrawn will be exchanged. As of the date of this prospectus, there are $175,000,000 aggregate principal amount of 9.75% Senior Secured Notes due 2017 outstanding. We will issue exchange notes promptly after the expiration of the exchange offer. See “The Exchange Offer—Terms of the Exchange Offer.” | ||
Registration Rights Agreement | In connection with the private placement of the old notes, we entered into a registration rights agreement with Barclays Capital Inc. and BMO Capital Markets Corp., representatives of the initial purchasers. Under the registration rights agreement, you are entitled to exchange your old notes for exchange notes with substantially identical terms. This exchange offer is intended to satisfy these rights. After the exchange offer is complete, except as set forth in the next paragraph, you will no longer be entitled to any exchange or registration rights with respect to your old notes. The registration rights agreement requires us to file a registration statement for a continuous offering in accordance with Rule 415 under the Securities Act for your benefit if you would not receive freely tradable exchange notes in the exchange offer or you are ineligible to participate in the exchange offer, provided that you indicate that you wish to have your old notes registered under the Securities Act. | |
Resales of the Exchange Notes | We believe that the exchange notes issued in the exchange offer may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act as long as: |
(1) | you are acquiring the exchange notes in the ordinary course of your business; | ||
(2) | you are not engaging in and do not intend to engage in a distribution of the exchange notes; | ||
(3) | you do not have an arrangement or understanding with any person or entity to participate in the distribution of the exchange notes; and |
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(4) | you are not our “affiliate” as that term is defined in Rule 405 under the Securities Act. |
Our belief is based on interpretations by the staff of the SEC, as set forth in no-action letters issued to third parties unrelated to us. We have not asked the staff for a no-action letter in connection with this exchange offer, however, and we cannot assure you that the staff would make a similar determination with respect to the exchange offer. | ||
If you are an affiliate of ours, or are engaging in or intend to engage in or have any arrangement or understanding with any person to participate in the distribution of the exchange notes: |
• | you cannot rely on the applicable interpretations of the staff of the SEC; | ||
• | you will not be entitled to participate in the exchange offer; and | ||
• | you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. |
Each broker-dealer that receives exchange notes for its own account in the exchange offer for old notes that were acquired as a result of market-making or other trading activities must acknowledge that it will comply with the prospectus delivery requirements of the Securities Act in connection with any offer to resell or other transfer of the exchange notes issued in the exchange offer. | ||
Furthermore, any broker-dealer that acquired any of its old notes directly from us, in the absence of an exemption therefrom, |
• | may not rely on the applicable interpretation of the staff of the SEC’s position contained in Exxon Capital Holdings Corp., SEC no-action letter (April 13, 1988), Morgan, Stanley & Co. Inc., SEC no-action letter (June 5, 1991) and Shearman & Sterling, SEC no-action letter (July 2, 1993); and | ||
• | must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the exchange notes. See “Plan of Distribution.” |
Expiration Date | The exchange offer will expire at 5:00 p.m., New York City time, on September 12, 2011, unless we decide to extend the exchange offer. We do not intend to extend the exchange offer, although we reserve the right to do so. | |
Conditions to the Exchange Offer | The exchange offer is subject to customary conditions, including that it not violate any applicable law or any applicable interpretation of the staff of the SEC. The exchange offer is not conditioned upon any minimum principal amount of private notes being tendered for exchange. See “The Exchange Offer—Conditions.” | |
Procedures for Tendering Old Notes | The old notes were issued as global securities in fully registered form without coupons. Beneficial interests in the old notes that are held by direct or indirect participants in The Depository Trust Company (“DTC”) through certificateless depositary interests are shown on, and transfers of the old notes can be made only through, records maintained in book-entry form by DTC with respect to its participants. | |
If you wish to exchange your old notes for exchange notes pursuant to the exchange offer, you must transmit to Wells Fargo Bank, National Association, as exchange agent, on or prior to the expiration of the exchange offer, either: |
• | a computer-generated message transmitted through DTC’s Automated Tender Offer Program system (“ATOP”) and received by the exchange agent and forming a part of |
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a confirmation of book-entry transfer in which you acknowledge and agree to be bound by the terms of the letter of transmittal; or | |||
• | a properly completed and duly executed letter of transmittal, which accompanies this prospectus, or a facsimile of the letter of transmittal, together with your old notes and any other required documentation, to the exchange agent at its address listed in this prospectus and on the front cover of the letter of transmittal. |
If you cannot satisfy either of these procedures on a timely basis, then you should comply with the guaranteed delivery procedures described below. | ||
By delivering a computer-generated message through DTC’s ATOP system, you will represent to us, as set forth in the letter of transmittal, among other things, that: |
• | you are acquiring the exchange notes in the exchange offer in the ordinary course of your business; | ||
• | you are not engaging in and do not intend to engage in a distribution of the exchange notes; | ||
• | you do not have an arrangement or understanding with any person or entity to participate in the distribution of the exchange notes; and | ||
• | you are not our affiliate. |
Special Procedures for Beneficial Owners | If you are the beneficial owner of old notes that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, and you wish to tender your old notes in the exchange offer, you should promptly contact the person in whose name your old notes are registered and instruct that person to tender on your behalf. If you wish to tender on your own behalf, you must, prior to completing and executing the letter of transmittal and delivering your notes, either make appropriate arrangements to register ownership of the old notes in your name or obtain a properly completed bond power from the person in whose name your old notes are registered. The transfer of registered ownership may take considerable time. See “The Exchange Offer—Procedures for Tendering.” | |
Guaranteed Delivery Procedures | If you wish to tender your old notes and time will not permit the documents required by the letter of transmittal to reach the exchange agent before the expiration date for the exchange offer, or the procedure for book-entry transfer cannot be completed on a timely basis, you must tender your old notes according to the guaranteed delivery procedures described in this prospectus under the heading “The Exchange Offer—Guaranteed Delivery Procedures.” | |
Acceptance of Old Notes and Delivery of Exchange Notes | Except under the circumstances summarized above under “Conditions to the Exchange Offer,” we will accept for exchange any and all old notes that are properly tendered in the exchange offer prior to 5:00 p.m., New York City time, on the expiration date for the exchange offer. The exchange notes to be issued to you in an exchange offer will be delivered promptly following the expiration of the exchange offer. See “The Exchange Offer—Terms of the Exchange Offer.” | |
Withdrawal Rights | You may withdraw any tender of your old notes at any time prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer. We will return to you any old notes not accepted for exchange for any reason without expense to you as promptly as we can after the expiration or termination of the exchange offer. See “The Exchange Offer—Withdrawal Rights.” | |
Exchange Agent | Wells Fargo Bank, National Association, the trustee under the indenture governing the notes, is serving as the exchange agent in connection with the exchange offer. |
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Consequences of Failure to | If you do not participate or properly tender your old notes in the exchange offer: | |
Exchange |
• | you will retain old notes that are not registered under the Securities Act and that will continue to be subject to restrictions on transfer that are described in the legend on the old notes; | ||
• | you will not be able, except in very limited instances, to require us to register your old notes under the Securities Act; | ||
• | you will not be able to offer to resell or transfer your old notes unless they are registered under the Securities Act or unless you offer to resell or transfer them pursuant to an exemption under the Securities Act; and | ||
• | the trading market for your old notes will become more limited to the extent that other holders of old notes participate in the exchange offer. |
Federal Income Tax Consequences | Your exchange of old notes for exchange notes in the exchange offer will not result in any gain or loss to you for U.S. federal income tax purposes. See “Certain United States Federal Income Tax Considerations.” |
Issuer | Cambium Learning Group, Inc. | |
Notes Offered | $175,000,000 aggregate principal amount of 9.75% Senior Secured Notes due 2017. | |
Maturity Date | The exchange notes will mature on February 15, 2017. | |
Interest Rate | The exchange notes bear interest at a rate of 9.75% per annum, accruing from the issue date of the notes. | |
Interest Payment Dates | Interest on the exchange notes is payable on February 15 and August 15 of each year, beginning on August 15, 2011. | |
Guarantees | The payment of the exchange notes will be jointly and severally and fully and unconditionally guaranteed on a senior secured basis by the subsidiary guarantors. See “Description of the Exchange Notes—Note Guarantees” for more details. | |
Security; Collateral | The exchange notes will be secured by (i) a first-priority lien on substantially all of our and the subsidiary guarantors’ assets (other than inventory and accounts receivable and related assets of the ABL Credit Parties and subject to certain exceptions), including capital stock of the subsidiary guarantors and (ii) a second-priority lien on substantially all of the inventory and accounts receivable and related assets of the ABL Credit Parties, in each case subject to permitted liens and as described in this prospectus. | |
The value of collateral at any time will depend on market and other economic conditions, including the availability of suitable buyers for the collateral. The liens on the collateral may |
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be released without the consent of the holders of the notes if collateral is disposed of in a transaction that complies with the indenture and the related security documents or in accordance with the provisions of an intercreditor agreement to be entered into relating to the collateral securing the notes and the ABL Facility. See “Risk Factors—Risks Related to the Notes—The value of the collateral securing the notes may not be sufficient to satisfy our obligations under the notes,” “Risk Factors—Risks Related to the Notes—There are circumstances other than repayment or discharge of the notes under which the collateral securing the notes and guarantees will be released automatically, without your consent or the consent of the trustee,” “Description of Notes—Security for the Notes.” | ||
Ranking | The exchange notes and the guarantees will be our and the subsidiary guarantors’ general senior secured obligations. They will rank: |
• | equally in right of payment with all of our and the subsidiary guarantors’ existing and future senior debt; | ||
• | senior in right of payment to all of our and the subsidiary guarantors’ existing and future subordinated debt; | ||
• | effectively subordinate to all liabilities (including trade payables) of our subsidiaries that do not guarantee the exchange notes; | ||
• | effectively subordinated in right of payment to the indebtedness and obligations of the ABL Credit Parties that are secured by first-priority liens under the ABL Facility to the extent of the value of the assets subject to such first-priority liens; and | ||
• | effectively senior in right of payment to the indebtedness and obligations of the ABL Credit Parties that are secured by second-priority liens under the ABL Facility to the extent of the value of the assets subject to such second-priority liens. |
As of March 31, 2011, we and the subsidiary guarantors had approximately $187 million of indebtedness outstanding. | ||
Optional Redemption | We may at our option redeem: |
• | at any time prior to February 15, 2014, up to 35% of the aggregate principal amount of the exchange notes with the proceeds of certain equity offerings at the redemption price equal to 109.75% of the principal amount thereof; | ||
• | at any time prior to February 15, 2014, some or all of the exchange notes at a price equal to 100% of their principal amount plus a “make-whole” premium as described under “Description of Exchange Notes—Optional Redemption”; | ||
• | up to 10% of the original aggregate principal amount of the exchange notes during any 12-month period at a redemption price of 103% at any time, prior to February 15, 2014; and | ||
• | some or all of the exchange notes at the redemption prices set forth at the redemption prices described under “Description of the Exchange Notes—Optional Redemption,” at any time on or after February 15, 2014. |
In each case, we must also pay accrued and unpaid interest, if any, to the redemption date. See “Description of Exchange Notes—Optional Redemption” for more details. | ||
Change of Control Offer | If we experience specific kinds of changes of control, we will make an offer to purchase all of the exchange notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest, if any, to the date of purchase. See “Description of Exchange Notes—Repurchase of Notes Upon a Change of Control.” |
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Asset Sale Offer | If we sell assets under certain circumstances and do not use the proceeds for specified purposes, we must offer to repurchase the exchange notes at 100% of the principal amount of the exchange notes repurchased, plus accrued and unpaid interest, if any, to the applicable repurchase date with such proceeds. See “Description of Exchange Notes—Repurchase at the Option of Holders—Asset Sales.” | |
Certain Covenants | The indenture governing the exchange notes contains covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to: |
• | pay dividends, redeem stock or make other distributions or restricted payments; | ||
• | make certain investments; | ||
• | incur indebtedness and issue preferred stock; | ||
• | create liens; | ||
• | agree to dividend and payment restrictions affecting restricted subsidiaries; | ||
• | merge, consolidate or sell assets; | ||
• | designate subsidiaries as unrestricted; | ||
• | change our or our subsidiaries’ lines of business; and | ||
• | enter into transactions with our affiliates. |
The covenants above are also subject to a number of other important limitations and exceptions. See “Description of Exchange Notes—Certain Covenants.” | ||
Use of Proceeds | We will not receive any cash proceeds from the issuance of the exchange notes pursuant to the exchange offer. In consideration for issuing the exchange notes as contemplated in this prospectus, we will receive in exchange a like principal amount of outstanding old notes, the terms of which are identical in all material respects to the exchange notes. The outstanding old notes surrendered in exchange for the exchange notes will be retired and cancelled and cannot be reissued. We have agreed to bear the expenses of the exchange offer. No underwriter is being used in connection with the exchange offer. See “Use of Proceeds.” | |
No Public Market; No Listing | The exchange notes are new securities for which there is no active trading market and we do not intend to list the exchange notes on any securities exchange or to seek approval for quotations through any automated quotation system. Although the initial purchasers have informed us that it intends to make a market in the notes, they are not obligated to do so and may discontinue market-making at anytime without notice. Accordingly, we cannot assure you that a liquid market for the exchange notes will develop or be maintained. | |
Risk Factors | Investing in the exchange notes involves substantial risks. See “Risk Factors” beginning on page 20 for a discussion of certain factors you should consider in evaluating an investment in the exchange notes. |
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• | vest our board of directors with the sole power to set the number of directors of our company; | ||
• | provide that our board of directors will be elected on a staggered term basis, so that generally only one-third of the board will be elected at each annual meeting of stockholders; | ||
• | limit the persons that may call special meetings of stockholders; | ||
• | establish advance notice requirements for stockholder proposals and director nominations; and | ||
• | limit stockholder action by written consent. |
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• | increasing our vulnerability to adverse economic, industry or competitive developments; | ||
• | requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities; | ||
• | making it more difficult for us to satisfy our obligations with respect to our indebtedness, including the notes, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under the indenture governing the notes and the agreements governing such other indebtedness; | ||
• | restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; | ||
• | limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions and general corporate or other purposes, including to repurchase the notes from the holders upon a change of control; and | ||
• | limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a competitive disadvantage compared to our competitors who have less debt and who, therefore, may be able to take advantage of opportunities that our leverage prevents us from pursuing. |
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• | incur or guarantee additional indebtedness; | ||
• | pay dividends and make other restricted payments; | ||
• | incur restrictions on the payment of dividends or other distributions from our restricted subsidiaries; | ||
• | create or incur certain liens; | ||
• | make certain investments; | ||
• | transfer or sell assets; | ||
• | enter into operating leases; | ||
• | engage in transactions with affiliates; and | ||
• | merge or consolidate with other companies or transfer all or substantially all of our or their assets. |
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• | the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest; | ||
• | the lenders under the ABL Facility could elect to terminate their commitments thereunder, cease making further loans and institute foreclosure proceedings against the assets of the ABL Credit Parties; and | ||
• | we could be forced into bankruptcy or liquidation. |
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• | to enable the sale, transfer or other disposal of such collateral in a transaction not prohibited under the indenture or the ABL Facility, including the sale of any entity in its entirety that owns or holds such collateral; | ||
• | with respect to collateral held by a subsidiary guarantor, upon the release of such subsidiary guarantor from its guarantee as permitted by the indenture; and | ||
• | with respect to any ABL Collateral, upon any release by the lenders under the ABL Facility of their first-priority security interest in such ABL Collateral (other than any such release granted following the discharge of the obligations with respect to the ABL Collateral). |
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• | we or any of the subsidiary guarantors, as applicable, were insolvent or rendered insolvent by reason of the issuance of the exchange notes or the security interests, or the incurrence of the exchange note guarantees; | ||
• | the issuance of the exchange notes or the security interests, or the incurrence of the exchange note guarantees left us or any of the subsidiary guarantors, as applicable, with an unreasonably small amount of capital to carry on the business; |
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• | we or any of the subsidiary guarantors intended to, or believed that we or such subsidiary guarantor would, incur debts beyond our or such subsidiary guarantor’s ability to pay such debts as they mature; or | ||
• | we or any of the subsidiary guarantors was a defendant in an action for money damages, or had a judgment for money damages docketed against us or such subsidiary guarantor if, in either case, after final judgment, the judgment is unsatisfied. |
• | the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all its assets; | ||
• | the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or | ||
• | it could not pay its debts as they become due. |
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Total | ||||
(sq ft) | ||||
Owned | — | |||
Leased | 327,543 | |||
Total | 327,543 | |||
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Successor | |||||||||||||||||||||||||||||||||
Period from | |||||||||||||||||||||||||||||||||
January 29, | |||||||||||||||||||||||||||||||||
2007 | Predecessor | ||||||||||||||||||||||||||||||||
(Inception) | Period from | Predecessor | |||||||||||||||||||||||||||||||
Three Months | Year Ended | Year Ended | Year Ended | through | January 1, | Year Ended | |||||||||||||||||||||||||||
Ended March 31, | Three Months Ended | December 31, | December 31, | December 31, | December 31, | 2007 through | December 31, | ||||||||||||||||||||||||||
2011 | March 31, 2010 | 2010 | 2009 | 2008 | 2007(1) | April 11, 2007 | 2006 | ||||||||||||||||||||||||||
(in thousands, except per share data) | |||||||||||||||||||||||||||||||||
Statement of Operations Data: | |||||||||||||||||||||||||||||||||
Product revenues | $ | 25,434 | $ | 22,229 | $ | 160,778 | $ | 90,385 | $ | 89,207 | $ | 71,266 | $ | 15,238 | $ | 92,882 | |||||||||||||||||
Service revenues | 5,261 | 5,993 | 20,482 | 10,663 | 10,524 | 9,581 | 3,176 | 13,542 | |||||||||||||||||||||||||
Net revenues | 30,695 | 28,222 | 181,260 | 101,048 | 99,731 | 80,847 | 18,414 | 106,424 | |||||||||||||||||||||||||
Total operating expenses, excluding in-process research and development, impairment, and embezzlement | (38,749 | ) | (43,180 | ) | (181,528 | ) | (115,108 | ) | (104,648 | ) | (81,305 | ) | (32,179 | ) | (97,955 | ) | |||||||||||||||||
Acquired in-process research and development | — | — | — | — | — | (890 | ) | — | — | ||||||||||||||||||||||||
Goodwill impairment(3) | — | — | — | (9,105 | ) | (75,966 | ) | — | — | — | |||||||||||||||||||||||
Embezzlement and related recoveries (expense)(2) | 2,436 | (19 | ) | 353 | (129 | ) | (7,254 | ) | (5,732 | ) | (1,000 | ) | (3,261 | ) | |||||||||||||||||||
Income (loss) before interest, other income (expense), and income taxes | (5,618 | ) | (14,977 | ) | 85 | (23,294 | ) | (88,137 | ) | (7,080 | ) | (14,765 | ) | 5,208 | |||||||||||||||||||
Gain from settlement with previous stockholders(4) | — | — | — | — | 30,202 | — | — | — | |||||||||||||||||||||||||
Net (loss) income | (9,757 | ) | (19,440 | ) | (15,950 | ) | (35,765 | ) | (69,560 | ) | (13,931 | ) | (11,812 | ) | 440 | ||||||||||||||||||
Net (loss) income per common share — basic and diluted | $ | (0.22 | ) | $ | (0.44 | ) | $ | (0.36 | ) | $ | (1.63 | ) | $ | (3.39 | ) | $ | (0.68 | ) | $ | (4.34 | ) | $ | 0.16 |
As of: | ||||||||||||||||||||||||||||
March 31, | March 31, | December 31, | December 31, | December 31, | December 31, | December 31, | ||||||||||||||||||||||
2011 | 2010 | 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 19,494 | $ | 8,797 | $ | 11,831 | $ | 13,345 | $ | 2,418 | $ | 1,206 | $ | 1,642 | ||||||||||||||
Total current assets | 73,760 | 61,425 | 76,177 | 74,316 | 31,617 | 26,601 | 25,007 | |||||||||||||||||||||
Total assets | 381,976 | 376,353 | 383,062 | 393,841 | 270,477 | 369,138 | 138,028 | |||||||||||||||||||||
Total current liabilities | 52,938 | 60,599 | 66,774 | 58,366 | 16,360 | 16,849 | 26,871 | |||||||||||||||||||||
Total long term debt, less current portion | 174,043 | 150,697 | 150,850 | 150,487 | 153,787 | 176,402 | 17,500 | |||||||||||||||||||||
Total liabilities | 267,418 | 255,820 | 259,050 | 254,069 | 202,273 | 239,058 | 59,133 | |||||||||||||||||||||
Total members’ interest and stockholders’ equity | 114,558 | 120,533 | 124,012 | 139,772 | 68,204 | 130,080 | 78,895 |
(1) | On January 29, 2007, VSS-Cambium Holdings, LLC was formed for the purpose of acquiring all of the capital stock of Cambium Learning. That acquisition was completed on April 12, 2007. The consolidated financial statements present the Company as of December 31, 2007 (Successor basis reflecting activity of the Company from January 29, 2007 and including the results of Cambium Learning from April 12, 2007) and the period January 1, 2007 through April 11, 2007 (Predecessor basis for the period prior to Company’s acquiring Cambium Learning). |
(2) | We discovered in 2008 that a former employee had perpetrated a significant misappropriation of assets during a period beginning in 2004 and extending through April 2008. |
(3) | Reflects the non-cash effect of the impairment write-down of goodwill during 2009 and 2008 resulting from a reduction in the fair value of assets. |
(4) | For fiscal 2008, we received a settlement from our previous stockholders relating to the embezzlement we suffered. For further information, see Note 3 to our consolidated financial statements for the year ended December 31, 2010. |
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OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
• | Overview | ||
• | Results of Operations | ||
• | Year Ended December 31, 2010 Compared to Year Ended December 31, 2009 | ||
• | Year Ended December 31, 2009 Compared to Year Ended December 31, 2008 | ||
• | Liquidity and Capital Resources | ||
• | Non-GAAP Measures | ||
• | Capital Expenditures and Outlook | ||
• | Commitments and Contractual Obligations | ||
• | Off-Balance Sheet Arrangements | ||
• | Critical Accounting Policies and Estimates | ||
• | Recently Issued Financial Accounting Standards |
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• | Voyager, our comprehensive intervention business; | ||
• | Sopris, our supplemental solutions education business; and | ||
• | CLT, our technology-based education product business. |
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• | Declines have been realized in our internal order volume metric due to budgetary pressures resulting from the economic crisis faced by many states and local entities and intense competition. To some extent, we expect the crisis will continue throughout the following quarters and have a continued depressive effect on general spending and, therefore, make order volume growth challenging. | |
• | We expect continued growth in our online subscription-based products and our Sopris supplemental education materials. | |
• | We have experienced a trend of success growing our portfolio to address the math needs of the market, including products such as Vmath, Transitional Math and Gizmos (ExploreLearning). | |
• | We believe our product diversification will strengthen our ability to sustain market share in a troubled market and capture market share when the market recovers. | |
• | We believe our focus on student outcomes through product usage and an overall partnership approach with the customer to implement our solutions, in the manner that the program was designed, results in higher student success rates, and such success, if achieved, will lead to customer retention and growth through reference sales. | |
• | We believe there is a trend of student accountability resulting in greater funding being directed to at-risk children in the United States with new funding sources, such as Race to the Top, which could provide additional funds for our products and services. | |
• | In 2010, we achieved significant cost savings as part of an effort to achieve merger related synergies, which included a reduction in force. We will continue to reduce costs through productivity initiatives and process reengineering and redeploy those savings into growth investments, but the magnitude of the reductions in 2010 are not expected to be replicated. | |
• | We will focus on several key areas in 2011, including: continued investment in our digital assets such as ExploreLearning, Learning A-Z, Ticket To Read, VocabJourney and Sopris; emphasizing our new adaptive math programs; designing and launching an online individualized intervention curriculum; and investment in our student data management system. | |
• | We expect to benefit from continuity of our leadership team and sales organization, who have now worked together for more than a year. |
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Three Months Ended | ||||||||||||||||||||||||
March 31, 2011 | March 31, 2010 | Year Over Year Change | ||||||||||||||||||||||
% of | % of | Favorable/(Unfavorable) | ||||||||||||||||||||||
(in thousands) | Amount | Revenues | Amount | Revenues | $ | % | ||||||||||||||||||
Net revenues: | ||||||||||||||||||||||||
Voyager | $ | 14,692 | 47.9 | % | $ | 15,872 | 56.2 | % | $ | (1,180 | ) | (7.4 | )% | |||||||||||
Sopris | 4,185 | 13.6 | % | 3,903 | 13.8 | % | 282 | 7.2 | % | |||||||||||||||
Cambium Learning Technologies | 11,818 | 38.5 | % | 8,447 | 29.9 | % | 3,371 | 39.9 | % | |||||||||||||||
Total net revenues | 30,695 | 100.0 | % | 28,222 | 100.0 | % | 2,473 | 8.8 | % | |||||||||||||||
Cost of revenues: | ||||||||||||||||||||||||
Voyager | 7,993 | 26.0 | % | 7,070 | 25.1 | % | (923 | ) | (13.1 | )% | ||||||||||||||
Sopris | 1,670 | 5.4 | % | 1,587 | 5.6 | % | (83 | ) | (5.2 | )% | ||||||||||||||
Cambium Learning Technologies | 1,223 | 4.0 | % | 1,496 | 5.3 | % | 273 | 18.2 | % | |||||||||||||||
Shared Services | 81 | 0.3 | % | 1,159 | 4.1 | % | 1,078 | 93.0 | % | |||||||||||||||
Amortization expense | 6,618 | 21.6 | % | 6,742 | 23.9 | % | 124 | 1.8 | % | |||||||||||||||
Total cost of revenues | 17,585 | 57.3 | % | 18,054 | 64.0 | % | 469 | 2.6 | % | |||||||||||||||
Research and development expense | 2,379 | 7.8 | % | 3,010 | 10.7 | % | 631 | 21.0 | % | |||||||||||||||
Sales and marketing expense | 10,903 | 35.5 | % | 11,057 | 39.2 | % | 154 | 1.4 | % | |||||||||||||||
General and administrative expense | 5,812 | 18.9 | % | 7,938 | 28.1 | % | 2,126 | 26.8 | % | |||||||||||||||
Shipping and handling costs | 334 | 1.1 | % | 544 | 1.9 | % | 210 | 38.6 | % | |||||||||||||||
Depreciation and amortization expense | 1,736 | 5.7 | % | 2,577 | 9.1 | % | 841 | 32.6 | % | |||||||||||||||
Embezzlement and related expense (recoveries) | (2,436 | ) | (7.9 | )% | 19 | 0.1 | % | 2,455 | 12921.1 | % | ||||||||||||||
Loss before interest, other income (expense) and income taxes | (5,618 | ) | (18.3 | )% | (14,977 | ) | (53.1 | )% | 9,359 | 62.5 | % | |||||||||||||
Net interest expense | (4,405 | ) | (14.4 | )% | (4,368 | ) | (15.5 | )% | (37 | ) | (0.8 | )% | ||||||||||||
Other income (expense), net | 363 | 1.2 | % | (10 | ) | (0.0 | )% | 373 | 3730.0 | % | ||||||||||||||
Income tax expense | (97 | ) | (0.3 | )% | (85 | ) | (0.3 | )% | (12 | ) | (14.1 | )% | ||||||||||||
Net loss | $ | (9,757 | ) | (31.8 | )% | $ | (19,440 | ) | (68.9 | )% | $ | 9,683 | 49.8 | % | ||||||||||
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Year Ended | Year Ended | Year Ended | ||||||||||||||||||||||
December 31, 2010 | December 31, 2009 | December 31, 2008 | ||||||||||||||||||||||
% of | % of | % of | ||||||||||||||||||||||
Amount | Revenues | Amount | Revenues | Amount | Revenues | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Net revenues: | ||||||||||||||||||||||||
Product revenues | ||||||||||||||||||||||||
Voyager | $ | 100,412 | 55.4 | % | $ | 44,329 | 43.9 | % | $ | 40,424 | 40.5 | % | ||||||||||||
Sopris | 22,249 | 12.3 | % | 23,431 | 23.2 | % | 27,495 | 27.6 | % | |||||||||||||||
Cambium Learning Technologies | 38,117 | 21.0 | % | 22,625 | 22.4 | % | 21,288 | 21.3 | % | |||||||||||||||
Service revenues | ||||||||||||||||||||||||
Voyager | 17,527 | 9.7 | % | 8,594 | 8.5 | % | 7,924 | 7.9 | % | |||||||||||||||
Sopris | 2,487 | 1.4 | % | 1,754 | 1.7 | % | 2,217 | 2.2 | % | |||||||||||||||
Cambium Learning Technologies | 468 | 0.3 | % | 315 | 0.3 | % | 383 | 0.4 | % | |||||||||||||||
Total net revenues | 181,260 | 100.0 | % | 101,048 | 100.0 | % | 99,731 | 100.0 | % | |||||||||||||||
Cost of revenues: | ||||||||||||||||||||||||
Cost of product revenues | ||||||||||||||||||||||||
Voyager | 29,340 | 16.2 | % | 10,678 | 10.6 | % | 11,214 | 11.2 | % | |||||||||||||||
Sopris | 6,514 | 3.6 | % | 6,350 | 6.3 | % | 6,003 | 6.0 | % | |||||||||||||||
Cambium Learning Technologies | 4,334 | 2.4 | % | 2,537 | 2.5 | % | 3,029 | 3.0 | % | |||||||||||||||
Shared Services | 1,395 | 0.8 | % | 26 | 0.0 | % | — | 0.0 | % | |||||||||||||||
Cost of service revenues | ||||||||||||||||||||||||
Voyager | 16,455 | 9.1 | % | 5,992 | 5.9 | % | 5,721 | 5.7 | % | |||||||||||||||
Sopris | 1,225 | 0.7 | % | 1,093 | 1.1 | % | 1,489 | 1.5 | % | |||||||||||||||
Cambium Learning Technologies | 628 | 0.3 | % | 172 | 0.2 | % | 253 | 0.3 | % | |||||||||||||||
Amortization expense | 28,511 | 15.7 | % | 17,527 | 17.3 | % | 15,966 | 16.0 | % | |||||||||||||||
Total cost of revenues | 88,402 | 48.8 | % | 44,375 | 43.9 | % | 43,675 | 43.8 | % | |||||||||||||||
Research and development expense | 10,558 | 5.8 | % | 5,611 | 5.6 | % | 6,416 | 6.4 | % | |||||||||||||||
Sales and marketing expense | 45,987 | 25.4 | % | 23,368 | 23.1 | % | 24,600 | 24.7 | % | |||||||||||||||
General and administrative expense | 23,857 | 13.2 | % | 30,519 | 30.2 | % | 16,156 | 16.2 | % | |||||||||||||||
Shipping costs | 3,570 | 2.0 | % | 1,512 | 1.5 | % | 2,348 | 2.4 | % | |||||||||||||||
Depreciation and amortization expense | 9,154 | 5.1 | % | 9,723 | 9.6 | % | 11,453 | 11.5 | % | |||||||||||||||
Goodwill impairment charge | — | 0.0 | % | 9,105 | 9.0 | % | 75,966 | 76.2 | % | |||||||||||||||
Embezzlement and related expense (recoveries) | (353 | ) | (0.2 | )% | 129 | 0.1 | % | 7,254 | 7.3 | % | ||||||||||||||
Income (loss) before interest, other income (expense) and income taxes | 85 | 0.0 | % | (23,294 | ) | (23.1 | )% | (88,137 | ) | (88.4 | )% | |||||||||||||
Net interest expense | (17,292 | ) | (9.5 | )% | (19,477 | ) | (19.3 | )% | (18,434 | ) | (18.5 | )% | ||||||||||||
Gain from settlement with previous stockholders | — | — | — | — | 30,202 | 30.3 | % | |||||||||||||||||
Loss on extinguishment of debt | — | — | — | — | (5,632 | ) | (5.6 | )% | ||||||||||||||||
Other income (expense), net | 674 | 0.4 | % | (698 | ) | (0.7 | )% | (981 | ) | (1.0 | )% | |||||||||||||
Income tax benefit | 583 | 0.3 | % | 7,704 | 7.6 | % | 13,422 | 13.5 | % | |||||||||||||||
Net loss | $ | (15,950 | ) | (8.8 | )% | $ | (35,765 | ) | (35.4 | )% | $ | (69,560 | ) | (69.7 | )% | |||||||||
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Three Months Ended March 31, | ||||||||||||||||||||
2011 | 2010 | 2010 | 2009 | 2008 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Operating activities | $ | (3,444 | ) | $ | (6,982 | ) | $ | 20,161 | $ | 1,934 | $ | (13,855 | ) | |||||||
Investing activities | (3,354 | ) | (2,101 | ) | (14,441 | ) | (13,092 | ) | 26,889 | |||||||||||
Financing activities | 14,461 | 4,535 | (7,234 | ) | 22,085 | (11,822 | ) |
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Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
(Unaudited) | ||||||||
Total net revenues | $ | 30,695 | $ | 28,222 | ||||
Non-recurring and non-operational costs included in net revenues but excluded from adjusted net revenues: | ||||||||
Adjustments related to purchase accounting(a) | 332 | 5,152 | ||||||
Adjusted net revenues | $ | 31,027 | $ | 33,374 | ||||
Net loss | $ | (9,757 | ) | $ | (19,440 | ) | ||
Reconciling items between net loss and EBITDA: | ||||||||
Depreciation and amortization | 8,354 | 9,319 | ||||||
Net interest expense | 4,405 | 4,368 | ||||||
Other (income) expense | (363 | ) | 10 | |||||
Income tax | 97 | 85 | ||||||
Income (loss) from operations before interest and other income (expense), income taxes, and depreciation and amortization (EBITDA) | 2,736 | (5,658 | ) | |||||
Non-recurring, non-operational, and certain non-cash costs included in EBITDA but excluded from Adjusted EBITDA: | ||||||||
Integration and merger-related costs(b) | — | 3,443 | ||||||
Legacy VLCY corporate(c) | 311 | 300 | ||||||
Stock-based compensation and expense(d) | 290 | 234 | ||||||
Embezzlement and related expenses (recoveries)(e) | (2,436 | ) | 19 | |||||
Adjustments related to purchase accounting(a) | 288 | 4,359 | ||||||
Adjustments to CVR liability(f) | 308 | — | ||||||
Adjusted EBITDA | $ | 1,497 | $ | 2,697 | ||||
(a) | Under applicable accounting guidance for business combinations, an acquiring entity is required to recognize all of the assets acquired and liabilities assumed in a transaction at the acquisition date fair value. Net revenues have been reduced by $0.3 million and $5.2 million, respectively, for the quarters ended March 31, 2011 and 2010 in the historical financial statements due to the write-down of deferred revenue to its estimated fair value as of the merger date. The write-down was determined by estimating the cost to fulfill the related future customer obligations plus a normal profit margin. Partially offsetting this impact, cost of revenues and sales and marketing expenses were reduced for other purchase accounting adjustments, primarily a write-down of deferred costs to zero at the acquisition date. During the quarters ended March 31, 2011 and 2010, the historical cost of revenues was reduced by $0.1 million and $0.4 million, respectively, and the historical sales and marketing expenses were reduced by zero and $0.4 million, respectively. The adjustment of deferred revenue and deferred costs to fair value is required only at the purchase accounting date; therefore, its impact on net revenues, cost of revenues, and sales and marketing expense is non-recurring. | |
(b) | Costs directly associated with the integration of the Company and VLCY, including severance and other costs incurred to achieve synergies and the cost of retention and change in control agreements directly related to the merger. The cost for retention and change in control agreements included was $1.1 million for the quarter ended March 31, 2010. | |
(c) | Legacy VLCY corporate costs representing corporate costs related to legacy VLCY liabilities such as pension and severance costs for former VLCY employees. | |
(d) | Stock-based compensation and expense is related to our outstanding options, restricted stock awards, warrants, and stock appreciation rights (SARs). | |
(e) | During 2008, we discovered certain irregularities relating to the control and use of cash and certain other general ledger items which resulted from a substantial misappropriation of assets over more than a three-year period beginning in 2004 and continuing through April 2008. These irregularities were perpetrated by a former employee, resulting in embezzlement losses, net of recoveries. | |
(f) | Adjustments to the CVR liability as a result of the amendments of the merger agreement and the related escrow agreement, the expiration of the statute of limitations on potential tax liabilities and changes in likelihood of collecting potential tax receivables included in the estimate of the fair value of the CVRs. | |
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VLCY | ||||||||||||||||||||
Pre-Merger | ||||||||||||||||||||
Results | Pro Forma | Pro Forma | Cambium | |||||||||||||||||
Cambium | (342 days) | Adjustments (a) | Combined | Learning Group | ||||||||||||||||
2009 | 2010 | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Total net revenues | $ | 101,048 | $ | 98,728 | $ | (11,565 | ) | $ | 188,211 | $ | 181,260 | |||||||||
Non-recurring and non-operational costs included in net revenues but excluded from adjusted net revenues: | ||||||||||||||||||||
Adjustments related to purchase accounting(g) | 1,392 | — | 11,565 | 12,957 | 12,937 | |||||||||||||||
Adjusted net revenues | $ | 102,440 | $ | 98,728 | $ | — | $ | 201,168 | $ | 194,197 | ||||||||||
Net loss | $ | (35,765 | ) | $ | (34,375 | ) | $ | 8,870 | $ | (61,270 | ) | $ | (15,950 | ) | ||||||
Reconciling items between net loss and EBITDA: | ||||||||||||||||||||
Depreciation and amortization | 27,250 | 18,301 | (5,772 | ) | 39,779 | 37,665 | ||||||||||||||
Net interest expense | 19,477 | 558 | 71 | 20,106 | 17,292 | |||||||||||||||
Other (income) expense | 698 | (3,279 | ) | — | (2,581 | ) | (674 | ) | ||||||||||||
Income tax | (7,704 | ) | (190 | ) | 7,894 | — | (583 | ) | ||||||||||||
Income (loss) from operations before interest and other income (expense), income taxes, and depreciation and amortization (EBITDA) | 3,956 | (18,985 | ) | 11,063 | (3,966 | ) | 37,750 | |||||||||||||
Non-recurring and non-operational costs included in EBITDA but excluded from Adjusted EBITDA: | ||||||||||||||||||||
Transaction costs(b) | 13,570 | 9,937 | (23,507 | ) | — | — | ||||||||||||||
Integration and merger-related costs (c) | 2,133 | 120 | 1,864 | 4,117 | 5,963 | |||||||||||||||
Legacy VLCY corporate(d) | 57 | 2,247 | — | 2,304 | 968 | |||||||||||||||
Stock-based compensation expense(e) | 37 | 179 | 552 | 768 | 1,085 | |||||||||||||||
Embezzlement and related expenses (recoveries)(f) | 129 | — | — | 129 | (353 | ) | ||||||||||||||
Adjustments related to purchase accounting(g) | 1,136 | — | 10,028 | 11,164 | 10,748 | |||||||||||||||
Goodwill impairment(h) | 9,105 | 27,175 | — | 36,280 | — | |||||||||||||||
Adjustments to CVR liability(i) | — | — | — | — | (1,124 | ) | ||||||||||||||
Adjusted EBITDA | $ | 30,123 | $ | 20,673 | $ | — | $ | 50,796 | $ | 55,037 | ||||||||||
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(a) | On December 8, 2009, we acquired VLCY. The acquisition was accounted for as a purchase transaction. Our consolidated financial statements include the results of VLCY from December 8, 2009, the date of acquisition. Therefore, the historical results of the Company have been adjusted to show the effect on our statement of operations if the transaction had been completed at the beginning of 2009. The combined historical net loss includes the following pro forma adjustments: |
• the pro forma impact of the amortization of intangible assets and the reduction in deferred revenue and related deferred costs based on the purchase price allocation; | ||
• the pro forma impact of reduced interest income lost as a result of the $58.0 million of cash used in the purchase price consideration (net of $25.0 million contributed by the sole stockholder of the Company at the time of the merger); | ||
• the pro forma impact of certain employment agreements and stock option grants entered into on the effective date of the merger; | ||
• the elimination of merger transaction costs incurred by the Company and VLCY; and | ||
• the pro forma tax effect of the merger, which was estimated using a combined company effective tax rate of 0%. | ||
(b) | External incremental costs incurred by the Company and VLCY that are directly related to the merger. | |
(c) | Costs directly associated with the integration of the Company and VLCY, including severance and other costs incurred to achieve synergies and the cost of retention and change in control agreements directly related to the merger. The cost for retention and change in control agreements included was $0.8 million for the year ended December 31, 2009 and $1.7 million for the year ended December 31, 2010. | |
(d) | Legacy VLCY corporate costs representing corporate costs related to legacy VLCY liabilities such as pension and severance costs for former VLCY employees. For the year ended December 31, 2009, these also include internal costs related to VLCY’s strategic alternative process, corporate overhead costs related to the restatement of VLCY’s financial statements and the related activities for VLCY to become current with its SEC filings, and costs to transition VLCY’s corporate office from Ann Arbor, Michigan to Dallas, Texas. | |
(e) | Stock-based compensation expense is related to our outstanding options, restricted stock awards, warrants, and stock appreciation rights (SARs). | |
(f) | During 2008, we discovered certain irregularities relating to the control and use of cash and certain other general ledger items which resulted from a substantial misappropriation of assets over more than a three-year period beginning in 2004 and continuing through April 2008. These irregularities were perpetrated by a former employee, resulting in embezzlement losses, net of recoveries. | |
(g) | Under applicable accounting guidance for business combinations, an acquiring entity is required to recognize all of the assets acquired and liabilities assumed in a transaction at the acquisition date fair value. Net revenues have been reduced by $1.4 million and $12.9 million, respectively, for the years ended December 31, 2009 and December 31, 2010 in the historical financial statements due to the write-down of deferred revenue to its estimated fair value as of the merger date and in the pro forma adjustments to reflect the impact of the write-down assuming the merger occurred on January 1, 2009. The write-down was determined by estimating the cost to fulfill the related future customer obligations plus a normal profit margin. Partially offsetting this impact, cost of revenues and sales and marketing expenses were reduced for other purchase accounting adjustments, primarily a write-down of deferred costs to zero at the acquisition date. During the years ended December 31, 2009, and December 31, 2010, the historical cost of revenues was reduced by $0.2 million and $1.2 million, respectively, and the historical sales and marketing expenses were reduced by $0.1 million and $1.0 million, respectively, and the related pro forma adjustments reflect the impact of the write-down assuming the merger occurred on January 1, 2009. The adjustment of deferred revenue and deferred costs to fair value is required only at the purchase accounting date; therefore, its impact on net revenues, cost of revenues, and sales and marketing expense is non-recurring. | |
(h) | Goodwill impairment charges of $9.1 million for the year ended December 31, 2009 and pre-merger VLCY goodwill impairment charges of $27.2 million for the year ended December 31, 2009. |
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(i) | Adjustments to the CVR liability as a result of the amendments of the merger agreement and the related escrow agreement, the expiration of the statute of limitations on potential tax liabilities and changes in likelihood of collecting potential tax receivables included in the estimate of the fair value of the CVRs. |
As of: | ||||||||||||||||||||||||
December 31, | March 31, | June 30, | September, 30 | December 31, | March 31, | |||||||||||||||||||
2009 | 2010 | 2010 | 2010 | 2010 | 2011 | |||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Deferred revenue | $ | 24,181 | $ | 21,842 | $ | 23,643 | $ | 33,301 | $ | 37,556 | $ | 30,779 | ||||||||||||
Purchase accounting fair value adjustment | 14,374 | 9,222 | 4,662 | 2,262 | 1,437 | 1,105 | ||||||||||||||||||
Adjusted deferred revenue | 38,555 | 31,064 | 28,305 | 35,563 | 38,993 | 31,884 | ||||||||||||||||||
Change in adjusted deferred revenue | $ | (7,491 | ) | $ | (2,759 | ) | $ | 7,258 | $ | 3,430 | $ | (7,109 | ) |
As of: | ||||||||||||
December 31, | December 31, | December 31, | ||||||||||
2008 | 2009 | 2010 | ||||||||||
(Unaudited) | ||||||||||||
(In thousands) | ||||||||||||
Cambium deferred revenue | $ | 1,910 | $ | 24,181 | $ | 37,556 | ||||||
Legacy VLCY deferred revenue | 29,507 | — | — | |||||||||
Total combined deferred revenue | 31,417 | 24,181 | 37,556 | |||||||||
Purchase accounting fair value adjustment | — | 14,374 | 1,437 | |||||||||
Adjusted deferred revenue | 31,417 | 38,555 | 38,993 | |||||||||
Change in adjusted deferred revenue | $ | 7,138 | $ | 438 |
Quarter Ended | Quarter Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
March 31, | March 31, | December 31, | December 31, | December 31, | ||||||||||||||||
2011 | 2010 | 2010 | 2009 | 2008 | ||||||||||||||||
(In millions) | ||||||||||||||||||||
Pre-publication costs | $ | 1.2 | $ | 0.9 | $ | 4.8 | $ | 2.4 | 2.2 | |||||||||||
Property, equipment and software | 2.2 | 1.2 | 8.5 | 1.0 | 1.0 | |||||||||||||||
Total expenditures for property, equipment, and pre-publication costs | $ | 3.4 | $ | 2.1 | $ | 13.3 | $ | 3.4 | $ | 3.2 | ||||||||||
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Total | 2011 | 2012 & 2013 | 2014 & 2015 | After 2015 | ||||||||||||||||
(In millions) | ||||||||||||||||||||
Senior secured notes as of December 31, 2010 | $ | 112.4 | $ | 8.9 | $ | 103.5 | $ | — | $ | — | ||||||||||
Senior unsecured notes as of December 31, 2010 | 64.2 | — | — | 64.2 | — | |||||||||||||||
Build-to-suit lease obligations as of December 31, 2010 | 6.5 | 1.0 | 2.2 | 2.3 | 1.0 | |||||||||||||||
Other capital lease obligations as of December 31, 2010 | 0.1 | 0.1 | — | — | — | |||||||||||||||
Operating lease obligations as of December 31, 2010 | 9.1 | 1.5 | 3.8 | 1.8 | 2.0 | |||||||||||||||
Contingent value rights as of December 31, 2010 | 7.4 | 1.6 | 5.8 | — | — |
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Goodwill balance as | ||||
of December 31, 2010 | ||||
Voyager | $ | 76,085 | ||
Sopris | 17,300 | |||
LAZEL | 19,724 | |||
KI | 38,806 | |||
Total | $ | 151,915 | ||
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• | specified VLCY tax refunds received after the effective time of the merger, plus | ||
• | the lesser of $4.0 million or the amount of specified post-signing tax refunds of VLCY received after the date of the Merger Agreement and on or prior to the date of the closing, which was $1.6 million, plus | ||
• | a portion of funds held for a potential tax indemnity obligation, if such obligation is not paid to its beneficiary, plus | ||
• | other amounts specified in the escrow agreement, |
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• | you are acquiring the exchange notes in the ordinary course of your business; | ||
• | you are not engaging in and do not intend to engage in a distribution of the exchange notes; | ||
• | you do not have an arrangement or understanding with any person or entity to participate in the distribution of the exchange notes; and | ||
• | you are not our “affiliate” as that term is defined in Rule 405 under the Securities Act. |
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• | to accept tendered notes after the expiration of the exchange offer and the settlement of the exchange offer with respect to tendered notes, and/or extend the exchange offer with respect to untendered notes, subject to applicable legal requirements; | ||
• | to delay accepting any old notes or, if any of the conditions set forth below under “—Conditions” have not been satisfied or waived, to terminate the exchange offer by giving oral (any such oral notice to be promptly confirmed in writing) or written notice of such delay or termination to the exchange agent; or | ||
• | to amend the terms of the exchange offer in any manner by complying with Rule 14e-l(d) under the Exchange Act, to the extent that rule applies. |
• | the certificates representing your old notes must be received by the exchange agent prior to the expiration date; | ||
• | a timely confirmation of book-entry transfer of such old notes into the exchange agent’s account at DTC pursuant to the procedure for book-entry transfers described below under “—Book-Entry Transfer” must be received by the exchange agent prior to the expiration date; or | ||
• | you must comply with the guaranteed delivery procedures described below. |
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• | old notes tendered in the exchange offer are tendered either by a registered holder who has not completed the box titled “Special Registration Instructions” or “Special Delivery Instructions” on the holder’s letter of transmittal or for the account of an eligible institution; and |
• | the box titled “Special Registration Instructions” on the letter of transmittal has not been completed. |
• | you improperly tender your old notes; |
• | you have not cured any defects or irregularities in your tender; and |
• | we have not waived those defects, irregularities or improper tender. |
• | purchase or make offers for, or offer exchange notes for, any old notes that remain outstanding subsequent to the expiration of the exchange offer; |
• | terminate the exchange offer; and |
• | to the extent permitted by applicable law, purchase notes in the open market, in privately negotiated transactions or otherwise. |
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• | a timely confirmation of book-entry transfer of such notes into the exchange agent’s account at DTC pursuant to the procedure for book-entry transfers described above must be received by the exchange agent prior to the expiration date; or |
• | you must comply with the guaranteed delivery procedures described below. |
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• | you tender through an eligible financial institution; | ||
• | on or prior to 5:00 p.m., New York City time, on the expiration date, the exchange agent receives from an eligible institution, a written or facsimile copy of a properly completed and duly executed letter of transmittal and notice of guaranteed delivery, substantially in the form provided by us; and | ||
• | the certificates for all certificated old notes, in proper form for transfer, or a book-entry confirmation, and all other documents required by the letter of transmittal, are received by the exchange agent within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery. |
• | your name and address; | ||
• | the amount of old notes you are tendering; | ||
• | a statement that your tender is being made by the notice of guaranteed delivery and that you guarantee that within three New York Stock Exchange trading days after the execution of the notice of guaranteed delivery, the eligible institution will deliver the following documents to the exchange agent; | ||
• | the certificates for all certificated old notes being tendered, in proper form, for transfer or a book-entry confirmation of tender; | ||
• | a written or facsimile copy of the letter of transmittal or a book-entry confirmation instead of the letter of transmittal; and | ||
• | any other documents required by the letter of transmittal. |
• | state your name; | ||
• | identify the specific old notes to be withdrawn, including the certificate number or numbers and the principal amounts of the old notes to be withdrawn; | ||
• | be signed by you in the same manner as you signed the letter of transmittal when you tendered your old notes, including any required signature guarantees, or be accompanied by documents of transfer sufficient for the exchange agent to register the transfer of the old notes into your name; and | ||
• | specify the name in which the old notes are to be registered, if different from yours. |
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• | any injunction, order or decree has been issued by any court or any governmental agency that would prohibit, prevent or otherwise materially impair our ability to proceed with the exchange offer; or |
• | the exchange offer violates any applicable law or any applicable interpretation of the staff of the SEC. |
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By Registered or | By Regular Mail or | |||
Certified Mail: | Overnight Courier: | In Person by Hand Only | ||
WELLS FARGO BANK, | WELLS FARGO BANK, | WELLS FARGO BANK, | ||
NATIONAL ASSOCIATION | NATIONAL ASSOCIATION | NATIONAL ASSOCIATION | ||
Corporate Trust Operations | Corporate Trust Operations | 12th Floor-Northstar East Building | ||
MAC N9-303-121 | MAC N9303-121 | Corporate Trust Operations | ||
PO box 1517 | Sixth & Marquette Avenue | 608 Second Avenue South | ||
Minneapolis, MN 55480 | Minneapolis, MN 55479 | Minneapolis, MN 55475 | ||
By Facsimile Transmission: | ||||
(for Eligible Institutions Only) | ||||
(612) 667-6282 | ||||
For Information or Confirmation by | ||||
Telephone: | ||||
(800) 344-5128 |
• | you will retain old notes that are not registered under the Securities Act and that will continue to be subject to restrictions on transfer that are described in the legend on the old notes; | ||
• | you will not be able to require us to register your old notes under the Securities Act unless, as set forth above, you do not receive freely tradable exchange notes in the exchange offer or are not eligible to participate in the exchange offer, and we are obligated to file a shelf registration statement; |
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• | you will not be able to offer to resell or transfer your old notes unless they are registered under the Securities Act or unless you offer to resell or transfer them pursuant to an exemption under the Securities Act; and | ||
• | the trading market for your old notes will become more limited to the extent that other holders of old notes participate in the exchange offer. |
• | neither the registration statement relating to the exchange offer nor a shelf registration statement has been filed with the SEC on or prior to the dates specified in the registration rights agreement; | ||
• | neither the exchange offer registration statement nor the shelf registration statement is declared effective by the SEC on or prior to the dates specified in the registration rights agreement; | ||
• | the exchange offer has not been consummated within 45 business days of the date that the registration statement, of which this prospectus is a part, is declared effective by the SEC; or | ||
• | any registration statement required by the registration rights agreement is filed and declared effective but thereafter ceases to be effective or becomes unusable, except as otherwise permitted under the registration rights agreement. |
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(1) | periodically deliver financial statements and comply with other reporting requirements; | ||
(2) | maintain certain insurance; | ||
(3) | keep and maintain property material to the conduct of its business in good working order and condition; | ||
(4) | pay and discharge all taxes; | ||
(5) | comply with applicable laws; and | ||
(6) | cause any domestic subsidiary of CLI formed or acquired after the closing date to be a co-borrower or guarantor under the ABL Facility, and cause any collateral acquired after the closing date to be subject to the liens securing the obligations under the ABL Facility. |
(1) | create, incur, assume or suffer to exist additional indebtedness or liens on their assets (including on the collateral); | ||
(2) | engage in mergers, acquisitions, consolidations and asset sales; | ||
(3) | enter into transactions with affiliates; |
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(4) | declare, pay or make distributions or dividends; | ||
(5) | make investments or loans or acquire any person or entity; | ||
(6) | enter into agreements that contain negative pledges; and | ||
(7) | enter into any joint venture that is materially different from those currently conducted by the ABL Credit Parties. |
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• | are general senior obligations of the Issuer; | ||
• | are secured on a first-priority lien basis by the Notes Collateral and on a second-priority lien basis by the ABL Collateral, in each case subject to certain liens permitted by the Indenture; | ||
• | are effectively senior to all unsecured Indebtedness of the Issuer to the extent of the value of the collateral securing the Notes (after giving effect to any lien on such collateral); | ||
• | are effectively senior to the ABL Credit Parties existing and future Obligations under the ABL Facility to the extent of the value of the Notes Collateral owned by the ABL Credit Parties (subject to certain liens permitted by the Indenture); | ||
• | are effectively subordinated to (i) the ABL Credit Parties existing and future Obligations under the ABL Facility to the extent of the value of the ABL Collateral and (ii) any existing or future Indebtedness of the Issuer that is secured by liens on assets that do not constitute a part of the collateral securing the Notes to the extent of the value of such assets; | ||
• | without giving effect to security interests, rank equally in right of payment with all existing and future Senior Indebtedness of the Issuer; | ||
• | rank equally in priority as to the Notes Collateral with respect to the Issuer’s obligations under any other pari passu lien Obligations incurred after the Issue Date; | ||
• | are senior in right of payment to all existing and future Subordinated Indebtedness of the Issuer; | ||
• | are structurally subordinated to all existing and future Indebtedness and claims of holders of Preferred Stock and other liabilities of Subsidiaries of the Issuer that do not guarantee the Notes (including VLCY); and |
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• | have been initially guaranteed on a senior secured basis by the Guarantors, and will also be guaranteed in the future by each direct and indirect wholly-owned domestic Restricted Subsidiary of the Issuer (and any non-wholly owned domestic Restricted Subsidiary that guarantees other capital market debt securities of the Issuer or any Subsidiary Guarantor) that guarantees Indebtedness under the ABL Facility or future Indebtedness of the Issuer or any Subsidiary Guarantor, if any, subject to certain exceptions. |
• | is a general senior obligation of the applicable Guarantor; | ||
• | is secured on a first-priority lien basis by the Notes Collateral and on a second-priority lien basis by the ABL Collateral, in each case subject to certain liens permitted by the Indenture; | ||
• | is effectively senior to all unsecured Indebtedness of such Guarantor to the extent of the value of the collateral securing such Guarantee (after giving effect to any lien on such collateral); | ||
• | is effectively senior to any ABL Lenders Debt with respect to each Guarantor that is an ABL Credit Party to the extent of the value of the Notes Collateral of such ABL Credit Party (subject to certain liens permitted by the Indenture); | ||
• | is effectively subordinated, to the extent of the value of the assets securing the Guarantee, to such Guarantor’s (i) ABL Lenders Debt or other obligations that are secured by a first-priority lien on the ABL Collateral that is incurred by such Guarantor and (ii) any existing or future Indebtedness of such Guarantor that is secured by liens on assets of such Guarantor that do not constitute a part of the collateral for the Notes; | ||
• | without giving effect to security interests, ranks equally in right of payment with all existing and future Senior Indebtedness of such Guarantor, including any borrowings under the ABL Facility and any guarantees thereof by such Guarantor; | ||
• | ranks equally in priority as to the Notes Collateral of such Guarantor, if any, with respect to such Guarantor’s obligations under any otherpari passulien Obligations incurred after the Issue Date; | ||
• | is senior in right of payment to all existing and future Subordinated Indebtedness of such Guarantor; and | ||
• | is structurally subordinated to all existing and future Indebtedness and claims of holders of Preferred Stock and other liabilities of Subsidiaries of the Issuer that do not Guarantee the Notes. |
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• | it will not knowingly take or cause to be taken any action the purpose or effect of which is, or could be, to make any Lien that the Notes Collateral Agent has (on behalf of the Holders of the Notes and the holders of any Additional Parity Debt) on the ABL Collateralpari passuwith, or to give the Notes Collateral Agent, the Trustee or the Holders of the Notes any preference or priority relative to, any Lien that the holders of any ABL Lenders Debt secured by any ABL Collateral have with respect to such ABL Collateral or any part thereof, | ||
• | it will not challenge or question in any proceeding the validity or enforceability of any first-priority security interest in the ABL Collateral, the validity, attachment, perfection or priority of any lien held by the holders of any ABL Lenders Debt secured by any ABL Collateral, or the validity or enforceability of the priorities, rights or duties established by or other provisions of the Intercreditor Agreement; | ||
• | it will not take or cause to be taken any action the purpose or intent of which is, or could be, to interfere, hinder or delay, in any manner, whether by judicial proceedings or otherwise, any sale, transfer or other disposition of the ABL Collateral by the ABL Collateral Agent or the holders of any ABL Lenders Debt secured by such ABL Collateral; | ||
• | it will have no right to (A) direct the ABL Collateral Agent or any holder of any ABL Lenders Debt secured by any ABL Collateral to exercise any right, remedy or power with respect to such ABL Collateral or (B) consent to the exercise by the ABL Collateral Agent or any holder of any ABL Lenders Debt secured by the ABL Collateral of any right, remedy or power with respect to such ABL Collateral; | ||
• | it will not institute any suit or assert in any suit, bankruptcy, insolvency or other proceeding any claim against the ABL Collateral Agent or any holder of any ABL Lenders Debt secured by any ABL Collateral seeking damages from or other relief by way of specific performance, instructions or otherwise with respect to, and neither the ABL Collateral Agent nor any holders of any ABL Lenders Debt secured by any ABL Collateral will be liable for, any action taken or omitted to be taken by the ABL Collateral Agent or such lenders with respect to such ABL Collateral; | ||
• | it will not seek, and will waive any right, to have any ABL Collateral or any part thereof marshaled upon any foreclosure or other disposition of such ABL Collateral; and | ||
• | it will not attempt, directly or indirectly, whether by judicial proceedings or otherwise, to challenge the enforceability of any provision of the Intercreditor Agreement. |
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• | first, to the payment of advances made and liabilities incurred by the Notes Collateral Agent in order to protect the Liens granted by the Collateral Documents and the payment of all reasonable costs and expenses incurred by and disbursements of attorneys, accountants, consultants, appraisers and other professionals engaged by the Notes Collateral Agent, the Trustee or any representative of the Additional Parity Debt in connection with the preservation, collection, foreclosure or enforcement of the Liens granted by the Collateral Documents or any interest, right, power or remedy of the Notes Collateral Agent or in connection with the collection or enforcement of any of the Obligations in respect of the Notes or any Additional Parity Debt in any insolvency proceeding, including all reasonable fees and disbursements of attorneys, accountants, consultants, appraisers and other professionals engaged by the Notes Collateral Agent, the Trustee or any representative of the Additional Parity Debt and reasonable compensation of the Notes Collateral Agent and the Trustee and disbursements of attorneys, accountants, consultants, appraisers and other professionals engaged by the Notes Collateral Agent, the Trustee or any representative of the Additional Parity Debt for services rendered in connection therewith; |
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• | second, to the payment of accrued and unpaid interest on the Notes and any Additional Parity Debt on a pro rata basis (to the extent the remaining proceeds are not sufficient to make the distribution referred to in this clause in full); | ||
• | third, to the payment of any due and unpaid premium, if any, in respect of prepayment, repayment or redemption of the Notes and any Additional Parity Debt on a pro rata basis (to the extent the remaining proceeds are not sufficient to make the distribution referred to in this clause in full); | ||
• | fourth, to the payment of the due and unpaid principal of the Notes and any Additional Parity Debt on a pro rata basis (to the extent the remaining proceeds are not sufficient to make the distribution referred to in this clause in full); | ||
• | fifth, to any remaining unpaid amounts in respect of the Notes and any Additional Parity Debt on a pro rata basis (to the extent the remaining proceeds are not sufficient to make the distribution referred to in this clause in full); and | ||
• | sixth, to other persons as their interests may appear or as instructed by the court of a competent jurisdiction. |
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Year | Percentage | |||
2014 | 104.875 | % | ||
2015 | 102.438 | % | ||
2016 and thereafter | 100.000 | % |
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• | may not rely on the applicable interpretation of the staff of the SEC’s position contained in Exxon Capital Holdings Corp., SEC no-action letter (April 13, 1988), Morgan, Stanley and Co. Inc., SEC no-action letter (June 5, 1991) and Shearman & Sterling, SEC no-action letter (July 2, 1993); and | ||
• | must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the exchange notes. |
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 2010
Page | ||||
Interim Condensed Consolidated Financial Statements: | ||||
F-2 | ||||
F-3 | ||||
F-5 | ||||
F-6 | ||||
Year end Consolidated Financial Statements: | ||||
F-18 | ||||
F-21 | ||||
F-22 | ||||
F-24 | ||||
F-25 | ||||
F-26 |
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Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2011 | 2010 | |||||||
Net revenues | $ | 30,695 | $ | 28,222 | ||||
Cost of revenues: | ||||||||
Cost of revenues | 10,967 | 11,312 | ||||||
Amortization expense | 6,618 | 6,742 | ||||||
Total cost of revenues | 17,585 | 18,054 | ||||||
Research and development expense | 2,379 | 3,010 | ||||||
Sales and marketing expense | 10,903 | 11,057 | ||||||
General and administrative expense | 5,812 | 7,938 | ||||||
Shipping and handling costs | 334 | 544 | ||||||
Depreciation and amortization expense | 1,736 | 2,577 | ||||||
Embezzlement and related expense (recoveries) | (2,436 | ) | 19 | |||||
Total costs and expenses | 36,313 | 43,199 | ||||||
Loss before interest, other income (expense) and income taxes | (5,618 | ) | (14,977 | ) | ||||
Net interest expense | (4,405 | ) | (4,368 | ) | ||||
Other income (expense), net | 363 | (10 | ) | |||||
Loss before income taxes | (9,660 | ) | (19,355 | ) | ||||
Income tax expense | (97 | ) | (85 | ) | ||||
Net loss | $ | (9,757 | ) | $ | (19,440 | ) | ||
Net loss per common share: | ||||||||
Basic net loss per common share | $ | (0.22 | ) | $ | (0.44 | ) | ||
Diluted net loss per common share | $ | (0.22 | ) | $ | (0.44 | ) | ||
Average number of common shares and equivalents outstanding: | ||||||||
Basic | 44,353 | 44,318 | ||||||
Diluted | 44,353 | 44,318 |
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March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 19,494 | $ | 11,831 | ||||
Accounts receivable, net | 14,122 | 31,627 | ||||||
Inventory | 26,465 | 22,015 | ||||||
Deferred tax assets | 3,703 | 3,703 | ||||||
Restricted assets, current | 2,523 | 3,064 | ||||||
Assets held for sale | 2,649 | — | ||||||
Other current assets | 4,804 | 3,937 | ||||||
Total current assets | 73,760 | 76,177 | ||||||
Property, equipment and software at cost | 35,056 | 32,944 | ||||||
Accumulated depreciation and amortization | (8,834 | ) | (7,838 | ) | ||||
Property, equipment and software, net | 26,222 | 25,106 | ||||||
Goodwill | 151,915 | 151,915 | ||||||
Acquired curriculum and technology intangibles, net | 30,554 | 33,063 | ||||||
Acquired publishing rights, net | 35,745 | 38,707 | ||||||
Other intangible assets, net | 21,058 | 22,132 | ||||||
Pre-publication costs, net | 8,263 | 7,834 | ||||||
Restricted assets, less current portion | 12,005 | 12,641 | ||||||
Other assets | 22,454 | 15,487 | ||||||
Total assets | $ | 381,976 | $ | 383,062 | ||||
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March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(unaudited) | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt | $ | — | $ | 1,280 | ||||
Current portion of capital lease obligations | 400 | 378 | ||||||
Accounts payable | 4,723 | 6,465 | ||||||
Contingent value rights, current | 1,931 | 1,623 | ||||||
Accrued expenses | 18,161 | 22,888 | ||||||
Deferred revenue, current | 27,723 | 34,140 | ||||||
Total current liabilities | 52,938 | 66,774 | ||||||
Long-term liabilities: | ||||||||
Long-term debt, less current portion | 174,043 | 150,850 | ||||||
Capital lease obligations, less current portion | 12,202 | 12,317 | ||||||
Deferred revenue, less current portion | 3,056 | 3,416 | ||||||
Contingent value rights, less current portion | 5,746 | 5,746 | ||||||
Other liabilities | 19,433 | 19,947 | ||||||
Total long-term liabilities | 214,480 | 192,276 | ||||||
Commitments and contingencies (See Note 14) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock ($.001 par value, 15,000 shares authorized, zero shares issued and outstanding at March 31, 2011 and December 31, 2010) | — | — | ||||||
Common stock ($.001 par value, 150,000 shares authorized, 43,913 and 43,869 shares issued and outstanding at March 31, 2011 and December 31, 2010) | 44 | 44 | ||||||
Capital surplus | 260,190 | 259,887 | ||||||
Accumulated deficit | (144,975 | ) | (135,218 | ) | ||||
Other comprehensive income (loss): | ||||||||
Pension and postretirement plans | (702 | ) | (702 | ) | ||||
Net unrealized gain on securities | 1 | 1 | ||||||
Accumulated other comprehensive income (loss) | (701 | ) | (701 | ) | ||||
Total stockholders’ equity | 114,558 | 124,012 | ||||||
Total liabilities and stockholders’ equity | $ | 381,976 | $ | 383,062 | ||||
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Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2011 | 2010 | |||||||
Operating activities: | ||||||||
Net loss | $ | (9,757 | ) | $ | (19,440 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization expense | 8,354 | 9,319 | ||||||
Gain from recovery of property held for sale | (2,649 | ) | — | |||||
Non-cash interest expense | 203 | 530 | ||||||
Gain on derivative instruments | — | (494 | ) | |||||
Change in fair value of contingent value rights obligation | 308 | — | ||||||
Loss on disposal of assets | — | 38 | ||||||
Stock-based compensation and expense | 290 | 234 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | 17,505 | 6,273 | ||||||
Inventory | (4,450 | ) | (1,383 | ) | ||||
Other current assets | (867 | ) | 1,969 | |||||
Other assets | 189 | (258 | ) | |||||
Restricted assets | 1,177 | (917 | ) | |||||
Accounts payable | (1,742 | ) | 2,500 | |||||
Accrued expenses | (4,727 | ) | (2,452 | ) | ||||
Deferred revenue | (6,777 | ) | (2,339 | ) | ||||
Other long-term liabilities | (501 | ) | (562 | ) | ||||
Net cash used in operating activities | (3,444 | ) | (6,982 | ) | ||||
Investing activities: | ||||||||
Expenditures for property, equipment, software and pre-publication costs | (3,354 | ) | (2,101 | ) | ||||
Net cash used in investing activities | (3,354 | ) | (2,101 | ) | ||||
Financing activities: | ||||||||
Proceeds from debt | 174,024 | — | ||||||
Repayment of debt | (152,130 | ) | (320 | ) | ||||
Deferred financing costs | (7,340 | ) | — | |||||
Principal payments under capital lease obligations | (93 | ) | (115 | ) | ||||
Borrowings under revolving credit agreement | 10,000 | 5,000 | ||||||
Payment of revolving credit facility | (10,000 | ) | — | |||||
Return of pre-merger member contributions | — | (30 | ) | |||||
Net cash provided by financing activities | 14,461 | 4,535 | ||||||
Increase (decrease) in cash and cash equivalents | 7,663 | (4,548 | ) | |||||
Cash and cash equivalents, beginning of period | 11,831 | 13,345 | ||||||
Cash and cash equivalents, end of period | $ | 19,494 | $ | 8,797 | ||||
F-5
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Three Months Ended March 31, | ||||||||
(in thousands) | 2011 | 2010 | ||||||
Cost of revenues | $ | 15 | $ | 9 | ||||
Research and development expense | 32 | 19 | ||||||
Sales and marketing expense | 38 | 20 | ||||||
General and administrative expense | 205 | 186 | ||||||
Total | $ | 290 | $ | 234 | ||||
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Expected stock volatility | 35.00 | % | 35.00 | % | ||||
Risk-free interest rate | 2.50 | % | 2.87 | % | ||||
Expected years until exercise | 6.25 | 6.25 | ||||||
Dividend yield | 0.00 | % | 0.00 | % |
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Three Months Ended March 31, | ||||||||
(in thousands) | 2011 | 2010 | ||||||
Basic | 44,353 | 44,318 | ||||||
Dilutive effect of awards | — | — | ||||||
Diluted | 44,353 | 44,318 | ||||||
Antidilutive securities: | ||||||||
Options | 3,946 | 3,780 | ||||||
Warrants | 141 | 72 | ||||||
Subscription rights | 6,419 | 5,818 |
• | Level 1 — Quoted prices for identical instruments in active markets. | ||
• | Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant value drivers are observable. | ||
• | Level 3 — Valuations derived from valuation techniques in which significant value drivers are unobservable. |
F-8
Table of Contents
Fair Value at Reporting Date Using | ||||||||||||||||||||
Quoted Prices in | Significant | |||||||||||||||||||
Active Markets for | Significant Other | Unobservable | Total | |||||||||||||||||
(in thousands) | As of March 31, | Identical Assets | Observable Inputs | Inputs | Gains | |||||||||||||||
Description | 2011 | (Level 1) | (Level 2) | (Level 3) | (Losses) | |||||||||||||||
Restricted Assets: | ||||||||||||||||||||
Money Market | $ | 14,528 | $ | 14,528 | $ | — | $ | — | $ | — | ||||||||||
Collateral Investments: | ||||||||||||||||||||
Money Market | 901 | 901 | — | — | — | |||||||||||||||
Certificate of Deposit | 1,064 | 1,064 | — | — | — | |||||||||||||||
Warrant | 480 | — | 480 | — | 12 | |||||||||||||||
Assets held for sale | 2,649 | — | 2,649 | — | — | |||||||||||||||
CVRs | 7,677 | — | — | 7,677 | (308 | ) |
F-9
Table of Contents
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||
CVRs | ||||||||||||
(In thousands) | ||||||||||||
Estimated Fair Value | Loss (Gain) for Changes | Estimated Fair Value | ||||||||||
as of December 31, 2010 | in Estimated CVR Liability | as of March 31, 2011 | ||||||||||
Components of CVR Liability: | ||||||||||||
Tax refunds received before closing of the merger | $ | 1,583 | $ | — | $ | 1,583 | ||||||
Other specified tax refunds | 4,501 | 248 | 4,749 | |||||||||
Tax indemnity obligation | 1,717 | — | 1,717 | |||||||||
Legal receivable | 2,400 | — | 2,400 | |||||||||
Michigan state tax liability | (1,040 | ) | — | (1,040 | ) | |||||||
Other specified tax related liabilities | (132 | ) | 60 | (72 | ) | |||||||
Costs incurred to collect tax refunds and by stockholders’ representative | (554 | ) | — | (554 | ) | |||||||
Estimated fair value of CVR liability | 8,475 | 308 | 8,783 | |||||||||
Payments to holders of CVRs | 1,106 | |||||||||||
Remaining estimated CVR liability | $ | 7,677 | ||||||||||
CVR Escrow Trust | ||||
(In thousands) | ||||
Balance as of December 31, 2010 | $ | 4,179 | ||
Costs incurred to collect tax refunds and by stockholders’ representative | (47 | ) | ||
Balance as of March 31, 2011 | 4,132 | |||
As of | ||||||||
March 31, | December 31, | |||||||
(in thousands) | 2011 | 2010 | ||||||
Prepaid expenses | $ | 1,796 | $ | 1,463 | ||||
Deferred costs | 1,788 | 2,163 | ||||||
Income taxes receivable | 1,158 | 249 | ||||||
Other current assets | 62 | 62 | ||||||
Total | $ | 4,804 | $ | 3,937 | ||||
F-10
Table of Contents
As of | ||||||||
March 31, | December 31, | |||||||
(in thousands) | 2011 | 2010 | ||||||
Tax receivables | $ | 10,438 | $ | 11,168 | ||||
Deferred financing costs | 8,778 | 1,542 | ||||||
Collateral investments | 1,965 | 1,964 | ||||||
Other | 1,273 | 813 | ||||||
Total | $ | 22,454 | $ | 15,487 | ||||
As of | ||||||||
March 31, | December 31, | |||||||
(in thousands) | 2011 | 2010 | ||||||
Salaries, bonuses and benefits | $ | 5,639 | $ | 10,183 | ||||
Accrued royalties | 3,283 | 3,220 | ||||||
Accrued interest | 2,010 | — | ||||||
Pension and post-retirement medical benefits | 1,209 | 1,209 | ||||||
Deferred compensation | 204 | 525 | ||||||
Other | 5,816 | 7,751 | ||||||
Total | $ | 18,161 | $ | 22,888 | ||||
As of | ||||||||
March 31, | December 31, | |||||||
(in thousands) | 2011 | 2010 | ||||||
Pension and post-retirement medical benefits, long-term portion | $ | 10,687 | $ | 10,847 | ||||
Long-term deferred tax liability | 4,529 | 4,529 | ||||||
Long-term income tax payable | 795 | 847 | ||||||
Long-term deferred compensation | 530 | 613 | ||||||
Other | 2,892 | 3,111 | ||||||
Total | $ | 19,433 | $ | 19,947 | ||||
F-11
Table of Contents
Total | Incurred in | Incurred in | ||||||||||||||
Total Amount | Incurred as | Three Months | Year Ended | |||||||||||||
Expected to | of March 31, | Ended March | December 31, | |||||||||||||
(in thousands) | be Incurred | 2011 | 31, 2011 | 2010 | ||||||||||||
One-time termination benefits | $ | 1,260 | $ | 1,260 | $ | (26 | ) | $ | 743 | |||||||
Warehouse move costs | 570 | 570 | — | 570 | ||||||||||||
$ | 1,830 | $ | 1,830 | $ | (26 | ) | $ | 1,313 | ||||||||
One-Time | ||||
Termination | ||||
(in thousands) | Benefits | |||
Balance as of December 31, 2010 | $ | 85 | ||
Accrual changes | (26 | ) | ||
Payments made | (59 | ) | ||
Balance as of March 31, 2011 | $ | — | ||
F-12
Table of Contents
March 31, | December 31, | |||||||
(in thousands) | 2011 | 2010 | ||||||
$175.0 million of 9.75% senior secured notes due February 15, 2017, interest payable semiannually | $ | 175,000 | $ | — | ||||
Less: Unamortized discount | (957 | ) | — | |||||
Total 9.75% senior secured notes | 174,043 | — | ||||||
$128.0 million of floating rate senior secured notes due April 11, 2013, interest payable quarterly | — | 95,408 | ||||||
$64.2 million of 13.75% senior unsecured notes due April 11, 2014, interest payable quarterly | — | 56,722 | ||||||
174,043 | 152,130 | |||||||
Less: Current portion of long-term debt | — | (1,280 | ) | |||||
Total long-term debt | $ | 174,043 | $ | 150,850 | ||||
F-13
Table of Contents
F-14
Table of Contents
F-15
Table of Contents
Cambium | ||||||||||||||||||||
Learning | ||||||||||||||||||||
Voyager | Sopris | Technologies | Other | Consolidated | ||||||||||||||||
Quarter Ended March 31, 2011 | ||||||||||||||||||||
Net revenues | $ | 14,692 | $ | 4,185 | $ | 11,818 | $ | — | $ | 30,695 | ||||||||||
Cost of revenues | 7,993 | 1,670 | 1,223 | 81 | 10,967 | |||||||||||||||
Amortization | — | — | — | 6,618 | 6,618 | |||||||||||||||
Total cost of revenues | 7,993 | 1,670 | 1,223 | 6,699 | 17,585 | |||||||||||||||
Other operating expenses | 7,593 | 2,316 | 5,161 | 4,358 | 19,428 | |||||||||||||||
Embezzlement and related expense (recoveries) | — | — | — | (2,436 | ) | (2,436 | ) | |||||||||||||
Depreciation and amortization | — | — | — | 1,736 | 1,736 | |||||||||||||||
Net interest expense | — | — | — | 4,405 | 4,405 | |||||||||||||||
Other income, net | — | — | — | (363 | ) | (363 | ) | |||||||||||||
Income tax expense | — | — | — | 97 | 97 | |||||||||||||||
Segment net income (loss) | $ | (894 | ) | $ | 199 | $ | 5,434 | $ | (14,496 | ) | $ | (9,757 | ) | |||||||
Quarter Ended March 31, 2010 | ||||||||||||||||||||
Net revenues | $ | 15,872 | $ | 3,903 | $ | 8,447 | $ | — | $ | 28,222 | ||||||||||
Cost of revenues | 7,070 | 1,587 | 1,496 | 1,159 | 11,312 | |||||||||||||||
Amortization | — | — | — | 6,742 | 6,742 | |||||||||||||||
Total cost of revenues | 7,070 | 1,587 | 1,496 | 7,901 | 18,054 | |||||||||||||||
Other operating expenses | 9,108 | 1,986 | 4,378 | 7,077 | 22,549 | |||||||||||||||
Embezzlement and related expense | 19 | 19 | ||||||||||||||||||
Depreciation and amortization | 2,577 | 2,577 | ||||||||||||||||||
Net interest expense | 4,368 | 4,368 | ||||||||||||||||||
Other income, net | 10 | 10 | ||||||||||||||||||
Income tax expense | 85 | 85 | ||||||||||||||||||
Segment net income (loss) | $ | (306 | ) | $ | 330 | $ | 2,573 | $ | (22,037 | ) | $ | (19,440 | ) | |||||||
F-16
Table of Contents
F-17
Table of Contents
Item 8. | Financial Statements and Supplementary Data. |
F-18
Table of Contents
F-19
Table of Contents
F-20
Table of Contents
For the Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands, except per share data) | ||||||||||||
Net revenues: | ||||||||||||
Product revenues | $ | 160,778 | $ | 90,385 | $ | 89,207 | ||||||
Service revenues | 20,482 | 10,663 | 10,524 | |||||||||
Total net revenues | 181,260 | 101,048 | 99,731 | |||||||||
Cost of revenues: | ||||||||||||
Cost of product revenues | 41,583 | 19,591 | 20,246 | |||||||||
Cost of service revenues | 18,308 | 7,257 | 7,463 | |||||||||
Amortization expense | 28,511 | 17,527 | 15,966 | |||||||||
Total cost of revenues | 88,402 | 44,375 | 43,675 | |||||||||
Research and development expense | 10,558 | 5,611 | 6,416 | |||||||||
Sales and marketing expense | 45,987 | 23,368 | 24,600 | |||||||||
General and administrative expense | 23,857 | 30,519 | 16,156 | |||||||||
Shipping and handling costs | 3,570 | 1,512 | 2,348 | |||||||||
Depreciation and amortization expense | 9,154 | 9,723 | 11,453 | |||||||||
Goodwill impairment | — | 9,105 | 75,966 | |||||||||
Embezzlement and related expense (recoveries) | (353 | ) | 129 | 7,254 | ||||||||
Total costs and expenses | 181,175 | 124,342 | 187,868 | |||||||||
Income (loss) before interest, other income (expense) and income taxes | 85 | (23,294 | ) | (88,137 | ) | |||||||
Net interest income (expense): | ||||||||||||
Interest income | 19 | 10 | 86 | |||||||||
Interest expense | (17,311 | ) | (19,487 | ) | (18,520 | ) | ||||||
Net interest income (expense) | (17,292 | ) | (19,477 | ) | (18,434 | ) | ||||||
Gain from settlement with previous stockholders | — | — | 30,202 | |||||||||
Loss on extinguishment of debt | — | — | (5,632 | ) | ||||||||
Other income (expense), net | 674 | (698 | ) | (981 | ) | |||||||
Loss before income taxes | (16,533 | ) | (43,469 | ) | (82,982 | ) | ||||||
Income tax benefit | 583 | 7,704 | 13,422 | |||||||||
Net loss | $ | (15,950 | ) | $ | (35,765 | ) | $ | (69,560 | ) | |||
Net loss per common share: | ||||||||||||
Basic net loss per common share | $ | (0.36 | ) | $ | (1.63 | ) | $ | (3.39 | ) | |||
Diluted net loss per common share | $ | (0.36 | ) | $ | (1.63 | ) | $ | (3.39 | ) | |||
Average number of common shares and equivalents outstanding: | ||||||||||||
Basic | 44,322 | 21,994 | 20,493 | |||||||||
Diluted | 44,322 | 21,994 | 20,493 |
F-21
Table of Contents
As of December 31, | ||||||||
2010 | 2009 | |||||||
(In thousands, except per share data) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 11,831 | $ | 13,345 | ||||
Accounts receivable, net | 31,627 | 19,127 | ||||||
Inventory | 22,015 | 19,812 | ||||||
Deferred tax assets | 3,703 | 6,267 | ||||||
Restricted assets, current | 3,064 | 9,755 | ||||||
Other current assets | 3,937 | 6,010 | ||||||
Total current assets | 76,177 | 74,316 | ||||||
Property, equipment and software at cost | 32,944 | 24,951 | ||||||
Accumulated depreciation and amortization | (7,838 | ) | (4,294 | ) | ||||
Property, equipment and software, net | 25,106 | 20,657 | ||||||
Goodwill | 151,915 | 151,915 | ||||||
Acquired curriculum and technology intangibles, net | 33,063 | 44,695 | ||||||
Acquired publishing rights, net | 38,707 | 52,312 | ||||||
Other intangible assets, net | 22,132 | 28,133 | ||||||
Pre-publication costs, net | 7,834 | 5,464 | ||||||
Restricted assets, less current portion | 12,641 | 14,930 | ||||||
Other assets | 15,487 | 1,419 | ||||||
Total assets | $ | 383,062 | $ | 393,841 | ||||
F-22
Table of Contents
Consolidated Balance Sheets
As of December 31, | ||||||||
2010 | 2009 | |||||||
(In thousands, except per share data) | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Notes payable — line of credit | $ | — | $ | 5,000 | ||||
Current portion of long-term debt | 1,280 | 1,280 | ||||||
Current portion of capital lease obligations | 378 | 443 | ||||||
Accounts payable | 6,465 | 2,308 | ||||||
Contingent value rights, current | 1,623 | 3,950 | ||||||
Accrued expenses | 22,888 | 23,920 | ||||||
Deferred revenue, current | 34,140 | 21,465 | ||||||
Total current liabilities | 66,774 | 58,366 | ||||||
Long-term liabilities: | ||||||||
Long-term debt, less current portion | 150,850 | 150,487 | ||||||
Capital lease obligations, less current portion | 12,317 | 12,695 | ||||||
Deferred revenue, less current portion | 3,416 | 2,716 | ||||||
Contingent value rights, less current portion | 5,746 | 5,649 | ||||||
Other liabilities | 19,947 | 24,156 | ||||||
Total long-term liabilities | 192,276 | 195,703 | ||||||
Commitments and contingencies (See Note 19) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock ($.001 par value, 15,000 shares authorized, zero shares issued and outstanding at December 31, 2010 and 2009) | — | — | ||||||
Common stock ($.001 par value, 150,000 shares authorized, 43,869 and 43,859 shares issued and outstanding at December 31, 2010 and 2009) | 44 | 44 | ||||||
Capital surplus | 259,887 | 258,789 | ||||||
Accumulated deficit | (135,218 | ) | (119,268 | ) | ||||
Other comprehensive income (loss): | ||||||||
Pension and postretirement plans | (702 | ) | 206 | |||||
Net unrealized gain on securities | 1 | 1 | ||||||
Accumulated other comprehensive income (loss) | (701 | ) | 207 | |||||
Total stockholders’ equity | 124,012 | 139,772 | ||||||
Total liabilities and stockholders’ equity | $ | 383,062 | $ | 393,841 | ||||
F-23
Table of Contents
For the Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Operating activities: | ||||||||||||
Net loss | $ | (15,950 | ) | $ | (35,765 | ) | $ | (69,560 | ) | |||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||||
Depreciation and amortization expense | 37,665 | 27,250 | 27,419 | |||||||||
Goodwill impairment | — | 9,105 | 75,966 | |||||||||
Gain from settlement with previous stockholders | — | — | (30,202 | ) | ||||||||
Gain from recovery of property held for sale | — | — | (1,578 | ) | ||||||||
Loss on extinguishment of debt — unamortized debt issuance costs | — | — | 4,594 | |||||||||
Non-cash interest expense | 2,124 | 2,309 | 1,701 | |||||||||
Amortization of deferred financing costs | — | — | 604 | |||||||||
Loss (gain) on derivative instruments | (992 | ) | (1,390 | ) | 848 | |||||||
Change in fair value of contingent value rights obligation | (1,124 | ) | — | — | ||||||||
Loss on disposal of assets | 89 | 2 | — | |||||||||
Stock-based compensation and expense | 1,085 | 37 | (618 | ) | ||||||||
Issuance of subscription rights | — | 2,222 | — | |||||||||
Deferred income taxes | (1,063 | ) | (7,975 | ) | (13,526 | ) | ||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable, net | (12,500 | ) | 2,306 | (1,041 | ) | |||||||
Inventory | (2,203 | ) | 4,725 | (3,152 | ) | |||||||
Other current assets | 2,073 | 3,022 | (355 | ) | ||||||||
Other assets | (14,068 | ) | 1,579 | (15 | ) | |||||||
Restricted assets | 8,980 | (7,948 | ) | — | ||||||||
Accounts payable | 4,157 | (1,812 | ) | (2,941 | ) | |||||||
Accrued expenses | (40 | ) | 4,980 | (2,651 | ) | |||||||
Deferred revenue | 13,375 | 497 | 480 | |||||||||
Other long-term liabilities | (1,447 | ) | (1,115 | ) | 172 | |||||||
Other, net | — | (95 | ) | — | ||||||||
Net cash provided by (used in) operating activities | 20,161 | 1,934 | (13,855 | ) | ||||||||
Investing activities: | ||||||||||||
Cash paid for acquisitions, net of cash acquired | (1,106 | ) | (9,697 | ) | (112 | ) | ||||||
Expenditures for property, equipment, software and pre-publication costs | (13,335 | ) | (3,395 | ) | (3,201 | ) | ||||||
Settlement proceeds from previous stockholders | — | — | 30,202 | |||||||||
Net cash provided by (used in) investing activities | (14,441 | ) | (13,092 | ) | 26,889 | |||||||
Financing activities: | ||||||||||||
Repayment of debt | (1,761 | ) | (5,585 | ) | (24,280 | ) | ||||||
Principal payments under capital lease obligations | (443 | ) | (289 | ) | (226 | ) | ||||||
Borrowings under revolving credit agreement | 19,000 | 10,000 | 5,000 | |||||||||
Payment of revolving credit facility | (24,000 | ) | (10,000 | ) | — | |||||||
Proceeds from capital contributions | (30 | ) | 2,959 | 684 | ||||||||
Proceeds from issuance of common stock in connection with the merger | — | 25,000 | — | |||||||||
Borrowings from affiliates | — | — | 7,000 | |||||||||
Net cash provided by (used in) financing activities | (7,234 | ) | 22,085 | (11,822 | ) | |||||||
Increase (decrease) in cash and cash equivalents | (1,514 | ) | 10,927 | 1,212 | ||||||||
Cash and cash equivalents, beginning of year | 13,345 | 2,418 | 1,206 | |||||||||
Cash and cash equivalents, end of year | $ | 11,831 | $ | 13,345 | $ | 2,418 | ||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Income taxes paid (refunded) | $ | 15 | $ | (3,080 | ) | $ | 742 | |||||
Interest paid | 12,002 | 16,936 | 16,215 | |||||||||
Supplemental disclosure of noncash investing and financing activities: | ||||||||||||
Non-cash acquisition costs paid | — | 86,546 | — | |||||||||
Conversion of unsecured notes payable — affiliates | — | — | 7,000 | |||||||||
Assets received in settlement — property held for sale | — | — | 1,578 |
F-24
Table of Contents
Consolidated Statements of Stockholders’ and Members’ Equity and Comprehensive Income (Loss)
Additional | Accumulated Other | |||||||||||||||||||||||||||
Common Stock | Paid in | Members’ | Comprehensive | Accumulated | ||||||||||||||||||||||||
Shares | Par Value | Capital | Interest | Income | Deficit | Total | ||||||||||||||||||||||
(Dollars and shares in thousands) | ||||||||||||||||||||||||||||
Balance at December 31, 2007 | — | $ | — | $ | — | $ | 144,023 | $ | — | $ | (13,943 | ) | $ | 130,080 | ||||||||||||||
Capital contribution by members | — | — | — | 7,684 | — | — | 7,684 | |||||||||||||||||||||
Net loss | — | — | — | — | — | (69,560 | ) | (69,560 | ) | |||||||||||||||||||
Balance at December 31, 2008 | — | — | — | 151,707 | — | (83,503 | ) | 68,204 | ||||||||||||||||||||
Capital contribution by members | — | — | — | 2,959 | — | — | 2,959 | |||||||||||||||||||||
Conversion of members’ interests to common shares in connection with the merger(a) | 20,493 | 20 | 154,646 | (154,666 | ) | — | — | — | ||||||||||||||||||||
Issuance of common stock to members in exchange for a $25 million capital contribution in connection with the merger | 3,846 | 4 | 24,996 | — | — | — | 25,000 | |||||||||||||||||||||
Issuance of common stock to Voyager stockholders in connection with the merger | 19,520 | 20 | 76,888 | — | — | — | 76,908 | |||||||||||||||||||||
Issuance of subscription rights in connection with the merger | — | — | 2,222 | — | — | — | 2,222 | |||||||||||||||||||||
Stock-based compensation and expense | — | — | 37 | — | — | — | 37 | |||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | (35,765 | ) | (35,765 | ) | |||||||||||||||||||
Pension plan | — | — | — | — | 206 | — | 206 | |||||||||||||||||||||
Unrealized gain on securities | — | — | — | — | 1 | — | 1 | |||||||||||||||||||||
Total comprehensive income (loss) | (35,558 | ) | ||||||||||||||||||||||||||
Balance at December 31, 2009 | 43,859 | 44 | 258,789 | — | 207 | (119,268 | ) | 139,772 | ||||||||||||||||||||
Issuance of restricted stock | 10 | — | 25 | — | — | — | 25 | |||||||||||||||||||||
Stock-based compensation and expense | — | — | 1,103 | — | — | — | 1,103 | |||||||||||||||||||||
Distribution of former members’ interest | — | — | (30 | ) | — | — | — | (30 | ) | |||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | (15,950 | ) | (15,950 | ) | |||||||||||||||||||
Pension plan | — | — | — | — | (908 | ) | — | (908 | ) | |||||||||||||||||||
Total comprehensive income (loss) | (16,858 | ) | ||||||||||||||||||||||||||
Balance at December 31, 2010 | 43,869 | $ | 44 | $ | 259,887 | $ | — | $ | (701 | ) | $ | (135,218 | ) | $ | 124,012 | |||||||||||||
(a) | As the previous members are also majority stockholders in Cambium Learning Group, Inc., the common shares issued on December 8, 2009 in connection with the merger will be considered outstanding for all periods presented for purposes of calculating earnings per share. |
F-25
Table of Contents
Note 1 — | Basis of Presentation |
Note 2 — | Significant Accounting Policies |
F-26
Table of Contents
F-27
Table of Contents
2008 | 2009 | 2010 | ||||||||||
(In thousands) | ||||||||||||
Beginning accounts receivable reserve | $ | 695 | $ | 706 | $ | 316 | ||||||
Charged to costs and expenses | 18 | 5 | 62 | |||||||||
Charged to other accounts(1) | (5 | ) | 12 | 218 | ||||||||
Recoveries | — | 11 | 2 | |||||||||
Write-offs | (2 | ) | (418 | ) | (41 | ) | ||||||
Other | — | — | — | |||||||||
Ending accounts receivable reserve | $ | 706 | $ | 316 | $ | 557 | ||||||
(1) | Charges to other accounts include sales returns |
F-28
Table of Contents
For the Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Basic | 44,322 | 21,994 | 20,493 | |||||||||
Dilutive effect of awards | — | — | — | |||||||||
Diluted | 44,322 | 21,994 | 20,493 | |||||||||
Antidilutive securities: | ||||||||||||
Options | 3,757 | 2,256 | — | |||||||||
Warrants | 105 | 72 | — | |||||||||
Subscription rights | 6,509 | 4,711 | — |
Estimated Useful Life | ||
Building | 35 years | |
Land improvements | 19 years | |
Machinery and equipment | 8 — 15 years | |
Furniture and fixtures | 8 years | |
Computer equipment and software | 3 — 5 years | |
Leasehold improvements | Lesser of useful life or lease term |
F-29
Table of Contents
F-30
Table of Contents
For the Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Acquired publishing rights | $ | 13,605 | $ | 13,949 | $ | 13,566 | ||||||
Acquired curriculum and technology | 11,632 | 1,852 | 1,328 | |||||||||
Pre-publication costs | 2,450 | 1,707 | 1,072 | |||||||||
Internally developed software related to product | 824 | 19 | — | |||||||||
Total amortization included in cost of revenues | 28,511 | 17,527 | 15,966 | |||||||||
Tradenames and trademarks | 1,467 | 1,349 | 1,330 | |||||||||
Other intangible assets | 4,534 | 6,555 | 8,650 | |||||||||
Property, equipment and software | 3,153 | 1,819 | 1,473 | |||||||||
Total depreciation and amortization included in operating expenses | 9,154 | 9,723 | 11,453 | |||||||||
Total depreciation and amortization | $ | 37,665 | $ | 27,250 | $ | 27,419 | ||||||
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Note 3 — | Embezzlement |
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Year/Period | Amount | |||
(In thousands) | ||||
2007 and prior | 12,196 | |||
2008 | 1,800 | |||
Total Embezzlement Loss | $ | 13,996 | ||
Note 4 — | Acquisitions |
• | Capitalizing on the complementary nature of the companies’ products to enhance certain products with minimal development costs, achieve critical mass in certain markets, facilitate the cross-selling of each other’s products to established customers, and expand sales and marketing reach. | |
• | Leveraging the companies’ combined implementation services and robust technological capabilities. | |
• | Combining two experienced management teams to spread “best practices”, attract leading authors and programs, and acquire additional product lines and business as opportunities arise. | |
• | Increasing sales into existing and new markets of certain products through complementary sales channels. |
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• | at the election of the stockholder, either, |
• | one share of Company common stock, or | |
• | $6.50 in cash, limited to a maximum of $67.5 million in the aggregate and prorated in accordance with the merger agreement; |
• | plus, regardless of the election made, |
• | an amount in cash equal to the amount of certain tax refunds specified in the merger agreement and received by VLCY prior to the closing of the mergers (reduced by the amount of the VLCY tax refunds contractually required to be placed in escrow at closing), divided by the total number of shares of VLCY common stock outstanding immediately prior to the effective time of the mergers; plus | |
• | a Contingent Value Right (“CVR”) to receive cash in an amount equal to the aggregate amount of specified tax refunds received after the closing of the mergers and various other amounts deposited in escrow on or after the closing date, reduced by any payments to be made under the escrow agreement entered into in connection with the mergers, with respect to agreed contingencies, a potential working capital adjustment and allowed expenses, divided by the total number of shares of VLCY common stock outstanding immediately prior to the effective time of the mergers. |
(In thousands) | ||||
Cash paid to shareholders making the cash election | $ | 67,499 | ||
Cash paid to shareholders for specified tax refunds | 15,523 | |||
Fair value of shares of Company issued to shareholders | 76,907 | |||
Fair value of equity awards converted at acquisition | 22 | |||
Fair value of the Contingent Value Rights | 9,617 | |||
Total consideration | $ | 169,568 | ||
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(In thousands) | ||||
Cash and cash equivalents | $ | 73,325 | ||
Accounts receivable | 10,883 | |||
Income tax receivable | 4,713 | |||
Inventory | 11,687 | |||
Other current assets | 11,919 | |||
Property, plant and equipment | 3,216 | |||
Intangible assets | 50,249 | |||
Curriculum in development | 909 | |||
Other assets | 11,891 | |||
Accounts payable and accrued expenses | (14,835 | ) | ||
Deferred revenue | (21,774 | ) | ||
Capital lease obligations | (187 | ) | ||
Other liabilities | (17,075 | ) | ||
Goodwill | 44,647 | |||
Total net assets acquired | $ | 169,568 | ||
Cambium | ||||||||||
Learning | ||||||||||
Voyager | Technologies | Useful Life | ||||||||
(In thousands) | ||||||||||
Curriculum and technology | $ | 23,700 | $ | 19,000 | 7 years | |||||
Customer relationships | 3,880 | 1,500 | 7 years | |||||||
Tradenames and trademarks | 1,610 | 559 | 15 years |
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Year Ended | ||||
December 31, 2009 | ||||
(In thousands) | ||||
(Unaudited) | ||||
Net revenues | $ | 188,211 | ||
Loss before income taxes | (61,270 | ) | ||
Net loss | (61,270 | ) | ||
Net loss per share — basic and diluted | $ | (1.38 | ) |
• | the pro forma impact of the amortization of intangible assets and the reduction in deferred revenue and related deferred costs based on the purchase price allocation; | |
• | the pro forma impact of reduced interest income lost as a result of the $58.0 million of cash used in the purchase price consideration (net of $25.0 million contributed by the sole stockholder of the Company at the time of the merger); | |
• | the pro forma impact of certain employment agreements and stock option grants entered into on the effective date of the merger, as well as the impact of certain contractual obligations, severance, retention, and other payments that became payable as a result of the merger; | |
• | the elimination of merger transaction costs incurred by the Company and VLCY; and | |
• | the pro forma tax effect of the merger, which was estimated using a combined company effective tax rate of 0%. |
Note 5 — | Income Taxes |
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Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Current income tax expense (benefit): | ||||||||||||
United States federal | $ | 1 | $ | — | $ | — | ||||||
State and local | 888 | 272 | 103 | |||||||||
Current income tax expense | 889 | 272 | 103 | |||||||||
Deferred income tax benefit | ||||||||||||
United States federal | — | (5,571 | ) | (11,951 | ) | |||||||
State and local | (1,472 | ) | (2,405 | ) | (1,574 | ) | ||||||
Deferred income tax benefit | (1,472 | ) | (7,976 | ) | (13,525 | ) | ||||||
Income tax benefit | $ | (583 | ) | $ | (7,704 | ) | $ | (13,422 | ) | |||
Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Statutory federal income tax benefit | $ | (5,787 | ) | $ | (15,214 | ) | $ | (29,044 | ) | |||
Increase (reduction) from: | ||||||||||||
State taxes (net of federal benefit) | (584 | ) | (1,378 | ) | (1,057 | ) | ||||||
Goodwill impairment | — | 3,187 | 26,588 | |||||||||
Purchase price adjustment | — | — | (10,244 | ) | ||||||||
Merger transaction expenses | — | 4,745 | — | |||||||||
Change in valuation allowance | 6,436 | 625 | 122 | |||||||||
Other | (648 | ) | 331 | 213 | ||||||||
Income tax benefit | $ | (583 | ) | $ | (7,704 | ) | $ | (13,422 | ) | |||
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2010 | 2009 | |||||||
(In thousands) | ||||||||
Deferred tax assets are attributable to: | ||||||||
Net operating loss carryforwards | $ | 18,682 | $ | 25,916 | ||||
Tax credit carryforwards | 7,673 | 7,670 | ||||||
Reserves | 4,940 | 7,164 | ||||||
Inventory | 5,697 | 4,435 | ||||||
Deferred financing costs | 1,569 | 2,317 | ||||||
Embezzlement loss | 1,404 | 1,528 | ||||||
Fixed assets | 1,472 | 1,039 | ||||||
Other | 728 | 738 | ||||||
Total gross deferred tax assets | 42,165 | 50,807 | ||||||
Valuation allowance | (18,645 | ) | (14,312 | ) | ||||
Net deferred tax assets | 23,520 | 36,495 | ||||||
Deferred tax liabilities are attributable to: | ||||||||
Intangibles | (24,308 | ) | (33,981 | ) | ||||
Deferred revenue | (38 | ) | (4,403 | ) | ||||
Total gross deferred tax liabilities | (24,346 | ) | (38,384 | ) | ||||
Net deferred tax liability | $ | (826 | ) | $ | (1,889 | ) | ||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Short-term deferred tax asset | $ | 3,703 | $ | 6,267 | ||||
Long-term deferred tax liability | (4,529 | ) | (8,156 | ) | ||||
Net deferred tax asset (liability) | $ | (826 | ) | $ | (1,889 | ) | ||
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Amount as of | Expire or start expiring | |||||
December 31, 2010 | at the end of: | |||||
(In thousands) | ||||||
U.S. net operating loss(1) | $ | 49,908 | 2028 | |||
State net operating loss carryforward (net): | ||||||
State tax net operating losses | 1,214 | 2012 - 2028 | ||||
Tax credits: | ||||||
Minimum tax credit | 7,254 | Carry forward indefinitely | ||||
Research and development tax credit | 419 | 2014 - 2021 | ||||
Total tax credits | 7,673 | |||||
(1) | $35.7 million of the U.S net operating loss (NOL) above is related to the VLCY acquisition. The utilization of this NOL is subject to an annual limitation of $7.1 million. |
2010 | 2009 | |||||||
(In thousands) | ||||||||
Balance at the beginning of the year | $ | 15,437 | $ | — | ||||
Increases for acquisitions during the period | — | 14,685 | ||||||
Increases for tax positions taken during the period | — | 752 | ||||||
Decreases for expiration of the statute of limitations | (5,058 | ) | — | |||||
Decreases relating to settlements | (3,181 | ) | — | |||||
Balance at the end of the year | $ | 7,198 | $ | 15,437 | ||||
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Note 6 — | Property, Equipment and Software |
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
Land and building | $ | 13,360 | $ | 13,360 | ||||
Furniture and fixtures | 1,187 | 775 | ||||||
Machinery, computers and equipment | 6,947 | 5,867 | ||||||
Software | 10,431 | 4,619 | ||||||
Leasehold improvements | 1,019 | 330 | ||||||
Total | 32,944 | 24,951 | ||||||
Less accumulated depreciation and amortization | 7,838 | 4,294 | ||||||
Property,equipment and software, net | $ | 25,106 | $ | 20,657 | ||||
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Note 7 — | Goodwill and Other Intangible Assets |
Publishing | Voyager | Sopris | CLT | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Balance as of December 31, 2008 | ||||||||||||||||||||
Goodwill | $ | 153,533 | $ | — | $ | — | $ | 38,806 | $ | 192,339 | ||||||||||
Accumulated impairment losses | (75,966 | ) | — | — | — | (75,966 | ) | |||||||||||||
77,567 | — | — | 38,806 | 116,373 | ||||||||||||||||
Goodwill impairment | (9,105 | ) | — | — | — | (9,105 | ) | |||||||||||||
Allocation of Publishing goodwill among Voyager and Sopris segments | (68,462 | ) | 51,162 | 17,300 | — | — | ||||||||||||||
Goodwill from acquisitions | — | 24,923 | — | 19,724 | 44,647 | |||||||||||||||
Balance as of December 31, 2009 | ||||||||||||||||||||
Goodwill | — | 161,156 | 17,300 | 58,530 | 236,986 | |||||||||||||||
Accumulated impairment losses | — | (85,071 | ) | — | — | (85,071 | ) | |||||||||||||
— | 76,085 | 17,300 | 58,530 | 151,915 | ||||||||||||||||
Goodwill impairment | — | — | — | — | — | |||||||||||||||
Goodwill from acquisitions | — | — | — | — | — | |||||||||||||||
Balance as of December 31, 2010 | ||||||||||||||||||||
Goodwill | — | 161,156 | 17,300 | 58,530 | 236,986 | |||||||||||||||
Accumulated impairment losses | — | (85,071 | ) | — | — | (85,071 | ) | |||||||||||||
$ | — | $ | 76,085 | $ | 17,300 | $ | 58,530 | $ | 151,915 | |||||||||||
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Balance at | Balance at | Balance at | ||||||||||||||||||||||||||
December 31, | December 31, | December 31, | ||||||||||||||||||||||||||
2008 | Additions | Disposals | 2009 | Additions | Disposals | 2010 | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Other intangible assets — gross book value: | ||||||||||||||||||||||||||||
Publishing rights | $ | 90,300 | $ | — | $ | — | $ | 90,300 | $ | — | $ | — | $ | 90,300 | ||||||||||||||
Trademark | 15,580 | 2,169 | — | 17,749 | — | — | 17,749 | |||||||||||||||||||||
Customer relationships | 13,739 | 5,380 | — | 19,119 | — | (39 | ) | 19,080 | ||||||||||||||||||||
Contracts | 2,100 | — | — | 2,100 | — | (2,100 | ) | — | ||||||||||||||||||||
Acquired curriculum and technology | 6,321 | 42,700 | — | 49,021 | — | — | 49,021 | |||||||||||||||||||||
Reseller network | 12,300 | — | — | 12,300 | — | — | 12,300 | |||||||||||||||||||||
Conference attendees | 500 | — | — | 500 | — | — | 500 | |||||||||||||||||||||
Non-compete | 2,600 | — | — | 2,600 | — | (2,600 | ) | — | ||||||||||||||||||||
Total other intangibles — gross book value | 143,440 | 50,249 | — | 193,689 | — | (4,739 | ) | 188,950 | ||||||||||||||||||||
Other intangible assets — accumulated amortization: | ||||||||||||||||||||||||||||
Publishing rights | (24,039 | ) | (13,949 | ) | — | (37,988 | ) | (13,605 | ) | — | (51,593 | ) | ||||||||||||||||
Trademark | (2,460 | ) | (1,349 | ) | — | (3,809 | ) | (1,467 | ) | — | (5,276 | ) | ||||||||||||||||
Customer relationships | (7,175 | ) | (2,915 | ) | — | (10,090 | ) | (2,585 | ) | 39 | (12,636 | ) | ||||||||||||||||
Contracts | (1,487 | ) | (555 | ) | — | (2,042 | ) | (58 | ) | 2,100 | — | |||||||||||||||||
Acquired curriculum and technology | (2,474 | ) | (1,852 | ) | — | (4,326 | ) | (11,632 | ) | — | (15,958 | ) | ||||||||||||||||
Reseller network | (5,426 | ) | (2,132 | ) | — | (7,558 | ) | (1,595 | ) | — | (9,153 | ) | ||||||||||||||||
Conference attendees | (293 | ) | (86 | ) | — | (379 | ) | (53 | ) | — | (432 | ) | ||||||||||||||||
Non-compete | (1,490 | ) | (867 | ) | — | (2,357 | ) | (243 | ) | 2,600 | — | |||||||||||||||||
Total other intangibles — accumulated amortization | (44,844 | ) | (23,705 | ) | — | (68,549 | ) | (31,238 | ) | 4,739 | (95,048 | ) | ||||||||||||||||
Other intangible assets, net | $ | 98,596 | $ | 26,544 | $ | — | $ | 125,140 | $ | (31,238 | ) | $ | — | $ | 93,902 | |||||||||||||
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Amortization - | Amortization - | Total | ||||||||||
Cost of Revenues | Operating Expense | Amortization | ||||||||||
(In thousands) | ||||||||||||
2011 | $ | 21,785 | $ | 4,296 | $ | 26,081 | ||||||
2012 | 17,519 | 3,440 | 20,959 | |||||||||
2013 | 12,710 | 2,779 | 15,489 | |||||||||
2014 | 8,978 | 2,436 | 11,414 | |||||||||
2015 | 5,972 | 2,175 | 8,147 | |||||||||
Thereafter | 4,806 | 7,006 | 11,812 | |||||||||
$ | 71,770 | $ | 22,132 | $ | 93,902 | |||||||
Note 8 — | Other Current Assets |
2010 | 2009 | |||||||
(In thousands) | ||||||||
Deferred costs | $ | 2,163 | $ | 269 | ||||
Prepaid expenses | 1,463 | 2,019 | ||||||
Income taxes receivable | 249 | 1,322 | ||||||
Other current assets | 62 | — | ||||||
Settlement receivable | — | 2,400 | ||||||
Total | $ | 3,937 | $ | 6,010 | ||||
Note 9 — | Other Assets |
2010 | 2009 | |||||||
(In thousands) | ||||||||
Tax receivables | $ | 11,168 | $ | — | ||||
Deferred financing costs | 1,542 | — | ||||||
Collateral investments | 1,964 | 1,061 | ||||||
Other | 813 | 358 | ||||||
Total | $ | 15,487 | $ | 1,419 | ||||
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Note 10 — | Accrued Expenses |
2010 | 2009 | |||||||
(In thousands) | ||||||||
Salaries, bonuses and benefits | $ | 10,183 | $ | 12,428 | ||||
Accrued royalties | 3,220 | 1,770 | ||||||
Pension and post-retirement medical benefits | 1,209 | 1,293 | ||||||
Deferred compensation | 525 | 633 | ||||||
Interest rate swap | — | 992 | ||||||
Other | 7,751 | 6,804 | ||||||
Total | $ | 22,888 | $ | 23,920 | ||||
Note 11 — | Other Liabilities |
2010 | 2009 | |||||||
(In thousands) | ||||||||
Pension and post-retirement medical benefits, long-term portion | $ | 10,847 | $ | 10,509 | ||||
Long-term deferred tax liability | 4,529 | 8,156 | ||||||
Long-term income tax payable | 847 | 1,255 | ||||||
Long-term deferred compensation | 613 | 1,179 | ||||||
Other | 3,111 | 3,057 | ||||||
Total | $ | 19,947 | $ | 24,156 | ||||
Note 12 — | Leases |
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(In thousands) | ||||
2011 | $ | 1,073 | ||
2012 | 1,110 | |||
2013 | 1,092 | |||
2014 | 1,138 | |||
2015 | 1,160 | |||
Thereafter | 967 | |||
Total minimum lease payments | 6,540 | |||
Less: Amount representing interest | (3,692 | ) | ||
Present value of net minimum lease payments | 2,848 | |||
Less: Current portion | (378 | ) | ||
Add: Remaining liability at end ofbuild-to-suit lease | 9,847 | |||
Capital lease obligations, less current portion | $ | 12,317 | ||
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(In thousands) | ||||
2011 | $ | 1,460 | ||
2012 | 2,175 | |||
2013 | 1,632 | |||
2014 | 1,014 | |||
2015 | 774 | |||
Thereafter | 2,061 | |||
Total minimum lease payments | $ | 9,116 | ||
Note 13 — | Fair Value of Financial Instruments |
• | Level 1 — Quoted prices for identical instruments in active markets. | |
• | Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant value drivers are observable. | |
• | Level 3 — Valuations derived from valuation techniques in which significant value drivers are unobservable. |
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Fair Value at Reporting Date Using | ||||||||||||||||||||
Quoted Prices | ||||||||||||||||||||
in Active | Significant | |||||||||||||||||||
Markets for | Other | Significant | ||||||||||||||||||
As of | Identical | Observable | Unobservable | Total | ||||||||||||||||
December 31, | Assets | Inputs | Inputs | Gains | ||||||||||||||||
Description | 2010 | (Level 1) | (Level 2) | (Level 3) | (Losses) | |||||||||||||||
(In thousands) | ||||||||||||||||||||
Restricted Assets: | ||||||||||||||||||||
Money Market | $ | 15,705 | $ | 15,705 | $ | — | $ | — | $ | — | ||||||||||
Collateral Investments: | ||||||||||||||||||||
Money Market | 901 | 901 | — | — | — | |||||||||||||||
Certificate of Deposit | 1,063 | 1,063 | — | — | — | |||||||||||||||
Warrant | 360 | — | 360 | — | 23 | |||||||||||||||
Interest rate swap | — | — | — | — | 992 | |||||||||||||||
CVRs | 7,369 | — | — | 7,369 | 1,124 |
Fair Value at Reporting Date Using | ||||||||||||||||||||
Quoted Prices | ||||||||||||||||||||
in Active | Significant | |||||||||||||||||||
Markets for | Other | Significant | ||||||||||||||||||
As of | Identical | Observable | Unobservable | Total | ||||||||||||||||
December 31, | Assets | Inputs | Inputs | Gains | ||||||||||||||||
Description | 2009 | (Level 1) | (Level 2) | (Level 3) | (Losses) | |||||||||||||||
(In thousands) | ||||||||||||||||||||
Restricted Assets: | ||||||||||||||||||||
Money Market | $ | 24,686 | $ | 24,686 | $ | — | $ | — | $ | — | ||||||||||
Collateral Investments: | ||||||||||||||||||||
Certificate of Deposit | 1,061 | 1,061 | — | — | — | |||||||||||||||
Warrant | 280 | — | 280 | — | 1 | |||||||||||||||
Interest rate swap | 992 | — | 992 | — | 1,390 | |||||||||||||||
CVRs | 9,617 | — | — | 9,617 | — |
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Fair Value Measurements Using Significant Unobservable Inputs (Level 3) CVRs | ||||||||||||||||
Estimated | ||||||||||||||||
Estimated | Loss (Gain) for Changes | Fair Value | ||||||||||||||
Fair Value | in Estimated CVR Liability | as of | ||||||||||||||
Components of CVR Liability: | as of Merger Date | 2009 | 2010 | December 31, 2010 | ||||||||||||
(In thousands) | ||||||||||||||||
Tax refunds received before closing of the merger | $ | 1,583 | $ | — | $ | — | $ | 1,583 | ||||||||
Other specified tax refunds | 5,932 | — | (1,431 | ) | 4,501 | |||||||||||
Tax indemnity obligation | 1,717 | — | — | 1,717 | ||||||||||||
Legal receivable | 2,400 | — | — | 2,400 | ||||||||||||
Michigan state tax liability | (900 | ) | — | (140 | ) | (1,040 | ) | |||||||||
Other specified tax related liabilities | (579 | ) | — | 447 | (132 | ) | ||||||||||
Costs incurred to collect tax refunds and by stockholders’ representative | (536 | ) | (18 | ) | — | (554 | ) | |||||||||
Estimated fair value of CVR liability | 9,617 | (18 | ) | (1,124 | ) | 8,475 | ||||||||||
Payments to holders of CVRs | 1,106 | |||||||||||||||
Remaining estimated CVR liability | $ | 7,369 | ||||||||||||||
CVR Escrow Trust | ||||
(In thousands) | ||||
Balance as of December 31, 2008 | $ | — | ||
Funding of potential tax indemnity obligation | 3,000 | |||
Tax refunds received | 4,964 | |||
Costs incurred to collect tax refunds and by stockholders’ representative | (18 | ) | ||
Balance as of December 31, 2009 | 7,946 | |||
Tax refunds received | 370 | |||
Funds received for legal receivable | 2,400 | |||
Payments of specified liabilities | (5,280 | ) | ||
Payments to holders of CVRs | (1,106 | ) | ||
Costs incurred to collect tax refunds and by stockholders’ representative | (152 | ) | ||
Interest income | 1 | |||
Balance as of December 31, 2010 | $ | 4,179 | ||
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Note 14 — | Debt |
2010 | 2009 | |||||||
(In thousands) | ||||||||
$128.0 million of floating rate senior secured notes due April 11, 2013, interest payable quarterly | $ | 95,408 | $ | 97,169 | ||||
$64.2 million of 13.75% senior unsecured notes due April 11, 2014, interest payable quarterly | 56,722 | 54,598 | ||||||
152,130 | 151,767 | |||||||
Less: Current portion of long-term debt | (1,280 | ) | (1,280 | ) | ||||
Total long-term debt | $ | 150,850 | $ | 150,487 | ||||
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• | Change in Control Definition. Prior to the amendment, the original investors in Cambium Learning were required to own or control a majority of the outstanding economic or voting interests of Cambium Learning. This majority threshold was reduced to 35%. | |
• | VSS Funds Ownership. VSS is not permitted to sell or otherwise transfer any of the Company’s common stock that it directly or indirectly owns, unless it continues to directly or indirectly own or control at least 35% of the outstanding Company common stock, and it has not sold or otherwise transferred, in the aggregate, more than 15% of its Company common stock. | |
• | Increase in Material Indebtedness. An event of default would occur if a “change in control” occurred under any of Cambium Learning’s other “material indebtedness.” The term “material indebtedness” includes the Senior Unsecured Notes, as well as any other debt, the principal amount of which exceeds a specified threshold. The $5 million threshold was increased under the amendment to $7.5 million. | |
• | Exceptions to Restricted Payments. Cambium Learning is prohibited from paying dividends, unless the specific type of payment is permitted. Additional types of payments were permitted to allow the following: |
• | Up to $3.0 million to fund public company, administrative, overhead, franchise tax and related costs incurred by the Company; and | |
• | Up to $750,000 in annual board of director compensation and expenses. |
• | The annual monitoring fee previously payable to VSS was eliminated. | |
• | Permitted Acquisition Basket Reset. The amount of consideration payable in an acquisition is limited under the credit agreements, and the limitations were reset after giving effect to the acquisition of Voyager Expanded Learning by Cambium Learning in connection with the mergers. The limitation was reset to a cumulative $150 million amount, but any single acquisition is limited to $20 million until the ratio of senior secured debt to EBITDA (as calculated under the credit agreements) does not exceed 2.50 to 1.0, and the ratio of total leverage to EBITDA (as calculated under the credit agreements) does not exceed 3.50 to 1.0, at which time the single acquisition limit will be increased to $100 million. |
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• | Definition of Consolidated EBITDA. The definition of Consolidated EBITDA, which is used for calculating leverage ratios under the senior secured credit agreement, and the minimum EBITDA covenant under the Senior Unsecured Notes Agreement was modified to allow additional add-backs for the following items: |
• | Deferred revenue associated with a permitted acquisition; | |
• | Up to $24.0 million in M&A costs related to the mergers; | |
• | Up to $2.0 million in costs incurred in closing of locations or lease terminations in connection with the mergers; | |
• | Up to $5.0 million in severance costs incurred in connection with the mergers; | |
• | Up to $3.0 million in integration costs incurred connection with the mergers; and | |
• | Merger and acquisition costs for future transactions (whether or not completed) of up to $5.0 million for closed transactions and $0.5 million for failed transactions in any calendar year, and $2.0 million in the aggregate. |
2010 | ||||
(In thousands) | ||||
2011 | 1,280 | |||
2012 | 1,280 | |||
2013 | 92,848 | |||
2014 | 64,223 | |||
2015 | — | |||
Thereafter | — | |||
Total debt repayment | $ | 159,631 | ||
Note 15 — | Profit-Sharing, Pension, and Other Postretirement Benefit Plans |
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2010 | 2009 | |||||||
(In thousands) | ||||||||
Service cost | $ | — | $ | — | ||||
Interest cost | 584 | 36 | ||||||
Recognized net actuarial loss/(gain) | 908 | (206 | ) | |||||
Net pension and other postretirement benefit cost (income) | $ | 1,492 | $ | (170 | ) | |||
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2010 | 2009 | |||||||
(In thousands) | ||||||||
Change in Benefit Obligation | ||||||||
Benefit obligation, beginning of period | $ | 11,734 | $ | 12,010 | ||||
Service cost | — | — | ||||||
Interest cost | 584 | 36 | ||||||
Actuarial (gain)/loss | 908 | (206 | ) | |||||
Benefits paid | (1,212 | ) | (106 | ) | ||||
Benefit obligation, end of year | $ | 12,014 | $ | 11,734 | ||||
Change in Plan Assets | ||||||||
Fair value, beginning of period | $ | — | $ | — | ||||
Company contributions | 1,212 | 106 | ||||||
Benefits paid | (1,212 | ) | (106 | ) | ||||
Fair value, end of year | $ | — | $ | — | ||||
Funded/(unfunded) status | $ | (12,014 | ) | $ | (11,734 | ) | ||
Accrued benefit cost | $ | (12,014 | ) | $ | (11,734 | ) | ||
Amounts Recognized in the Consolidated Balance Sheets | ||||||||
Current accrued benefit liability | (1,182 | ) | (1,266 | ) | ||||
Non-current accrued benefit liability | (10,832 | ) | (10,468 | ) | ||||
Net amount recognized | $ | (12,014 | ) | $ | (11,734 | ) | ||
2010 | 2009 | |||||||
Discount rate | 4.75 | % | 5.25 | % |
2010 | 2009 | |||||||
(In thousands) | ||||||||
Projected benefit obligation | $ | 12,014 | $ | 11,734 | ||||
Accumulated benefit obligation | 12,014 | 11,734 |
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U.S. Retirement Plans | ||||
(Pension Plan and RBP) | ||||
(In thousands) | ||||
2011 | $ | 1,556 | ||
2012 | 1,211 | |||
2013 | 1,173 | |||
2014 | 1,104 | |||
2015 | 1,066 | |||
2016 — 2020 | 4,733 |
Note 16 — | STOCKHOLDERS’/MEMBERS’ EQUITY |
• | 20.5 million shares were issued to the former sole stockholder in consideration of its pre-merger interest; | |
• | 3.8 million shares were issued to the former sole stockholder as consideration for a $25.0 million capital contribution made in conjunction with the merger; and | |
• | 19.5 million shares were issued to the former VLCY stockholders as part of the purchase price consideration for the acquisition. |
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Note 17 — | Stock-Based Compensation and Expense |
2010 | 2009 | |||||||
(In thousands) | ||||||||
Cost of sales | $ | 58 | $ | — | ||||
Research and development expense | 123 | — | ||||||
Sales and marketing expense | 136 | — | ||||||
General and administrative expense | 768 | 2,259 | ||||||
Total | $ | 1,085 | $ | 2,259 | ||||
• | The Cambium Specified Asset Recoupment Amountis based upon the net amount of recoveries that the Company receives or received on and after June 1, 2009, including periods after the effective time of the mergers, with respect to the embezzlement matter that was discovered in April 2008. As of December 31, 2010, the Company has received net recoveries of approximately $1.5 million with respect to this matter, although the actual amount of net recoveries that the Company will ultimately receive is not known at this time. The Cambium Specified Asset Recoupment Amount equals 0.45 multiplied by the quotient of the aggregate net recoveries divided by $6.50. Therefore as of December 31, 2010, 104,907 shares are exercisable, or will be exercisable upon issuance, under the Holdings Warrant related to the Cambium Specified Asset Recoupment Amount. In accordance with applicable accounting guidance for distinguishing liabilities from equity, this award is recorded as a liability in the other liabilities line on the Consolidated Balance Sheets and measured at fair value. The initial recording and any subsequent increases in the value of the award attributable to embezzlement recoveries is recorded to embezzlement loss on the income statement. Subsequent changes in fair value are recorded to general and administrative expense. The |
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warrant was valued at $0.4 million on December 31, 2010 with the Black-Scholes pricing model. Due to the low exercise price of the warrants, the model assumptions do not significantly impact the valuation. |
• | The Additional Share Amountis calculated over a period commencing at the effective time of the mergers with VLCY and Cambium and ending two years thereafter. The Additional Share Amount will equal the number of shares of VLCY common stock, if any, that are surrendered upon consummation of the VLCY merger in excess of the sum of the 29,874,145 shares that were known to be outstanding plus the number of shares of VLCY common stock that are issued upon the exercise of options known to be outstanding, provided that the maximum Additional Share Amount is capped at a maximum of 145,000 shares and provided, further, that an adjustment to the number of shares VSS-Cambium Holdings III, LLC received in connection with the merger of Cambium was not already made under the terms of the merger agreement. Following completion of the merger with VLCY, 29,999 shares of VLCY common stock in excess of 29,874,145 shares were surrendered and, pursuant to the merger agreement, the number of shares of the Company’s common stock issuable to VSS-Cambium Holdings III, LLC was adjusted to increase the number of shares it received. At the effective time of the merger with VLCY all outstanding stock options were terminated. Thus, the Company does not believe that the Holdings Warrant shall be issuable with respect to any shares relating to the Additional Share Amount. | |
• | The Formula Amountadds shares to the Holdings Warrant only if, prior to completion of the mergers with Cambium and VLCY, equity cure payments were made under Cambium’s existing credit agreements, debt was retired under those agreements or payments were made to obtain default-related waivers under those agreements. The only applicable event was an equity cure payment of $3.0 million made in August 2009 (see Note 14). The Formula Amount equals the equity cure payment of $3.0 million divided by $6.50, or 455,230 shares. Thus, 455,230 shares of the Company’s common stock are currently exercisable under the Holdings Warrant with respect to the Formula Amount. In accordance with applicable accounting guidance for distinguishing liabilities from equity, this award is recorded to equity with the offset going against the capital contribution made to affect the debt cure. |
• | 7,500,000 shares of common stock (subject to adjustment in the event of any dividend, stock split, combination or similar recapitalization event); or | |
• | the number of shares of common stock that VSS may purchase from time to time during the24-month subscription period for an aggregate purchase price of $20.0 million (based upon the per share purchase price described below). |
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2009 | ||||
Expected stock volatility | 35.00 | % | ||
Risk-free interest rate | 1.02 | % | ||
Expected years until exercise | 0.10 - 2.56 | |||
Dividend yield | 0.00 | % |
2009 | ||||
Expected stock volatility | 35.00 | % | ||
Risk-free interest rate | 2.69 | % | ||
Expected years until exercise | 6.25 | |||
Dividend yield | 0.00 | % |
2010 | ||||
Expected stock volatility | 35.00% | |||
Risk-free interest rate | 2.40% – 2.87% | |||
Expected years until exercise | 6.25 | |||
Dividend yield | 0.00% |
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Stock Option Grantees | SAR Grantee | Restricted Stock | ||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||
Shares | Exercise | Shares | Exercise | Shares | Grant Date | |||||||||||||||||||
(000s) | Price | (000s) | Price | (000s) | Fair Value | |||||||||||||||||||
Awards outstanding at December 31, 2009 | 2,256 | $ | 6.03 | 200 | $ | 8.55 | — | $ | — | |||||||||||||||
For the year ended December 31, 2010: | ||||||||||||||||||||||||
Granted | 1,755 | 5.01 | — | — | 10 | 3.90 | ||||||||||||||||||
Exercised/Restricted Stock Vested | — | — | — | — | — | — | ||||||||||||||||||
Forfeited/cancelled | 254 | 14.17 | — | — | — | — | ||||||||||||||||||
Awards outstanding at December 31, 2010 | 3,757 | $ | 5.01 | 200 | $ | 8.55 | 10 | $ | 3.90 | |||||||||||||||
Awards exercisable at December 31, 2010 | 937 | $ | 5.00 | 200 | $ | 8.55 | ||||||||||||||||||
Weighted average fair value of awards granted during the year ended December 31, 2010 | $ | 1.15 | $ | — | ||||||||||||||||||||
Weighted | ||||||||
Average | ||||||||
Shares | Grant Date | |||||||
(000s) | Fair Value | |||||||
Nonvested awards outstanding at December 31, 2009 | 2,129 | $ | 1.10 | |||||
For the year ended December 31, 2010: | ||||||||
Granted | 1,755 | 1.15 | ||||||
Vested | 916 | 1.11 | ||||||
Forfeited/cancelled | 148 | 1.15 | ||||||
Nonvested awards outstanding at December 31, 2010 | 2,820 | $ | 1.21 | |||||
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Awards Outstanding | Awards Exercisable | |||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||||||||
Number | Remaining | Average | Number | Remaining | Average | |||||||||||||||||||
Range of | Outstanding | Contractual | Exercise | Exercisable | Contractual | Exercise | ||||||||||||||||||
Exercise Price | (000’s) | Life (Years) | Price | (000’s) | Life (Years) | Price | ||||||||||||||||||
$4.50 and below | 2,742 | 9.0 | $ | 4.50 | 702 | 9.0 | $ | 4.50 | ||||||||||||||||
$4.51 — $6.50 | 1,015 | 9.0 | 6.37 | 235 | 9.0 | 6.49 | ||||||||||||||||||
$6.51 — $8.55 | 200 | 1.3 | 8.55 | 200 | 1.3 | 8.55 | ||||||||||||||||||
3,957 | 8.6 | $ | 5.19 | 1,137 | 7.7 | $ | 5.62 | |||||||||||||||||
Number of securities | ||||||||||||
Number of securities to be | Weighted-average | remaining available for | ||||||||||
issued upon exercise of | exercise price of | future issuance | ||||||||||
outstanding options | outstanding options | under equity | ||||||||||
Plan Category | and rights | and rights | incentive plan(a) | |||||||||
(In thousands, except per share amounts) | ||||||||||||
Equity compensation plans approved by security holders | 3,957 | $ | 5.19 | 1,033 | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
Total | 3,957 | $ | 5.19 | 1,033 | ||||||||
(a) | Excludes securities reflected in the first column, “Number of securities to be issued upon exercise of outstanding options and rights,” and outstanding restricted stock. |
Note 18 — | Restructuring |
Total | Incurred In | Incurred In | ||||||||||||||
Total Amount | Incurred as | Year Ended | Year Ended | |||||||||||||
Expected to | of December 31, | December 31, | December 31, | |||||||||||||
be Incurred | 2010 | 2010 | 2009 | |||||||||||||
(In thousands) | ||||||||||||||||
One-time termination benefits | $ | 1,286 | $ | 1,286 | $ | 743 | $ | 543 | ||||||||
Warehouse move costs | 570 | 570 | 570 | — | ||||||||||||
$ | 1,856 | $ | 1,856 | $ | 1,313 | $ | 543 | |||||||||
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Warehouse | ||||||||||||
One-Time Termination Benefits | Move Costs | |||||||||||
2010 | 2009 | 2010 | ||||||||||
(In thousands) | ||||||||||||
Beginning Accrual | $ | 505 | $ | — | $ | — | ||||||
Accrual changes | 743 | 543 | 570 | |||||||||
Payments made | (1,163 | ) | (38 | ) | (570 | ) | ||||||
Ending Accrual | $ | 85 | $ | 505 | $ | — | ||||||
Total | Incurred In | Incurred In | ||||||||||||||
Total Amount | Incurred as | Year Ended | Year Ended | |||||||||||||
Expected to | of December 31, | December 31, | December 31, | |||||||||||||
be Incurred | 2009 | 2009 | 2008 | |||||||||||||
(In thousands) | ||||||||||||||||
One-time termination benefits | $ | 314 | $ | 314 | $ | 16 | $ | 238 | ||||||||
Other associated costs | 348 | $ | 348 | 40 | 307 | |||||||||||
$ | 662 | $ | 662 | $ | 56 | $ | 545 | |||||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Beginning Accrual | $ | 48 | $ | 60 | ||||
Accrual changes: | ||||||||
One-time termination benefits | 16 | 238 | ||||||
Facility-related expenses | 40 | 307 | ||||||
Payments made: | ||||||||
One-time termination benefits | (64 | ) | (250 | ) | ||||
Facility-related expenses | (40 | ) | (307 | ) | ||||
Ending Accrual | $ | — | $ | 48 | ||||
Note 19 — | Contingent Liabilities |
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• | the written consent of Vowel Representative, LLC, which consent may be granted or withheld in its sole and absolute discretion; | |
• | the full distribution by the escrow agent of the CVR escrow fund in accordance with the terms of the escrow agreement entered into in connection with the merger transaction; | |
• | the second anniversary of the effective time of the mergers with respect to the Voyager Class II designees and the third anniversary of the effective time with respect to the Voyager Class III designees; or | |
• | the date on which funds managed or controlled by VSS cease to collectively beneficially own in the aggregate at least 10% of the issued and outstanding shares of the Company’s common stock. |
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• | none of the funds managed or controlled by VSS nor VSS-Cambium Holdings III, LLC will vote or otherwise take any action to amend, modify or repeal the Company’s certificate of incorporation or bylaws to eliminate the Class II or Class III director classes, to increase or decrease the size of the board of directors or in any other manner that would result in a breach of the Stockholders Agreement; and | |
• | VSS-Cambium Holdings III, LLC and funds managed or controlled by VSS will vote or act by written consent to maintain a classified or staggered board of directors, with the director classes and other terms as set forth in the Company’s certificate of incorporation and bylaws. |
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Cambium | ||||||||||||||||||||
Learning | ||||||||||||||||||||
Voyager | Sopris | Technologies | Other | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Year ended December 31, 2008 | ||||||||||||||||||||
Product revenues | $ | 40,424 | $ | 27,495 | $ | 21,288 | $ | — | $ | 89,207 | ||||||||||
Service revenues | 7,924 | 2,217 | 383 | — | 10,524 | |||||||||||||||
Net revenues | 48,348 | 29,712 | 21,671 | — | 99,731 | |||||||||||||||
Cost of product revenues | 11,214 | 6,003 | 3,029 | — | 20,246 | |||||||||||||||
Cost of service revenues | 5,721 | 1,489 | 253 | — | 7,463 | |||||||||||||||
Amortization | — | — | — | 15,966 | 15,966 | |||||||||||||||
Total cost of revenues | 16,935 | 7,492 | 3,282 | 15,966 | 43,675 | |||||||||||||||
Other operating expenses | 20,464 | 13,562 | 10,657 | 4,837 | 49,520 | |||||||||||||||
Embezzlement and related expense | — | — | — | 7,254 | 7,254 | |||||||||||||||
Goodwill impairment | — | — | — | 75,966 | 75,966 | |||||||||||||||
Depreciation and amortization | — | — | — | 11,453 | 11,453 | |||||||||||||||
Net interest expense | — | — | — | 18,434 | 18,434 | |||||||||||||||
Other expense, net | — | — | — | 981 | 981 | |||||||||||||||
Gain from settlement with previous stockholders | — | — | — | (30,202 | ) | (30,202 | ) | |||||||||||||
Loss on extinguishment of debt | — | — | — | 5,632 | 5,632 | |||||||||||||||
Income tax benefit | — | — | — | (13,422 | ) | (13,422 | ) | |||||||||||||
Segment net income (loss) | $ | 10,949 | $ | 8,658 | $ | 7,732 | $ | (96,899 | ) | $ | (69,560 | ) | ||||||||
Year ended December 31, 2009 | ||||||||||||||||||||
Product revenues | $ | 44,329 | $ | 23,431 | $ | 22,625 | $ | — | $ | 90,385 | ||||||||||
Service revenues | 8,594 | 1,754 | 315 | — | 10,663 | |||||||||||||||
Net revenues | 52,923 | 25,185 | 22,940 | — | 101,048 | |||||||||||||||
Cost of product revenues | 10,678 | 6,350 | 2,537 | 26 | 19,591 | |||||||||||||||
Cost of service revenues | 5,992 | 1,093 | 172 | — | 7,257 | |||||||||||||||
Amortization | — | — | — | 17,527 | 17,527 | |||||||||||||||
Total cost of revenues | 16,670 | 7,443 | 2,709 | 17,553 | 44,375 | |||||||||||||||
Other operating expenses | 19,836 | 10,008 | 8,996 | 22,170 | 61,010 | |||||||||||||||
Embezzlement and related expense | — | — | — | 129 | 129 | |||||||||||||||
Goodwill impairment | — | — | — | 9,105 | 9,105 | |||||||||||||||
Depreciation and amortization | — | — | — | 9,723 | 9,723 | |||||||||||||||
Net interest expense | — | — | — | 19,477 | 19,477 | |||||||||||||||
Other expense, net | — | — | — | 698 | 698 | |||||||||||||||
Income tax benefit | — | — | — | (7,704 | ) | (7,704 | ) | |||||||||||||
Segment net income (loss) | $ | 16,417 | $ | 7,734 | $ | 11,235 | $ | (71,151 | ) | $ | (35,765 | ) |
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Cambium | ||||||||||||||||||||
Learning | ||||||||||||||||||||
Voyager | Sopris | Technologies | Other | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Year ended December 31, 2010 | ||||||||||||||||||||
Product revenues | $ | 100,412 | $ | 22,249 | $ | 38,117 | $ | — | $ | 160,778 | ||||||||||
Service revenues | 17,527 | 2,487 | 468 | — | 20,482 | |||||||||||||||
Net revenues | 117,939 | 24,736 | 38,585 | — | 181,260 | |||||||||||||||
Cost of product revenues | 29,340 | 6,514 | 4,334 | 1,395 | 41,583 | |||||||||||||||
Cost of service revenues | 16,455 | 1,225 | 628 | — | 18,308 | |||||||||||||||
Amortization | — | — | — | 28,511 | 28,511 | |||||||||||||||
Total cost of revenues | 45,795 | 7,739 | 4,962 | 29,906 | 88,402 | |||||||||||||||
Other operating expenses | 37,621 | 7,750 | 18,684 | 19,917 | 83,972 | |||||||||||||||
Embezzlement and related expense | — | — | — | (353 | ) | (353 | ) | |||||||||||||
Depreciation and amortization | — | — | — | 9,154 | 9,154 | |||||||||||||||
Net interest expense | — | — | — | 17,292 | 17,292 | |||||||||||||||
Other income, net | — | — | — | (674 | ) | (674 | ) | |||||||||||||
Income tax benefit | — | — | — | (583 | ) | (583 | ) | |||||||||||||
Segment net income (loss) | $ | 34,523 | $ | 9,247 | $ | 14,939 | $ | (74,659 | ) | $ | (15,950 | ) |
First | Second | Third | Fourth | Total | ||||||||||||||||
Quarter | Quarter | Quarter | Quarter | Year | ||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||
2010 | ||||||||||||||||||||
Net revenues | $ | 28,222 | $ | 47,901 | $ | 56,607 | $ | 48,530 | 181,260 | |||||||||||
Operating expenses | 43,199 | 45,345 | 48,462 | 44,169 | 181,175 | |||||||||||||||
Earnings (loss) before income taxes | (19,355 | ) | (2,143 | ) | 3,938 | 1,027 | (16,533 | ) | ||||||||||||
Income tax (expense) benefit | (85 | ) | (34 | ) | 8 | 694 | 583 | |||||||||||||
Net income (loss) | $ | (19,440 | ) | $ | (2,177 | ) | $ | 3,946 | $ | 1,721 | $ | (15,950 | ) | |||||||
Basic income (loss) per share | $ | (0.44 | ) | $ | (0.05 | ) | $ | 0.09 | $ | 0.04 | $ | (0.36 | ) | |||||||
Diluted income (loss) per share | $ | (0.44 | ) | $ | (0.05 | ) | $ | 0.09 | $ | 0.04 | $ | (0.36 | ) | |||||||
2009 | ||||||||||||||||||||
Net revenues | $ | 15,794 | $ | 20,976 | $ | 40,972 | $ | 23,306 | $ | 101,048 | ||||||||||
Operating expenses | 22,268 | 31,918 | 30,016 | 40,140 | 124,342 | |||||||||||||||
Earnings (loss) before income taxes | (11,214 | ) | (15,950 | ) | 5,811 | (22,116 | ) | (43,469 | ) | |||||||||||
Income tax (expense) benefit | 4,317 | 2,099 | (1,373 | ) | 2,661 | 7,704 | ||||||||||||||
Net income (loss) | $ | (6,897 | ) | $ | (13,851 | ) | $ | 4,438 | $ | (19,455 | ) | $ | (35,765 | ) | ||||||
Basic income (loss) per share | $ | (0.34 | ) | $ | (0.68 | ) | $ | 0.22 | $ | (0.74 | ) | $ | (1.63 | ) | ||||||
Diluted income (loss) per share | $ | (0.34 | ) | $ | (0.68 | ) | $ | 0.22 | $ | (0.74 | ) | $ | (1.63 | ) |
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