UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of common stock, par value $0.01 per share, outstanding as of August 3, 2020 was
Table of Contents
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PART I. |
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Item 1. |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. |
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46 |
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Item 1. |
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Item 1A. |
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Item 6. |
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47 |
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48 |
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2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statements contained herein include forward-looking statements, which involve risks and uncertainties. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “projects,” “anticipates,” “expects,” “could,” “intends,” “may,” “will,” “should,” “forecast,” “intend,” “plan,” “potential,” “project,” “target” or, in each case, their negative, or other variations or comparable terminology. Forward-looking statements include all statements that are not statements of historical facts. They include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations; financial condition; liquidity; prospects, growth and strategies; the expected impact of the COVID-19 pandemic; our competitive strengths; the industry in which we operate; the impact of new accounting guidance and tax laws; expenses; effective tax rates; future liabilities; the outcome and impact of pending or threatened litigation; decisions of our customers; education expenditures; population growth; state curriculum adoptions and purchasing cycles; the impact of dispositions, acquisitions and other investments; the timing, structure and expected impact of our operational efficiency and cost-reduction initiatives and the estimated savings and amounts expected to be incurred in connection therewith; and potential business decisions. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. We caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are based upon information available to us on the date of this report.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that actual results may differ materially from those made in or suggested by the forward-looking statements contained herein. In addition, even if actual results are consistent with the forward-looking statements contained herein, those results or developments may not be indicative of results or developments in subsequent periods.
Important factors that could cause actual results to vary from expectations include, but are not limited to: the duration and severity of the COVID-19 pandemic and its impact on the federal, state and local economies and on K-12 schools, including uncertainties regarding the format (in person, fully remote or hybrid) and other safety procedures schools plan to follow when they reopen in the fall; changes in state and local education funding and/or related programs, legislation and procurement processes; changes in state academic standards; industry cycles and trends; the rate and state of technological change; state requirements related to digital instructional materials; changes in product distribution channels and concentration of retailer power; changes in our competitive environment, including free and low cost open educational resources; periods of operating and net losses; our ability to enforce our intellectual property and proprietary rights; risks based on information technology systems and potential breaches of those systems; dependence on a small number of print and paper vendors; third-party software and technology development; possible defects in digital products; our ability to identify, complete, or achieve the expected benefits of, acquisitions; our ability to execute on our long-term growth strategy; increases in our operating costs; exposure to litigation; contingent liabilities; risks related to our indebtedness; future impairment charges; changes in school district payment practices; a potential increase in the portion of our sales coming from digital sales; risks related to doing business abroad; changes in tax law or interpretation; management and personnel changes; timing, higher costs and unintended consequences of our operational efficiency and cost-reduction initiatives, including our recently announced workforce reduction; and other factors discussed in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (and our subsequent filings pursuant to the Securities Exchange Act of 1934, as amended). In light of these risks, uncertainties and assumptions, the forward-looking events described herein may not occur.
We undertake no obligation, and do not expect, to publicly update or publicly revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained herein.
3
PART 1 – FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Houghton Mifflin Harcourt Company
Consolidated Balance Sheets (Unaudited)
(in thousands of dollars, except share information) |
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June 30, 2020 |
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December 31, 2019 |
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Assets |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowances for bad debts and book returns of $ |
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Inventories |
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Prepaid expenses and other assets |
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Total current assets |
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Property, plant, and equipment, net |
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Pre-publication costs, net |
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Royalty advances to authors, net |
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Goodwill |
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Other intangible assets, net |
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Operating lease assets |
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Deferred income taxes |
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Deferred commissions |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities |
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Revolving credit facility |
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$ |
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$ |
— |
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Current portion of long-term debt |
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Accounts payable |
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Royalties payable |
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Salaries, wages, and commissions payable |
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Deferred revenue |
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Interest payable |
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Severance and other charges |
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Accrued postretirement benefits |
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Operating lease liabilities |
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Other liabilities |
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Total current liabilities |
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Long-term debt, net of discount and issuance costs |
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Operating lease liabilities |
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Long-term deferred revenue |
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Accrued pension benefits |
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Accrued postretirement benefits |
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Deferred income taxes |
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Other liabilities |
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Total liabilities |
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Commitments and contingencies (Note 13) |
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Stockholders’ equity |
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Preferred stock, $ issued and outstanding at June 30, 2020 and December 31, 2019 |
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Common stock, $ December 31, 2019, respectively; outstanding at June 30, 2020 and December 31, 2019, respectively |
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Treasury stock, 2019, respectively, at cost |
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Capital in excess of par value |
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Accumulated deficit |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
4
Houghton Mifflin Harcourt Company
Consolidated Statements of Operations (Unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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(in thousands of dollars, except share and per share information) |
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2020 |
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2019 |
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2020 |
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2019 |
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Net sales |
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$ |
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$ |
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$ |
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$ |
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Costs and expenses |
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Cost of sales, excluding publishing rights and pre-publication amortization |
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Publishing rights amortization |
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Pre-publication amortization |
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Cost of sales |
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Selling and administrative |
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Other intangible asset amortization |
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Impairment charge for goodwill |
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— |
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— |
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— |
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Restructuring/severance and other charges |
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— |
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— |
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Operating loss |
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( |
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( |
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( |
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Other income (expense) |
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Retirement benefits non-service income |
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Interest expense |
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( |
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( |
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( |
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Interest income |
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Change in fair value of derivative instruments |
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( |
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( |
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Income from transition services agreement |
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— |
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— |
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Loss before taxes |
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( |
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( |
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( |
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( |
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Income tax (benefit) expense |
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( |
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( |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Net loss per share attributable to common stockholders |
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Basic and diluted: |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average shares outstanding |
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Basic and diluted |
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The accompanying notes are an integral part of these consolidated financial statements.
5
Houghton Mifflin Harcourt Company
Consolidated Statements of Comprehensive Loss (Unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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(in thousands of dollars, except share and per share information) |
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2020 |
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2019 |
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2020 |
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2019 |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Other comprehensive income (loss), net of taxes: |
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Foreign currency translation adjustments, net of tax |
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( |
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( |
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( |
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Unrealized gain on short-term investments, net of tax |
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— |
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— |
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— |
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Net change in unrealized gain (loss) on derivative financial instruments, net of tax |
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( |
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( |
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Other comprehensive income (loss), net of taxes |
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( |
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( |
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Comprehensive loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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The accompanying notes are an integral part of these consolidated financial statements.
6
Houghton Mifflin Harcourt Company
Consolidated Statements of Cash Flows (Unaudited)
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Six Months Ended June 30, |
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(in thousands of dollars) |
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2020 |
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2019 |
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Cash flows from operating activities |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities |
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Depreciation and amortization expense |
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Amortization and impairments of operating lease assets |
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Amortization of debt discount and deferred financing costs |
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Deferred income taxes |
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( |
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Stock-based compensation expense |
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Impairment charge for goodwill |
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— |
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Change in fair value of derivative instruments |
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Changes in operating assets and liabilities, net of acquisitions |
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Accounts receivable |
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( |
) |
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( |
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Inventories |
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( |
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( |
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Other assets |
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( |
) |
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( |
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Accounts payable and accrued expenses |
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( |
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Royalties payable and author advances, net |
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( |
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( |
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Deferred revenue |
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( |
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Interest payable |
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Severance and other charges |
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( |
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Accrued pension and postretirement benefits |
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( |
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( |
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Operating lease liabilities |
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( |
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( |
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Other liabilities |
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( |
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Net cash used in operating activities |
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( |
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( |
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Cash flows from investing activities |
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Proceeds from sales and maturities of short-term investments |
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— |
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Additions to pre-publication costs |
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( |
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( |
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Additions to property, plant, and equipment |
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( |
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( |
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Acquisition of business, net of cash acquired |
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— |
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( |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities |
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Borrowings under revolving credit facility |
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Payments of revolving credit facility |
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( |
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— |
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Payments of long-term debt |
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( |
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( |
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Tax withholding payments related to net share settlements of restricted stock units |
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( |
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( |
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Issuance of common stock under employee stock purchase plan |
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Net collections under transition services agreement |
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— |
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Net cash provided by financing activities |
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Net decrease in cash and cash equivalents |
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( |
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( |
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Cash and cash equivalents at beginning of the period |
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Cash and cash equivalents at end of the period |
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$ |
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$ |
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Supplemental disclosure of cash flow information |
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Interest paid |
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$ |
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$ |
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Income taxes paid |
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Non-cash investing activities |
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Pre-publication costs included in accounts payable and accruals |
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$ |
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$ |
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Property, plant, and equipment included in accounts payable and accruals |
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Property, plant, and equipment acquired under finance leases |
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The accompanying notes are an integral part of these consolidated financial statements.
7
Houghton Mifflin Harcourt Company
Consolidated Statements of Stockholders’ Equity (Unaudited)
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Common Stock |
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(in thousands of dollars, except share information) |
|
Shares Issued |
|
|
Par Value |
|
|
Treasury Stock |
|
|
Capital in excess of Par Value |
|
|
Accumulated Deficit |
|
|
Accumulated Other Comprehensive Loss |
|
|
Total |
|
|||||||
Balance at December 31, 2018 |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other comprehensive loss, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Effects of adoption of new lease accounting standard |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Issuance of common stock for employee purchase plan |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Issuance of common stock for vesting of restricted stock units |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock withheld to cover tax withholdings requirements upon vesting of restricted stock units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Balance at March 31, 2019 |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other comprehensive loss, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Effects of adoption of new lease accounting standard |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |