2013 Full year sales rise 7%
Trade Publishing delivers all-time high
sales
Houghton Mifflin Harcourt Company (“HMH” or the “Company”)
(NASDAQ: HMHC) today announced its preliminary unaudited financial
results for the fourth quarter and full year ended December 31,
2013. HMH plans to file its audited financial statements in its
Annual Report on Form 10-K, which is expected to be filed with the
U.S. Securities and Exchange Commission in late March 2014.
Full Year 2013 Financial Highlights:
- Net sales increased $93 million, or 7%,
from 2012 to $1,379 million.
- Adjusted EBITDA (a non-GAAP measure,
see reconciliation below) rose 2% to $325 million.
- Education segment net sales increased
$79 million to $1,208 million.
- Trade Publishing segment net sales
increased $14 million to all-time high of $171 million.
Linda Zecher, HMH’s Chief Executive Officer, commented “2013 was
a pivotal year for HMH as we strengthened our core business,
increased focus on targeted growth areas, and optimized overall
performance. Our world-class educational content and solutions
enabled us to extend our leading market share to 38%. New
distribution channels, our expansion into the consumer space and an
increased focus on digital content and capabilities have readied us
to accelerate growth and lead a learning transformation in 2014 and
beyond.”
“Our operational rigor in 2013 successfully paved the way for
year-over-year growth in both our revenues and EBITDA,” added Eric
Shuman, Chief Financial Officer of HMH. “We remain focused on
driving growth in our core business, creating new revenue streams
in strategic focus areas, and maintaining a prudent cost structure.
We have a solid strategy and team in place to deliver long-term
value to our shareholders.”
2013 Business Highlights:
- Education segment: HMH
benefitted from strong state adoptions in multiple states,
including Florida, Tennessee, and Georgia in 2013, and a solid
performance in open territories, including the district-wide
selection of GO Math! in New York City. Addressable market share
grew to 38%, according to data derived from the Association of
American Publishers, as HMH’s Education sales growth outpaced
overall addressable market growth. Heinemann, our intervention and
professional development products, delivered robust results,
supported by strong performances from the Leveled Literacy
Intervention program and newly released Units of Study. An
agreement with a third party reseller increased sales in the
private, parochial and charter school channel.
Ongoing innovation across product lines led to new program
launches, such as Journeys Common Core ©2014, Collections 2015, Big
Ideas Math, Personal Math Trainer powered by Knewton, and
Riverside’s Early Assessment of Learning (REAL). These programs are
underpinned by HMH’s world-class content and all contain strong
digital components that further propel the industry
transformation.
Journeys Common Core ©2014 reading program has already been
selected in Tennessee. California selected seven HMH programs,
including GO Math!, Math in Focus, and Big Ideas Math for their
2014 math adoption, which could potentially reach four million
students.
HMH leveraged its education and trade content to develop direct
to consumer offerings in 2013. The Company launched the Academy
series, with the initial phase of GO Math! Academy, which is HMH’s
first at home and on-demand digital learning environment. HMH is
also leveraging its top children’s brands to create premium
education content and solutions to further penetrate the growing
early childhood space.
- Trade Publishing segment: With
record net sales, the segment saw continued growth from its Young
Readers category and culinary product line. HMH also fueled its
international and product expansion through the strength of its
brand and title lineup, including an agreement with Hachette Book
Group and the launch of additional Curious George apps,
respectively.
- eCommerce: In 2013, HMH unified
its ecommerce business to consumer sales platform, hmhco.com, to
enhance its direct sales channels and create a single portal for
customers to purchase education and consumer content.
- Strategic relationships:
Throughout the year, HMH continued to build on its network of
alliances, including those with leaders such as Apple, Amazon,
Knewton and Kno to further enhance the depth, quality, and
distribution of its best-in-class content.
- International expansion: Over
the course of 2013, HMH strengthened its international strategy and
positioned itself for global growth through the enhancement of its
management infrastructure and ongoing focus on its partner-led
model. In 2013, HMH strengthened existing and formed new
relationships in key markets, including All Prints in the Middle
East and Vibal in the Philippines.
- Growth through strategic
acquisitions: HMH continued to make strategic acquisitions
throughout 2013, including technology company Tribal Nova,
educational data systems leader Choice Solutions and an investment
in education solutions provider SchoolChapters, Inc.
- Initial public offering: HMH
completed its initial public offering (IPO) and listing (HMHC) on
the NASDAQ Stock Market in November 2013.
Fourth Quarter 2013 Unaudited Financial Results
HMH reported net sales of $299 million for the fourth quarter
ended December 31, 2013, up $17 million or 6% from $282 million for
the fourth quarter ended December 31, 2012, primarily as a result
of an agreement with a reseller for product sales in private,
parochial and charter school markets similar to a fourth quarter
2012 reseller transaction. The net effect of these transactions was
an increase in net sales of $40 million for the fourth quarter of
2013 as compared to the same period in 2012. This was partially
offset by $9 million in lower other adjacent market sales, $5
million lower sales of learning management systems as we migrate to
a new learning management system partner strategy, $4 million in
lower supplemental product sales due to aging products, and $6
million in lower sales in the Company’s Trade Publishing segment.
Sales within the Company’s Education segment were $253 million,
representing a 10% increase from the fourth quarter 2012, while
sales within Trade Publishing were $46 million, a 12%
year-over-year decrease as revenues normalized following higher
Tolkien licensing revenue in 2012.
Cost of sales, excluding pre-publication and publishing rights
amortization, was $124 million, up 2% from $122 million in the
fourth quarter of 2012 due to higher sales volume and a shift in
our product mix impacting production costs and royalty costs.
Selling and Administrative expenses for the fourth quarter were
$161 million, up $47 million or 41% as compared to $114 million for
the fourth quarter in 2012. The $47 million increase was due to
approximately $20 million in costs associated with the Company’s
IPO in November which consisted primarily of selling shareholder
costs borne by the company pursuant to the terms of our Investor
Rights Agreement, $14 million in labor related costs and
professional fees and $8 million in higher samples and sales
commissions.
Operating loss for the fourth quarter 2013 was $60 million,
compared to a loss of $28 million in the fourth quarter of 2012,
due to the aforementioned higher selling and administrative
expenses partially offset by higher net sales. Also impacting the
operating loss was a $31 million one-time gain on a bargain
purchase acquisition in the fourth quarter of 2012 that was offset
by reduced amortization and impairment costs in 2013.
Net loss for the quarter was $65 million, compared to a loss of
$34 million in the fourth quarter 2012, primarily due to the same
drivers impacting the operating loss.
Adjusted EBITDA for the fourth quarter was $55 million, down $16
million or 22% year-over-year compared to the fourth quarter of
2012, as growth in sales volumes was offset by the aforementioned
higher selling and administrative expenses, excluding IPO costs.
Adjusted EBITDA for HMH’s Education segment was $67 million, up $2
million compared to the fourth quarter of 2012, and adjusted EBITDA
for the Trade Publishing segment was $5 million, down $8 million,
compared to the $13 million in the fourth quarter of 2012.
Corporate and Other costs, which represent certain general overhead
costs not fully allocated to the business segments, such as legal,
accounting, treasury, human resources and executive functions, had
an adverse impact of $17 million on adjusted EBITDA for the fourth
quarter of 2013 as compared to an adverse impact of $7 million for
the fourth quarter of 2012.
Full Year 2013 Unaudited Financial Results
HMH reported net sales of $1,379 million for the year ended
December 31, 2013, up $93 million or 7% compared to 2012. The
increase was largely driven by $34 million in new adoption sales,
primarily in Florida and Tennessee, $12 million in increased sales
in open territories, including GO Math! in New York, $37 million in
incremental sales from our intervention and professional
development products as well as $12 million in higher
international, professional services and assessment sales.
Additionally, we were able to increase sales in the private,
parochial and charter school channel through an agreement with a
reseller. The private, parochial and charter school channel
incremental sales along with the sale of consumable backlist
products sold to both other resellers and directly to customers,
resulted in an increase of $16 million in 2013 as compared to 2012.
Trade publishing added $14 million in net sales driven by increased
sales of the culinary line as well as in the Young Readers titles.
Offsetting the above positive factors were lower residual sales of
$13 million, $6 million in lower supplemental product sales due to
aging products, and $16 million of lower sales of learning
management systems as we migrate to a new learning management
system partner strategy. Net sales within the Company’s Education
segment were $1,208 million, representing a 7% increase from the
full year 2012 while net sales within HMH’s Trade Publishing
segment were $171 million, up $14 million or 9% from 2012.
Cost of sales, excluding pre-publication and publishing rights
amortization was $585 million in 2013, compared to $516 million for
the full year 2012. This increase was the result of higher sales, a
shift in product mix, and higher depreciation on digital
platforms.
Selling and Administrative expenses for the year were $581
million, compared to $533 million for the full year 2012. The $47
million increase in selling and administrative expenses was
primarily due to approximately $20 million in costs associated with
the Company’s IPO in November 2013 which consisted primarily of
selling shareholder costs borne by the company pursuant to the
terms of our Investor Rights Agreement, and $27 million in higher
samples and sales commissions.
Operating loss for the full year 2013 was $87 million, a $34
million or 28% improvement compared to a loss of $121 million in
2012, mainly due to $93 million in increased net sales and a $90
million reduction in amortization expense related to publishing
rights, pre-publication and other intangible assets, which were
offset by $69 million in higher cost of sales, $47 million in
increased selling and administrative expenses, and the absence of a
$31 million one-time gain on a bargain purchase acquisition from
2012.
Net loss for full year 2013 was $111 million, a $24 million or
28% decrease, compared to a loss of $87 million for the full year
2012. The greater loss was primarily driven by the same factors as
the operating loss above and the absence of $149 million in a
one-time gain from reorganization items, partially offset by an
approximate $100 million reduction in interest expense following
the Company’s restructuring in 2012.
Adjusted EBITDA for the full year 2013 was $325 million, up $5
million or 2% from $320 million in 2012, mainly driven by higher
sales, which were substantially offset by the aforementioned
expenses, excluding the IPO costs. Adjusted EBITDA for HMH’s
Education and Trade Publishing segments were $343 million and $24
million, respectively, compared to $330 million and $29 million,
respectively, in 2012. Corporate and Other costs had a $43 million
negative impact on consolidated adjusted EBITDA in 2013 compared to
a negative impact of $39 million in 2012.
Cash Flow
Net cash provided by operating activities for the year ended
December 31, 2013 was $157 million as compared to $105 million for
the year ended December 31, 2012. The improvement of $52 million
included IPO costs of approximately $20 million. Excluding the IPO
costs, the operating cash improvement was $72 million greater than
2012 primarily due to reduced interest payments from our debt
restructuring. Free cash flow, defined as operating cash minus
capital expenditures, for the full year 2013 was $50 million better
than 2012 excluding the IPO costs. Cash, cash equivalents and
short-term investments were $425 million as of December 31, 2013
compared to $475 million as of December 31, 2012. The decrease was
due to IPO-related costs, acquisitions and working capital
changes.
2014 Outlook
The Company will provide annual guidance on revenues,
pre-publication costs or content development and addressable market
size. In 2014, HMH expects to improve net sales, driven primarily
by the Company’s education segment due to the improving adoption
and open territory markets. As a result of this improvement, the
Company expects total net sales in 2014 to increase by 5% to 8%
over 2013 revenues of $1,379 million. Additionally, expected
pre-publication costs or content development spend for 2014 will be
approximately $100 to $120 million.
HMH’s addressable market, the market where it primarily sells
its instructional resources for grades K through 12, is expected to
grow 13% to $2.9 billion in 2014 from $2.5 billion in 2013.
Shelf Registration
On March 5, 2014, as required under the terms of the Company’s
investor rights agreement, dated June 22, 2012 (the “Investor
Rights Agreement”), the Company mailed a notice to each of its
stockholders that is party to the Investor Rights Agreement
(collectively, the “IRA Stockholders”) stating that the Company
intends to file a shelf registration statement on Form S-1 with the
Securities and Exchange Commission (the “SEC”) to cover the resale
of shares of the Company’s common stock that are held by the IRA
Stockholders on a delayed or continuous basis.
Under the terms of the Investor Rights Agreement, each of the
IRA Stockholders has the right to include all or a portion of its
common stock in the shelf registration statement by notifying the
Company in writing by March 26, 2014. As required under the terms
of the Investor Rights Agreement, the Company intends to file the
shelf registration statement with the SEC on or about March 28,
2014 and will include the shares of common stock of the IRA
Stockholders that request the Company include their shares in the
shelf registration statement and comply with the terms set forth in
the notice and the Investor Rights Agreement. In connection with
the Company’s initial public offering, each of the IRA Stockholders
agreed that, until May 13, 2014, subject to certain extensions and
with specified exceptions, it will not, without the prior written
consent of Goldman, Sachs & Co. and Morgan Stanley & Co.
LLC, dispose of or hedge any shares of the Company’s common stock
or any securities convertible into or exchangeable for the
Company’s common stock.
Please refer to the Form 8-K filed with the SEC for additional
details regarding this shelf registration statement.
Conference Call
At 8:30 a.m. ET on Thursday March 6, 2014, HMH will host a
conference call to discuss its fourth quarter and full year 2013
results with its investors. The conference call will be webcast
live at www.hmhco.com under the Investor Relations section.
The following information is provided for investors who would
like to participate in the conference call:Toll Free: (866)
510-0712International: (617) 597-5380Passcode: 39318871Webcast
Link: http://www.media-server.com/m/p/m44p9fjh
An archived webcast with the accompanying slides will be
available at hmhco.com for those unable to participate in the live
event. An audio replay of this conference will also be available
until March 20, 2014, via the following telephone numbers: (888)
286-8010 in the United States and (617) 801-6888 internationally
using passcode 76553454.
Use of Non-GAAP Financial Measures
To supplement our financial statements presented in accordance
with GAAP, we have presented Adjusted EBITDA in addition to our
GAAP results. This information should be considered as supplemental
in nature and should not be considered in isolation or as a
substitute for the related financial information prepared in
accordance with GAAP. Management believes that the presentation of
Adjusted EBITDA provides useful information to investors regarding
our results of operations because it assists both investors and
management in analyzing and benchmarking the performance and value
of our business. Adjusted EBITDA provides an indicator of general
economic performance that is not affected by debt restructurings,
fluctuations in interest rates or effective tax rates, or levels of
depreciation or amortization. Accordingly, our management believes
that this measurement is useful for comparing general operating
performance from period to period. In addition, targets and
positive trends in Adjusted EBITDA are used as performance measures
and to determine certain compensation of management. Other
companies may define Adjusted EBITDA differently and, as a result,
our measure of Adjusted EBITDA may not be directly comparable to
Adjusted EBITDA of other companies. Although we use Adjusted EBITDA
as a financial measure to assess the performance of our business,
the use of Adjusted EBITDA is limited because it does not include
certain material costs, such as interest and taxes, necessary to
operate our business. Adjusted EBITDA should be considered in
addition to, and not as a substitute for, net earnings in
accordance with GAAP as a measure of performance. Adjusted EBITDA
is not intended to be a measure of liquidity or free cash flow for
discretionary use. You are cautioned not to place undue reliance on
Adjusted EBITDA. A reconciliation of non-GAAP financial measures to
the most directly comparable GAAP financial measures is provided in
the appendix to this news release.
About Houghton Mifflin Harcourt
Company
Houghton Mifflin Harcourt Company is a leading global provider
of education solutions, delivering content, technology, services
and media to over 50 million students in over 150 countries
worldwide. The Company delivers its offerings to both educational
institutions and consumers around the world. In the United States,
it is the leading provider of kindergarten through twelfth grade,
or K-12, educational content by market share. Furthermore, since
1832, it has published trade and reference materials, including
adult and children’s fiction and non-fiction books that have won
industry awards such as the Pulitzer Prize, Newbery and Caldecott
medals and National Book Award.
Forward-Looking
Statements
The statements contained herein include forward-looking
statements, which involve risks and uncertainties. These
forward-looking statements can be identified by the use of
forward-looking terminology, including the terms “believes,”
“estimates,” “projects,” “anticipates,” “expects,” “could,”
“intends,” “may,” “will” or “should,” “forecast,” “intend,” “plan,”
“potential,” “project,” “target” or, in each case, their negative,
or other variations or comparable terminology. These
forward-looking statements include all matters that are not
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, strategies, the industry in which we operate and potential
business decisions. We derive many of our forward-looking
statements from our operating budgets and forecasts, which are
based upon many detailed assumptions. While we believe that our
assumptions are reasonable, we caution that it is very difficult to
predict the impact of known factors, and, of course, it is
impossible for us to anticipate all factors that could affect our
actual results. All forward-looking statements are based upon
information available to us on the date of this report.
By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future. We caution
you that forward-looking statements are not guarantees of future
performance and that our actual results of operations, financial
condition and liquidity, and the development of the industry in
which we operate may differ materially from those made in or
suggested by the forward-looking statements contained herein. In
addition, even if our results of operations, financial condition
and liquidity and the development of the industry in which we
operate 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 our results to vary from
expectations include, but are not limited to: changes in state and
local education funding and/or related programs, legislation and
procurement processes; adverse or worsening economic trends or the
continuation of current economic conditions; changes in consumer
demand for, and acceptance of, our products; changes in competitive
factors; offerings by technology companies that compete with our
products; industry cycles and trends; conditions and/or changes in
the publishing industry; changes or the loss of our key third-party
print vendors; restrictions under agreements governing our
outstanding indebtedness; changes in laws or regulations governing
our business and operations; changes or failures in the information
technology systems we use; demographic trends; uncertainty
surrounding our ability to enforce our intellectual property
rights; inability to retain management or hire employees; impact of
potential impairment of goodwill and other intangibles in a
challenging economy; decline or volatility of our stock price
regardless of our operating performance; and other factors
discussed in the “Risk Factors” section of our Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q and other news releases
we issue and filings we make with the SEC. 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.
The Company is currently in the process of finalizing its
financial results for year ended December 31, 2013. All financial
results for the three months and twelve months ended December 31,
2013 included in this news release and the accompanying financial
statements are unaudited and preliminary and represent the most
current information available to management. Therefore, it is
possible that actual results may differ from these unaudited
results due to developments that may arise between now and the time
the financial results for the three months and full year ended
December 31, 2013 are finalized. Accordingly, readers should not
place undue reliance on these unaudited results and should read our
audited financial statements when they become available and are
filed with the SEC.
Houghton Mifflin Harcourt
Company
Consolidated Balance Sheets
(Unaudited)
December 31, December 31, (in thousands of
dollars, except share information)
2013 2012
Assets Current assets Cash and cash equivalents $ 313,628 $
329,078 Short-term investments 111,721 146,041 Accounts receivable,
net of allowance for bad debts and book returns of $40.6 million
and $36.4 million, respectively 318,101 229,118 Inventories 182,194
197,613 Deferred income taxes 29,842 42,858 Prepaid expenses and
other assets 16,130 13,731 Total
current assets 971,616 958,439 Property, plant, and
equipment, net 140,848 149,227 Pre-publication costs, net 269,488
256,202 Royalty advances to authors, net 46,881 48,247 Goodwill
531,786 520,088 Other intangible assets, net 919,994 1,067,052
Other assets 29,773 30,329 Total assets
$ 2,910,386 $ 3,029,584
Liabilities and
Stockholders' Equity Current liabilities Current portion of
long-term debt $ 2,500 $ 2,500 Accounts payable 105,012 86,416
Royalties payable 65,387 60,352 Salaries, wages, and commissions
payable 29,945 34,730 Deferred revenue 113,042 124,216 Interest
payable 55 87 Severance and other charges 15,531 18,290 Accrued
postretirement benefits 2,141 2,342 Other liabilities 32,002
30,421 Total current liabilities 365,615
359,354 Long-term debt 243,125 245,625 Royalties payable
1,520 2,070 Long-term deferred revenue 184,121 171,105 Accrued
pension benefits 24,405 48,714 Accrued postretirement benefits
23,860 27,231 Deferred income taxes 116,999 124,588 Other
liabilities 100,465 107,196 Total
liabilities 1,060,110 1,085,883
Commitments and contingencies Stockholders' equity Preferred
stock, $0.01 par value: 20,000,000 shares authorized; no shares
issued and outstanding at December 31, 2013 and 2012 - - Common
stock, $0.01 par value: 380,000,000 shares authorized; 140,044,400
and 140,000,000 shares issued at December 31, 2013 and 2012,
respectively; and 139,962,378 and 139,917,978 shares outstanding at
December 31, 2013 and 2012, respectively 1,400 1,400 Treasury
stock, 82,022 shares as of December 31, 2013 and 2012 - - Capital
in excess of par value 4,750,589 4,741,065 Accumulated deficit
(2,888,422 ) (2,777,236 ) Accumulated other comprehensive income
(loss) (13,291 ) (21,528 ) Total stockholders' equity
1,850,276 1,943,701 Total liabilities
and stockholders' equity $ 2,910,386 $ 3,029,584
Houghton Mifflin Harcourt
Company
Consolidated Statements of
Operations
(Unaudited)
(in thousands of dollars, except share and per share data)
Three Months Ended December 31, Year Ended December
31, 2013
2012 2013 2012 Net
sales $ 298,877 $ 282,195 $ 1,378,612 $ 1,285,641
Costs and
expenses Cost of sales, excluding pre-publication and
publishing rights amortization 124,493 122,093 585,059 515,948
Publishing rights amortization 33,500 42,535 139,588 177,747
Pre-publication amortization 33,247 35,703
121,715 137,729 Cost of sales
191,240 200,331 846,362 831,424 Selling and administrative 160,592
113,600 580,887 533,462 Other intangible asset amortization 2,881
15,062 18,968 54,815 Impairment charge for intangible assets,
pre-publication costs and fixed assets 500 8,003 9,000 8,003
Severance and other charges 3,216 3,883 10,040 9,375 Gain on
bargain purchase - (30,751 ) -
(30,751 ) Operating loss (59,552 ) (27,933 )
(86,645 ) (120,687 )
Other income (expense)
Interest expense (4,718 ) (6,464 ) (21,344 ) (123,197 ) Change in
fair value of derivative instruments (23 ) 64 (252 ) 1,688 Loss on
extinguishment of debt - - (598
) - Loss before reorganization items and taxes
(64,293 ) (34,333 ) (108,839 ) (242,196 ) Reorganization items, net
- 7,780 - (149,114 ) Income tax expense (benefit) 358
(7,909 ) 2,347 (5,943 ) Net loss $
(64,651 ) $ (34,204 ) $ (111,186 ) $ (87,139 ) Net loss per
share attributable to common stockholders, basic and diluted $
(0.46 ) $ (0.24 ) $ (0.79 ) $ (0.26 ) Weighted average
shares outstanding, basic
and diluted
139,958,682 139,917,978
139,928,650 340,918,128
The accompanying notes are an integral part of these
consolidated financial statements.
Houghton Mifflin Harcourt
Company
Consolidated Statements of Cash
Flows
(Unaudited)
Year Ended December 31, (in thousands of dollars)
2013 2012 Cash flows from operating
activities Net loss $ (111,186 ) $ (87,139 ) Adjustments to
reconcile net loss to net cash provided by operating activities
Gain on bargain purchase - (30,751 ) Gain on sale of assets (2,720
) - Depreciation and amortization expense 341,979 428,422
Amortization of deferred financing costs 4,797 24,584 Deferred
income taxes (benefit) (3,121 ) (10,076 ) Noncash stock-based
compensation expense 9,524 6,254 Noncash issuance of warrants -
10,747 Reorganization items - (179,024 ) Loss on extinguishment of
debt 598 - Impairment charge for intangible assets, pre-publication
costs and fixed assets 9,000 8,003 Change in fair value of
derivative instruments 252 (1,688 ) Changes in operating assets and
liabilities, net of acquisitions Accounts receivable (88,029 )
25,826 Inventories 15,419 44,549 Accounts payable and accrued
expenses 1,076 (44,594 ) Royalties, net 5,851 9,478 Deferred
revenue 702 (54,615 ) Interest payable (32 ) 4,912 Severance and
other charges (2,759 ) (17,460 ) Accrued pension and postretirement
benefits (15,057 ) (19,710 ) Other, net (9,091 )
(12,916 ) Net cash provided by operating activities 157,203
104,802
Cash flows from investing
activities Proceeds from (deposits into) restricted cash
accounts - 26,495 Proceeds from sale of short-term investments
251,168 19,575 Purchases of short-term investments (217,855 )
(165,603 ) Additions to pre-publication costs (126,718 ) (114,522 )
Additions to property, plant, and equipment (59,803 ) (50,943 )
Proceeds from sale of assets 4,825 - Acquisition of business, net
of cash acquired (18,695 ) (11,000 ) Investment in preferred stock
(1,500 ) - Net cash (used in) provided by
investing activities (168,578 ) (295,998 )
Cash
flows from financing activities Proceeds from term loan -
250,000 Payments of long-term debt (2,500 ) (12,750 ) Payments of
deferred financing fees - (26,586 ) Payment of capital
restructuring costs - (104,000 ) Payments of contingent
consideration (1,575 ) - Net cash (used in)
provided by financing activities (4,075 ) 106,664
Net (decrease) increase in cash and cash equivalents (15,450
) (84,532 )
Cash and cash equivalents Beginning of period
329,078 413,610 Net (decrease) increase in cash and cash
equivalents (15,450 ) (84,532 ) End of period $
313,628 $ 329,078
Houghton Mifflin Harcourt
Company
Segment Adjusted EBITDA
(Unaudited)
Education (dollars in thousands) Three Months Ended
December 31, Year Ended December 31, 2013 2012 2013 2012 Net
income (loss) $ (16,311 ) $ (49,908 ) $ 5,937 $ (94,672 )
Depreciation expense 15,247 15,300 53,875 49,600 Amortization
expense 65,644 89,121 264,422 352,552 Non-cash charges - asset
impairment charges - 8,003 8,500 8,003 Purchase accounting
adjustments 2,542 2,611 10,449
14,240 ADJUSTED EBITDA $ 67,122 $ 65,127
$ 343,183 $ 329,723
Trade
Publishing (dollars in thousands) Three Months Ended December
31, Year Ended December 31, 2013 2012 2013 2012 Net income
(loss) $ (506 ) $ 39,068 $ 6,557 $ 41,325 Depreciation expense 140
115 531 461 Amortization expense 3,984 4,179 15,849 17,739 Non-cash
charges - asset impairment charges 500 - 500 - Purchase accounting
adjustments 403 (30,751 ) 1,011
(30,751 ) ADJUSTED EBITDA $ 4,521 $ 12,611 $ 24,448 $
28,774
Corporate and Other
(dollars in thousands) Three Months Ended December 31, Year Ended
December 31, 2013 2012 2013
2012 Net loss $ (47,834 ) $ (23,364 ) $
(123,680 ) $ (33,792 ) Interest expense 4,718 6,464 21,344 123,197
Provision (benefit) for income taxes 358 (7,909 ) 2,347 (5,943 )
Depreciation expense 1,999 1,710 7,299 8,070 Non-cash charges
-stock compensation 2,601 1,284 9,524 4,227 Non-cash charges -gain
(loss) on derivative instruments 23 (64 ) 252 (1,688 ) Fees,
expenses or charges for equity offerings, debt or acquisitions
17,721 - 23,540 267 Restructuring 1,413 3,392 3,123 6,716
Severance, separation costs and facility closures 2,175 3,550
13,040 9,375 Reorganization items, net - 7,780 - (149,114 ) Debt
extinguishment loss - - 598
- ADJUSTED EBITDA $ (16,826 ) $ (7,157 ) $
(42,613 ) $ (38,685 )
Houghton Mifflin Harcourt
Company
Consolidated Adjusted EBITDA
(Unaudited)
Consolidated (dollars in thousands) Three Months
Ended December 31, Year Ended December 31, 2013
2012 2013 2012 Net
loss $ (64,651 ) $ (34,204 ) $ (111,186 ) $ (87,139 ) Interest
expense 4,718 6,464 21,344 123,197 Provision (benefit) for income
taxes 358 (7,909 ) 2,347 (5,943 ) Depreciation expense 17,386
17,125 61,705 58,131 Amortization expense (1) 69,628 93,300 280,271
370,291 Non-cash charges -stock compensation 2,601 1,284 9,524
4,227 Non-cash charges -gain (loss) on derivative instruments 23
(64 ) 252 (1,688 ) Non-cash charges - asset impairment charges 500
8,003 9,000 8,003 Purchase accounting adjustments (2) 2,945 (28,141
) 11,460 (16,511 ) Fees, expenses or charges for equity offerings,
debt or acquisitions 17,721 - 23,540 267 Restructuring (3) 1,413
3,393 3,123 6,716 Severance, separation costs and facility closures
(4) 2,175 3,550 13,040 9,375 Reorganization items, net (5) - 7,780
- (149,114 ) Debt extinguishment loss - -
598 - ADJUSTED EBITDA $ 54,817
$ 70,581 $ 325,018 $ 319,812
(1) Includes pre-publication amortization of $33,247 and $35,703
for the three months ended December 31, 2013 and 2012,
respectively; and $121,715 and $137,729 for the years ended
December 31, 2013 and 2012 respectively.
(2) Represents certain non-cash accounting adjustments, most
significantly relating to deferred revenue and inventory costs,
that we were required to record as a direct result of the
March 9, 2010 restructuring and the acquisitions for the years
ended December 31, 2013 and 2012. 2012 includes a $30.8
million gain on the acquisition of a product line.
(3) Represents restructuring costs (other than severance and
real estate) such as consulting and realignment.
(4) Represents costs associated with restructuring. Included in
such costs are severance, facility integration (including inventory
excess) and vacancy of excess facilities.
(5) Represents net gain associated with our Chapter 11
reorganization in 2012.
Houghton Mifflin Harcourt
Company
Segment Net Sales
(Unaudited)
Segment Net Sales (dollars in thousands) Three Months
Ended December 31, Year Ended December 31, 2013 2012 2013 2012
Education $ 252,763 $ 229,949 $ 1,207,908 $ 1,128,591 Trade
Publishing 46,114 52,246 170,704
157,050 Net Sales $ 298,877 $ 282,195 $ 1,378,612 $ 1,285,641
Houghton Mifflin Harcourt CompanyInvestor RelationsRima
Hyder, 617-351-3309Vice President, Investor
Relationsrima.hyder@hmhco.comorMedia RelationsBianca Olson,
617-351-3841 | 617-932-1241Senior Vice President, Corporate
Communicationsbianca.olson@hmhco.com
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