10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

☐ 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 001-36166

Houghton Mifflin Harcourt Company

(Exact name of registrant as specified in its charter)

Delaware	27-1566372
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

125 High Street

Boston, MA 02110

(617) 351-5000

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

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	HMHC	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the Registrant has submitted electronically 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).    Yes  ☒    No  ☐

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	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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  ☐    No  ☒

The number of shares of common stock, par value $0.01 per share, outstanding as of November 2, 2020 was 125,850,114.

Table of Contents

		Page (s)
Special Note Regarding Forward-Looking Statements			3
PART I.	FINANCIAL INFORMATION		4
Item 1.	Consolidated Financial Statements (Unaudited):		4
	Consolidated Balance Sheets		4
	Consolidated Statements of Operations		5
	Consolidated Statements of Comprehensive (Loss) Income		6
	Consolidated Statements of Cash Flows		7
	Consolidated Statements of Stockholders’ Equity		8
	Notes to Consolidated Financial Statements		9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		49
Item 4.	Controls and Procedures		50
PART II.	OTHER INFORMATION		51
Item 1.	Legal Proceedings		51
Item 1A.	Risk Factors		51
Item 5.	Other Information		51
Item 6.	Exhibits		53
SIGNATURES			54

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 may follow at various points during the school year; 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; our ability to sell the HMH Books & Media business and the terms of any such potential sale; 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), including in Part II, Item 1A of this Quarterly Report on Form 10-Q. 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)	September 30, 2020			December 31, 2019
Assets
Current assets
Cash and cash equivalents	$	271,543		$	296,353
Accounts receivable, net of allowances for bad debts and book returns of    $19.5 million and $19.7 million, respectively		282,179			184,425
Inventories		175,820			213,059
Prepaid expenses and other assets		23,214			19,257
Total current assets		752,756			713,094
Property, plant, and equipment, net		95,265			100,388
Pre-publication costs, net		222,186			268,197
Royalty advances to authors, net		41,661			44,743
Goodwill		454,977			716,977
Other intangible assets, net		440,111			474,225
Operating lease assets		129,154			132,247
Deferred income taxes		2,520			2,520
Deferred commissions		32,972			29,291
Other assets		34,726			31,490
Total assets	$	2,206,328		$	2,513,172
Liabilities and Stockholders’ Equity
Current liabilities
Current portion of long-term debt	$	19,000		$	19,000
Accounts payable		71,512			52,128
Royalties payable		52,339			72,985
Salaries, wages, and commissions payable		37,009			54,938
Deferred revenue		356,823			305,285
Interest payable		3,981			3,826
Severance and other charges		34,901			12,407
Accrued postretirement benefits		1,571			1,571
Operating lease liabilities		9,339			8,685
Other liabilities		26,383			24,325
Total current liabilities		612,858			555,150
Long-term debt, net of discount and issuance costs		628,066			638,187
Operating lease liabilities		133,214			134,994
Long-term deferred revenue		596,630			542,821
Accrued pension benefits		19,316			23,648
Accrued postretirement benefits		13,911			15,113
Deferred income taxes		18,787			30,871
Other liabilities		3,502			6,028
Total liabilities		2,026,284			1,946,812
Commitments and contingencies (Note 13)
Stockholders’ equity
Preferred stock, $0.01 par value: 20,000,000 shares authorized; no shares    issued and outstanding at September 30, 2020 and December 31, 2019		—			—
Common stock, $0.01 par value: 380,000,000 shares authorized;    150,427,148 and 148,928,328 shares issued at September 30, 2020 and    December 31, 2019, respectively; 125,850,114 and 124,351,294 shares    outstanding at September 30, 2020 and December 31, 2019, respectively		1,504			1,489
Treasury stock, 24,577,034 shares as of September 30, 2020 and December 31,    2019, respectively, at cost		(518,030	)		(518,030	)
Capital in excess of par value		4,915,806			4,906,165
Accumulated deficit		(4,172,685	)		(3,775,992	)
Accumulated other comprehensive loss		(46,551	)		(47,272	)
Total stockholders’ equity		180,044			566,360
Total liabilities and stockholders’ equity	$	2,206,328		$	2,513,172

The accompanying notes are an integral part of these consolidated financial statements.

4

Houghton Mifflin Harcourt Company

Consolidated Statements of Operations (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands of dollars, except share and per share information)	2020			2019			2020			2019
Net sales	$	386,590		$	565,668		$	827,731		$	1,149,199
Costs and expenses
Cost of sales, excluding publishing rights and pre-publication    amortization		182,767			246,527			397,139			533,413
Publishing rights amortization		4,761			6,341			15,295			20,217
Pre-publication amortization		31,647			39,319			94,043			108,140
Cost of sales		219,175			292,187			506,477			661,770
Selling and administrative		127,324			188,957			367,006			516,206
Other intangible asset amortization		6,274			6,383			18,819			19,519
Impairment charge for goodwill		—			—			262,000			—
Restructuring/severance and other charges		33,545			270			33,545			5,921
Operating income (loss)		272			77,871			(360,116	)		(54,217	)
Other income (expense)
Retirement benefits non-service income		61			41			183			125
Interest expense		(16,168	)		(11,597	)		(50,433	)		(35,142	)
Interest income		32			509			873			1,698
Change in fair value of derivative instruments		432			(737	)		172			(1,171	)
Gain on investments		1,738			—			1,738
Income from transition services agreement		—			571			—			4,248
(Loss) income before taxes		(13,633	)		66,658			(407,583	)		(84,459	)
Income tax (benefit) expense		(1,081	)		(2,602	)		(10,890	)		4,256
Net (loss) income	$	(12,552	)	$	69,260		$	(396,693	)	$	(88,715	)
Net (loss) income per share attributable to common stockholders
Basic	$	(0.10	)	$	0.56		$	(3.17	)	$	(0.71	)
Diluted	$	(0.10	)	$	0.55		$	(3.17	)	$	(0.71	)
Weighted average shares outstanding
Basic		125,799,018			124,315,491			125,317,284			124,089,257
Diluted		125,799,018			124,807,488			125,317,284			124,089,257

The accompanying notes are an integral part of these consolidated financial statements.

5

Houghton Mifflin Harcourt Company

Consolidated Statements of Comprehensive (Loss) Income (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands of dollars, except share and per share information)	2020			2019			2020			2019
Net (loss) income	$	(12,552	)	$	69,260		$	(396,693	)	$	(88,715	)
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments, net of tax		(86	)		(351	)		(266	)		(478	)
Unrealized gain on short-term investments, net of tax		—			—			—			9
Net change in unrealized gain (loss) on derivative    financial instruments, net of tax		258			(257	)		987			(3,661	)
Other comprehensive income (loss), net of taxes		172			(608	)		721			(4,130	)
Comprehensive (loss) income	$	(12,380	)	$	68,652		$	(395,972	)	$	(92,845	)

The accompanying notes are an integral part of these consolidated financial statements.

6

Houghton Mifflin Harcourt Company

Consolidated Statements of Cash Flows (Unaudited)

	Nine Months Ended September 30,
(in thousands of dollars)	2020			2019
Cash flows from operating activities
Net loss	$	(396,693	)	$	(88,715	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization expense		171,027			201,593
Amortization and impairments of operating lease assets		9,565			12,898
Amortization of debt discount and deferred financing costs		4,504			3,136
Gain on investments		(1,738	)		—
Deferred income taxes		(12,084	)		2,580
Stock-based compensation expense		8,751			11,094
Impairment charge for goodwill		262,000			—
Change in fair value of derivative instruments		(172	)		1,171
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable		(97,754	)		(231,296	)
Inventories		37,239			(27,535	)
Other assets		(13,374	)		(23,649	)
Accounts payable and accrued expenses		6,213			37,488
Royalties payable and author advances, net		(17,564	)		1,165
Deferred revenue		105,347			241,091
Interest payable		155			11
Severance and other charges		22,494			(464	)
Accrued pension and postretirement benefits		(5,532	)		(2,761	)
Operating lease liabilities		(7,598	)		(12,450	)
Other liabilities		380			2,015
Net cash provided by operating activities		75,166			127,372
Cash flows from investing activities
Proceeds from sales and maturities of short-term investments		—			50,000
Additions to pre-publication costs		(51,321	)		(81,532	)
Additions to property, plant, and equipment		(35,275	)		(27,350	)
Acquisition of business, net of cash acquired		—			(5,447	)
Investment in preferred stock		—			(750	)
Net cash used in investing activities		(86,596	)		(65,079	)
Cash flows from financing activities
Borrowings under revolving credit facility		150,000			60,000
Payments of revolving credit facility		(150,000	)		(60,000	)
Payments of long-term debt		(14,250	)		(6,000	)
Payments of deferred financing fees		—			(311	)
Tax withholding payments related to net share settlements of restricted stock units		(48	)		(1,963	)
Issuance of common stock under employee stock purchase plan		918			1,027
Net collections under transition services agreement		—			265
Net cash used in financing activities		(13,380	)		(6,982	)
Net (decrease) increase in cash and cash equivalents		(24,810	)		55,311
Cash and cash equivalents at beginning of the period		296,353			253,365
Cash and cash equivalents at end of the period	$	271,543		$	308,676
Supplemental disclosure of cash flow information
Interest paid	$	45,913		$	32,264
Income taxes paid		1,848			469
Non-cash investing activities
Pre-publication costs included in accounts payable and accruals	$	2,192		$	7,299
Property, plant, and equipment included in accounts payable and accruals		1,648			2,317
Property, plant, and equipment acquired under finance leases		205			366

The accompanying notes are an integral part of these consolidated financial statements.

7

Houghton Mifflin Harcourt Company

Consolidated Statements of Stockholders’ Equity (Unaudited)

	Common Stock
(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		148,164,854	$	1,481	$	(518,030	)	$	4,893,174		$	(3,562,971	)	$	(45,184	)	$	768,470
Net loss		—		—		—			—			(117,362	)		—			(117,362	)
Other comprehensive loss, net of tax		—		—		—			—			—			(1,550	)		(1,550	)
Effects of adoption of new lease accounting    standard		—		—		—			—			725			—			725
Issuance of common stock for employee    purchase plan		78,105		1		—			701			—			—			702
Issuance of common stock for vesting of    restricted stock units		444,622		5		—			(5	)		—			—			—
Stock withheld to cover tax withholdings    requirements upon vesting of restricted stock    units		—		—		—			(1,756	)		—			—			(1,756	)
Stock-based compensation expense		—		—		—			3,442			—			—			3,442
Balance at March 31, 2019		148,687,581	$	1,487	$	(518,030	)	$	4,895,556		$	(3,679,608	)	$	(46,734	)	$	652,671
Net loss		—		—		—			—			(40,613	)		—			(40,613	)
Other comprehensive loss, net of tax		—		—		—			—			—			(1,972	)		(1,972	)
Effects of adoption of new lease accounting    standard		—		—		—			—			87			—			87
Issuance of common stock for employee    purchase plan		—		—		—			1			—			—			1
Issuance of common stock for vesting of    restricted stock units		97,845		—		—			—			—			—			—
Stock withheld to cover tax withholdings    requirements upon vesting of restricted stock    units		—		—		—			(173	)		—			—			(173	)
Stock-based compensation expense		—		—		—			3,604			—			—			3,604
Balance at June 30, 2019		148,785,426	$	1,487	$	(518,030	)	$	4,898,988		$	(3,720,134	)	$	(48,706	)	$	613,605
Net income		—		—		—			—			69,260			—			69,260
Other comprehensive loss, net of tax		—		—		—			—			—			(608	)		(608	)
Issuance of common stock for employee    purchase plan		108,009		1		—			734			—			—			735
Issuance of common stock for vesting of    restricted stock units		14,520		1		—			(1	)		—			—			—
Stock withheld to cover tax withholdings    requirements upon vesting of restricted stock    units		—		—		—			(34	)		—			—			(34	)
Stock-based compensation expense		—		—		—			3,735			—			—			3,735
Balance at September 30, 2019		148,907,955	$	1,489	$	(518,030	)	$	4,903,422		$	(3,650,874	)	$	(49,314	)	$	686,693
Balance at December 31, 2019		148,928,328	$	1,489	$	(518,030	)	$	4,906,165		$	(3,775,992	)	$	(47,272	)	$	566,360
Net loss		—		—		—			—			(345,973	)		—			(345,973	)
Other comprehensive loss, net of tax		—		—		—			—			—			(444	)		(444	)
Issuance of common stock for employee    purchase plan		104,331		1		—			678			—			—			679
Issuance of common stock for vesting of restricted stock units		950,496		10		—			(10	)		—			—			—
Stock withheld to cover tax withholdings    requirements upon vesting of restricted stock    units		—		—		—			(48	)		—			—			(48	)
Stock-based compensation expense		—		—		—			3,386			—			—			3,386
Balance at March 31, 2020		149,983,155	$	1,500	$	(518,030	)	$	4,910,171		$	(4,121,965	)	$	(47,716	)	$	223,960
Net loss		—		—		—			—			(38,168	)		—			(38,168	)
Other comprehensive income, net of tax		—		—		—			—			—			993			993
Issuance of common stock for employee    purchase plan		—		—		—			(1	)		—			—			(1	)
Issuance of common stock for vesting of    restricted stock units		149,495		1		—			(1	)		—			—			—
Stock-based compensation expense		—		—		—			2,101			—			—			2,101
Balance at June 30, 2020		150,132,650	$	1,501	$	(518,030	)	$	4,912,270		$	(4,160,133	)	$	(46,723	)	$	188,885
Net loss		—		—		—			—			(12,552	)		—			(12,552	)
Other comprehensive income, net of tax		—		—		—			—			—			172			172
Issuance of common stock for employee    purchase plan		274,588		3		—			567			—			—			570
Issuance of common stock for vesting of    restricted stock units		19,910		—		—			—			—			—			—
Stock-based compensation expense		—		—		—			2,969			—			—			2,969
Balance at September 30, 2020		150,427,148	$	1,504	$	(518,030	)	$	4,915,806		$	(4,172,685	)	$	(46,551	)	$	180,044

The accompanying notes are an integral part of these consolidated financial statements.

8

 Houghton Mifflin Harcourt Company

Notes to Consolidated Financial Statements (Unaudited)

(amounts in tables are in thousands of dollars, except share and per share information)

1. Basis of Presentation

Houghton Mifflin Harcourt Company (“HMH,” “Houghton Mifflin Harcourt,” “we,” “us,” “our,” or the “Company”) is a learning technology company committed to delivering connected solutions that engage learners, empower educators and improve student outcomes. As a leading provider of Kindergarten through 12^th grade (“K-12”) core curriculum, supplemental and intervention solutions and professional learning services, HMH partners with educators and school districts to uncover solutions that unlock students’ potential and extend teachers’ capabilities. HMH estimates that it serves more than 50 million students and three million educators in 150 countries, while its award-winning children’s books, novels, non-fiction, and reference titles are enjoyed by readers throughout the world.

We are organized along two business segments: Education and HMH Books & Media. Within our Education segment, we focus on the K-12 market and, in the United States, we are a market leader. We specialize in comprehensive core curriculum, supplemental and intervention solutions, and we provide ongoing support in professional learning and coaching for educators and administrators. Our offerings are rooted in learning science, and we work with research partners, universities and third-party organizations as we design, build, implement and iterate our offerings to maximize their effectiveness. We are purposeful about innovation, leveraging technology to create engaging and immersive experiences designed to deepen learning experiences for students and to extend teachers’ capabilities so that they can focus on making meaningful connections with their students.

Our diverse portfolio enables us to help ensure that every student and teacher has the tools needed for success. We are able to build deep partnerships with school districts and leverage the scope of our offerings to provide holistic solutions at scale with the support of our far-reaching sales force and talented field-based specialists and consultants. We provide print, digital, and blended print/digital solutions that are tailored to a district’s needs, goals and technological readiness.

Furthermore, for nearly two centuries, our HMH Books & Media segment has brought renowned and awarded children’s, fiction, non-fiction, culinary and reference titles to readers throughout the world. Our distinguished author list includes ten Nobel Prize winners, forty-nine Pulitzer Prize winners, and twenty-six National Book Award winners. We are home to popular characters and titles such as Curious George, Carmen Sandiego, The Lord of the Rings, The Whole30, The Best American Series, the Peterson Field Guides, CliffsNotes, and The Polar Express, and published distinguished authors such as Tim O’Brien, Temple Grandin, Tim Ferriss, Kwame Alexander, Lois Lowry, and Chris Van Allsburg.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted consistent with Article 10 of Regulation S-X. In the opinion of management, our unaudited consolidated financial statements and accompanying notes include all adjustments (consisting of normal recurring adjustments) considered necessary by management to fairly state the results of operations, financial position and cash flows for the interim periods presented. Interim results of operations are not necessarily indicative of the results for the full year or for any future period. These financial statements should be read in conjunction with the annual financial statements and the notes thereto also included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Our accompanying consolidated financial statements include the results of operations of the Company and our wholly-owned subsidiaries. All material intercompany accounts and transactions are eliminated in consolidation.

Seasonality and Comparability

Our net sales, operating profit or loss and net cash provided by or used in operations are impacted by the inherent seasonality of the academic calendar, which typically results in a cash flow usage in the first half of the year and a cash flow generation in the second half of the year. Consequently, the performance of our businesses may not be comparable quarter to consecutive quarter and should be considered on the basis of results for the whole year or by comparing results in a quarter with results in the same quarter for the previous year. Moreover, uncertainty resulting from the COVID-19 pandemic may result in 2020 not following this historic pattern.

Approximately 87% of our net sales for the year ended December 31, 2019 were derived from our Education segment, which is a markedly seasonal business. Schools typically conduct the majority of their purchases in the second and third quarters of the calendar year in preparation for the beginning of the school year. Thus, for the years ended December 31, 2019, 2018 and 2017, approximately 67% of our consolidated net sales were realized in the second and third quarters. Sales of K-12 instructional materials and customized testing products are also cyclical with some years offering more sales opportunities than others in light of the state adoption calendar. The amount of funding available at the state level for educational materials also has a significant effect on year-to-year net sales. Although the loss of a single customer would not have a material adverse effect on our business, schedules of school adoptions and market acceptance of our products can materially affect year-to-year net sales performance.

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2. Impact of the COVID-19 Pandemic

The unprecedented and rapid spread of COVID-19 and the resulting social distancing measures, including business and school closures implemented by federal, state and local authorities, have significantly reduced customer demand for our solutions and services, disrupted portions of our supply chain and warehousing operations and also disrupted our ability to deliver our educational solutions and services. We continue to monitor indicators of demand, including our sales pipeline, customer orders and product shipments, as well as observe the impact to state revenues and related educational budgets to ascertain an estimate of the impact; however, the length and severity of the reduction in demand due to the pandemic remains uncertain. Accordingly, we expect that our full year results will be adversely impacted compared to prior years.

While we are planning for a demand recovery, the exact timing and pace of recovery is uncertain given the significant disruption caused by the pandemic on the operations of our customers. Our expense management and liquidity measures may be modified as we obtain additional clarity on the timing of customer demand recovery.

In response to these developments, we have implemented measures to help mitigate the impact on our financial position and operations. These measures include, but are not limited to, the following:

Expense Management. With the reduction in net sales, we have, and will continue to implement cost saving initiatives, including:

• director, executive and senior leadership salary reductions, and for the majority of employees, a four-day work week with associated labor cost reductions, in each case beginning in April 2020 and ceasing near the end of July 2020. The costs associated with ending the furlough program and the salary reductions were subsequently mitigated by the 2020 Restructuring actions discussed below;

• a freeze on spending not directly tied to near-term billings, including a reduction in all discretionary spending such as marketing, advertising, travel, and office supplies;

• executing a voluntary early retirement incentive program in September 2020, as discussed below; and

• committing to a restructuring program in September 2020 including a reduction in force, as discussed below.

Balance Sheet, Cash Flow and Liquidity. In addition to the expense management actions noted above, we have taken the following actions to increase liquidity and strengthen our financial position.

• reduced inventory purchasing;

• deferred long-term capital projects not directly contributing to billings in 2020; and

• deferred the payment of our employer payroll taxes allowed under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

2020 Restructuring Plan.

On September 4, 2020, we completed a voluntary retirement incentive program, which was offered to all U.S. based employees at least 55 years of age with at least five years of service. Of the eligible employees, 165 elected to participate representing approximately 5% of our workforce. The majority of the employees voluntarily retired as of September 4, 2020 with select employees leaving later in the year. Each of the employees received or will receive separation payments in accordance with our severance policy.  

On September 30, 2020, our Board of Directors committed to a restructuring program, including a reduction in force, as part of the ongoing assessment of our cost structure amid the COVID-19 pandemic and in line with our previously disclosed strategic transformation plan. The reduction in force resulted in a 22% reduction in our workforce, including positions eliminated as part of the voluntary retirement incentive program mentioned above, and net of newly created positions to support our digital first operations. The reduction in force will result in the departure of approximately 525 employees and was completed in October 2020. Each of the employees received or will receive separation payments in accordance with our severance policy. The total one-time, non-recurring cost incurred in connection with the restructuring program, inclusive of the voluntary retirement incentive program (collectively the “2020 Restructuring Plan”), all of which represents cash expenditures, is approximately $33.5 million and was recorded during the three months ended September 30, 2020.

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After reviewing whether conditions and/or events raise substantial doubt about our ability to meet future financial obligations over the next twelve months, including consideration of our recent actions, we have concluded our net cash from operations combined with our cash and cash equivalents and borrowing availability under our revolving credit facility will provide sufficient liquidity to fund our current obligations, capital spending, debt service requirements and working capital requirements over at least the next twelve months. Our primary credit facilities do not require us to comply with financial maintenance covenants.

The ability of the Company to fund planned operations is based on assumptions which involve significant judgment and estimates of future revenues, capital spend and other operating costs. Our current assumptions are that our industry will begin to recover as school districts become, or continue being, fully operational, either in-person, fully remote or hybrid, during the remainder of 2020. We have performed a sensitivity analysis on these assumptions to forecast the impact of a slower-than-anticipated recovery and believe we can take additional financial and operational actions to mitigate the impact of lower billings than our current plans assume. These actions include, but are not limited to, additional expense reductions, asset sales, and capital raising activities.

Valuation of Goodwill, Indefinite-Lived Intangible Assets and Long-Lived Assets

We perform a fair-value based impairment test to the carrying value of goodwill and indefinite-lived intangible assets on an annual basis (as of October 1) and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. Our fourth quarter 2019 quantitative impairment tests of goodwill and indefinite-lived intangible assets indicated that there was no indication of impairment as the fair value exceeded our carrying value.

During the three months ended March 31, 2020, our stock price declined to historical lows since our 2013 initial public offering. We determined that the significant decline in our market capitalization and broader economic downturn arising from the COVID-19 pandemic was a triggering event. We concluded that quantitative analyses were required to be performed due to the triggering event occurring during the first quarter of 2020.

Goodwill is allocated entirely to our Education reporting unit. We utilized an implied market value method under the market approach to calculate the fair value of the Education reporting unit as of March 31, 2020, which we determined was the best approximation of fair value of the Education reporting unit in the current social and economic environment. This method included the determination of the Company's overall enterprise value, from which the fair value of the HMH Books & Media reporting unit was deducted to derive the fair value of the Education reporting unit. We have previously used a combination of the implied market value method and guideline public company method approach.  The relevant inputs and assumptions used in the valuation of the Education reporting unit include our market capitalization, selection of a control premium, and the determination of an appropriate market multiple to value the HMH Books & Media reporting unit, as well as the fair value of individual assets and liabilities. Based on our interim impairment assessment as of March 31, 2020, we concluded that our goodwill, which is wholly attributed to the Education reporting unit, was impaired and, accordingly, recorded a goodwill impairment charge of $262.0 million. With the continuation of the COVID-19 pandemic and the associated downward pressure on our billings, we have concluded that impairment triggering events exist as of September 30, 2020. Accordingly, we estimated the fair value of the Education reporting unit as of September 30, 2020 utilizing the implied market value method.  Using consistent relative inputs and assumptions as described above with respect to the first quarter 2020 testing, we concluded that no impairment existed as of September 30, 2020. The fair value of the Education reporting unit as of September 30, 2020 exceeded its carrying value by less than a substantial amount. 

Additionally, as a result of the triggering events identified in the first and third quarters, we performed quantitative impairment analyses over our indefinite-lived intangible assets and long-lived assets. With regards to indefinite-lived intangible assets, which includes the Houghton Mifflin Harcourt tradename, the recoverability was evaluated using a one-step process whereby we determined the fair value by asset and then compared it to its carrying value to determine if the asset was impaired. We estimated the fair value by preparing a relief-from-royalty discounted cash flow analysis using forward looking revenue projections. The significant assumptions used in discounted cash flow analysis included: future net sales, a long-term growth rate, a royalty rate and a discount rate used to present value future cash flows and the terminal value of the Education reporting unit. The discount rate was based on the weighted-average cost of capital method at the date of the evaluation. The fair value of the indefinite-lived intangible assets was in excess of its carrying value by approximately 12% as of March 31, 2020 and 18% as of September 30, 2020, and substantially exceeded its carrying value as of October 1, 2019. We also performed an impairment test on our long-lived assets using an undiscounted cash flow model in determining the fair value, which was then compared to book value of the asset groups evaluated. Estimates and significant assumptions included in the long-lived asset impairment analysis included identification of the primary asset in each asset group and undiscounted cash flow projections. We concluded that our indefinite-lived intangible assets and long-lived assets were not impaired based on the results of the quantitative analyses performed.

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We continue to monitor and evaluate the carrying value of goodwill, indefinite-lived intangible assets and long-lived assets. We have concluded based on our analyses that no impairments occurred during the third quarter of 2020. Depending on how long the economic and social conditions resulting from the COVID-19 pandemic exist and their future impact on state and local budgets with regards to educational spending, as well as discretionary consumer spending, we may be subject to further impairments in the future.   

3. Significant Accounting Policies and Estimates

Our financial results are affected by the selection and application of accounting policies and methods. There were no material changes during the three and nine months ended September 30, 2020 due to the application of significant accounting policies and estimates as described in our audited consolidated financial statements, which were included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

We evaluate our estimates, judgments and methodologies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenues and expenses. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat it, as well as the economic impact on local, regional, national and international customers and markets. We have made estimates of the impact of the COVID-19 pandemic within our financial statements and there may be changes to those estimates in future periods. Actual results may differ from these estimates.

4. Recent Accounting Standards

Recent accounting pronouncements, not included below, are not expected to have a material impact on our consolidated financial position or results of operations.

Recently Issued Accounting Standards

In December 2019, the Financial Accounting Standards Board (“FASB”) issued new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles, including simplification of areas such as franchise taxes, step-up in tax basis of goodwill, intraperiod allocations, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. The standard will be effective in 2021, with early adoption permitted. We are currently evaluating the impact of adopting this new accounting guidance, but do not expect it to have a material impact on our consolidated financial statements.  

Recently Adopted Accounting Standards

In August 2018, the FASB issued new guidance on a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor (i.e., a service contract). Under the new guidance, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement to develop or obtain internal use software. Accordingly, the guidance requires a customer to determine the stage of a project that the implementation activity relates to and the nature of the associated costs in order to determine whether those costs should be expensed as incurred or capitalized. The guidance also requires the customer to amortize the capitalized implementation costs as an expense over the term of the hosting arrangement. We adopted the guidance on January 1, 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In January 2017, the FASB issued updated guidance to simplify the test for goodwill impairment by the elimination of Step 2 in the determination on whether goodwill should be considered impaired. The annual assessments are still required to be completed. We adopted the guidance on January 1, 2020.  

In June 2016, the FASB issued new guidance that requires credit losses on financial assets measured at amortized cost basis to be presented at the net amount expected to be collected, not based on incurred losses, as well as additional disclosures. The estimate of expected credit losses should consider historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. We adopted the guidance on January 1, 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements.

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We are exposed to credit losses primarily through our accounts receivable. We develop estimates to reflect the risk of credit loss which are based on an evaluation of accounts receivable aging, prior collection experience, current conditions and reasonable and supportable forecasts of the economic conditions that will exist through the contractual life of the financial asset. We write off the asset when it is no longer deemed collectible. We monitor our ongoing credit exposure through an active review of collection trends. Our activities include monitoring the timeliness of payment collection and performing timely account reconciliations. At September 30, 2020, we reported allowances for doubtful accounts of $3.9 million, compared to $3.0 million at December 31, 2019, reflecting an increase of $1.4 million, prior to write-offs of $0.5 million for the nine months ended September 30, 2020.

We are also exposed to losses on our royalty advances. Royalty advances to authors are capitalized and represent amounts paid in advance of the sale of an author’s product and are recovered as earned. As advances are recorded, a partial reserve may be recorded immediately based primarily upon historical sales experience. Additionally, advances are evaluated periodically to determine if they are expected to be recovered on a title-by-title basis. Any portion of a royalty advance that is not expected to be recovered is fully reserved. At September 30, 2020, we reported a reserve for royalty advances of $132.9 million, compared to $119.7 million at December 31, 2019, reflecting an increase of $13.2 million for the nine months ended September 30, 2020.

5. Inventories

Inventories consisted of the following:

	September 30, 2020		December 31, 2019
Finished goods	$	170,169	$	203,103
Raw materials		5,651		9,956
Inventories	$	175,820	$	213,059

6. Contract Assets, Contract Liabilities and Contract Costs

Contract assets consist of unbilled amounts at the reporting date and are transferred to accounts receivable when the rights become unconditional. Contract assets are included in prepaid expenses and other assets on our consolidated balance sheets. Contract liabilities consist of deferred revenue (current and long-term). The following table presents changes in contract assets and contract liabilities during the nine months ended September 30, 2020:

	September 30, 2020		December 31, 2019		$ Change			% Change
Contract assets	$	27	$	109	$	(82	)		(75.2	%)
Contract liabilities (deferred revenue)	$	953,453	$	848,106	$	105,347			12.4	%

The $105.4 million net increase in our contract assets and liabilities from December 31, 2019 to September 30, 2020 was primarily due to the non-satisfaction of performance obligations related to physical and digital products, and services during the period in excess of additions to deferred revenue.

During the three and nine months ended September 30, 2020 and 2019, we recognized the following net sales as a result of changes in the contract assets and contract liabilities balances:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Net sales recognized in the period from:
Amounts included in contract liabilities at the beginning    of the period	$	81,768	$	70,686	$	254,695	$	194,509

As of September 30, 2020, the aggregate amount of the transaction price allocated to the remaining performance obligations, which includes deferred revenue and open orders, was $1,003.7 million, and we will recognize approximately 73% to net sales over the next 1 to 3 years.

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We capitalize incremental commissions paid to sales representatives for obtaining product sales as well as service contracts unless the capitalization and amortization of such costs are not expected to have a material impact on the financial statements. Applying the practical expedient within the accounting guidance, we recognize sales commission expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less. We had deferred commissions in the amount of $33.0 million at September 30, 2020 and amortized $11.0 million during both the nine months ended September 30, 2020 and 2019. The amortization is included in selling and administrative expenses.

Costs to fulfill a contract are directly related to a contract that will be used to satisfy a performance obligation in the future and are expected to be recovered. These costs are amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. Our assets associated with incremental costs to fulfill a contract were $13.2 million at September 30, 2020 and are included within prepaid expenses and other assets (current) and other assets (long term) on our consolidated balance sheet. We recorded amortization of $2.6 million and $2.3 million during the nine months ended September 30, 2020 and 2019, respectively. The amortization is included in cost of sales.    

7. Goodwill and Other Intangible Assets

The change in the carrying amount of goodwill, which all relates to the Education segment, for the nine months ended September 30, 2020 is as follows:

Balance at December 31, 2019	$	716,977
Impairment		(262,000	)
Balance at September 30, 2020	$	454,977

Accumulated impairment losses on goodwill as of September 30, 2020 was $262.0 million. Refer to Note 2 for a discussion of the valuation of goodwill, indefinite-lived intangible assets and long-lived assets along with the triggering event which resulted in a goodwill impairment of $262.0 million during the nine months ended September 30, 2020.

Other intangible assets consisted of the following:

	September 30, 2020							December 31, 2019
	Cost		Accumulated Amortization			Total		Cost		Accumulated Amortization			Total
Trademarks and tradenames: indefinite-lived	$	161,000	$	—		$	161,000	$	161,000	$	—		$	161,000
Trademarks and tradenames: definite-lived		164,130		(49,794	)		114,336		164,130		(38,948	)		125,182
Publishing rights		1,180,000		(1,154,721	)		25,279		1,180,000		(1,139,426	)		40,574
Customer related and other		449,840		(310,344	)		139,496		449,840		(302,371	)		147,469
Other intangible assets, net	$	1,954,970	$	(1,514,859	)	$	440,111	$	1,954,970	$	(1,480,745	)	$	474,225

Amortization expense for definite-lived trademarks and tradenames, publishing rights and customer related and other intangibles were $34.1 million and $39.7 million for the nine months ended September 30, 2020 and 2019, respectively.

8. Debt

Our debt consisted of the following:

	September 30, 2020			December 31, 2019
$380,000 term loan due November 22, 2024, interest payable    quarterly (net of discount and issuance costs)	$	349,892		$	361,294
$306,000 senior secured notes due February 15, 2025, interest    payable semi-annually (net of discount and issuance costs)	$	297,174		$	295,893
		647,066			657,187
Less: Current portion of long-term debt		(19,000	)		(19,000	)
Total long-term debt, net of discount and issuance costs	$	628,066		$	638,187
Revolving credit facility	$	—		$	—

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Senior Secured Notes

On November 22, 2019, we completed the sale of $306.0 million in aggregate principal amount of 9.0% Senior Secured Notes due 2025 (the “notes”) in a private placement to qualified institutional buyers under Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to persons outside the United States pursuant to Regulation S under the Securities Act.  The notes mature on February 15, 2025 and bear interest at a rate of 9.0% per annum. Interest is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2020.

The notes were issued at a discount equal to 2.0% of the outstanding borrowing commitment.  We may redeem all or a portion of the notes at redemption prices as described in the notes.  

The notes do not require us to comply with financial maintenance covenants. We are currently required to meet certain incurrence based financial covenants as defined under our notes. The notes are subject to restrictions on our ability to incur additional indebtedness, issue certain preferred stock, redeem, purchase or retire subordinated debt, make certain investments, pay dividends or other amounts, enter into certain transactions with affiliates, merge or consolidate with another person, sell or otherwise dispose of all or substantially all of our assets, sell certain assets, including capital stock, designate our subsidiaries as unrestricted subsidiaries, redeem or repurchase capital stock or make other restricted payments, and incur certain liens.  The notes are subject to customary events of default. If an event of default occurs and is continuing, the administrative agent may, or at the request of certain required lenders shall, accelerate the obligations outstanding under the notes.

Term Loan Facility

On November 22, 2019, we entered into a second amended and restated term loan credit agreement for an aggregate principal amount of $380.0 million (the “term loan facility”). The term loan facility is required to be repaid in quarterly installments of approximately $4.8 million with the balance being payable on the maturity date.  The term loan facility matures on November 22, 2024 and the interest rate per annum is equal to, at the option of the Company, either (a) LIBOR plus a margin of 6.25% or (b) an alternate base rate plus a margin of 5.25%.  As of September 30, 2020, the interest rate on the term loan facility was 7.25%.  

On July 27, 2017, the U.K. Financial Conduct Authority (the “FCA”) announced that it will no longer require banks to submit rates for the calculation of LIBOR after 2021. Our term loan facility provides that the administrative agent may determine that (i) adequate and reasonable means do not exist for ascertaining the LIBOR rate or (ii) the FCA or the government authority having jurisdiction over the administrative agent has made a public statement identifying a specific date after which the LIBOR rate shall no longer be used for determining interest rates for loans. If the administrative agent determines that (i) or (ii) above is unlikely to be temporary then the administrative agent and the Company will agree to transition to an alternate base rate or amend the term loan facility to establish an alternate rate of interest to LIBOR that gives due consideration to the then-prevailing market convention for determining a rate of interest for syndicated loans in the United States at such time.

The term loan facility was issued at a discount equal to 4.0% of the outstanding borrowing commitment.

The term loan facility contains customary mandatory prepayment requirements, including with respect to excess cash flow, proceeds from certain asset sales or dispositions of property, and proceeds from certain incurrences of indebtedness.  The term loan facility permits the Company to voluntarily prepay outstanding amounts at any time without premium or penalty, other than customary breakage costs with respect to LIBOR loans; provided, however, that any voluntary prepayment in connection with certain repricing transactions that occur before the date that is twelve months after the closing of the term loan facility shall be subject to a prepayment premium of 1.00% of the principal amount of the amounts prepaid.

The term loan facility does not require us to comply with financial maintenance covenants. We are currently required to meet certain incurrence based financial covenants as defined under our term loan facility. The term loan facility is subject to usual and customary conditions, representations, warranties and covenants, including restrictions on additional indebtedness, liens, investments, mergers, acquisitions, asset dispositions, dividends to stockholders, repurchase or redemption of our stock, transactions with affiliates and other matters. The term loan facility is subject to customary events of default. If an event of default occurs and is continuing, the administrative agent may, or at the request of certain required lenders shall, accelerate the obligations outstanding under the term loan facility.

We are subject to an excess cash flow provision under our term loan facility which is predicated upon our leverage ratio and cash flow.  

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Interest Rate Hedging

On August 17, 2015, we entered into interest rate derivative contracts with various financial institutions having an aggregate notional amount of $400.0 million to convert floating rate debt into fixed rate debt. We assessed at inception, and re-assess on an ongoing basis, whether the interest rate derivative contracts are highly effective in offsetting changes in the fair value of the hedged variable rate debt. The interest rate derivative contracts matured on July 22, 2020.  

These interest rate swaps were designated as cash flow hedges and qualify for hedge accounting under the accounting guidance related to derivatives and hedging. Accordingly, we recorded an unrealized gain of $1.0 million and an unrealized loss of $3.7 million in our statements of comprehensive loss to account for the changes in fair value of these derivatives during the nine months ended September 30, 2020 and 2019, respectively. The corresponding $1.0 million hedge liability is included within current other liabilities in our consolidated balance sheet as of December 31, 2019. We reclassified $1.9 million from other comprehensive loss to earnings during the nine months ended September 30, 2020.

In connection with the term loan facility on November 22, 2019, we incurred a change in the mix of floating rate debt versus fixed rate debt. As a result, the aggregate notional of our active interest rate derivative contracts designated as cash flow hedges exceeded the outstanding floating rate debt notional by approximately $29.5 million. To accommodate for this notional shortfall, we partially de-designated one of our active interest rate derivative contracts. This involved splitting the notional amount with one portion remaining designated under cash flow hedge accounting, and the remaining portion, with a $29.5 million notional amount, left undesignated. There were no changes made to the interest rate derivative contracts from an economic perspective; the notional split is accounting in nature only.

Beginning on November 22, 2019, the fair value changes on the undesignated portion of the swap flow through earnings, as opposed to being deferred as unrealized gains or losses in other comprehensive loss. The impact of this change on the financial statements as of September 30, 2020 was less than $0.1 million and was recorded in our consolidated statements of operations for the nine months ended September 30, 2020.  We had no interest rate derivative contracts outstanding as of September 30, 2020.

Revolving Credit Facility

On November 22, 2019, we entered into a second amended and restated revolving credit agreement that provides borrowing availability in an amount equal to the lesser of either $250.0 million or a borrowing base that is computed monthly or weekly and comprised of the Borrowers’ and the Guarantors’ (as such terms are defined below) eligible inventory and receivables (the “revolving credit facility”). The revolving credit facility includes a letter of credit subfacility of $50.0 million, a swingline subfacility of $20.0 million and the option to expand the facility by up to $100.0 million in the aggregate under certain specified conditions. The revolving credit facility may be prepaid, in whole or in part, at any time, without premium.  

The revolving credit facility requires the Company to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0 on a trailing four-quarter basis only during certain periods commencing when excess availability under the revolving credit facility is less than certain limits prescribed by the terms of the revolving credit facility. The revolving credit facility is subject to usual and customary conditions, representations, warranties and covenants, including restrictions on additional indebtedness, liens, investments, mergers, acquisitions, asset dispositions, dividends to stockholders, repurchase or redemption of our stock, transactions with affiliates and other matters. The revolving credit facility is subject to customary events of default. If an event of default occurs and is continuing, the administrative agent may, or at the request of certain required lenders shall, accelerate the obligations outstanding under the revolving credit facility. As of September 30, 2020, no amounts are outstanding under the revolving credit facility.  

As of September 30, 2020, the minimum fixed charge coverage ratio covenant under our revolving credit facility was not applicable, due to our level of borrowing availability. The minimum fixed charge coverage ratio, which is only tested in limited situations, is 1.0 to 1.0 through the end of the facility.

Guarantees

Under each of the notes, the term loan facility and the revolving credit facility, Houghton Mifflin Harcourt Publishers Inc., Houghton Mifflin Harcourt Publishing Company and HMH Publishers LLC are the borrowers (collectively, the “Borrowers”), and Citibank, N.A. acts as both the administrative agent and the collateral agent.

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The obligations under the notes, the term loan facility and the revolving credit facility are guaranteed by the Company and each of its direct and indirect for-profit domestic subsidiaries (other than the Borrowers) (collectively, the “Guarantors”) and are secured by all capital stock and other equity interests of the Borrowers and the Guarantors and substantially all of the other tangible and intangible assets of the Borrowers and the Guarantors, including, without limitation, receivables, inventory, equipment, contract rights, securities, patents, trademarks, other intellectual property, cash, bank accounts and securities accounts and owned real estate. The revolving credit facility is secured by first priority liens on receivables, inventory, deposit accounts, securities accounts, instruments, chattel paper and other assets related to the foregoing (the “Revolving First Lien Collateral”), and second priority liens on the collateral which secures the term loan facility on a first priority basis. The term loan facility is secured by first priority liens on the capital stock and other equity interests of the Borrowers and the Guarantors, equipment, owned real estate, trademarks and other intellectual property, general intangibles that are not Revolving First Lien Collateral and other assets related to the foregoing, and second priority liens on the Revolving First Lien Collateral.

9. Restructuring, Severance and Other Charges

2020 Restructuring Plan

On September 4, 2020, we finalized a voluntary retirement incentive program, which was offered to all U.S. based employees at least 55 years of age with at least five years of service. Of the eligible employees, 165 elected to participate representing approximately 5% of our workforce. The majority of the employees voluntarily retired as of September 4, 2020 with select employees leaving later in the year.  Each of the employees received or will receive separation payments in accordance with our severance policy.  

On September 30, 2020, our Board of Directors committed to a restructuring program, including a reduction in force, as part of the ongoing assessment of our cost structure amid the COVID-19 pandemic and in line with our previously disclosed strategic transformation plan. The reduction in force resulted in a 22% reduction in our workforce, including positions eliminated as part of the voluntary retirement incentive program mentioned above, and net of newly created positions to support our digital first operations. The reduction in force will result in the departure of approximately 525 employees and was completed in October 2020.  Each of the employees received or will receive separation payments in accordance with our severance policy. The total one-time, non-recurring cost incurred in connection with the restructuring program, inclusive of the voluntary retirement incentive program, (collectively the “2020 Restructuring Plan”) all of which represents cash expenditures, is approximately $33.5 million and was recorded during the three months ended September 30, 2020.

The following table provides a summary of our total costs associated with the 2020 Restructuring Plan, included in the restructuring/severance and other charges line item within our consolidated statements of operations, for the three and nine months ended September 30, 2020, by major type of cost:

	Three Months Ended		Nine Months Ended		Total Amount
	September 30,		September 30,		Incurred
Type of Cost	2020		2020		to Date
Restructuring charges: (1)
Severance and termination benefits	$	33,545	$	33,545	$	33,545
	$	33,545	$	33,545	$	33,545

(1) All restructuring charges are included within Corporate and Other.

Our restructuring liabilities are comprised of accruals for severance and termination benefits. The following is a rollforward of our liabilities associated with the 2020 Restructuring Plan:

	2020
	Restructuring						Restructuring
	accruals at						accruals at
	December 31,				Cash		September 30,
	2019		Charges		payments		2020
Severance and termination benefits	$	—	$	33,545	$	(1,250)	$	32,295
	$	—	$	33,545	$	(1,250)	$	32,295

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2019 Restructuring Plan

On October 15, 2019, our Board of Directors approved changes connected with our ongoing strategic transformation to simplify our business model and accelerate growth. This includes new product development and go-to-market capabilities, as well as the streamlining of operations company-wide for greater efficiency. These actions (the “2019 Restructuring Plan”) resulted in the net elimination of approximately 10% of our workforce, after taking into account new strategy-aligned positions that are expected to be added, and additional operating and capitalized cost reductions, including an approximately 20% reduction in previously planned content development expenditures over the next three years. These steps are intended to further simplify our business model while delivering increased value to customers, teachers and students. The workforce reductions were completed in the first quarter of 2020.

After considering additional headcount actions, implementation of the planned actions resulted in total charges of $15.8 million which was recorded in the fourth quarter of 2019. With respect to each major type of cost associated with such activities, substantially all costs were severance and other termination benefit costs and will result in cash expenditures.

There were no costs associated with the 2019 Restructuring Plan in our consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019.

Our restructuring liabilities are comprised of accruals for severance and termination benefits. The following is a rollforward of our liabilities associated with the 2019 Restructuring Plan:

	2020
	Restructuring							Restructuring
	accruals at							accruals at
	December 31,				Cash			September 30,
	2019		Charges		payments			2020
Severance and termination benefits	$	11,649	$	—	$	(9,043	)	$	2,606
	$	11,649	$	—	$	(9,043	)	$	2,606

Severance and Other Charges

2020

Exclusive of the 2020 Restructuring Plan and the 2019 Restructuring Plan, during the nine months ended September 30, 2020, $0.8 million of severance payments were made to employees whose employment ended in 2019 and prior years.

A summary of the significant components of the severance costs, which are not allocated to our segments and instead are included in the Corporate and Other category, is as follows:

	2020
	Severance/ other accruals at December 31, 2019		Severance/ other expense		Cash payments			Severance/ other accruals at September 30, 2020
Severance costs	$	758	$	—	$	(758	)	$	—
	$	758	$	—	$	(758	)	$	—

2019

Exclusive of the 2019 Restructuring Plan, during the nine months ended September 30, 2019, $2.6 million of severance payments were made to employees whose employment ended in 2019 and prior years. Further, we recorded an expense in the amount of $2.5 million of net payments to reflect costs for severance, which have been fully paid. We also recorded an expense in the amount of $3.4 million for real estate consolidation costs, which is reflected as a reduction in operating lease assets in our consolidated balance sheet.

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A summary of the significant components of the severance costs and other accruals, which are not allocated to our segments and included in the Corporate and Other category, is as follows:

	2019
	Severance/ other accruals at December 31, 2018			Severance/ other expense		Cash payments			Severance/ other accruals at September 30, 2019
Severance costs	$	1,420		$	2,534	$	(2,642	)	$	1,312
Other accruals		270	(1)		—		—			—
	$	1,690		$	2,534	$	(2,642	)	$	1,312

(1) In connection with the adoption of the new leasing standard on January 1, 2019, the restructuring liabilities related to office space consolidation were reclassed on the balance sheet as a reduction of operating lease assets.

The current portion of the severance and other charges was $34.9 million and $12.4 million as of September 30, 2020 and December 31, 2019, respectively.

10. Income Taxes

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment, including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in various jurisdictions, permanent and temporary differences and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is acquired, additional information is obtained or as the tax environment changes.

At the end of each interim period, we estimate the annual effective tax rate and apply that rate to our ordinary quarterly earnings. The amount of interim tax benefit recorded for the year-to-date ordinary loss is limited to the amount that is expected to be realized during the year or recognizable as a deferred tax asset at year end. The tax expense or benefit related to significant, unusual or extraordinary items that will be separately reported or reported net of their related tax effect, are individually computed, and are recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates or tax status is recognized in the interim period in which the change occurs.

For the three months ended September 30, 2020 and 2019, we recorded an income tax benefit of approximately $1.1 million and $2.6 million, respectively, and for the nine months ended September 30, 2020 and 2019, we recorded an income tax benefit of approximately $10.9 million and an expense of $4.3 million, respectively. For all periods, income tax expense was primarily attributed to movement in the deferred tax liability associated with tax amortization on indefinite-lived intangibles, state and foreign taxes, as well as the impact of certain discrete tax items, including the accrual of potential interest and penalties on uncertain tax positions. The income tax benefit of $10.9 million for the nine months ended September 30, 2020 is primarily the result of the book impairment on goodwill recorded in the first quarter of 2020, which reduced the related deferred tax liabilities. Including the tax effects of these discrete tax items, the effective rate was 7.9% and (3.9)% for the three months ended September 30, 2020 and 2019, respectively, and 2.7% and (5.0)% for the nine months ended September 30, 2020 and 2019, respectively.

Reserves for unrecognized tax benefits, excluding accrued interest and penalties, were $15.7 million at both September 30, 2020 and December 31, 2019.

11. Retirement and Postretirement Benefit Plans

We have a noncontributory, qualified defined benefit pension plan (the “Retirement Plan”), which covers certain employees. The Retirement Plan is a cash balance plan, which accrues benefits based on pay, length of service, and interest. The funding policy is to contribute amounts subject to minimum funding standards set forth by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. The Retirement Plan’s assets consist principally of common stocks, fixed income securities, investments in registered investment companies, and cash and cash equivalents. We also have a nonqualified defined benefit plan, or nonqualified plan, that previously covered employees who earned over the qualified pay limit as determined by the Internal Revenue Service. The nonqualified plan accrues benefits for the participants based on the cash balance plan calculation. The nonqualified plan is not funded. We use a December 31 date to measure the pension and postretirement liabilities. In 2007, both the qualified and nonqualified pension plans eliminated participation in the plans for new employees hired after October 31, 2007.

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We recognize the funded status of defined benefit pension and other postretirement plans as an asset or liability in the balance sheet and recognize actuarial gains and losses and prior service costs and credits in other comprehensive loss and subsequently amortize those items in the statement of operations.

Net periodic benefit (credit) cost for our pension and other postretirement benefit plans consisted of the following:

	Pension Plans
	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Interest cost	$	1,097		$	1,511		$	3,291		$	4,533
Expected return on plan assets		(1,855	)		(1,918	)		(5,565	)		(5,755	)
Amortization of net loss		581			251			1,743			752
Net periodic benefit credit	$	(177	)	$	(156	)	$	(531	)	$	(470	)

	Other Post Retirement Plans
	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Service cost	$	17		$	15		$	51		$	44
Interest cost		107			145			321			436
Amortization of prior service cost		11			10			33			32
Amortization of net loss		(2	)		(40	)		(6	)		(123	)
Net periodic benefit cost	$	133		$	130		$	399		$	389

There were $3.7 million and $1.2 million in contributions to the pension plans during the nine months ended September 30, 2020 and 2019, respectively.

12. Fair Value Measurements

The accounting standard for fair value measurements, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. The accounting standard establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Level 1 Observable input such as quoted prices in active markets for identical assets or liabilities;

Level 2 Observable inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3 Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value are based on one or more of three valuation techniques identified in the tables below. Where more than one technique is noted, individual assets or liabilities were valued using one or more of the noted techniques. The valuation techniques are as follows:

^(a)  Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;

^(b)  Cost approach: Amount that would be currently required to replace the service capacity of an asset (current replacement cost); and

^(c)  Income approach: Valuation techniques to convert future amounts to a single present amount based on market expectations (including present value techniques).

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On a recurring basis, we measure certain financial assets and liabilities at fair value, including our money market funds, short-term investments which consist of U.S. treasury securities and U.S. agency securities, foreign exchange forward contracts, and interest rate derivatives contracts. The accounting standard for fair value measurements defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty and its credit risk in its assessment of fair value.

Financial Assets and Liabilities

The following tables present our financial assets and liabilities measured at fair value on a recurring basis:

	September 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Valuation Technique
Financial assets
Money market funds	$	250,522	$	250,522	$	—	(a)
	$	250,522	$	250,522	$	—
Financial liabilities
Foreign exchange derivatives	$	156	$	—	$	156	(a)
	$	156	$	—	$	156

	December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Valuation Technique
Financial assets
Money market funds	$	276,654	$	276,654	$	—	(a)
	$	276,654	$	276,654	$	—
Financial liabilities
Interest rate derivatives	$	986	$	—	$	986	(a)
Foreign exchange derivatives		127		—		127	(a)
	$	1,113	$	—	$	1,113

Our money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted prices in active markets for identical instruments. In addition to $250.5 million and $276.7 million invested in money market funds as of September 30, 2020 and December 31, 2019, respectively, we had $21.0 million and $19.7 million of cash invested in bank accounts as of September 30, 2020 and December 31, 2019, respectively.

Our foreign exchange derivatives consist of forward contracts and are classified within Level 2 of the fair value hierarchy because they are valued based on observable inputs and are available for substantially the full term of our derivative instruments. We use foreign exchange forward contracts to fix the functional currency value of forecasted commitments, payments and receipts. The aggregate notional amount of the outstanding foreign exchange forward contracts was $12.8 million and $15.2 million at September 30, 2020 and December 31, 2019, respectively. Our foreign exchange forward contracts contain netting provisions to mitigate credit risk in the event of counterparty default, including payment default and cross default. At September 30, 2020 and December 31, 2019, the fair value of our counterparty default exposure was less than $1.0 million and spread across several highly rated counterparties.

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Our interest rate derivatives are classified within Level 2 of the fair value hierarchy because they are valued based on observable inputs and are available for substantially the full term of our derivative instruments. Our interest rate risk relates primarily to U.S. dollar borrowings, partially offset by U.S. dollar cash investments. We have historically used interest rate derivative instruments to manage our earnings and cash flow exposure to changes in interest rates by converting floating-rate debt into fixed-rate debt. There were no aggregate notional amounts outstanding of the interest rate derivative instruments as of September 30, 2020. We designate these derivative instruments either as fair value or cash flow hedges under the accounting guidance related to derivatives and hedging. We record changes in the value of fair value hedges in interest expense, which is generally offset by changes in the fair value of the hedged debt obligation. Interest payments made or received related to our interest rate derivative instruments are included in interest expense. We record the effective portion of any change in the fair value of derivative instruments designated as cash flow hedges as unrealized gains or losses in other comprehensive loss, net of tax, until the hedged cash flow occurs, at which point the effective portion of any gain or loss is reclassified to earnings. In the event the hedged cash flow does not occur, or it becomes no longer probable that it will occur, we reclassify the amount of any gain or loss on the related cash flow hedge to interest expense at that time.

We believe we do not have significant concentrations of credit risk arising from our interest rate derivative instruments, whether from an individual counterparty or a related group of counterparties. We manage the concentration of counterparty credit risk on our interest rate derivatives instruments by limiting acceptable counterparties to a diversified group of major financial institutions with investment grade credit ratings, limiting the amount of credit exposure to each counterparty, and actively monitoring their credit ratings and outstanding fair values on an ongoing basis. Furthermore, none of our derivative transactions contain provisions that are dependent on our credit ratings from any credit rating agency.

We also employ master netting arrangements that reduce our counterparty payment settlement risk on any given maturity date to the net amount of any receipts or payments due between us and the counterparty financial institution. Thus, the maximum loss due to counterparty credit risk is limited to the unrealized gains in such contracts net of any unrealized losses should any of these counterparties fail to perform as contracted. Although these protections do not eliminate concentrations of credit risk, as a result of the above considerations, we do not consider the risk of counterparty default to be significant.

Non-Financial Assets and Liabilities

Our non-financial assets, which include goodwill, other intangible assets, property, plant, and equipment, and pre-publication costs, are not required to be measured at fair value on a recurring basis. However, if certain trigger events occur, or if an annual impairment test is required, we evaluate the non-financial assets for impairment. If an impairment did occur, the asset is required to be recorded at the estimated fair value. An impairment analysis was performed for the preparation of the first quarter report, as there were triggering events for the three months ended March 31, 2020 related to the decline in our stock price attributed to the market environment. There were no non-financial liabilities that were required to be measured at fair value on a nonrecurring basis during the three or nine months ended September 30, 2020 and 2019.

	September 30, 2020		Significant Unobservable Inputs (Level 3)		Total Impairment		Valuation Technique
Non-financial assets
Goodwill	$	454,977	$	454,977	$	262,000		(a)
	$	454,977	$	454,977	$	262,000

In evaluating goodwill for impairment, we first compare our reporting unit's fair value to its carrying value. We estimate the fair values of our reporting units by considering our market capitalization and other judgments. There was no goodwill impairment recorded for the three months ended September 30, 2020. Impairment recorded for goodwill for the nine months ended September 30, 2020 was $262.0 million. There was no impairment recorded for the nine months ended September 30, 2019.

Non-Marketable Investments

At September 30, 2020 and December 31, 2019, the carrying value of our non-marketable investments, which were comprised of equity interests in educational technology private partnerships, was $4.0 million and $2.3 million, respectively. The amounts are included in other assets in our consolidated balance sheets. Our non-marketable investments are accounted for using the cost method and are adjusted for observable transactions as appropriate. Gains from non-marketable investments were $1.7 million during the three and nine months ended September 30, 2020 and are included in gain on investments in our consolidated statements of operations.

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Fair Value of Debt

The following table presents the carrying amounts and estimated fair market values of our debt at September 30, 2020 and December 31, 2019. The fair value of debt is deemed to be the amount at which the instrument could be exchanged in an orderly transaction between market participants at the measurement date.

	September 30, 2020				December 31, 2019
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Debt
$380,000 Term loan	$	349,892	$	314,903	$	361,294	$	360,391
$306,000 Senior secured notes	$	297,174	$	286,773		295,893		301,441

The fair market values of our debt were estimated based on quoted market prices on a private exchange for those instruments that are traded and are classified as Level 2 within the fair value hierarchy at September 30, 2020 and December 31, 2019. The fair market values require varying degrees of management judgment. The factors used to estimate these values may not be valid on any subsequent date. Accordingly, the fair market values of the debt presented may not be indicative of their future values.

13. Commitments and Contingencies

There were no material changes in our commitments under contractual obligations, as disclosed in our audited consolidated financial statements, which were included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

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

In April 2019, we were notified of an unasserted claim by the Commonwealth of Puerto Rico with regards to payments in the amount of approximately $33.0 million that we received in the normal course of business during the four year period prior to the May 3, 2017 bankruptcy petition of the Commonwealth public instrumentalities. Management believes, based on discussions with its legal counsel, that we have meritorious defenses against such unasserted claim. The Company will vigorously defend this matter if such claim is asserted.

In September 2019, we were notified of an unasserted claim by Riverside Assessments LLC (“Riverside”) with regard to purported breaches of the Asset Purchase Agreement between the Company and Riverside dated September 12, 2018 (“APA”) and the Transition Services Agreement between the Company and Riverside dated October 1, 2018. Management believes, based on discussions with its legal counsel, that we have meritorious defenses against such unasserted claim. With regard to the alleged breaches of the APA, the APA provides that the Company may be liable only for that portion of Riverside’s damages that exceeds $1.4 million, and in an amount that shall not exceed $1.4 million, which we believe would be the maximum exposure. For damages above $2.8 million, Riverside obtained a representation and warranty insurance policy as required by the APA. The Company will vigorously defend this matter if such claim is asserted.

In January 2018, Vanderbilt University (“Vanderbilt”) filed a complaint against the Company and others in connection with a license agreement originally entered into between Vanderbilt and Scholastic Inc. in 1997 and subsequently assigned to the Company as part of our acquisition of Scholastic’s Educational Technology and Services business pursuant to the stock and asset purchase agreement dated April 23, 2015. Vanderbilt alleges entitlement to additional royalties in connection with READ 180 and other products acquired from Scholastic and alleges trademark infringement in the marketing of these products. The Company is vigorously defending this matter.

In connection with an agreement with a development content provider, we agreed to act as guarantor to that party’s loan to finance such development. Such guarantee is expected to remain until 2021. Under the guarantee, we believe the maximum future payments to approximate $11.2 million. In the unlikely event that we are required to make payments on behalf of the development content provider, we would have recourse against the development content provider.

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We were contingently liable for $1.4 million and $2.5 million of performance-related surety bonds for our operating activities as of September 30, 2020 and December 31, 2019, respectively. An aggregate of $19.2 million and $23.7 million of letters of credit existed at September 30, 2020 and December 31, 2019, respectively, of which $0.7 million backed the aforementioned performance-related surety bonds as of September 30, 2020 and December 31, 2019.

We routinely enter into standard indemnification provisions as part of license agreements involving use of our intellectual property. These provisions typically require us to indemnify and hold harmless licensees in connection with any infringement claim by a third-party relating to the intellectual property covered by the license agreement. Although the term of these provisions and the maximum potential amounts of future payments we could be required to make is not limited, we have never incurred any costs to defend or settle claims related to these types of indemnification provisions. We therefore believe the estimated fair value of these provisions is inconsequential and have no liabilities recorded for them as of September 30, 2020 and December 31, 2019.

14. Net (Loss) Income Per Share

The following table sets forth the computation of basic and diluted earnings per share (“EPS”):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2020			2019		2020			2019
Numerator
Net (loss) income attributable to common stockholders	$	(12,552	)	$	69,260	$	(396,693	)	$	(88,715	)
Denominator
Weighted average shares outstanding
Basic		125,799,018			124,315,491		125,317,284			124,089,257
Diluted		125,799,018			124,807,488		125,317,284			124,089,257
Net (loss) income per share attributable to common    stockholders
Basic	$	(0.10	)	$	0.56	$	(3.17	)	$	(0.71	)
Diluted	$	(0.10	)	$	0.55	$	(3.17	)	$	(0.71	)

As we incurred a net loss in the three month period ended September 30, 2020 and nine month periods ended September 30, 2020 and 2019, all outstanding stock options and restricted stock units for those periods have an anti-dilutive effect and therefore are excluded from the computation of diluted weighted average shares outstanding. Accordingly, basic and diluted weighted average shares outstanding are equal for such periods.

The following table summarizes our weighted average outstanding common stock equivalents that were anti-dilutive attributable to common stockholders during the periods, and therefore excluded from the computation of diluted EPS:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Stock options		1,947,212		3,115,013		1,947,212		3,108,926
Restricted stock units		5,060,063		1,820,356		4,013,767		3,622,096

15. Segment Reporting

As of September 30, 2020, we had two reportable segments (Education and HMH Books & Media). Our Education segment provides educational products, technology platforms and services to meet the diverse needs of today’s classrooms. These products and services include print and digital content in the form of textbooks, digital courseware, instructional aids, educational assessment and intervention solutions, which are aimed at improving achievement and supporting learning for students who are not keeping pace with peers, professional development and school reform services. Our HMH Books & Media segment primarily develops, markets and sells consumer books in print and digital formats, and licenses book rights to other publishers and electronic businesses in the United States and abroad. The principal distribution channels for HMH Books & Media products are retail stores, both physical and online, and wholesalers.

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We measure and evaluate our reportable segments based on net sales and segment Adjusted EBITDA. We exclude from our segments certain corporate-related expenses, as our corporate functions do not meet the definition of a segment, as defined in the accounting guidance relating to segment reporting. In addition, certain transactions or adjustments that our Chief Operating Decision Maker considers to be non-operational, such as amounts related to goodwill and other intangible asset impairment charges, derivative instruments charges, acquisition/disposition-related activity, restructuring, severance costs, equity compensation charges, gains or losses from investments, gains or losses from divestitures, amortization and depreciation expenses, as well as interest and taxes, are excluded from segment Adjusted EBITDA. Although we exclude these amounts from segment Adjusted EBITDA, they are included in reported consolidated net loss and are included in the reconciliation below.

	Three Months Ended September 30,
(in thousands)	Education		HMH Books & Media		Corporate/ Other
2020
Net sales	$	330,926	$	55,664	$	—
Segment Adjusted EBITDA		97,673		10,267		(10,665	)
2019
Net sales	$	517,614	$	48,054	$	—
Segment Adjusted EBITDA		153,415		8,302		(13,002	)
	Nine Months Ended September 30,
(in thousands)	Education		HMH Books & Media		Corporate/ Other
2020
Net sales	$	698,574	$	129,157	$	—
Segment Adjusted EBITDA		137,188		9,841		(31,273	)
2019
Net sales	$	1,021,259	$	127,940	$	—
Segment Adjusted EBITDA		188,906		12,260		(31,671	)

The following table disaggregates our net sales by major source:

	Three Months Ended September 30, 2020
(in thousands)	Education		HMH Books & Media		Consolidated
Core solutions (1)	$	206,641	$	—	$	206,641
Extensions (2)		124,285		—		124,285
HMH Books & Media products		—		55,664		55,664
Net sales	$	330,926	$	55,664	$	386,590
	Nine Months Ended September 30, 2020
(in thousands)	Education		HMH Books & Media		Consolidated
Core solutions (1)	$	391,084	$	—	$	391,084
Extensions (2)		307,490		—		307,490
HMH Books & Media products		—		129,157		129,157
Net sales	$	698,574	$	129,157	$	827,731

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	Three Months Ended September 30, 2019
(in thousands)	Education		HMH Books & Media		Consolidated
Core solutions (1)	$	273,262	$	—	$	273,262
Extensions (2)		244,352		—		244,352
HMH Books & Media products		—		48,054		48,054
Net sales	$	517,614	$	48,054	$	565,668
	Nine Months Ended September 30, 2019
(in thousands)	Education		HMH Books & Media		Consolidated
Core solutions (1)	$	493,273	$	—	$	493,273
Extensions (2)		527,986		—		527,986
HMH Books & Media products		—		127,940		127,940
Net sales	$	1,021,259	$	127,940	$	1,149,199

(1) Comprehensive solutions primarily for reading, math, science and social studies programs.

(2) Primarily consists of our Heinemann brand, intervention, supplemental, and formative assessment products as well as professional services.

Reconciliation of Adjusted EBITDA to the consolidated statements of operations is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2020			2019			2020			2019
Total Adjusted EBITDA	$	97,275		$	148,715		$	115,756		$	169,495
Interest expense		(16,168	)		(11,597	)		(50,433	)		(35,142	)
Interest income		32			509			873			1,698
Depreciation expense		(12,566	)		(13,901	)		(38,016	)		(46,945	)
Amortization expense – film asset		(4,698	)		—			(4,854	)		(6,772	)
Amortization expense		(42,682	)		(52,043	)		(128,157	)		(147,876	)
Non-cash charges – goodwill impairment		—			—			(262,000	)		—
Non-cash charges – stock-compensation		(3,112	)		(3,835	)		(8,751	)		(11,094	)
Non-cash charges – gain (loss) on derivative instruments		432			(737	)		172			(1,171	)
Fees, expenses or charges for equity offerings, debt or    acquisitions/dispositions		(339	)		(183	)		(366	)		(731	)
Restructuring/severance and other charges		(33,545	)		—			(33,545	)		—
Gain on investments		1,738			(270	)		1,738			(5,921	)
(Loss) income before taxes		(13,633	)		66,658			(407,583	)		(84,459	)
Provision (benefit) for income taxes		(1,081	)		(2,602	)		(10,890	)		4,256
Net (loss) income	$	(12,552	)	$	69,260		$	(396,693	)	$	(88,715	)

16. Subsequent Events

In November 2020, we announced that we will explore a potential sale of the HMH Books and Media business. Such a sale would be intended to build on our other strategic restructuring efforts and further align our cost structure to our digital-first strategy.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to facilitate an understanding of our results of operations and financial condition and should be read in conjunction with the interim unaudited consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which was filed with the Securities Exchange Commission (the “SEC”) on February 27, 2020. This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. See “Special Note Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q.

Overview

We are a learning technology company committed to delivering connected solutions that engage learners, empower educators and improve student outcomes. As a leading provider of K–12 core curriculum, supplemental and intervention solutions, and professional learning services, we partner with educators and school districts to uncover solutions that unlock students’ potential and extend teachers’ capabilities. We estimate that we serve more than 50 million students and three million educators in 150 countries, while our award-winning children’s books, novels, non-fiction, and reference titles are enjoyed by readers throughout the world.

For nearly two centuries, our HMH Books & Media segment has brought renowned and awarded children’s, fiction, non-fiction, culinary and reference titles to readers throughout the world. Our distinguished author list includes ten Nobel Prize winners, forty-nine Pulitzer Prize winners, and twenty-six National Book Award winners. We are home to popular characters and titles such as Curious George, Carmen Sandiego, The Lord of the Rings, The Whole 30, The Best American Series, the Peterson Field Guides, CliffsNotes, and The Polar Express, and published distinguished authors such as Tim O’Brien, Temple Grandin, Tim Ferriss, Kwame Alexander, Lois Lowry, and Chris Van Allsburg.

Recent Developments

COVID-19

Prior to the spread of COVID-19 in the United States, we experienced net sales results consistent with our historical first quarters. As we proceeded through the first quarter of 2020 and the impact of the COVID-19 pandemic progressed, schools began to close in response to federal, state and local social distancing directives resulting in a decline in net sales and sales orders in the second half of March 2020. We implemented a number of measures intended to help protect our shareholders, employees, and customers amid the COVID-19 outbreak. We also have taken actions to help mitigate some of the adverse impact of COVID-19 to our profitability and cash flow in 2020, while working proactively with schools to support them through this period of disruption with virtual learning resources.

Actions taken to address COVID-19 and in addition to the Strategic Transformation initiatives announced in the fourth quarter of 2019 include: (1) director, executive and senior leadership salary reductions, and for the majority of employees, a four-day work week with associated labor cost reductions, in each case beginning in April 2020 and ceasing near the end of July 2020; (2) a freeze on spending not directly tied to near-term billings, including a reduction in all discretionary spending such as marketing, advertising, travel, and office supplies; (3) reduced inventory purchasing; (4) deferral of long-term capital projects not directly contributing to billings in 2020 and (5) borrowing $150 million from our asset-backed credit facility as a pre-emptive measure to mitigate against capital market disruptions.  Further, we elected to defer the payment of our employer payroll taxes allowed under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The majority of the HMH workforce continued to work remotely during the third quarter. The four-day work week furlough program along with director, executive, and senior leadership salary reductions that we announced in March 2020 ended by the end of July. The costs associated with ending the furlough program and the salary reductions were subsequently mitigated by the 2020 Restructuring actions discussed below. We also repaid $50.0 million of our asset-backed credit facility at the end of June and repaid the remaining outstanding $100.0 million during July and currently have no drawn balance on our asset-backed credit facility.

Given the COVID-19 situation, our Education business will continue to be impacted, and significant uncertainty is likely to persist in the marketplace. Additionally, our HMH Books & Media business will be impacted as states enforce temporary shut-downs of non-essential businesses and changes in consumer spending habits are likely to occur. As a result, we withdrew our 2020 full-year financial guidance and 3-year outlook, issued in conjunction with our fourth quarter 2019 earnings on February 27, 2020 and the continued uncertainty prevents us from providing full year guidance at this time.

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2020 Restructuring Plan

We are continuing to assess our cost structure amid the COVID-19 pandemic and in line with our Strategic Transformation Plan announced in the fourth quarter of 2019, mentioned hereafter, to ensure our cost structure is aligned to our net sales and long-term strategy. As part of this effort, on September 4, 2020, we finalized a voluntary retirement incentive program, which was offered to all U.S. based employees at least 55 years of age with at least five years of service. Of the eligible employees, 165 elected to participate representing approximately 5% of our workforce. The majority of the employees voluntarily retired as of September 4, 2020 with select employees leaving later in the year.  Each of the employees received or will receive separation payments in accordance with our severance policy. 

On September 30, 2020, our Board of Directors committed to a restructuring program, including a reduction in force, as part of the ongoing assessment of our cost structure amid the COVID-19 pandemic and in line with our previously disclosed strategic transformation plan. The reduction in force resulted in a 22% reduction in our workforce, including positions eliminated as part of the voluntary retirement incentive program mentioned above, and net of newly created positions to support our digital first operations. The reduction in force will result in the departure of approximately 525 employees and was completed in October 2020. Each of the employees received or will receive separation payments in accordance with our severance policy. The total one-time, non-recurring cost incurred in connection with the 2020 restructuring program, inclusive of the voluntary retirement incentive program (collectively the “2020 Restructuring Plan”), all of which represents cash expenditures, is approximately $33.5 million and was recorded during the three months ended September 30, 2020. These actions are aligned with our Strategic Transformation Plan launched in the fourth quarter of 2019 to streamline the cost structure of the Company.

Strategic Transformation Plan

On October 15, 2019, our Board of Directors approved changes connected with our ongoing strategic transformation to simplify our business model and accelerate growth. This includes new product development and go-to-market capabilities, as well as the streamlining of operations company-wide for greater efficiency. These actions, which we refer to as our 2019 Restructuring Plan, resulted in the net elimination of approximately 10% of our workforce, after taking into account new strategy-aligned positions that are expected to be added, and additional operating and capitalized cost reductions, including an approximately 20% reduction in previously planned content development expenditures over the next three years. These steps are intended to further simplify our business model while delivering increased value to customers, teachers and students. The workforce reductions were completed during the first quarter of 2020.

After considering additional headcount actions, implementation of the planned actions resulted in total charges of $15.8 million which was recorded in the fourth quarter of 2019. With respect to each major type of cost associated with such activities, substantially all costs were severance and other termination benefit costs and will result in cash expenditures.

Further, as part of such strategic transformation plan, we recorded an incremental $9.8 million inventory obsolescence charge in the fourth quarter of 2019 which is recorded in cost of sales in the statement of operations.  

Other Events

In November 2020, the Company announced that it will explore a potential sale of the HMH Books and Media business. Such a sale would be intended to build on the Company’s other strategic restructuring efforts and further align its cost structure to its digital-first strategy.

Key Aspects and Trends of Our Operations

Business Segments

We are organized along two business segments: Education and HMH Books & Media (formerly referred to as Trade Publishing). Our Education segment is our largest segment and represented approximately 85%, 86% and 87% of our total net sales for the years ended December 31, 2019, 2018 and 2017, respectively. Our HMH Books & Media segment represented approximately 13%, 15% and 14% of our total net sales for the years ended December 31, 2019, 2018 and 2017, respectively. The Corporate and Other category represents certain general overhead costs not fully allocated to the business segments, such as legal, accounting, treasury, human resources and executive functions.

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Net Sales

We derive revenue primarily from the sale of print and digital content and instructional materials, trade books, multimedia instructional programs, license fees for book rights, content, software and services, consulting and training. We primarily sell to customers in the United States. Our net sales are driven primarily as a function of volume and, to a certain extent, changes in price. Our net sales consist of our billings for products and services, less revenue that will be deferred until future recognition along with the transaction price allocation adjusted to reflect the estimated returns for the arrangement. Deferred revenues primarily derive from online interactive digital content, digital and online learning components along with undelivered work-texts, workbooks and services. The work-texts, workbooks and services are deferred until control is transferred to the customer, which often extends over the life of the contract, and our hosted online and digital content is typically recognized ratably over the life of the contract. The digitalization of education content and delivery is driving a shift in the education market. As the K-12 educational market transitions to purchasing more digital, personalized education solutions, we believe our ability now or in the future to offer embedded assessments, adaptive learning, real-time interaction and student specific personalization of educational content in a platform- and device-agnostic manner will provide new opportunities for growth. An increasing number of schools are utilizing digital content in their classrooms and implementing online or blended learning environments, which is altering the historical mix of print and digital educational materials in the classroom. As a result, our business model includes integrated solutions comprised of both print and digital offerings/products to address the needs of the education marketplace. The level of revenues being deferred can fluctuate depending upon the mix of product offering between digital and non-digital products, the length of programs and the mix of product delivered immediately or over time.

Core curriculum programs, which historically represent the most significant portion of our Education segment net sales, cover curriculum standards in a particular K-12 academic subject and include a comprehensive offering of teacher and student materials required to conduct the class throughout the school year. Products and services in these programs include print and digital offerings for students and a variety of supporting materials such as teacher’s editions, formative assessments, supplemental materials, whole group instruction materials, practice aids, educational games and professional services. The process through which materials and curricula are selected and procured for classroom use varies throughout the United States. Currently, 19 states, known as adoption states, review and approve new programs usually every six to eight years on a state-wide basis. School districts in those states typically select and purchase materials from the state-approved list. The remaining states are known as open states or open territory states. In those states, materials are not reviewed at the state level, and each individual school or school district is free to procure materials at any time, although most follow a five-to-ten year replacement cycle. The student population in adoption states represents approximately 51% of the U.S. elementary and secondary school-age population. Some adoption states provide “categorical funding” for instructional materials, which means that those state funds cannot be used for any other purpose. Our core curriculum programs typically have higher deferred sales than other parts of the business. The higher deferred sales are primarily due to the length of time that our programs are being delivered, along with greater component and digital product offerings. A significant portion of our Education segment net sales is dependent upon our ability to maintain residual sales, which are subsequent sales after the year of the original adoption, and our ability to continue to generate new business by developing new programs that meet our customers’ evolving needs. In addition, our market is affected by changes in state curriculum standards, which drive instruction, assessment and accountability in each state. Changes in state curriculum standards require that instructional materials be revised or replaced to align to the new standards, which historically has driven demand for core curriculum programs.

We also derive our Education segment net sales from supplemental and intervention products that target struggling learners through comprehensive intervention solutions aimed at raising student achievement by providing solutions that combine technology, content and other educational products, as well as consulting and professional development services. We also offer products targeted at assisting English language learners.

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

Our HMH Books & Media segment sells works of fiction and non-fiction in the General Interest and Young Reader’s categories, dictionaries and other reference works. While print remains the primary format in which trade books are produced and distributed, the market for trade titles in digital format, primarily ebooks, generally represents approximately 8% to 10% of our annual HMH Books & Media net sales. Further, HMH Books & Media licenses content to other publishers along with media companies.

Factors affecting our net sales include:

Education

• general economic conditions at the federal or state level;

• state or district per student funding levels;

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• federal funding levels;

• the cyclicality of the purchasing schedule for adoption states;

• student enrollments;

• adoption of new education standards;

• state acceptance of submitted programs and participation rates for accepted programs;

• technological advancement and the introduction of new content and products that meet the needs of students, teachers and consumers, including through strategic agreements pertaining to content development and distribution; and

• the amount of net sales subject to deferrals which is impacted by the mix of product offering between digital and non-digital products, the length of programs and the mix of product delivered immediately or over time.

HMH Books & Media

• consumer spending levels as influenced by various factors, including the U.S. economy and consumer confidence;

• the publishing of bestsellers along with obtaining recognized authors;

• film and series tie-ins to our titles that spur sales of current and backlist titles, which are titles that have been on sale for more than a year; and

• market growth or contraction.

State or district per-student funding levels, which closely correlate with state and local receipts from income, sales and property taxes, impact our sales as institutional customers are affected by funding cycles. Most public school districts, the primary customers for K-12 products and services, are largely dependent on state and local funding to purchase materials.

We monitor the purchasing cycles for specific disciplines in the adoption states in order to manage our product development and to plan sales campaigns. Our sales may be materially impacted during the years that major adoption states, such as Florida, California and Texas, are or are not scheduled to make significant purchases. For example, Texas adopted Reading/English Language Arts materials in 2018 for purchase in 2019 and 2020. California adopted history and social science materials in 2017 for purchase in 2018 and continuing through 2020 and adopted Science materials in 2018 for purchase in 2019 and continuing through 2021. Both Florida and Texas, along with several other adoption states, provide dedicated state funding for instructional materials and classroom technology, with funding typically appropriated by the legislature in the first half of the year in which materials are to be purchased. Texas has a two-year budget cycle, and in the 2019 legislative session appropriated funds for purchases in 2019 and 2020. California funds instructional materials in part with a dedicated portion of state lottery proceeds and in part out of general formula funds, with the minimum overall level of school funding determined according to the Proposition 98 funding guarantee. We do not currently have contracts with these states for future instructional materials adoptions and there is no guarantee that our programs will be accepted by the state.

Long-term growth in the U.S. K-12 market is positively correlated with student enrollments, which is a driver of growth in the educational publishing industry. Although economic cycles may affect short-term buying patterns, school enrollments are highly predictable and are expected to trend upward over the longer term. From 2018 to 2028, total public school enrollment, a major long-term driver of growth in the K-12 Education market, is projected to increase by 1.4% to 57.4 million students, according to the National Center for Education Statistics.

As the K-12 educational market purchases more digital solutions, we believe our ability to offer embedded assessments, adaptive learning, real-time interaction and student specific personalized learning and educational content in a platform- and device-agnostic manner will provide new opportunities for growth.

Our HMH Books & Media segment is heavily influenced by the U.S. and broader global economy, consumer confidence and consumer spending.  

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

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In the HMH Books & Media segment, annual results can be driven by bestselling trade titles. Furthermore, backlist titles can experience resurgence in sales when made into films or series. In past years, a number of our backlist titles such as The Hobbit, The Lord of the Rings, Life of Pi, The Handmaid’s Tale, The Polar Express, and The Giver have benefited in popularity due to movie or series releases and have subsequently resulted in increased trade sales.

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

• Pay-up-front: Customer makes a fixed payment at time of purchase and we provide a specific product/service in return; and

• Pre-pay Subscription: Customer makes a one-time payment at time of purchase, but receives a stream of goods/services over a defined time horizon; for example, we currently provide customers the option to purchase a multi-year subscription to textbooks where for a one-time charge, a new copy of the work text is delivered to the customer each year for a defined time period. Pre-pay subscriptions to online textbooks are another example where the customer receives access to an online book for a specific period of time.

Cost of sales, excluding publishing rights and pre-publication amortization

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

Publishing rights and Pre-publication amortization

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

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

Selling and administrative expenses

Our selling and administrative expenses include the salaries, benefits and related costs of employees engaged in sales and marketing, fulfillment and administrative functions. Also included within selling and administrative expenses are variable costs such as commission expense, outbound transportation costs (approximately $21.9 million for the nine months ended September 30, 2020) and depository fees, which are fees paid to state-mandated depositories that fulfill centralized ordering and warehousing functions for specific states. Additionally, significant fixed and discretionary costs include facilities, telecommunications, professional fees, promotions, sampling and advertising, along with depreciation.

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Other intangible asset amortization

Our other intangible asset amortization expense primarily includes the amortization of acquired intangible assets consisting of tradenames, customer relationships, content rights and licenses. The tradenames, customer relationships, content rights and licenses are amortized over varying periods of 5 to 25 years. The expense for the nine months ended September 30, 2020 was $18.8 million.

Interest expense

Our interest expense includes interest accrued on our $306.0 million in aggregate principal amount of 9.0% Senior Secured Notes due 2025 (“notes”), our $380.0 million term loan credit facility (“term loan facility”) and, for 2019 only, our previous $800.0 million term loan credit facility (“previous term loan facility”) along with, to a lesser extent, our revolving credit facility, finance leases, the amortization of any deferred financing fees and loan discounts, and payments in connection with interest rate hedging agreements. Our interest expense for the nine months ended September 30, 2020 was $50.4 million.

Results of Operations

Consolidated Operating Results for the Three Months Ended September 30, 2020 and 2019

	Three Months Ended September 30,						Dollar Change			Percent Change
(dollars in thousands)	2020			2019			2020			2019
Net sales	$	386,590		$	565,668		$	(179,078	)		(31.7	)%
Costs and expenses:
Cost of sales, excluding publishing rights and    pre-publication amortization		182,767			246,527			(63,760	)		(25.9	)%
Publishing rights amortization		4,761			6,341			(1,580	)		(24.9	)%
Pre-publication amortization		31,647			39,319			(7,672	)		(19.5	)%
Cost of sales		219,175			292,187			(73,012	)		(25.0	)%
Selling and administrative		127,324			188,957			(61,633	)		(32.6	)%
Other intangible assets amortization		6,274			6,383			(109	)		(1.7	)%
Restructuring/severance and other charges		33,545			270			33,275		NM
Operating income		272			77,871			(77,599	)		99.7	%
Other income (expense):
Retirement benefits non-service income		61			41			20			48.8	%
Interest expense		(16,168	)		(11,597	)		(4,571	)		(39.4	)%
Interest income		32			509			(477	)		(93.7	)%
Change in fair value of derivative instruments		432			(737	)		1,169		NM
Gain on investments		1,738			—			1,738		NM
Income from transition services agreement		—			571			(571	)	NM
(Loss) income before taxes		(13,633	)		66,658			(80,291	)		NM
Income tax (benefit) expense		(1,081	)		(2,602	)		1,521			58.5	%
Net (loss) income	$	(12,552	)	$	69,260		$	(81,812	)	NM

NM = not meaningful

Net sales for the three months ended September 30, 2020 decreased $179.1 million, or 31.7%, from $565.7 million in 2019 to $386.6 million. The net sales decrease was driven by a $186.7 million decrease in our Education segment, offset slightly by a $7.6 million increase in our HMH Books & Media segment. Within our Education segment, the decrease was primarily due to lower net sales in Extensions, which primarily consist of our Heinemann brand, intervention and supplemental products as well as professional services, which decreased by $120.0 million from $244.0 million in 2019 to $124.0 million. Within Extensions, net sales decreased due to lower sales of the Heinemann’s Fountas & Pinnell Classroom, LLI Leveled Literacy and Calkins products due to a difficult comparison to last year’s Texas K-6 sales coupled with the impact of the COVID-19 pandemic in 2020 along with reduced face-to-face delivery of professional services. Further, there were lower net sales from Core Solutions which decreased by $67.0 million from $273.0 million in 2019 to $206.0 million, which was primarily due to the smaller new adoption market opportunity in Texas ELA, along with impacts of the COVID-19 pandemic. Within our HMH Books & Media segment, the increase in net sales was primarily due to an increase in licensing revenue of $7.3 million, which included $4.3 million from the Carmen Sandiego series on Netflix.

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Operating income for the three months ended September 30, 2020 unfavorably changed from $77.9 million in 2019 to $0.3 million, due primarily to the following:

• A $179.1 million decrease in net sales,

• A $33.3 million increase in costs associated with our restructuring/severance and other charges due to $33.5 million of severance costs associated with the 2020 Restructuring Plan,

Partially offset by:

• A $63.8 million decrease in our cost of sales, excluding publishing rights and pre-publication amortization, from $246.5 million in 2019 to $182.8 million, primarily due to lower billings. Our cost of sales, excluding publishing rights and pre-publication amortization, as a percentage of sales, increased to 47.3% from 43.6%,

• A $61.6 million decrease in selling and administrative expenses, primarily due to lower labor costs of $28.0 million, due to cost savings associated with our employee furlough initiative in response to the COVID-19 pandemic, and to a lesser extent, our early retirement incentive program, the 2019 Restructuring Plan and a freeze on hiring. Also, there was a decrease of $23.0 million of variable expenses such as transportation and commissions due to lower billings, which decreased $241.0 million from the third quarter of 2019. Further, there were lower discretionary costs of $12.0 million related to travel and expense reduction measures and marketing, and

• A $9.4 million decrease in net amortization expense related to publishing rights, pre-publication and other intangible assets, primarily due to a decrease in pre-publication amortization attributed to the timing and large amount of 2019 major product releases and, to a lesser extent, our use of accelerated amortization methods for publishing rights amortization.

Interest expense for the three months ended September 30, 2020 increased $4.6 million from $11.6 million in 2019 to $16.2 million, primarily due to our debt refinancing during the fourth quarter of 2019 in which the previous term loan facility was replaced with the term loan facility and the notes with higher interest rates (the “2019 Refinancing”). Further, there was an increase of $0.4 million of net settlement payments on our interest rate derivative instruments during 2020.

Interest income for the three months ended September 30, 2020 slightly decreased due to lower interest rates on our money market funds in 2020.

Change in fair value of derivative instruments for the three months ended September 30, 2020, favorably changed by a $1.2 million due to foreign exchange forward contracts executed on the Euro that were favorably impacted by the weakening of the U.S. dollar against the Euro.

Gain on investments for the three months ended September 30, 2020 was $1.7 million and was related to the fair value change in our equity interests in educational technology private partnerships.

Income tax (benefit) expense for the three months ended September 30, 2020 decreased $1.5 million, from a benefit of $2.6 million in 2019, to a benefit of $1.1 million. An income tax benefit was recorded in the first quarter of 2020 and was due primarily to the book impairment on goodwill, which reduced the related deferred tax liabilities. For 2020, our annual effective tax rate, exclusive of discrete items used to calculate the tax provision, is expected to be approximately (1.3)%. For 2019, our effective annual tax rate exclusive of discrete items was (3.9)%. For both periods income tax expense was primarily attributed to movement in the deferred tax liability associated with tax amortization on indefinite-lived intangibles, state and foreign taxes, as well as the impact of certain discrete tax items including the accrual of potential interest and penalties on uncertain tax positions.

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Consolidated Operating Results for the Nine Months Ended September 30, 2020 and 2019

	Nine Months Ended September 30,						Dollar Change			Percent Change
(dollars in thousands)	2020			2019			2020			2019
Net sales	$	827,731		$	1,149,199		$	(321,468	)		(28.0	)%
Costs and expenses:
Cost of sales, excluding publishing rights and    pre-publication amortization		397,139			533,413			(136,274	)		(25.5	)%
Publishing rights amortization		15,295			20,217			(4,922	)		(24.3	)%
Pre-publication amortization		94,043			108,140			(14,097	)		(13.0	)%
Cost of sales		506,477			661,770			(155,293	)		(23.5	)%
Selling and administrative		367,006			516,206			(149,200	)		(28.9	)%
Impairment charge for goodwill		262,000			—			262,000		NM
Other intangible assets amortization		18,819			19,519			(700	)		(3.6	)%
Restructuring/severance and other charges		33,545			5,921			27,624		NM
Operating loss		(360,116	)		(54,217	)		(305,899	)	NM
Other income (expense):
Retirement benefits non-service income		183			125			58			46.4	%
Interest expense		(50,433	)		(35,142	)		(15,291	)		(43.5	)%
Interest income		873			1,698			(825	)		(48.6	)%
Change in fair value of derivative instruments		172			(1,171	)		1,343		NM
Gain on investments		1,738			—			1,738		NM
Income from transition services agreement		—			4,248			(4,248	)	NM
Loss before taxes		(407,583	)		(84,459	)		(323,124	)	NM
Income tax (benefit) expense		(10,890	)		4,256			(15,146	)	NM
Net loss	$	(396,693	)	$	(88,715	)	$	(307,978	)	NM

NM = not meaningful

Net sales for the nine months ended September 30, 2020 decreased $321.5 million, or 28.0%, from $1,149.2 million in 2019 to $827.7 million. The net sales decrease was driven by a $322.7 million decrease in our Education segment, offset slightly by a $1.2 million increase in our HMH Books & Media segment. Within our Education segment, the decrease was primarily due to lower net sales in Extensions, which primarily consist of our Heinemann brand, intervention and supplemental products as well as professional services, which decreased by $221.0 million from $528.0 million in 2019 to $307.0 million. Within Extensions, net sales decreased due to lower sales of the Heinemann’s Fountas & Pinnell Classroom, Calkins and LLI Leveled Literacy products due to a difficult comparison to prior year Texas K-6 sales coupled with the impact of the COVID-19 pandemic in 2020. Further, there were lower net sales from Core Solutions which decreased by $102.0 million from $493.0 million in 2019 to $391.0 million, which was primarily due to the smaller new adoption market opportunity in Texas ELA, along with the COVID-19 pandemic. Within our HMH Books & Media segment, the increase in net sales was primarily due to $2.4 million of licensing revenue from production series. Offsetting the aforementioned, was lower net sales of both Adult and Young Reader’s categories due to the closure of bookstores during the COVID-19 pandemic and the corresponding delay in releases of new frontlist titles.

Operating loss for the nine months ended September 30, 2020 unfavorably changed from a loss of $54.2 million in 2019 to a loss of $360.1 million, due primarily to the following:

• A $321.5 million decrease in net sales,

• An impairment charge for goodwill during the first quarter of 2020 of $262.0 million. This non-cash impairment is a direct result of the adverse impact that the COVID-19 pandemic has had on the Company,

• A $27.6 million increase in costs associated with our restructuring/severance and other charges due to $33.5 million of severance costs associated with the 2020 Restructuring Plan,

34

• Partially offset by a $149.2 million decrease in selling and administrative expenses, primarily due to lower labor costs of $62.0 million, due to cost savings associated with our employee furlough initiative, which began in April and ceased at the end of July, in response to COVID-19 and to a lesser extent our early retirement incentive program, the 2019 Restructuring Plan and a freeze on hiring. Also, there was a decrease of $50.0 million of variable expenses such as commissions and transportation due to lower billings, which decreased $456.0 million from 2019. Further, there were lower discretionary costs of $28.0 million primarily related to travel and expense reduction measures and marketing along with lower depreciation expense of $9.0 million,

• A $136.3 million decrease in our cost of sales, excluding publishing rights and pre-publication amortization, from $533.4 million in 2019 to $397.1 million, primarily due to lower billings. Our cost of sales, excluding publishing rights and pre-publication amortization, as a percentage of sales, increased to 48.0% from 46.4%, and

• A $19.7 million decrease in net amortization expense related to publishing rights, pre-publication and other intangible assets, primarily due to a decrease in pre-publication amortization attributed to the timing and large amount of 2019 major product releases and, to a lesser extent, our use of accelerated amortization methods for publishing rights amortization.

Interest expense for the nine months ended September 30, 2020 increased $15.3 million from $35.1 million in 2019 to $50.4 million, primarily due to our 2019 Refinancing during the fourth quarter of 2019. Further, there was an increase of $2.7 million of net settlement payments on our interest rate derivative instruments during 2020.

Interest income for the nine months ended September 30, 2020 decreased $0.8 million due to lower interest rates on our money market funds in 2020.

Change in fair value of derivative instruments for the nine months ended September 30, 2020, favorably changed by $1.3 million due to foreign exchange forward contracts executed on the Euro that were favorably impacted by the weakening of the U.S. dollar against the Euro.

Gain on investments for the nine months ended September 30, 2020 was $1.7 million and was related to the fair value change in our equity interests in educational technology private partnerships.

Income from transition services agreement for the nine months ended September 30, 2019 was $4.2 million and was related to transition service fees under the transition services agreement with the purchaser of our Riverside Business pursuant to which we performed certain support functions through September 30, 2019.

Income tax (benefit) expense for the nine months ended September 30, 2020 increased $15.1 million, from an expense of $4.3 million in 2019, to a benefit of $10.9 million. An income tax benefit was recorded in the first quarter of 2020 and was due primarily to the book impairment on goodwill, which reduced the related deferred tax liabilities. For 2020, our annual effective tax rate, exclusive of discrete items used to calculate the tax provision, is expected to be approximately (1.3)%. For 2019, our effective annual tax rate exclusive of discrete items was (3.9)%. For both periods income tax expense was primarily attributed to movement in the deferred tax liability associated with tax amortization on indefinite-lived intangibles, state and foreign taxes, as well as the impact of certain discrete tax items including the accrual of potential interest and penalties on uncertain tax positions.

35

Adjusted EBITDA  

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

Below is a reconciliation of our net (loss) income to Adjusted EBITDA for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019
Net (loss) income	$	(12,552	)	$	69,260		$	(396,693	)	$	(88,715	)
Interest expense		16,168			11,597			50,433			35,142
Interest income		(32	)		(509	)		(873	)		(1,698	)
Provision (benefit) for income taxes		(1,081	)		(2,602	)		(10,890	)		4,256
Depreciation expense		12,566			13,901			38,016			46,945
Amortization expense – film asset		4,698			—			4,854			6,772
Amortization expense		42,682			52,043			128,157			147,876
Non-cash charges – goodwill impairment		—			—			262,000			—
Non-cash charges – stock compensation		3,112			3,835			8,751			11,094
Non-cash charges – (gain) loss on derivative instruments		(432	)		737			(172	)		1,171
Fees, expenses or charges for equity offerings, debt or    acquisitions/dispositions		339			183			366			731
Restructuring/severance and other charges		33,545			270			33,545			5,921
Gain on investments		(1,738	)		—			(1,738	)		—
Adjusted EBITDA	$	97,275		$	148,715		$	115,756		$	169,495

36

Segment Operating Results

Results of Operations – Comparing Three Months Ended September 30, 2020 and 2019

Education

	Three Months Ended September 30,				Dollar			Percent
	2020		2019		Change			Change
Net sales	$	330,926	$	517,614	$	(186,688	)		(36.1	)%
Costs and expenses:
Cost of sales, excluding publishing rights and    pre-publication amortization		145,434		219,920		(74,486	)		(33.9	)%
Publishing rights amortization		3,469		4,874		(1,405	)		(28.8	)%
Pre-publication amortization		31,596		39,051		(7,455	)		(19.1	)%
Cost of sales		180,499		263,845		(83,346	)		(31.6	)%
Selling and administrative		96,659		154,439		(57,780	)		(37.4	)%
Other intangible asset amortization		5,738		4,876		862			17.7	%
Operating income		48,030		94,454		(46,424	)		(49.1	)%
Net income	$	48,030	$	94,454	$	(46,424	)		(49.1	)%
Adjustments from net income to     Education segment Adjusted EBITDA
Depreciation expense	$	8,840	$	10,160	$	(1,320	)		(13.0	)%
Amortization expense		40,803		48,801		(7,998	)		(16.4	)%
Education segment Adjusted EBITDA	$	97,673	$	153,415	$	(55,742	)		(36.3	)%

NM = not meaningful

Our Education segment net sales for the three months ended September 30, 2020 decreased $186.7 million, or 36.1%, from $517.6 million in 2019 to $330.9 million. The net sales decrease was primarily due to lower net sales in Extensions, which primarily consist of our Heinemann brand, intervention and supplemental products as well as professional services, which decreased by $120.0 million from $244.0 million in 2019 to $124.0 million. Within Extensions, net sales decreased due to lower sales of the Heinemann’s Fountas & Pinnell Classroom, LLI Leveled Literacy and Calkins products due to a difficult comparison to prior year Texas K-6 sales coupled with the impact of the COVID-19 pandemic along with reduced face-to-face delivery of professional services and supplemental products. Further, there were lower net sales from Core Solutions which decreased by $67.0 million from $273.0 million in 2019 to $206.0 million, which was primarily due to the smaller new adoption market opportunity in Texas ELA, along with the COVID-19 pandemic.

Our Education segment cost of sales for the three months ended September 30, 2020 decreased $83.3 million, or 31.6%, from $263.8 million in 2019 to $180.5 million. Our cost of sales, excluding publishing rights and pre-publication amortization, decreased $74.5 million from $219.9 million in 2019 to $145.4 million, due to the decline in net sales. Our cost of sales, excluding publishing rights and pre-publication amortization, as a percentage of sales, slightly increased year over year from 42.4% to 43.9%. Pre-publication amortization decreased by $7.5 million from 2019 primarily due to the timing and large amount of 2019 major product releases, and publishing rights amortization decreased $1.4 million attributed to our use of accelerated amortization methods.

Our Education segment selling and administrative expense for the three months ended September 30, 2020 decreased $57.8 million, or 37.4%, from $154.4 million in 2019 to $96.7 million. The decrease was driven by lower labor costs due to savings associated with our employee furlough initiative in response to COVID-19 pandemic, and to a lesser extent, our early retirement incentive program, the 2019 Restructuring Plan and a freeze on hiring.  Further, there were lower variable expenses such as samples, transportation, depository fees and commissions attributed to lower billings from the prior year. Discretionary spending was also lower due to travel reductions and cost reductions throughout the Company.

Our Education segment other intangible asset amortization expense for the three months ended September 30, 2020 increased $0.9 million from 2019.

Our Education segment Adjusted EBITDA for the three months ended September 30, 2020 decreased $55.7 million, from $153.4 million in 2019 to $97.7 million. Our Education segment Adjusted EBITDA excludes depreciation and amortization. The change is due to the identified factors impacting net sales, cost of sales and selling and administrative expenses after removing those items not included in Education segment Adjusted EBITDA.

37

HMH Books & Media

	Three Months Ended September 30,				Dollar			Percent
	2020		2019		Change			Change
Net sales	$	55,664	$	48,054	$	7,610			15.8	%
Costs and expenses:
Cost of sales, excluding publishing rights and    pre-publication amortization		37,333		26,607		10,726			40.3	%
Publishing rights amortization		1,292		1,467		(175	)		(11.9	)%
Pre-publication amortization		51		268		(217	)		(81.0	)%
Cost of sales		38,676		28,342		10,334			36.5	%
Selling and administrative		12,859		13,312		(453	)		(3.4	)%
Other intangible asset amortization		536		1,507		(971	)		(64.4	)%
Operating income		3,593		4,893		(1,300	)		(26.6	)%
Net income	$	3,593	$	4,893	$	(1,300	)		(26.6	)%
Adjustments from net income to HMH Books & Media    segment Adjusted EBITDA
Depreciation expense	$	97	$	167	$	(70	)		(41.9	)%
Amortization expense film asset		4,698		—		4,698		NM
Amortization expense		1,879		3,242		(1,363	)		(42.0	)%
HMH Books & Media segment Adjusted EBITDA	$	10,267	$	8,302	$	1,965			23.7	%

NM = not meaningful

Our HMH Books & Media segment net sales for the three months ended September 30, 2020 increased $7.6 million, or 15.8%, from $48.1 million in 2019 to $55.7 million. The increase in net sales was primarily due to an increase in licensing revenue of $7.3 million, which includes $4.3 million from the Carmen Sandiego series on Netflix. Partially offsetting the aforementioned were lower net sales of both Adult and Young Reader’s categories due to the closure of bookstores during the COVID-19 pandemic and the corresponding delay in releases of new frontlist titles.

Our HMH Books & Media segment cost of sales for the three months ended September 30, 2020 increased $10.3 million, or 36.5%, from $28.3 million in 2019 to $38.7 million. The increase was driven by our cost of sales, excluding publishing rights and pre-publication amortization, which increased $10.7 million of which $4.7 million was related to an increase in film asset amortization, and an increase in sales along with product mix.

Our HMH Books & Media segment selling and administrative expense for the three months ended September 30, 2020 decreased $0.5 million from $13.3 million in 2019 to $12.9 million. The decrease was due to labor savings associated with our employee furlough initiative in response to COVID-19 pandemic, and to a lesser extent, our early retirement incentive program, the 2019 Restructuring Plan and a freeze on hiring.

Our HMH Books & Media segment other intangible asset amortization expense for the three months ended September 30, 2020 decreased $1.0 million from 2019, due to certain definite-lived intangible assets being fully depreciated in 2019.

Our HMH Books & Media segment Adjusted EBITDA for the three months ended September 30, 2020 changed favorably from an income of $8.3 million in 2019 to $10.3 million due to the identified factors impacting net sales, cost of sales and selling and administrative expenses after removing those items not included in our HMH Books & Media segment Adjusted EBITDA. Our HMH Books & Media segment Adjusted EBITDA excludes depreciation and amortization.

38

Corporate and Other

	Three Months Ended September 30,						Dollar			Percent
	2020			2019			Change			Change
Net sales	$	—		$	—		$	—			—
Costs and expenses:
Cost of sales, excluding publishing rights and    pre-publication amortization		—			—			—			—
Publishing rights amortization		—			—			—			—
Pre-publication amortization		—			—			—			—
Cost of sales		—			—			—			—
Selling and administrative		17,806			21,206			(3,400	)		(16.0	)%
Restructuring/severance and other charges		33,545			270			33,275		NM
Operating loss		(51,351	)		(21,476	)		(29,875	)	NM
Retirement benefits non-service income		61			41			20			48.8	%
Interest expense		(16,168	)		(11,597	)		(4,571	)		(39.4	)%
Interest income		32			509			(477	)		(93.7	)%
Change in fair value of derivative instruments		432			(737	)		1,169		NM
Gain on investments		1,738			—			1,738		NM
Income from transition services agreement		—			571			(571	)	NM
Net loss before taxes		(65,256	)		(32,689	)		(32,567	)		(99.6	)%
Income tax (benefit) expense		(1,081	)		(2,602	)		1,521			58.5	%
Net loss	$	(64,175	)	$	(30,087	)	$	(34,088	)	NM
Adjustments from net loss to Corporate and Other Adjusted    EBITDA
Interest expense	$	16,168		$	11,597		$	4,571			39.4	%
Interest income		(32	)		(509	)		477			93.7	%
Provision (benefit) for income taxes		(1,081	)		(2,602	)		1,521			58.5	%
Depreciation expense		3,629			3,574			55			1.5	%
Non-cash charges – (gain) loss on derivative instruments		(432	)		737			(1,169	)	NM
Non-cash charges – stock compensation		3,112			3,835			(723	)		(18.9	)%
Fees, expenses or charges for equity offerings, debt or    acquisitions/dispositions		339			183			156		NM
Restructuring/severance and other charges		33,545			270			33,275		NM
Gain on investments		(1,738	)		—			(1,738	)	NM
Corporate and Other Adjusted EBITDA	$	(10,665	)	$	(13,002	)	$	2,337			18.0	%

NM = not meaningful

The Corporate and Other category represents certain general overhead costs not fully allocated to the business segments such as legal, accounting, treasury, human resources, technology and executive functions along with severance and other non-operating costs.

Our selling and administrative expense for the Corporate and Other category for the three months ended September 30, 2020 decreased $3.4 million from $21.2 million in 2019 to $17.8 million, primarily attributed to cost savings associated with our employee furlough initiative in response to COVID-19 pandemic, and to a lesser extent, our early retirement incentive program, the 2019 Restructuring Plan and a freeze on hiring.  Additionally, selling and administrative expenses were lower due to lower stock compensation charges.

Our restructuring/severance and other charges for the three months ended September 30, 2020 increased by $33.3 million due to $33.5 million of severance costs associated with the 2020 Restructuring Plan.

39

Interest expense for the three months ended September 30, 2020 increased $4.6 million from $11.6 million in 2019 to $16.2 million, primarily due to our debt refinancing during the fourth quarter of 2019 in which the previous term loan facility was replaced with the term loan facility and the notes with higher interest rates (the “2019 Refinancing”). Further, there was an increase of $0.4 million of net settlement payments on our interest rate derivative instruments during 2020.

Interest income for the three months ended September 30, 2020 slightly decreased due to lower interest rates on our money market funds in 2020.

Change in fair value of derivative instruments for the three months ended September 30, 2020, favorably changed by a $1.2 million due to foreign exchange forward contracts executed on the Euro that were favorably impacted by the weakening of the U.S. dollar against the Euro.

Gain on investments for the three months ended September 30, 2020 was $1.7 million and was related to the fair value change in our equity interests in educational technology private partnerships.

Income from transition services agreement for the three months ended September 30, 2019 was $0.6 million and was related to transition service fees under the transition services agreement with the purchaser of our Riverside Business pursuant to which we performed certain support functions through September 30, 2019.

Income tax (benefit) expense for the three months ended September 30, 2020 decreased $1.5 million, from a benefit of $2.6 million in 2019, to a benefit of $1.1 million. An income tax benefit was recorded in the first quarter of 2020 and was due primarily to the book impairment on goodwill, which reduced the related deferred tax liabilities. For 2020, our annual effective tax rate, exclusive of discrete items used to calculate the tax provision, is expected to be approximately (1.3)%.  For 2019, our effective annual tax rate exclusive of discrete items was (3.9)%. For both periods income tax expense was primarily attributed to movement in the deferred tax liability associated with tax amortization on indefinite-lived intangibles, state and foreign taxes, as well as the impact of certain discrete tax items including the accrual of potential interest and penalties on uncertain tax positions.

Adjusted EBITDA for the Corporate and Other category for the three months ended September 30, 2020 favorably changed $2.3 million, or 18.0%, from a loss of $13.0 million in 2019 to a loss of $10.7 million. Our Adjusted EBITDA for the Corporate and Other category excludes interest, taxes, depreciation, derivative instruments charges, equity compensation charges, gains or losses on investments, acquisition/disposition-related activity, and restructuring costs. The favorable change in our Adjusted EBITDA for the Corporate and Other category was due to the factors described above after removing those items not included in Adjusted EBITDA for the Corporate and Other category.

Results of Operations – Comparing Nine Months Ended September 30, 2020 and 2019

Education

	Nine Months Ended September 30,					Dollar			Percent
	2020			2019		Change			Change
Net sales	$	698,574		$	1,021,259	$	(322,685	)		(31.6	)%
Costs and expenses:
Cost of sales, excluding publishing rights and    pre-publication amortization		309,079			450,567		(141,488	)		(31.4	)%
Publishing rights amortization		11,332			15,737		(4,405	)		(28.0	)%
Pre-publication amortization		93,878			107,654		(13,776	)		(12.8	)%
Cost of sales		414,289			573,958		(159,669	)		(27.8	)%
Selling and administrative		279,308			415,913		(136,605	)		(32.8	)%
Impairment charge for goodwill		262,000			—		262,000		NM
Other intangible asset amortization		17,212			15,000		2,212			14.7	%
Operating (loss) income		(274,235	)		16,388		(290,623	)	NM
Net (loss) income	$	(274,235	)	$	16,388	$	(290,623	)	NM
Adjustments from net (loss) income to    Education segment Adjusted EBITDA
Depreciation expense	$	27,002		$	34,127	$	(7,125	)		(20.9	)%
Amortization expense		122,421			138,391		(15,970	)		(11.5	)%
Impairment charge for goodwill		262,000			—		262,000		NM
Education segment Adjusted EBITDA	$	137,188		$	188,906	$	(51,718	)		(27.4	)%

40

NM = not meaningful

Our Education segment net sales for the nine months ended September 30, 2020 decreased $322.7 million, or 31.6%, from $1,021.3 million in 2019 to $698.6 million. The net sales decrease was primarily due to lower net sales in Extensions, which primarily consist of our Heinemann brand, intervention and supplemental products as well as professional services, which decreased by $221.0 million from $528.0 million in 2019 to $307.0 million. Within Extensions, net sales decreased due to lower sales of the Heinemann’s Fountas & Pinnell Classroom, Calkins and LLI Leveled Literacy products due to a difficult comparison to prior year Texas K-6 sales coupled with the impact of the COVID-19 pandemic along with face-to-face delivery of professional services and supplemental products. Further, there were lower net sales from Core Solutions which decreased by $102.0 million from $493.0 million in 2019 to $391.0 million, which was primarily due to the smaller new adoption market opportunity in Texas ELA, along with the COVID-19 pandemic.

Our Education segment cost of sales for the nine months ended September 30, 2020 decreased $159.7 million, or 27.8%, from $574.0 million in 2019 to $414.3 million. Our cost of sales, excluding publishing rights and pre-publication amortization, decreased $141.5 million from $450.6 million in 2019 to $309.1 million, due to the decline in net sales. Our cost of sales, excluding publishing rights and pre-publication amortization, as a percentage of sales, was essentially flat year over year. Pre-publication amortization decreased by $13.8 million from 2019 primarily due to the timing and large amount of 2019 major product releases, and $4.4 million decrease in publishing rights amortization attributed to our use of accelerated amortization methods.

Our Education segment selling and administrative expense for the nine months ended September 30, 2020 decreased $136.6 million, or 32.8%, from $415.9 million in 2019 to $279.3 million. The decrease was driven by lower labor costs primarily attributed to cost savings associated with our employee furlough initiative in response to COVID-19 pandemic, and to a lesser extent, our early retirement incentive program, the 2019 Restructuring Plan and a freeze on hiring. Further, lower variable expenses such as commissions, samples, transportation, and depository fees attributed to lower billings from the prior year and lower discretionary spending due to travel reductions and cost reductions throughout the Company.

Our Education segment other intangible asset amortization expense for the nine months ended September 30, 2020 decreased $2.2 million from 2019.

Our Education segment impairment charge for goodwill for the nine months ended September was $262.0 million. This non-cash impairment, which was recorded in the first quarter of 2020, is a direct result of COVID-19’s impact on the Company.

41

Our Education segment Adjusted EBITDA for the nine months ended September 30, 2020 decreased $51.7 million, from $188.9 million in 2019 to $137.2 million. Our Education segment Adjusted EBITDA excludes depreciation, amortization and goodwill impairment charges. The increase is due to the identified factors impacting net sales, cost of sales and selling and administrative expenses after removing those items not included in Education segment Adjusted EBITDA.

HMH Books & Media

	Nine Months Ended September 30,						Dollar			Percent
	2020			2019			Change			Change
Net sales	$	129,157		$	127,940		$	1,217			1.0	%
Costs and expenses:
Cost of sales, excluding publishing rights and    pre-publication amortization		88,060			82,846			5,214			6.3	%
Publishing rights amortization		3,963			4,480			(517	)		(11.5	)%
Pre-publication amortization		165			486			(321	)		(66.0	)%
Cost of sales		92,188			87,812			4,376			5.0	%
Selling and administrative		36,397			40,633			(4,236	)		(10.4	)%
Other intangible asset amortization		1,607			4,519			(2,912	)		(64.4	)%
Operating loss		(1,035	)		(5,024	)		3,989			79.4	%
Net loss	$	(1,035	)	$	(5,024	)	$	3,989			79.4	%
Adjustments from net loss to HMH Books & Media    segment Adjusted EBITDA
Depreciation expense	$	286		$	1,027		$	(741	)		(72.2	)%
Amortization expense film asset		4,854			6,772			(1,918	)		(28.3	)%
Amortization expense		5,736			9,485			(3,749	)		(39.5	)%
HMH Books & Media segment Adjusted EBITDA	$	9,841		$	12,260		$	(2,419	)		(19.7	)%

NM = not meaningful

Our HMH Books & Media segment net sales for the nine months ended September 30, 2020 increased $1.2 million, or 1.0%, from $127.9 million in 2019 to $129.2 million. The increase in net sales was primarily due to $6.0 million of licensing revenue from a new production series and strong net sales of the frontlist titles Compromised, Chosen Ones and Defined Dish. Offsetting the aforementioned, was a $3.6 million decrease in licensing revenue attributed to the Carmen Sandiego series on Netflix, lower net sales of both Adult and Young Reader’s categories due to the closure of bookstores during the COVID-19 pandemic and the corresponding delay in releases of new frontlist titles.

Our HMH Books & Media segment cost of sales for the nine months ended September 30, 2020 increased $4.4 million, or 5.0%, from $87.8 million in 2019 to $92.2 million. The majority of the increase was driven by our cost of sales, excluding publishing rights and pre-publication amortization, which increased $5.2 million due to a product mix with higher production costs. Our cost of sales, excluding publishing rights and pre-publication amortization, as a percentage of net sales, increased to 68.2% from 64.8%.

Our HMH Books & Media segment selling and administrative expense for the nine months ended September 30, 2020 decreased $4.2 million from $40.6 million in 2019 to $36.4 million. The decrease was due to labor savings associated with our employee furlough initiative in response to COVID-19 pandemic, and to a lesser extent, our early retirement incentive program, the 2019 Restructuring Plan and a freeze on hiring.

Our HMH Books & Media segment other intangible asset amortization expense for the nine months ended September 30, 2020 decreased $2.9 million from 2019, due to certain definite-lived intangible assets being fully depreciated in 2019.

42

Our HMH Books & Media segment Adjusted EBITDA for the nine months ended September 30, 2020 changed unfavorably from $12.3 million in 2019 to $9.8 million due to the identified factors impacting net sales, cost of sales and selling and administrative expenses after removing those items not included in our HMH Books & Media segment Adjusted EBITDA. Our HMH Books & Media segment Adjusted EBITDA excludes depreciation and amortization.

Corporate and Other

	Nine Months Ended September 30,						Dollar			Percent
	2020			2019			Change			Change
Net sales	$	—		$	—		$	—			—
Costs and expenses:
Cost of sales, excluding publishing rights and    pre-publication amortization		—			—			—			—
Publishing rights amortization		—			—			—			—
Pre-publication amortization		—			—			—			—
Cost of sales		—			—			—			—
Selling and administrative		51,301			59,660			(8,359	)		(14.0	)%
Restructuring/severance and other charges		33,545			5,921			27,624		NM
Operating loss		(84,846	)		(65,581	)		(19,265	)		(29.4	)%
Retirement benefits non-service income		183			125			58			46.4	%
Interest expense		(50,433	)		(35,142	)		(15,291	)		(43.5	)%
Interest income		873			1,698			(825	)		(48.6	)%
Change in fair value of derivative instruments		172			(1,171	)		1,343			114.7	%
Gain on investments		1,738			—			1,738		NM
Income from transition services agreement		—			4,248			(4,248	)	NM
Net loss before taxes		(132,313	)		(95,823	)		(36,490	)		(38.1	)%
Income tax (benefit) expense		(10,890	)		4,256			(15,146	)	NM
Net loss	$	(121,423	)	$	(100,079	)	$	(21,344	)		(21.3	)%
Adjustments from net loss to Corporate and Other Adjusted    EBITDA
Interest expense	$	50,433		$	35,142		$	15,291			43.5	%
Interest income		(873	)		(1,698	)		825			(48.6	)%
Provision (benefit) for income taxes		(10,890	)		4,256			(15,146	)	NM
Depreciation expense		10,728			11,791			(1,063	)		(9.0	)%
Non-cash charges (gain) loss on derivative instruments		(172	)		1,171			(1,343	)	NM
Non-cash charges – stock compensation		8,751			11,094			(2,343	)		(21.1	)%
Fees, expenses or charges for equity offerings, debt or    acquisitions/dispositions		366			731			(365	)		(49.9	)%
Severance, separation costs and facility closures		33,545			5,921			27,624		NM
Gain on investments		(1,738	)		—			(1,738	)	NM
Corporate and Other Adjusted EBITDA	$	(31,273	)	$	(31,671	)	$	398			1.3	%

NM = not meaningful

Our selling and administrative expense for the Corporate and Other category for the nine months ended September 30, 2020 decreased $8.4 million from $59.7 million in 2019 to $51.3 million, primarily attributed to labor savings associated with our employee furlough initiative in response to the COVID-19 pandemic, and to a lesser extent, our early retirement incentive program, the 2019 Restructuring Plan and a freeze on hiring. Additionally, selling and administrative expenses were lower due to lower stock compensation charges and depreciation.

Our restructuring/severance and other charges for the nine months ended September 30, 2020 increased by $27.6 million due to $33.5 million of severance costs associated with the 2020 Restructuring Plan.

Interest expense for the nine months ended September 30, 2020 increased $15.3 million from $35.1 million in 2019 to $50.4 million, primarily due to our 2019 Refinancing during the fourth quarter of 2019. Further, there was an increase of $2.7 million of net settlement payments on our interest rate derivative instruments during 2020.

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Interest income for the nine months ended September 30, 2020 decreased $0.8 million due to lower interest rates on our money market funds in 2020.

Change in fair value of derivative instruments for the nine months ended September 30, 2020, favorably changed by $1.3 million due to foreign exchange forward contracts executed on the Euro that were favorably impacted by the weakening of the U.S. dollar against the Euro.

Gain on investments for the nine months ended September 30, 2020 was $1.7 million and was related to the fair value change in our equity interests in educational technology private partnerships.

Income from transition services agreement for the nine months ended September 30, 2019 was $4.2 million and was related to transition service fees under the transition services agreement with the purchaser of our Riverside Business pursuant to which we performed certain support functions through September 30, 2019.

Income tax (benefit) expense for the nine months ended September 30, 2020 increased $15.1 million, from an expense of $4.3 million in 2019, to a benefit of $10.9 million. An income tax benefit was recorded in the first quarter of 2020 and was due primarily to the book impairment on goodwill, which reduced the related deferred tax liabilities. For 2020, our annual effective tax rate, exclusive of discrete items used to calculate the tax provision, is expected to be approximately (1.3)%. For 2019, our effective annual tax rate exclusive of discrete items was (3.9)%. For both periods income tax expense was primarily attributed to movement in the deferred tax liability associated with tax amortization on indefinite-lived intangibles, state and foreign taxes, as well as the impact of certain discrete tax items including the accrual of potential interest and penalties on uncertain tax positions.

Adjusted EBITDA for the Corporate and Other category for the nine months ended September 30, 2020 favorably changed $0.4 million, or 1.3%, from a loss of $31.7 million in 2019 to a loss of $31.3 million. Our Adjusted EBITDA for the Corporate and Other category excludes interest, taxes, depreciation, derivative instruments charges, equity compensation charges, acquisition/disposition-related activity, gains or losses on investments, and restructuring costs. The unfavorable change in our Adjusted EBITDA for the Corporate and Other category was due to the factors described above after removing those items not included in Adjusted EBITDA for the Corporate and Other category.

Seasonality and Comparability

Our net sales, operating profit or loss and net cash provided by or used in operations are impacted by the inherent seasonality of the academic calendar, which typically results in a cash flow usage in the first half of the year and a cash flow generation in the second half of the year. Consequently, the performance of our businesses may not be comparable quarter to consecutive quarter and should be considered on the basis of results for the whole year or by comparing results in a quarter with results in the same quarter for the previous year. Moreover, uncertainty resulting from the COVID-19 pandemic may result in 2020 not following this historic pattern.

Approximately 87% of our net sales for the year ended December 31, 2019 were derived from our Education segment, which is a markedly seasonal business. Schools typically conduct the majority of their purchases in the second and third quarters of the calendar year in preparation for the beginning of the school year. Thus, over the past three completed fiscal years, approximately 67% of our consolidated net sales were realized in the second and third quarters. Sales of K-12 instructional materials are also cyclical, with some years offering more sales opportunities than others in light of the state adoption calendar. The amount of funding available at the state level for educational materials also has a significant effect on year-to-year net sales. Although the loss of a single customer would not have a material adverse effect on our business, schedules of school adoptions and market acceptance of our products can materially affect year-to-year net sales performance.

Liquidity and Capital Resources

(in thousands)	September 30, 2020		December 31, 2019
Cash and cash equivalents	$	271,543	$	296,353
Current portion of long-term debt		19,000		19,000
Long-term debt, net of discount and issuance costs		628,066		638,187
Revolving credit facility		—		—
Borrowing availability under revolving credit facility		160,710		161,961

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	Nine Months Ended September 30,
	2020			2019
Net cash provided by operating activities	$	75,166		$	127,372
Net cash used in investing activities		(86,596	)		(65,079	)
Net cash used in financing activities		(13,380	)		(6,982	)

Operating activities

Net cash provided by operating activities was $75.2 million for the nine months ended September 30, 2020, a $52.2 million decrease from the $127.4 million of net cash provided by operating activities for the nine months ended September 30, 2019. The decrease in cash provided by operating activities was primarily driven by a decrease in operating profit, net of non-cash items, of $98.6 million. Partially offsetting this decrease were favorable changes in net operating assets and liabilities of $46.4 million primarily due to favorable period over period changes in accounts receivable of $133.5 million due to collections from greater billings in 2019, favorable period over period inventory changes of $64.8 million, an increase in severance and other charges of $23.0 million due to the 2020 Restructuring Plan, an increase in operating lease liabilities of $4.9 million, an increase in net other assets and liabilities of $8.7 million, offset by unfavorable changes in deferred revenue of $135.7 million related to greater billings in 2019, accounts payable of $31.3 million related to timing of disbursements, royalties of $18.7 million, and pension benefits of $2.8 million.   

Investing activities

Net cash used in investing activities was $86.6 million for the nine months ended September 30, 2020, an increase of $21.5 million from the nine months ended September 30, 2019. The increase in cash used in investing activities was primarily due to lower net proceeds from sales and maturities of short-term investments of $50.0 million compared to 2019, offset by lower capital investing expenditures related to pre-publication costs and property, plant, and equipment of $22.3 million in connection with previously planned reductions in content development, and by the acquisition of a business for $5.5 million in 2019.

Financing activities

Net cash used in financing activities was $13.4 million for the nine months ended September 30, 2020, an increase of $6.4 million from the nine months ended September 30, 2019. The increase in cash used in financing activities was primarily due to an increase in principal payments on our term loan of $8.3 million in 2020 partially offset by a decrease in tax withholding payments related to net share settlements of restricted stock units of $1.9 million.

Debt

Under each of the notes, the term loan facility and the revolving credit facility, Houghton Mifflin Harcourt Publishers Inc., Houghton Mifflin Harcourt Publishing Company and HMH Publishers LLC are the borrowers (collectively, the “Borrowers”), and Citibank, N.A. acts as both the administrative agent and the collateral agent.

The obligations under the senior secured notes, the term loan facility and the revolving credit facility are guaranteed by the Company and each of its direct and indirect for-profit domestic subsidiaries (other than the Borrowers) (collectively, the “Guarantors”) and are secured by all capital stock and other equity interests of the Borrowers and the Guarantors and substantially all of the other tangible and intangible assets of the Borrowers and the Guarantors, including, without limitation, receivables, inventory, equipment, contract rights, securities, patents, trademarks, other intellectual property, cash, bank accounts and securities accounts and owned real estate. The revolving credit facility is secured by first priority liens on receivables, inventory, deposit accounts, securities accounts, instruments, chattel paper and other assets related to the foregoing (the “Revolving First Lien Collateral”), and second priority liens on the collateral which secures the term loan facility on a first priority basis. The term loan facility is secured by first priority liens on the capital stock and other equity interests of the Borrowers and the Guarantors, equipment, owned real estate, trademarks and other intellectual property, general intangibles that are not Revolving First Lien Collateral and other assets related to the foregoing, and second priority liens on the Revolving First Lien Collateral.

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Senior Secured Notes

On November 22, 2019, we completed the sale of $306.0 million in aggregate principal amount of 9.0% Senior Secured Notes due 2025 (the “notes”) in a private placement to qualified institutional buyers under Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to persons outside the United States pursuant to Regulation S under the Securities Act. The notes mature on February 15, 2025 and bear interest at a rate of 9.0% per annum. Interest is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2020.  As of September 30, 2020, we had $306.0 million ($297.2 million, net of discount and issuance costs) outstanding under the notes.

We may redeem all or a portion of the notes at redemption prices as described in the notes.  

The notes do not require us to comply with financial maintenance covenants. We are currently required to meet certain incurrence based financial covenants as defined under the notes.

The notes are subject to customary events of default. If an event of default occurs and is continuing, the administrative agent may, or at the request of certain required lenders shall, accelerate the obligations outstanding under the notes.

Term Loan Facility

On November 22, 2019, we entered into a second amended and restated term loan credit agreement for an aggregate principal amount of $380.0 million (the “term loan facility”). As of September 30, 2020, we had $365.8 million ($349.9 million, net of discount and issuance costs) outstanding under the term loan facility.    

The term loan facility matures on November 22, 2024 and the interest rate per annum is equal to, at the option of the Company, either (a) LIBOR plus a margin of 6.25% or (b) an alternate base rate plus a margin of 5.25%.  As of September 30, 2020, the interest rate on the term loan facility was 7.25%.

The term loan facility is required to be repaid in quarterly installments of approximately $4.8 million with the balance being payable on the maturity date.  

The term loan facility does not require us to comply with financial maintenance covenants. We are currently required to meet certain incurrence based financial covenants as defined under our term loan facility.

The term loan facility contains customary mandatory prepayment requirements, including with respect to excess cash flow, proceeds from certain asset sales or dispositions of property, and proceeds from certain incurrences of indebtedness.  The term loan facility permits the Company to voluntarily prepay outstanding amounts at any time without premium or penalty, other than customary breakage costs with respect to LIBOR loans; provided, however, that any voluntary prepayment in connection with certain repricing transactions that occur before the date that is twelve months after the closing of the term loan facility shall be subject to a prepayment premium of 1.00% of the principal amount of the amounts prepaid.

The term loan facility is subject to usual and customary conditions, representations, warranties and covenants, including restrictions on additional indebtedness, liens, investments, mergers, acquisitions, asset dispositions, dividends to stockholders, repurchase or redemption of our stock, transactions with affiliates and other matters. The term loan facility is subject to customary events of default. If an event of default occurs and is continuing, the administrative agent may, or at the request of certain required lenders shall, accelerate the obligations outstanding under the term loan facility.

We are subject to an excess cash flow provision under our term loan facility which is predicated upon our leverage ratio and cash flow. The excess cash flow provision did not apply in 2019.  

Revolving Credit Facility

On November 22, 2019, we entered into a second amended and restated revolving credit agreement that provides borrowing availability in an amount equal to the lesser of either $250.0 million or a borrowing base that is computed monthly or weekly and comprised of the Borrowers’ and the Guarantors’ eligible inventory and receivables (the “revolving credit facility”).

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The revolving credit facility includes a letter of credit subfacility of $50.0 million, a swingline subfacility of $20.0 million and the option to expand the facility by up to $100.0 million in the aggregate under certain specified conditions. The amount of any outstanding letters of credit reduces borrowing availability under the revolving credit facility on a dollar-for-dollar basis. As of September 30, 2020, there were no amounts outstanding on the revolving credit facility. As of September 30, 2020, we had approximately $19.2 million of outstanding letters of credit and approximately $160.7 million of borrowing availability under the revolving credit facility. As of November 5, 2020, there were no amounts outstanding under the revolving credit facility.

The revolving credit facility has a five-year term and matures on November 22, 2024. The interest rate applicable to borrowings under the facility is based, at our election, on LIBOR plus a margin between 1.50% and 2.00% or an alternative base rate plus a margin between 0.50% and 1.00%, which margins are based on average daily availability. The revolving credit facility may be prepaid, in whole or in part, at any time, without premium.

The revolving credit facility requires us to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0 on a trailing four-quarter basis for periods in which excess availability under the revolving credit facility is less than the greater of $25.0 million and 12.5% of the lesser of the total commitment and the borrowing base then in effect, or less than $20.0 million if certain conditions are met. The minimum fixed charge coverage ratio was not applicable under the facility as of September 30, 2020, due to our level of borrowing availability.

The revolving credit facility is subject to usual and customary conditions, representations, warranties and covenants, including restrictions on additional indebtedness, liens, investments, mergers, acquisitions, asset dispositions, dividends to stockholders, repurchase or redemption of our stock, transactions with affiliates and other matters. The revolving credit facility is subject to customary events of default. If an event of default occurs and is continuing, the administrative agent may, or at the request of certain required lenders shall, accelerate the obligations outstanding under the revolving credit facility.

General

We had $271.5 million of cash and cash equivalents and no short-term investments at September 30, 2020. We had $296.4 million of cash and cash equivalents and no short-term investments at December 31, 2019.

Our business is impacted by the inherent seasonality of the academic calendar, which typically results in a cash flow usage in the first half of the year and a cash flow generation in the second half of the year. We expect our net cash provided by operations combined with our cash and cash equivalents and borrowing availability under our revolving credit facility to provide sufficient liquidity to fund our current obligations, capital spending, debt service requirements and working capital requirements over at least the next twelve months. Our primary credit facilities do not require us to comply with financial maintenance covenants.

The ability of the Company to fund planned operations is based on assumptions which involve significant judgment and estimates of future revenues, capital spend and other operating costs. Our current assumptions are that our industry will begin to recover as school districts become, or continue being, fully operational, either in-person, fully remote or hybrid, during the remainder of 2020. We have performed a sensitivity analysis on these assumptions to forecast the impact of a slower-than-anticipated recovery and believe we can take additional financial and operational actions to mitigate the impact of lower billings than our current plans assume. These actions include, but are not limited to, additional expense reductions, asset sales, and capital raising activities.

Critical Accounting Policies and Estimates

Our financial results are affected by the selection and application of critical accounting policies and methods. There were no material changes in the nine months ended September 30, 2020 to the application of critical accounting policies and estimates as described in our audited consolidated financial statements, which were included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

The critical accounting estimates used in the preparation of the Company’s consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and the Company’s operating environment changes.  Actual results may differ from these estimates due to the uncertainty around the magnitude and duration of the COVID-19 pandemic, as well as other factors.

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Impact of Inflation and Changing Prices

We believe that inflation has not had a material impact on our results of operations during the year ended December 31, 2019 or year to date in 2020. We cannot be sure that future inflation will not have an adverse impact on our operating results and financial condition in future periods. Our ability to adjust selling prices has always been limited by competitive factors and long-term contractual arrangements which either prohibit price increases or limit the amount by which prices may be increased. Further, a weak domestic economy at a time of low inflation could cause lower tax receipts at the state and local level, and the funding and buying patterns for textbooks and other educational materials could be adversely affected.

Covenant Compliance

As of September 30, 2020, we were in compliance with all of our debt covenants and we expect to be in compliance over the next twelve months.

We are currently required to meet certain incurrence-based financial covenants as defined under our term loan facility, notes and revolving credit facility. We have incurrence based financial covenants primarily pertaining to a maximum leverage ratio and fixed charge coverage ratio. A breach of any of these covenants, ratios, tests or restrictions, as applicable, for which a waiver is not obtained could result in an event of default, in which case our lenders could elect to declare all amounts outstanding to be immediately due and payable and result in a cross-default under other arrangements containing such provisions. A default would permit lenders to accelerate the maturity for the debt under these agreements and to foreclose upon any collateral securing the debt owed to these lenders and to terminate any commitments of these lenders to lend to us. If the lenders accelerate the payment of the indebtedness, our assets may not be sufficient to repay in full the indebtedness and any other indebtedness that would become due as a result of any acceleration. Further, in such an event, the lenders would not be required to make further loans to us, and assuming similar facilities were not established and we are unable to obtain replacement financing, it would materially affect our liquidity and results of operations.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

See Note 4 to the consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recently issued accounting pronouncements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from foreign currency exchange rates and interest rates, which could affect operating results, financial position and cash flows. We manage exposure to these market risks through our regular operating and financing activities and, when appropriate, through the use of derivative financial instruments. These derivative financial instruments are utilized to hedge economic exposures as well as reduce our earnings and cash flow volatility resulting from shifts in market rates. As permitted, we may designate certain of these derivative contracts for hedge accounting treatment in accordance with authoritative guidance regarding accounting for derivative instruments and hedging activities. However, certain of these instruments may not qualify for, or we may choose not to elect, hedge accounting treatment and, accordingly, the results of our operations may be exposed to some level of volatility. Volatility in our results of operations will vary with the type and amount of derivative hedges outstanding, as well as fluctuations in the currency and interest rate market during the period. Periodically, we may enter into derivative contracts, including interest rate swap agreements and interest rate caps and collars to manage interest rate exposures, and foreign currency spot, forward, swap and option contracts to manage foreign currency exposures. The fair market values of all of these derivative contracts change with fluctuations in interest rates and/or currency rates and are designed so that any changes in their values are offset by changes in the values of the underlying exposures. Derivative financial instruments are held solely as risk management tools and not for trading or speculative purposes.

By their nature, all derivative instruments involve, to varying degrees, elements of market and credit risk not recognized in our financial statements. The market risk associated with these instruments resulting from currency exchange and interest rate movements is expected to offset the market risk of the underlying transactions, assets and liabilities being hedged. Our policy is to deal with counterparties having a single A or better credit rating at the time of the execution. We manage our exposure to counterparty risk of derivative instruments by entering into contracts with a diversified group of major financial institutions and by actively monitoring outstanding positions.

We continue to review liquidity sufficiency by performing various stress test scenarios, such as cash flow forecasting, which considers hypothetical interest rate movements. Furthermore, we continue to closely monitor current events and the financial institutions that support our credit facility, including monitoring their credit ratings and outlooks, credit default swap levels, capital raising and merger activity.

As of September 30, 2020, we had $365.8 million ($349.9 million, net of discount and issuance costs) of aggregate principal amount indebtedness outstanding under our term loan facility that bears interest at a variable rate. An increase or decrease of 1% in the interest rate will change our interest expense by approximately $3.7 million on an annual basis. We also have up to $250.0 million of borrowing availability, subject to borrowing base availability, under our revolving credit facility, and borrowings under the revolving credit facility bear interest at a variable rate. As of September 30, 2020, there were no amounts outstanding on the revolving credit facility. Assuming that the revolving credit facility is fully drawn, an increase or decrease of 1% in the interest rate will change our interest expense associated with the revolving credit facility by $2.5 million on an annual basis.

Our interest rate risk relates primarily to U.S. dollar borrowings partially offset by U.S. dollar cash investments. We have historically used interest rate derivative instruments to manage our earnings and cash flow exposure to changes in interest rates. On August 17, 2015, we entered into interest rate derivative contracts with various financial institutions having an aggregate notional amount of $400.0 million to convert floating rate debt into fixed rate debt, which we designated as cash flow hedges. These contracts were effective beginning September 30, 2016 and matured on July 22, 2020. We currently have no outstanding interest rate hedges as of September 30, 2020.

We conduct various digital development activities in Ireland, and as such, our cash flows and costs are subject to fluctuations from changes in foreign currency exchange rates. We manage our exposures to this market risk through the use of short-term foreign exchange forward and option contracts, when deemed appropriate, which were not significant as of September 30, 2020 and December 31, 2019. We do not enter into derivative transactions or use other financial instruments for trading or speculative purposes.

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Item 4. Controls and Procedures

Our management, with the participation of our Chief Executive Officer (“CEO”), and our Executive Vice President and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2020 pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Based on their evaluation, our CEO and CFO concluded that, as of September 30, 2020 our disclosure controls and procedures were effective.

During the quarter ended September 30, 2020, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II. Other Information

Item 1. Legal Proceedings

We are involved in legal actions, claims, litigation and other matters incidental to our business. Litigation alleging infringement of copyrights and other intellectual property rights, particularly with respect to proprietary photographs and images, is common in the educational publishing industry.

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

Item 1A. Risk Factors

“Item 1A. Risk Factors” of our Form 10-K includes a discussion of our risk factors.  The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (“2019 Form 10-K”). The developments described in this additional risk factor have heightened, or in some cases manifested, certain of the risks disclosed in the risk factor section of our 2019 Form 10-K, and such risk factors are further qualified by the information relating to COVID-19 that is described in this Quarterly Report on Form 10-Q, including in the additional risk factor below. Except as presented below, there have been no material changes from the risk factors described in our 2019 Form 10-K.

We face various risks related to health epidemics, pandemics and similar outbreaks, including the ongoing COVID-19 pandemic which have had, and are likely to continue to have, material adverse effects on our business, financial position, results of operations and cash flows.

Our business and financial results have been negatively impacted by health epidemics, pandemics and similar outbreaks. In particular, the current COVID-19 pandemic has had, and is likely to continue to have, negative impacts on our business, including causing significant volatility in demand for our products, our ability to service our customers, changes in consumer behavior and preference, disruptions in our supply chain operations and warehousing operations, limitations on our employees’ ability to work and travel, adverse impacts on third parties upon which we rely, our ability to satisfy our debt and other obligations, our liquidity, declines in state revenues and related impacts on educational budgets, and significant changes in the economic or political conditions in markets in which we operate, both near-term and potentially long-term. Moreover, as we begin the traditional fall return to school season, significant uncertainties exist regarding the format and other safety procedures schools may follow at various points during the school year. The decisions various schools make regarding whether to reopen this fall for in-person and/or remote learning and whether to deviate from a chosen format due to outbreaks will impact demand for our products and services in ways that we cannot predict at this time and may be challenging for us to respond to. Despite our efforts to manage these risks, their ultimate impact will depend on factors beyond our knowledge or control, including the duration and severity of the current pandemic and actions taken to contain its spread and mitigate its public health effects.

Item 5. Other Information

Daniel Allen, a member of the Company’s Board of Directors, was initially elected pursuant to a Nomination Agreement dated as of December 21, 2016 (the “Nomination Agreement”) between the Company and certain stockholders affiliated with Anchorage Capital Group, LLC (collectively, “Anchorage”). On November 4, 2020 Anchorage and the Company entered into an amendment of the Nomination Agreement (the “Amendment”) confirming that the “Restricted Period” under the Nomination Agreement expires on November 5, 2020. Accordingly, pursuant to its terms, the Nomination Agreement will cease to be in effect at the end of the day on November 5, 2020. While Mr. Allen will not be serving as a designee of Anchorage, he will remain on the Company’s Board of Directors as an independent director.

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The Nomination Agreement contained restrictions on certain actions by Anchorage during the Restricted Period. These restrictions included, among other things and with certain carve-outs, restrictions on: (i) soliciting proxies or initiating a stockholder proposal with respect to the Company; (ii) forming or influencing any “group” (as defined pursuant to Section 13(d) of the Exchange Act) with respect to securities of the Company; (iii) acquiring additional shares where it would result in Anchorage beneficially owning more than 20% of the Company’s outstanding common stock; (iv) other than in an underwritten widely dispersed public offering, knowingly transferring common stock to any person or group that would beneficially own more than 10% of the Company’s outstanding common stock as a result of such transfer; (v) making disparaging public statements regarding the Company or its affiliates (with the Company agreeing to a reciprocal restriction) or making public proposals regarding changes in the Company’s business or financial condition; and (vi) initiating legal proceedings against the Company or requesting inspection of the Company’s corporate books and records. Additionally, for the duration of the Restricted Period, Anchorage agreed to cause all voting securities owned by it to, at each Company stockholder meeting, be present for quorum purposes and vote (i) for all directors nominated by the Board for election and (ii) in accordance with the recommendation of the Board on any precatory or non-binding proposals.

A copy of the Amendment is filed herewith as Exhibit 10.1. The Nomination Agreement was previously included as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 22, 2016 and also appears as Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2019.

Pursuant to Anchorage’s rights under the Investor Rights Agreement dated June 22, 2012 to which it is a party with the Company and the other stockholders named therein, Anchorage has requested that the Company register for resale all of its outstanding shares. In accordance with the Investor Rights Agreement, the Company is in the process of determining whether any of the other stockholders who hold registration rights also wish to have their shares registered for resale. The Investor Rights Agreement was previously included as Exhibit 4.1 to Amendment No. 1 of the Company’s Registration Statement on Form S-1 filed September 13, 2013 and also appears as Exhibit 4.1 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2019.

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Item 6. Exhibits

Exhibit No.	Description
3.1	Amended and Restated By-Laws of the Registrant, effective September 30, 2020 (incorporated by reference to Exhibit No. 3.1 to the Company’s Current Report on Form 8-K, filed October 6, 2020 (File No. 001-36166)).
10.1*	Amendment to the Nomination Agreement, effective November 4, 2020, by and among Houghton Mifflin Harcourt Company and certain affiliates of Anchorage Capital Group, L.L.C.
31.1*	Certification of CEO Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of CFO Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of CEO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification of CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	The instance document does not appear in the interactive file because its XBRL tags are embedded within the inline XBRL document
101.SCH*	Inline XBRL Taxonomy Extension Schema Document.
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

** This certification shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities under that section. Furthermore, this certification shall not be deemed to be incorporated by reference into the filings of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, regardless of any general incorporation language in such filing.

53

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Houghton Mifflin Harcourt Company (Registrant)
November 5, 2020	By:	/s/ John J. Lynch, Jr.
		John J. Lynch, Jr.
		Chief Executive Officer (Principal Executive Officer)
	Houghton Mifflin Harcourt Company (Registrant)
November 5, 2020	By:	/s/ Joseph P. Abbott, Jr.
		Joseph P. Abbott, Jr.
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)

54

EX-10.1

Exhibit 10.1

Amendment to Nomination Agreement

This Amendment to Nomination Agreement (the “Amendment”) is entered into as of November 4, 2020 by and between Houghton Mifflin Harcourt Company, a Delaware Corporation (the “Company”), and the stockholders party to the Nomination Agreement (as defined below) (collectively, the “Stockholder”).  Capitalized terms used and not defined herein have the meanings assigned to them in the Nomination Agreement.

WHEREAS, the Company and the Stockholder are party to that certain Nomination Agreement, dated as of December 21, 2016 (the “Nomination Agreement”); and

WHEREAS, the Company and the Stockholder wish to amend the Nomination Agreement as set forth herein.

NOW, THEREFORE, in consideration of the premises and mutual promises and covenants contained in this Amendment, the parties hereto agree as follows:

1.The second to last paragraph of Section 2 of the Nomination Agreement is hereby amended and restated in its entirety to read as follows:

“For purposes of this Agreement, the ‘Restricted Period’ means the period from the date hereof until November 5, 2020”.

2.Miscellaneous.  Except as modified by this Amendment, all other terms and conditions of the Nomination Agreement shall remain in full force and effect. This Amendment may be executed in counterparts, each of which shall be deemed to be an original, and all of which shall constitute one and the same document.  

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the date first written above.

Company:
Houghton Mifflin Harcourt Company
By:	/s/William F. Bayers
Name:	William F. Bayers
Title:	Executive Vice President, General
	Counsel & Secretary

Stockholders:

Anchorage Capital Master Offshore, Ltd.
By:	Anchorage Capital Group, L.L.C., its Investment Manager
By:	/s/ Natalie Birrell
Name:	Natalie Birrell
Title:	Chief Operating Officer
PCI Fund LLC
By:	Anchorage Capital Group, L.L.C., its Investment Manager
By:	/s/ Natalie Birrell
Name:	Natalie Birrell
Title:	Chief Operating Officer

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, John J. Lynch, Jr., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Houghton Mifflin Harcourt Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 5, 2020

By:	/s/ John J. Lynch, Jr.
	John J. Lynch, Jr. President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Joseph P. Abbott, Jr., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Houghton Mifflin Harcourt Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 5, 2020

By:	/s/ Joseph P. Abbott, Jr.
	Joseph P. Abbott, Jr. Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with Houghton Mifflin Harcourt Company’s (the “Company”) Quarterly Report on Form 10-Q for the three months ended September 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John J. Lynch, Jr., President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 5, 2020

By:	/s/ John J. Lynch, Jr.
	John J. Lynch, Jr. President and Chief Executive Officer

EX-32.2

 Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with Houghton Mifflin Harcourt Company’s (the “Company”) Quarterly Report on Form 10-Q for the three months ended September 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph P. Abbott, Jr., Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 5, 2020

By:	/s/ Joseph P. Abbott, Jr.
	Joseph P. Abbott, Jr. Executive Vice President and Chief Financial Officer

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2020	Nov. 02, 2020
Cover [Abstract]
Amendment Flag	false
Document Type	10-Q
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Document Period End Date	Sep. 30, 2020
Entity Central Index Key	0001580156
Current Fiscal Year End Date	--12-31
Entity Registrant Name	Houghton Mifflin Harcourt Co
Entity Filer Category	Large Accelerated Filer
Trading Symbol	HMHC
Entity Current Reporting Status	Yes
Entity Shell Company	false
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		125,850,114
Document Transition Report	false
Document Quarterly Report	true
Entity Small Business	false
Entity Interactive Data Current	Yes
Entity File Number	001-36166
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	27-1566372
Entity Address, Address Line One	125 High Street
Entity Address, City or Town	Boston
Entity Address, Postal Zip Code	02110
City Area Code	617
Entity Address, State or Province	MA
Local Phone Number	351-5000
Title of 12(b) Security	Common Stock, $0.01 par value
Security Exchange Name	NASDAQ

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Current assets
Cash and cash equivalents	$ 271,543	$ 296,353
Accounts receivable, net of allowances for bad debts and book returns of $19.5 million and $19.7 million, respectively	282,179	184,425
Inventories	175,820	213,059
Prepaid expenses and other assets	23,214	19,257
Total current assets	752,756	713,094
Property, plant, and equipment, net	95,265	100,388
Pre-publication costs, net	222,186	268,197
Royalty advances to authors, net	41,661	44,743
Goodwill	454,977	716,977
Other intangible assets, net	440,111	474,225
Operating lease assets	129,154	132,247
Deferred income taxes	2,520	2,520
Deferred commissions	32,972	29,291
Other assets	34,726	31,490
Total assets	2,206,328	2,513,172
Current liabilities
Current portion of long-term debt	19,000	19,000
Accounts payable	71,512	52,128
Royalties payable	52,339	72,985
Salaries, wages, and commissions payable	37,009	54,938
Deferred revenue	356,823	305,285
Interest payable	3,981	3,826
Severance and other charges	34,901	12,407
Accrued postretirement benefits	1,571	1,571
Operating lease liabilities	9,339	8,685
Other liabilities	26,383	24,325
Total current liabilities	612,858	555,150
Long-term debt, net of discount and issuance costs	628,066	638,187
Operating lease liabilities	133,214	134,994
Long-term deferred revenue	596,630	542,821
Accrued pension benefits	19,316	23,648
Accrued postretirement benefits	13,911	15,113
Deferred income taxes	18,787	30,871
Other liabilities	3,502	6,028
Total liabilities	2,026,284	1,946,812
Commitments and contingencies (Note 13)
Stockholders’ equity
Preferred stock, $0.01 par value: 20,000,000 shares authorized; no shares issued and outstanding at September 30, 2020 and December 31, 2019
Common stock, $0.01 par value: 380,000,000 shares authorized; 150,427,148 and 148,928,328 shares issued at September 30, 2020 and December 31, 2019, respectively; 125,850,114 and 124,351,294 shares outstanding at September 30, 2020 and December 31, 2019, respectively	1,504	1,489
Treasury stock, 24,577,034 shares as of September 30, 2020 and December 31, 2019, respectively, at cost	(518,030)	(518,030)
Capital in excess of par value	4,915,806	4,906,165
Accumulated deficit	(4,172,685)	(3,775,992)
Accumulated other comprehensive loss	(46,551)	(47,272)
Total stockholders’ equity	180,044	566,360
Total liabilities and stockholders’ equity	$ 2,206,328	$ 2,513,172

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Millions	Sep. 30, 2020	Dec. 31, 2019
Statement Of Financial Position [Abstract]
Accounts receivable, allowances for bad debts and book returns	$ 19.5	$ 19.7
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	20,000,000	20,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	380,000,000	380,000,000
Common stock, shares issued	150,427,148	148,928,328
Common stock, shares outstanding	125,850,114	124,351,294
Treasury stock, shares	24,577,034	24,577,034

XML

Consolidated Statements of Operations - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Income Statement [Abstract]
Net sales	$ 386,590,000	$ 565,668,000	$ 827,731,000	$ 1,149,199,000
Costs and expenses
Cost of sales, excluding publishing rights and pre-publication amortization	182,767,000	246,527,000	397,139,000	533,413,000
Publishing rights amortization	4,761,000	6,341,000	15,295,000	20,217,000
Pre-publication amortization	31,647,000	39,319,000	94,043,000	108,140,000
Cost of sales	219,175,000	292,187,000	506,477,000	661,770,000
Selling and administrative	127,324,000	188,957,000	367,006,000	516,206,000
Other intangible asset amortization	6,274,000	6,383,000	18,819,000	19,519,000
Impairment charge for goodwill	0		262,000,000	0
Restructuring/severance and other charges	33,545,000	270,000	33,545,000	5,921,000
Operating income (loss)	272,000	77,871,000	(360,116,000)	(54,217,000)
Other income (expense)
Retirement benefits non-service income	61,000	41,000	183,000	125,000
Interest expense	(16,168,000)	(11,597,000)	(50,433,000)	(35,142,000)
Interest income	32,000	509,000	873,000	1,698,000
Change in fair value of derivative instruments	432,000	(737,000)	172,000	(1,171,000)
Gain on investments	1,738,000	(270,000)	1,738,000	(5,921,000)
Income from transition services agreement		571,000		4,248,000
(Loss) income before taxes	(13,633,000)	66,658,000	(407,583,000)	(84,459,000)
Income tax (benefit) expense	(1,081,000)	(2,602,000)	(10,890,000)	4,256,000
Net (loss) income	$ (12,552,000)	$ 69,260,000	$ (396,693,000)	$ (88,715,000)
Net (loss) income per share attributable to common stockholders
Basic	$ (0.10)	$ 0.56	$ (3.17)	$ (0.71)
Diluted	$ (0.10)	$ 0.55	$ (3.17)	$ (0.71)
Weighted average shares outstanding
Basic	125,799,018	124,315,491	125,317,284	124,089,257
Diluted	125,799,018	124,807,488	125,317,284	124,089,257

XML

Consolidated Statements of Comprehensive (Loss) Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Statement Of Income And Comprehensive Income [Abstract]
Net (loss) income	$ (12,552)	$ 69,260	$ (396,693)	$ (88,715)
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments, net of tax	(86)	(351)	(266)	(478)
Unrealized gain on short-term investments, net of tax				9
Net change in unrealized gain (loss) on derivative financial instruments, net of tax	258	(257)	987	(3,661)
Other comprehensive income (loss), net of taxes	172	(608)	721	(4,130)
Comprehensive (loss) income	$ (12,380)	$ 68,652	$ (395,972)	$ (92,845)

XML

Consolidated Statements of Cash Flows - USD ($)	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Cash flows from operating activities
Net loss	$ (396,693,000)	$ (88,715,000)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization expense	171,027,000	201,593,000
Amortization and impairments of operating lease assets	9,565,000	12,898,000
Amortization of debt discount and deferred financing costs	4,504,000	3,136,000
Gain on investments	(1,738,000)	5,921,000
Deferred income taxes	(12,084,000)	2,580,000
Stock-based compensation expense	8,751,000	11,094,000
Impairment charge for goodwill	262,000,000	0
Change in fair value of derivative instruments	(172,000)	1,171,000
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable	(97,754,000)	(231,296,000)
Inventories	37,239,000	(27,535,000)
Other assets	(13,374,000)	(23,649,000)
Accounts payable and accrued expenses	6,213,000	37,488,000
Royalties payable and author advances, net	(17,564,000)	1,165,000
Deferred revenue	105,347,000	241,091,000
Interest payable	155,000	11,000
Severance and other charges	22,494,000	(464,000)
Accrued pension and postretirement benefits	(5,532,000)	(2,761,000)
Operating lease liabilities	(7,598,000)	(12,450,000)
Other liabilities	380,000	2,015,000
Net cash provided by operating activities	75,166,000	127,372,000
Cash flows from investing activities
Proceeds from sales and maturities of short-term investments		50,000,000
Additions to pre-publication costs	(51,321,000)	(81,532,000)
Additions to property, plant, and equipment	(35,275,000)	(27,350,000)
Acquisition of business, net of cash acquired		(5,447,000)
Investment in preferred stock		(750,000)
Net cash used in investing activities	(86,596,000)	(65,079,000)
Cash flows from financing activities
Borrowings under revolving credit facility	150,000,000	60,000,000
Payments of revolving credit facility	(150,000,000)	(60,000,000)
Payments of long-term debt	(14,250,000)	(6,000,000)
Payments of deferred financing fees		(311,000)
Tax withholding payments related to net share settlements of restricted stock units	(48,000)	(1,963,000)
Issuance of common stock under employee stock purchase plan	918,000	1,027,000
Net collections under transition services agreement		265,000
Net cash used in financing activities	(13,380,000)	(6,982,000)
Net (decrease) increase in cash and cash equivalents	(24,810,000)	55,311,000
Cash and cash equivalents at beginning of the period	296,353,000	253,365,000
Cash and cash equivalents at end of the period	271,543,000	308,676,000
Supplemental disclosure of cash flow information
Interest paid	45,913,000	32,264,000
Income taxes paid	1,848,000	469,000
Non-cash investing activities
Property, plant, and equipment acquired under finance leases	205,000	366,000
Pre-publication Costs [Member]
Non-cash investing activities
Costs included in accounts payable and accruals	2,192,000	7,299,000
Property, Plant, and Equipment [Member]
Non-cash investing activities
Costs included in accounts payable and accruals	$ 1,648,000	$ 2,317,000

XML

Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Total	Cumulative Effect, Period of Adoption, Adjustment [Member]	Common Stock [Member]	Treasury Stock [Member]	Capital in Excess of Par Value [Member]	Accumulated Deficit [Member]	Accumulated Deficit [Member] Cumulative Effect, Period of Adoption, Adjustment [Member]	Accumulated Other Comprehensive Loss [Member]
Beginning balance at Dec. 31, 2018	$ 768,470	$ 725	$ 1,481	$ (518,030)	$ 4,893,174	$ (3,562,971)	$ 725	$ (45,184)
Beginning balance, shares at Dec. 31, 2018			148,164,854
Accounting Standards Update [Extensible List]	us-gaap:AccountingStandardsUpdate201602Member
Net (loss) income	$ (117,362)					(117,362)
Other comprehensive income (loss), net of tax	(1,550)							(1,550)
Issuance of common stock for employee purchase plan	702		$ 1		701
Issuance of common stock for employee purchase plan, shares			78,105
Issuance of common stock for vesting of restricted stock units			$ 5		(5)
Issuance of common stock for vesting of restricted stock units, shares			444,622
Stock withheld to cover tax withholdings requirements upon vesting of restricted stock units	(1,756)				(1,756)
Stock-based compensation expense	3,442				3,442
Ending balance at Mar. 31, 2019	652,671	87	$ 1,487	(518,030)	4,895,556	(3,679,608)	87	(46,734)
Ending balance, shares at Mar. 31, 2019			148,687,581
Beginning balance at Dec. 31, 2018	768,470	725	$ 1,481	(518,030)	4,893,174	(3,562,971)	725	(45,184)
Beginning balance, shares at Dec. 31, 2018			148,164,854
Net (loss) income	(88,715)
Ending balance at Sep. 30, 2019	686,693		$ 1,489	(518,030)	4,903,422	(3,650,874)		(49,314)
Ending balance, shares at Sep. 30, 2019			148,907,955
Beginning balance at Mar. 31, 2019	$ 652,671	$ 87	$ 1,487	(518,030)	4,895,556	(3,679,608)	$ 87	(46,734)
Beginning balance, shares at Mar. 31, 2019			148,687,581
Accounting Standards Update [Extensible List]	us-gaap:AccountingStandardsUpdate201602Member
Net (loss) income	$ (40,613)					(40,613)
Other comprehensive income (loss), net of tax	(1,972)							(1,972)
Issuance of common stock for employee purchase plan	1				1
Issuance of common stock for vesting of restricted stock units, shares			97,845
Stock withheld to cover tax withholdings requirements upon vesting of restricted stock units	(173)				(173)
Stock-based compensation expense	3,604				3,604
Ending balance at Jun. 30, 2019	613,605		$ 1,487	(518,030)	4,898,988	(3,720,134)		(48,706)
Ending balance, shares at Jun. 30, 2019			148,785,426
Net (loss) income	69,260					69,260
Other comprehensive income (loss), net of tax	(608)							(608)
Issuance of common stock for employee purchase plan	735		$ 1		734
Issuance of common stock for employee purchase plan, shares			108,009
Issuance of common stock for vesting of restricted stock units			$ 1		(1)
Issuance of common stock for vesting of restricted stock units, shares			14,520
Stock withheld to cover tax withholdings requirements upon vesting of restricted stock units	(34)				(34)
Stock-based compensation expense	3,735				3,735
Ending balance at Sep. 30, 2019	686,693		$ 1,489	(518,030)	4,903,422	(3,650,874)		(49,314)
Ending balance, shares at Sep. 30, 2019			148,907,955
Beginning balance at Dec. 31, 2019	566,360		$ 1,489	(518,030)	4,906,165	(3,775,992)		(47,272)
Beginning balance, shares at Dec. 31, 2019			148,928,328
Net (loss) income	(345,973)					(345,973)
Other comprehensive income (loss), net of tax	(444)							(444)
Issuance of common stock for employee purchase plan	679		$ 1		678
Issuance of common stock for employee purchase plan, shares			104,331
Issuance of common stock for vesting of restricted stock units			$ 10		(10)
Issuance of common stock for vesting of restricted stock units, shares			950,496
Stock withheld to cover tax withholdings requirements upon vesting of restricted stock units	(48)				(48)
Stock-based compensation expense	3,386				3,386
Ending balance at Mar. 31, 2020	223,960		$ 1,500	(518,030)	4,910,171	(4,121,965)		(47,716)
Ending balance, shares at Mar. 31, 2020			149,983,155
Beginning balance at Dec. 31, 2019	566,360		$ 1,489	(518,030)	4,906,165	(3,775,992)		(47,272)
Beginning balance, shares at Dec. 31, 2019			148,928,328
Net (loss) income	(396,693)
Ending balance at Sep. 30, 2020	180,044		$ 1,504	(518,030)	4,915,806	(4,172,685)		(46,551)
Ending balance, shares at Sep. 30, 2020			150,427,148
Beginning balance at Mar. 31, 2020	223,960		$ 1,500	(518,030)	4,910,171	(4,121,965)		(47,716)
Beginning balance, shares at Mar. 31, 2020			149,983,155
Net (loss) income	(38,168)					(38,168)
Other comprehensive income (loss), net of tax	993							993
Issuance of common stock for employee purchase plan	(1)				(1)
Issuance of common stock for vesting of restricted stock units			$ 1		(1)
Issuance of common stock for vesting of restricted stock units, shares			149,495
Stock-based compensation expense	2,101				2,101
Ending balance at Jun. 30, 2020	188,885		$ 1,501	(518,030)	4,912,270	(4,160,133)		(46,723)
Ending balance, shares at Jun. 30, 2020			150,132,650
Net (loss) income	(12,552)					(12,552)
Other comprehensive income (loss), net of tax	172							172
Issuance of common stock for employee purchase plan	570		$ 3		567
Issuance of common stock for employee purchase plan, shares			274,588
Issuance of common stock for vesting of restricted stock units, shares			19,910
Stock-based compensation expense	2,969				2,969
Ending balance at Sep. 30, 2020	$ 180,044		$ 1,504	$ (518,030)	$ 4,915,806	$ (4,172,685)		$ (46,551)
Ending balance, shares at Sep. 30, 2020			150,427,148

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Basis of Presentation

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Basis of Presentation

1. Basis of Presentation

Houghton Mifflin Harcourt Company (“HMH,” “Houghton Mifflin Harcourt,” “we,” “us,” “our,” or the “Company”) is a learning technology company committed to delivering connected solutions that engage learners, empower educators and improve student outcomes. As a leading provider of Kindergarten through 12^th grade (“K-12”) core curriculum, supplemental and intervention solutions and professional learning services, HMH partners with educators and school districts to uncover solutions that unlock students’ potential and extend teachers’ capabilities. HMH estimates that it serves more than 50 million students and three million educators in 150 countries, while its award-winning children’s books, novels, non-fiction, and reference titles are enjoyed by readers throughout the world.

We are organized along two business segments: Education and HMH Books & Media. Within our Education segment, we focus on the K-12 market and, in the United States, we are a market leader. We specialize in comprehensive core curriculum, supplemental and intervention solutions, and we provide ongoing support in professional learning and coaching for educators and administrators. Our offerings are rooted in learning science, and we work with research partners, universities and third-party organizations as we design, build, implement and iterate our offerings to maximize their effectiveness. We are purposeful about innovation, leveraging technology to create engaging and immersive experiences designed to deepen learning experiences for students and to extend teachers’ capabilities so that they can focus on making meaningful connections with their students.

Our diverse portfolio enables us to help ensure that every student and teacher has the tools needed for success. We are able to build deep partnerships with school districts and leverage the scope of our offerings to provide holistic solutions at scale with the support of our far-reaching sales force and talented field-based specialists and consultants. We provide print, digital, and blended print/digital solutions that are tailored to a district’s needs, goals and technological readiness.

Furthermore, for nearly two centuries, our HMH Books & Media segment has brought renowned and awarded children’s, fiction, non-fiction, culinary and reference titles to readers throughout the world. Our distinguished author list includes ten Nobel Prize winners, forty-nine Pulitzer Prize winners, and twenty-six National Book Award winners. We are home to popular characters and titles such as Curious George, Carmen Sandiego, The Lord of the Rings, The Whole30, The Best American Series, the Peterson Field Guides, CliffsNotes, and The Polar Express, and published distinguished authors such as Tim O’Brien, Temple Grandin, Tim Ferriss, Kwame Alexander, Lois Lowry, and Chris Van Allsburg.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted consistent with Article 10 of Regulation S-X. In the opinion of management, our unaudited consolidated financial statements and accompanying notes include all adjustments (consisting of normal recurring adjustments) considered necessary by management to fairly state the results of operations, financial position and cash flows for the interim periods presented. Interim results of operations are not necessarily indicative of the results for the full year or for any future period. These financial statements should be read in conjunction with the annual financial statements and the notes thereto also included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Our accompanying consolidated financial statements include the results of operations of the Company and our wholly-owned subsidiaries. All material intercompany accounts and transactions are eliminated in consolidation.

Seasonality and Comparability

Our net sales, operating profit or loss and net cash provided by or used in operations are impacted by the inherent seasonality of the academic calendar, which typically results in a cash flow usage in the first half of the year and a cash flow generation in the second half of the year. Consequently, the performance of our businesses may not be comparable quarter to consecutive quarter and should be considered on the basis of results for the whole year or by comparing results in a quarter with results in the same quarter for the previous year. Moreover, uncertainty resulting from the COVID-19 pandemic may result in 2020 not following this historic pattern.

Approximately 87% of our net sales for the year ended December 31, 2019 were derived from our Education segment, which is a markedly seasonal business. Schools typically conduct the majority of their purchases in the second and third quarters of the calendar year in preparation for the beginning of the school year. Thus, for the years ended December 31, 2019, 2018 and 2017, approximately 67% of our consolidated net sales were realized in the second and third quarters. Sales of K-12 instructional materials and customized testing products are also cyclical with some years offering more sales opportunities than others in light of the state adoption calendar. The amount of funding available at the state level for educational materials also has a significant effect on year-to-year net sales. Although the loss of a single customer would not have a material adverse effect on our business, schedules of school adoptions and market acceptance of our products can materially affect year-to-year net sales performance.

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Impact of the COVID-19 Pandemic

9 Months Ended

Sep. 30, 2020

Extraordinary And Unusual Items [Abstract]

Impact of the Covid-19 Pandemic

2. Impact of the COVID-19 Pandemic

The unprecedented and rapid spread of COVID-19 and the resulting social distancing measures, including business and school closures implemented by federal, state and local authorities, have significantly reduced customer demand for our solutions and services, disrupted portions of our supply chain and warehousing operations and also disrupted our ability to deliver our educational solutions and services. We continue to monitor indicators of demand, including our sales pipeline, customer orders and product shipments, as well as observe the impact to state revenues and related educational budgets to ascertain an estimate of the impact; however, the length and severity of the reduction in demand due to the pandemic remains uncertain. Accordingly, we expect that our full year results will be adversely impacted compared to prior years.

While we are planning for a demand recovery, the exact timing and pace of recovery is uncertain given the significant disruption caused by the pandemic on the operations of our customers. Our expense management and liquidity measures may be modified as we obtain additional clarity on the timing of customer demand recovery.

In response to these developments, we have implemented measures to help mitigate the impact on our financial position and operations. These measures include, but are not limited to, the following:

Expense Management. With the reduction in net sales, we have, and will continue to implement cost saving initiatives, including:

• director, executive and senior leadership salary reductions, and for the majority of employees, a four-day work week with associated labor cost reductions, in each case beginning in April 2020 and ceasing near the end of July 2020. The costs associated with ending the furlough program and the salary reductions were subsequently mitigated by the 2020 Restructuring actions discussed below;

• a freeze on spending not directly tied to near-term billings, including a reduction in all discretionary spending such as marketing, advertising, travel, and office supplies;

• executing a voluntary early retirement incentive program in September 2020, as discussed below; and

• committing to a restructuring program in September 2020 including a reduction in force, as discussed below.

Balance Sheet, Cash Flow and Liquidity. In addition to the expense management actions noted above, we have taken the following actions to increase liquidity and strengthen our financial position.

• reduced inventory purchasing;

• deferred long-term capital projects not directly contributing to billings in 2020; and

• deferred the payment of our employer payroll taxes allowed under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

2020 Restructuring Plan.

On September 4, 2020, we completed a voluntary retirement incentive program, which was offered to all U.S. based employees at least 55 years of age with at least five years of service. Of the eligible employees, 165 elected to participate representing approximately 5% of our workforce. The majority of the employees voluntarily retired as of September 4, 2020 with select employees leaving later in the year. Each of the employees received or will receive separation payments in accordance with our severance policy.  

On September 30, 2020, our Board of Directors committed to a restructuring program, including a reduction in force, as part of the ongoing assessment of our cost structure amid the COVID-19 pandemic and in line with our previously disclosed strategic transformation plan. The reduction in force resulted in a 22% reduction in our workforce, including positions eliminated as part of the voluntary retirement incentive program mentioned above, and net of newly created positions to support our digital first operations. The reduction in force will result in the departure of approximately 525 employees and was completed in October 2020. Each of the employees received or will receive separation payments in accordance with our severance policy. The total one-time, non-recurring cost incurred in connection with the restructuring program, inclusive of the voluntary retirement incentive program (collectively the “2020 Restructuring Plan”), all of which represents cash expenditures, is approximately $33.5 million and was recorded during the three months ended September 30, 2020.

After reviewing whether conditions and/or events raise substantial doubt about our ability to meet future financial obligations over the next twelve months, including consideration of our recent actions, we have concluded our net cash from operations combined with our cash and cash equivalents and borrowing availability under our revolving credit facility will provide sufficient liquidity to fund our current obligations, capital spending, debt service requirements and working capital requirements over at least the next twelve months. Our primary credit facilities do not require us to comply with financial maintenance covenants.

The ability of the Company to fund planned operations is based on assumptions which involve significant judgment and estimates of future revenues, capital spend and other operating costs. Our current assumptions are that our industry will begin to recover as school districts become, or continue being, fully operational, either in-person, fully remote or hybrid, during the remainder of 2020. We have performed a sensitivity analysis on these assumptions to forecast the impact of a slower-than-anticipated recovery and believe we can take additional financial and operational actions to mitigate the impact of lower billings than our current plans assume. These actions include, but are not limited to, additional expense reductions, asset sales, and capital raising activities.

Valuation of Goodwill, Indefinite-Lived Intangible Assets and Long-Lived Assets

We perform a fair-value based impairment test to the carrying value of goodwill and indefinite-lived intangible assets on an annual basis (as of October 1) and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. Our fourth quarter 2019 quantitative impairment tests of goodwill and indefinite-lived intangible assets indicated that there was no indication of impairment as the fair value exceeded our carrying value.

During the three months ended March 31, 2020, our stock price declined to historical lows since our 2013 initial public offering. We determined that the significant decline in our market capitalization and broader economic downturn arising from the COVID-19 pandemic was a triggering event. We concluded that quantitative analyses were required to be performed due to the triggering event occurring during the first quarter of 2020.

Goodwill is allocated entirely to our Education reporting unit. We utilized an implied market value method under the market approach to calculate the fair value of the Education reporting unit as of March 31, 2020, which we determined was the best approximation of fair value of the Education reporting unit in the current social and economic environment. This method included the determination of the Company's overall enterprise value, from which the fair value of the HMH Books & Media reporting unit was deducted to derive the fair value of the Education reporting unit. We have previously used a combination of the implied market value method and guideline public company method approach.  The relevant inputs and assumptions used in the valuation of the Education reporting unit include our market capitalization, selection of a control premium, and the determination of an appropriate market multiple to value the HMH Books & Media reporting unit, as well as the fair value of individual assets and liabilities. Based on our interim impairment assessment as of March 31, 2020, we concluded that our goodwill, which is wholly attributed to the Education reporting unit, was impaired and, accordingly, recorded a goodwill impairment charge of $262.0 million. With the continuation of the COVID-19 pandemic and the associated downward pressure on our billings, we have concluded that impairment triggering events exist as of September 30, 2020. Accordingly, we estimated the fair value of the Education reporting unit as of September 30, 2020 utilizing the implied market value method.  Using consistent relative inputs and assumptions as described above with respect to the first quarter 2020 testing, we concluded that no impairment existed as of September 30, 2020. The fair value of the Education reporting unit as of September 30, 2020 exceeded its carrying value by less than a substantial amount. 

Additionally, as a result of the triggering events identified in the first and third quarters, we performed quantitative impairment analyses over our indefinite-lived intangible assets and long-lived assets. With regards to indefinite-lived intangible assets, which includes the Houghton Mifflin Harcourt tradename, the recoverability was evaluated using a one-step process whereby we determined the fair value by asset and then compared it to its carrying value to determine if the asset was impaired. We estimated the fair value by preparing a relief-from-royalty discounted cash flow analysis using forward looking revenue projections. The significant assumptions used in discounted cash flow analysis included: future net sales, a long-term growth rate, a royalty rate and a discount rate used to present value future cash flows and the terminal value of the Education reporting unit. The discount rate was based on the weighted-average cost of capital method at the date of the evaluation. The fair value of the indefinite-lived intangible assets was in excess of its carrying value by approximately 12% as of March 31, 2020 and 18% as of September 30, 2020, and substantially exceeded its carrying value as of October 1, 2019. We also performed an impairment test on our long-lived assets using an undiscounted cash flow model in determining the fair value, which was then compared to book value of the asset groups evaluated. Estimates and significant assumptions included in the long-lived asset impairment analysis included identification of the primary asset in each asset group and undiscounted cash flow projections. We concluded that our indefinite-lived intangible assets and long-lived assets were not impaired based on the results of the quantitative analyses performed.

We continue to monitor and evaluate the carrying value of goodwill, indefinite-lived intangible assets and long-lived assets. We have concluded based on our analyses that no impairments occurred during the third quarter of 2020. Depending on how long the economic and social conditions resulting from the COVID-19 pandemic exist and their future impact on state and local budgets with regards to educational spending, as well as discretionary consumer spending, we may be subject to further impairments in the future.   

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Significant Accounting Policies and Estimates

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Significant Accounting Policies and Estimates

3. Significant Accounting Policies and Estimates

Our financial results are affected by the selection and application of accounting policies and methods. There were no material changes during the three and nine months ended September 30, 2020 due to the application of significant accounting policies and estimates as described in our audited consolidated financial statements, which were included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

We evaluate our estimates, judgments and methodologies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenues and expenses. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat it, as well as the economic impact on local, regional, national and international customers and markets. We have made estimates of the impact of the COVID-19 pandemic within our financial statements and there may be changes to those estimates in future periods. Actual results may differ from these estimates.

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Recent Accounting Standards

9 Months Ended

Sep. 30, 2020

Accounting Changes And Error Corrections [Abstract]

Recent Accounting Standards

4. Recent Accounting Standards

Recent accounting pronouncements, not included below, are not expected to have a material impact on our consolidated financial position or results of operations.

Recently Issued Accounting Standards

In December 2019, the Financial Accounting Standards Board (“FASB”) issued new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles, including simplification of areas such as franchise taxes, step-up in tax basis of goodwill, intraperiod allocations, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. The standard will be effective in 2021, with early adoption permitted. We are currently evaluating the impact of adopting this new accounting guidance, but do not expect it to have a material impact on our consolidated financial statements.  

Recently Adopted Accounting Standards

In August 2018, the FASB issued new guidance on a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor (i.e., a service contract). Under the new guidance, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement to develop or obtain internal use software. Accordingly, the guidance requires a customer to determine the stage of a project that the implementation activity relates to and the nature of the associated costs in order to determine whether those costs should be expensed as incurred or capitalized. The guidance also requires the customer to amortize the capitalized implementation costs as an expense over the term of the hosting arrangement. We adopted the guidance on January 1, 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In January 2017, the FASB issued updated guidance to simplify the test for goodwill impairment by the elimination of Step 2 in the determination on whether goodwill should be considered impaired. The annual assessments are still required to be completed. We adopted the guidance on January 1, 2020.  

In June 2016, the FASB issued new guidance that requires credit losses on financial assets measured at amortized cost basis to be presented at the net amount expected to be collected, not based on incurred losses, as well as additional disclosures. The estimate of expected credit losses should consider historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. We adopted the guidance on January 1, 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements.

We are exposed to credit losses primarily through our accounts receivable. We develop estimates to reflect the risk of credit loss which are based on an evaluation of accounts receivable aging, prior collection experience, current conditions and reasonable and supportable forecasts of the economic conditions that will exist through the contractual life of the financial asset. We write off the asset when it is no longer deemed collectible. We monitor our ongoing credit exposure through an active review of collection trends. Our activities include monitoring the timeliness of payment collection and performing timely account reconciliations. At September 30, 2020, we reported allowances for doubtful accounts of $3.9 million, compared to $3.0 million at December 31, 2019, reflecting an increase of $1.4 million, prior to write-offs of $0.5 million for the nine months ended September 30, 2020.

We are also exposed to losses on our royalty advances. Royalty advances to authors are capitalized and represent amounts paid in advance of the sale of an author’s product and are recovered as earned. As advances are recorded, a partial reserve may be recorded immediately based primarily upon historical sales experience. Additionally, advances are evaluated periodically to determine if they are expected to be recovered on a title-by-title basis. Any portion of a royalty advance that is not expected to be recovered is fully reserved. At September 30, 2020, we reported a reserve for royalty advances of $132.9 million, compared to $119.7 million at December 31, 2019, reflecting an increase of $13.2 million for the nine months ended September 30, 2020.

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Inventories

9 Months Ended

Sep. 30, 2020

Inventory Disclosure [Abstract]

Inventories

5. Inventories

Inventories consisted of the following:

	September 30, 2020		December 31, 2019
Finished goods	$	170,169	$	203,103
Raw materials		5,651		9,956
Inventories	$	175,820	$	213,059

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Contract Assets, Contract Liabilities and Contract Costs

9 Months Ended

Sep. 30, 2020

Revenue From Contract With Customer [Abstract]

Contract Assets, Contract Liabilities and Contract Costs

6. Contract Assets, Contract Liabilities and Contract Costs

Contract assets consist of unbilled amounts at the reporting date and are transferred to accounts receivable when the rights become unconditional. Contract assets are included in prepaid expenses and other assets on our consolidated balance sheets. Contract liabilities consist of deferred revenue (current and long-term). The following table presents changes in contract assets and contract liabilities during the nine months ended September 30, 2020:

	September 30, 2020		December 31, 2019		$ Change			% Change
Contract assets	$	27	$	109	$	(82	)		(75.2	%)
Contract liabilities (deferred revenue)	$	953,453	$	848,106	$	105,347			12.4	%

The $105.4 million net increase in our contract assets and liabilities from December 31, 2019 to September 30, 2020 was primarily due to the non-satisfaction of performance obligations related to physical and digital products, and services during the period in excess of additions to deferred revenue.

During the three and nine months ended September 30, 2020 and 2019, we recognized the following net sales as a result of changes in the contract assets and contract liabilities balances:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Net sales recognized in the period from:
Amounts included in contract liabilities at the beginning    of the period	$	81,768	$	70,686	$	254,695	$	194,509

As of September 30, 2020, the aggregate amount of the transaction price allocated to the remaining performance obligations, which includes deferred revenue and open orders, was $1,003.7 million, and we will recognize approximately 73% to net sales over the next 1 to 3 years.

We capitalize incremental commissions paid to sales representatives for obtaining product sales as well as service contracts unless the capitalization and amortization of such costs are not expected to have a material impact on the financial statements. Applying the practical expedient within the accounting guidance, we recognize sales commission expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less. We had deferred commissions in the amount of $33.0 million at September 30, 2020 and amortized $11.0 million during both the nine months ended September 30, 2020 and 2019. The amortization is included in selling and administrative expenses.

Costs to fulfill a contract are directly related to a contract that will be used to satisfy a performance obligation in the future and are expected to be recovered. These costs are amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. Our assets associated with incremental costs to fulfill a contract were $13.2 million at September 30, 2020 and are included within prepaid expenses and other assets (current) and other assets (long term) on our consolidated balance sheet. We recorded amortization of $2.6 million and $2.3 million during the nine months ended September 30, 2020 and 2019, respectively. The amortization is included in cost of sales.    

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Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2020

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

7. Goodwill and Other Intangible Assets

The change in the carrying amount of goodwill, which all relates to the Education segment, for the nine months ended September 30, 2020 is as follows:

Balance at December 31, 2019	$	716,977
Impairment		(262,000	)
Balance at September 30, 2020	$	454,977

Accumulated impairment losses on goodwill as of September 30, 2020 was $262.0 million. Refer to Note 2 for a discussion of the valuation of goodwill, indefinite-lived intangible assets and long-lived assets along with the triggering event which resulted in a goodwill impairment of $262.0 million during the nine months ended September 30, 2020.

Other intangible assets consisted of the following:

	September 30, 2020							December 31, 2019
	Cost		Accumulated Amortization			Total		Cost		Accumulated Amortization			Total
Trademarks and tradenames: indefinite-lived	$	161,000	$	—		$	161,000	$	161,000	$	—		$	161,000
Trademarks and tradenames: definite-lived		164,130		(49,794	)		114,336		164,130		(38,948	)		125,182
Publishing rights		1,180,000		(1,154,721	)		25,279		1,180,000		(1,139,426	)		40,574
Customer related and other		449,840		(310,344	)		139,496		449,840		(302,371	)		147,469
Other intangible assets, net	$	1,954,970	$	(1,514,859	)	$	440,111	$	1,954,970	$	(1,480,745	)	$	474,225

Amortization expense for definite-lived trademarks and tradenames, publishing rights and customer related and other intangibles were $34.1 million and $39.7 million for the nine months ended September 30, 2020 and 2019, respectively.

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Debt

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Debt

8. Debt

Our debt consisted of the following:

	September 30, 2020			December 31, 2019
$380,000 term loan due November 22, 2024, interest payable    quarterly (net of discount and issuance costs)	$	349,892		$	361,294
$306,000 senior secured notes due February 15, 2025, interest    payable semi-annually (net of discount and issuance costs)	$	297,174		$	295,893
		647,066			657,187
Less: Current portion of long-term debt		(19,000	)		(19,000	)
Total long-term debt, net of discount and issuance costs	$	628,066		$	638,187
Revolving credit facility	$	—		$	—

Senior Secured Notes

On November 22, 2019, we completed the sale of $306.0 million in aggregate principal amount of 9.0% Senior Secured Notes due 2025 (the “notes”) in a private placement to qualified institutional buyers under Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to persons outside the United States pursuant to Regulation S under the Securities Act.  The notes mature on February 15, 2025 and bear interest at a rate of 9.0% per annum. Interest is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2020.

The notes were issued at a discount equal to 2.0% of the outstanding borrowing commitment.  We may redeem all or a portion of the notes at redemption prices as described in the notes.  

The notes do not require us to comply with financial maintenance covenants. We are currently required to meet certain incurrence based financial covenants as defined under our notes. The notes are subject to restrictions on our ability to incur additional indebtedness, issue certain preferred stock, redeem, purchase or retire subordinated debt, make certain investments, pay dividends or other amounts, enter into certain transactions with affiliates, merge or consolidate with another person, sell or otherwise dispose of all or substantially all of our assets, sell certain assets, including capital stock, designate our subsidiaries as unrestricted subsidiaries, redeem or repurchase capital stock or make other restricted payments, and incur certain liens.  The notes are subject to customary events of default. If an event of default occurs and is continuing, the administrative agent may, or at the request of certain required lenders shall, accelerate the obligations outstanding under the notes.

Term Loan Facility

On November 22, 2019, we entered into a second amended and restated term loan credit agreement for an aggregate principal amount of $380.0 million (the “term loan facility”). The term loan facility is required to be repaid in quarterly installments of approximately $4.8 million with the balance being payable on the maturity date.  The term loan facility matures on November 22, 2024 and the interest rate per annum is equal to, at the option of the Company, either (a) LIBOR plus a margin of 6.25% or (b) an alternate base rate plus a margin of 5.25%.  As of September 30, 2020, the interest rate on the term loan facility was 7.25%.  

On July 27, 2017, the U.K. Financial Conduct Authority (the “FCA”) announced that it will no longer require banks to submit rates for the calculation of LIBOR after 2021. Our term loan facility provides that the administrative agent may determine that (i) adequate and reasonable means do not exist for ascertaining the LIBOR rate or (ii) the FCA or the government authority having jurisdiction over the administrative agent has made a public statement identifying a specific date after which the LIBOR rate shall no longer be used for determining interest rates for loans. If the administrative agent determines that (i) or (ii) above is unlikely to be temporary then the administrative agent and the Company will agree to transition to an alternate base rate or amend the term loan facility to establish an alternate rate of interest to LIBOR that gives due consideration to the then-prevailing market convention for determining a rate of interest for syndicated loans in the United States at such time.

The term loan facility was issued at a discount equal to 4.0% of the outstanding borrowing commitment.

The term loan facility contains customary mandatory prepayment requirements, including with respect to excess cash flow, proceeds from certain asset sales or dispositions of property, and proceeds from certain incurrences of indebtedness.  The term loan facility permits the Company to voluntarily prepay outstanding amounts at any time without premium or penalty, other than customary breakage costs with respect to LIBOR loans; provided, however, that any voluntary prepayment in connection with certain repricing transactions that occur before the date that is twelve months after the closing of the term loan facility shall be subject to a prepayment premium of 1.00% of the principal amount of the amounts prepaid.

The term loan facility does not require us to comply with financial maintenance covenants. We are currently required to meet certain incurrence based financial covenants as defined under our term loan facility. The term loan facility is subject to usual and customary conditions, representations, warranties and covenants, including restrictions on additional indebtedness, liens, investments, mergers, acquisitions, asset dispositions, dividends to stockholders, repurchase or redemption of our stock, transactions with affiliates and other matters. The term loan facility is subject to customary events of default. If an event of default occurs and is continuing, the administrative agent may, or at the request of certain required lenders shall, accelerate the obligations outstanding under the term loan facility.

We are subject to an excess cash flow provision under our term loan facility which is predicated upon our leverage ratio and cash flow.  

Interest Rate Hedging

On August 17, 2015, we entered into interest rate derivative contracts with various financial institutions having an aggregate notional amount of $400.0 million to convert floating rate debt into fixed rate debt. We assessed at inception, and re-assess on an ongoing basis, whether the interest rate derivative contracts are highly effective in offsetting changes in the fair value of the hedged variable rate debt. The interest rate derivative contracts matured on July 22, 2020.  

These interest rate swaps were designated as cash flow hedges and qualify for hedge accounting under the accounting guidance related to derivatives and hedging. Accordingly, we recorded an unrealized gain of $1.0 million and an unrealized loss of $3.7 million in our statements of comprehensive loss to account for the changes in fair value of these derivatives during the nine months ended September 30, 2020 and 2019, respectively. The corresponding $1.0 million hedge liability is included within current other liabilities in our consolidated balance sheet as of December 31, 2019. We reclassified $1.9 million from other comprehensive loss to earnings during the nine months ended September 30, 2020.

In connection with the term loan facility on November 22, 2019, we incurred a change in the mix of floating rate debt versus fixed rate debt. As a result, the aggregate notional of our active interest rate derivative contracts designated as cash flow hedges exceeded the outstanding floating rate debt notional by approximately $29.5 million. To accommodate for this notional shortfall, we partially de-designated one of our active interest rate derivative contracts. This involved splitting the notional amount with one portion remaining designated under cash flow hedge accounting, and the remaining portion, with a $29.5 million notional amount, left undesignated. There were no changes made to the interest rate derivative contracts from an economic perspective; the notional split is accounting in nature only.

Beginning on November 22, 2019, the fair value changes on the undesignated portion of the swap flow through earnings, as opposed to being deferred as unrealized gains or losses in other comprehensive loss. The impact of this change on the financial statements as of September 30, 2020 was less than $0.1 million and was recorded in our consolidated statements of operations for the nine months ended September 30, 2020.  We had no interest rate derivative contracts outstanding as of September 30, 2020.

Revolving Credit Facility

On November 22, 2019, we entered into a second amended and restated revolving credit agreement that provides borrowing availability in an amount equal to the lesser of either $250.0 million or a borrowing base that is computed monthly or weekly and comprised of the Borrowers’ and the Guarantors’ (as such terms are defined below) eligible inventory and receivables (the “revolving credit facility”). The revolving credit facility includes a letter of credit subfacility of $50.0 million, a swingline subfacility of $20.0 million and the option to expand the facility by up to $100.0 million in the aggregate under certain specified conditions. The revolving credit facility may be prepaid, in whole or in part, at any time, without premium.  

The revolving credit facility requires the Company to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0 on a trailing four-quarter basis only during certain periods commencing when excess availability under the revolving credit facility is less than certain limits prescribed by the terms of the revolving credit facility. The revolving credit facility is subject to usual and customary conditions, representations, warranties and covenants, including restrictions on additional indebtedness, liens, investments, mergers, acquisitions, asset dispositions, dividends to stockholders, repurchase or redemption of our stock, transactions with affiliates and other matters. The revolving credit facility is subject to customary events of default. If an event of default occurs and is continuing, the administrative agent may, or at the request of certain required lenders shall, accelerate the obligations outstanding under the revolving credit facility. As of September 30, 2020, no amounts are outstanding under the revolving credit facility.  

As of September 30, 2020, the minimum fixed charge coverage ratio covenant under our revolving credit facility was not applicable, due to our level of borrowing availability. The minimum fixed charge coverage ratio, which is only tested in limited situations, is 1.0 to 1.0 through the end of the facility.

Guarantees

Under each of the notes, the term loan facility and the revolving credit facility, Houghton Mifflin Harcourt Publishers Inc., Houghton Mifflin Harcourt Publishing Company and HMH Publishers LLC are the borrowers (collectively, the “Borrowers”), and Citibank, N.A. acts as both the administrative agent and the collateral agent.

The obligations under the notes, the term loan facility and the revolving credit facility are guaranteed by the Company and each of its direct and indirect for-profit domestic subsidiaries (other than the Borrowers) (collectively, the “Guarantors”) and are secured by all capital stock and other equity interests of the Borrowers and the Guarantors and substantially all of the other tangible and intangible assets of the Borrowers and the Guarantors, including, without limitation, receivables, inventory, equipment, contract rights, securities, patents, trademarks, other intellectual property, cash, bank accounts and securities accounts and owned real estate. The revolving credit facility is secured by first priority liens on receivables, inventory, deposit accounts, securities accounts, instruments, chattel paper and other assets related to the foregoing (the “Revolving First Lien Collateral”), and second priority liens on the collateral which secures the term loan facility on a first priority basis. The term loan facility is secured by first priority liens on the capital stock and other equity interests of the Borrowers and the Guarantors, equipment, owned real estate, trademarks and other intellectual property, general intangibles that are not Revolving First Lien Collateral and other assets related to the foregoing, and second priority liens on the Revolving First Lien Collateral.

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Restructuring, Severance and Other Charges

9 Months Ended

Sep. 30, 2020

Restructuring And Related Activities [Abstract]

Restructuring, Severance and Other Charges

9. Restructuring, Severance and Other Charges

2020 Restructuring Plan

On September 4, 2020, we finalized a voluntary retirement incentive program, which was offered to all U.S. based employees at least 55 years of age with at least five years of service. Of the eligible employees, 165 elected to participate representing approximately 5% of our workforce. The majority of the employees voluntarily retired as of September 4, 2020 with select employees leaving later in the year.  Each of the employees received or will receive separation payments in accordance with our severance policy.  

On September 30, 2020, our Board of Directors committed to a restructuring program, including a reduction in force, as part of the ongoing assessment of our cost structure amid the COVID-19 pandemic and in line with our previously disclosed strategic transformation plan. The reduction in force resulted in a 22% reduction in our workforce, including positions eliminated as part of the voluntary retirement incentive program mentioned above, and net of newly created positions to support our digital first operations. The reduction in force will result in the departure of approximately 525 employees and was completed in October 2020.  Each of the employees received or will receive separation payments in accordance with our severance policy. The total one-time, non-recurring cost incurred in connection with the restructuring program, inclusive of the voluntary retirement incentive program, (collectively the “2020 Restructuring Plan”) all of which represents cash expenditures, is approximately $33.5 million and was recorded during the three months ended September 30, 2020.

The following table provides a summary of our total costs associated with the 2020 Restructuring Plan, included in the restructuring/severance and other charges line item within our consolidated statements of operations, for the three and nine months ended September 30, 2020, by major type of cost:

	Three Months Ended		Nine Months Ended		Total Amount
	September 30,		September 30,		Incurred
Type of Cost	2020		2020		to Date
Restructuring charges: (1)
Severance and termination benefits	$	33,545	$	33,545	$	33,545
	$	33,545	$	33,545	$	33,545

(1) All restructuring charges are included within Corporate and Other.

Our restructuring liabilities are comprised of accruals for severance and termination benefits. The following is a rollforward of our liabilities associated with the 2020 Restructuring Plan:

	2020
	Restructuring						Restructuring
	accruals at						accruals at
	December 31,				Cash		September 30,
	2019		Charges		payments		2020
Severance and termination benefits	$	—	$	33,545	$	(1,250)	$	32,295
	$	—	$	33,545	$	(1,250)	$	32,295

2019 Restructuring Plan

On October 15, 2019, our Board of Directors approved changes connected with our ongoing strategic transformation to simplify our business model and accelerate growth. This includes new product development and go-to-market capabilities, as well as the streamlining of operations company-wide for greater efficiency. These actions (the “2019 Restructuring Plan”) resulted in the net elimination of approximately 10% of our workforce, after taking into account new strategy-aligned positions that are expected to be added, and additional operating and capitalized cost reductions, including an approximately 20% reduction in previously planned content development expenditures over the next three years. These steps are intended to further simplify our business model while delivering increased value to customers, teachers and students. The workforce reductions were completed in the first quarter of 2020.

After considering additional headcount actions, implementation of the planned actions resulted in total charges of $15.8 million which was recorded in the fourth quarter of 2019. With respect to each major type of cost associated with such activities, substantially all costs were severance and other termination benefit costs and will result in cash expenditures.

There were no costs associated with the 2019 Restructuring Plan in our consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019.

Our restructuring liabilities are comprised of accruals for severance and termination benefits. The following is a rollforward of our liabilities associated with the 2019 Restructuring Plan:

	2020
	Restructuring							Restructuring
	accruals at							accruals at
	December 31,				Cash			September 30,
	2019		Charges		payments			2020
Severance and termination benefits	$	11,649	$	—	$	(9,043	)	$	2,606
	$	11,649	$	—	$	(9,043	)	$	2,606

Severance and Other Charges

2020

Exclusive of the 2020 Restructuring Plan and the 2019 Restructuring Plan, during the nine months ended September 30, 2020, $0.8 million of severance payments were made to employees whose employment ended in 2019 and prior years.

A summary of the significant components of the severance costs, which are not allocated to our segments and instead are included in the Corporate and Other category, is as follows:

	2020
	Severance/ other accruals at December 31, 2019		Severance/ other expense		Cash payments			Severance/ other accruals at September 30, 2020
Severance costs	$	758	$	—	$	(758	)	$	—
	$	758	$	—	$	(758	)	$	—

2019

Exclusive of the 2019 Restructuring Plan, during the nine months ended September 30, 2019, $2.6 million of severance payments were made to employees whose employment ended in 2019 and prior years. Further, we recorded an expense in the amount of $2.5 million of net payments to reflect costs for severance, which have been fully paid. We also recorded an expense in the amount of $3.4 million for real estate consolidation costs, which is reflected as a reduction in operating lease assets in our consolidated balance sheet.

A summary of the significant components of the severance costs and other accruals, which are not allocated to our segments and included in the Corporate and Other category, is as follows:

	2019
	Severance/ other accruals at December 31, 2018			Severance/ other expense		Cash payments			Severance/ other accruals at September 30, 2019
Severance costs	$	1,420		$	2,534	$	(2,642	)	$	1,312
Other accruals		270	(1)		—		—			—
	$	1,690		$	2,534	$	(2,642	)	$	1,312

(1) In connection with the adoption of the new leasing standard on January 1, 2019, the restructuring liabilities related to office space consolidation were reclassed on the balance sheet as a reduction of operating lease assets.

The current portion of the severance and other charges was $34.9 million and $12.4 million as of September 30, 2020 and December 31, 2019, respectively.

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Income Taxes

9 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

10. Income Taxes

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment, including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in various jurisdictions, permanent and temporary differences and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is acquired, additional information is obtained or as the tax environment changes.

At the end of each interim period, we estimate the annual effective tax rate and apply that rate to our ordinary quarterly earnings. The amount of interim tax benefit recorded for the year-to-date ordinary loss is limited to the amount that is expected to be realized during the year or recognizable as a deferred tax asset at year end. The tax expense or benefit related to significant, unusual or extraordinary items that will be separately reported or reported net of their related tax effect, are individually computed, and are recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates or tax status is recognized in the interim period in which the change occurs.

For the three months ended September 30, 2020 and 2019, we recorded an income tax benefit of approximately $1.1 million and $2.6 million, respectively, and for the nine months ended September 30, 2020 and 2019, we recorded an income tax benefit of approximately $10.9 million and an expense of $4.3 million, respectively. For all periods, income tax expense was primarily attributed to movement in the deferred tax liability associated with tax amortization on indefinite-lived intangibles, state and foreign taxes, as well as the impact of certain discrete tax items, including the accrual of potential interest and penalties on uncertain tax positions. The income tax benefit of $10.9 million for the nine months ended September 30, 2020 is primarily the result of the book impairment on goodwill recorded in the first quarter of 2020, which reduced the related deferred tax liabilities. Including the tax effects of these discrete tax items, the effective rate was 7.9% and (3.9)% for the three months ended September 30, 2020 and 2019, respectively, and 2.7% and (5.0)% for the nine months ended September 30, 2020 and 2019, respectively.

Reserves for unrecognized tax benefits, excluding accrued interest and penalties, were $15.7 million at both September 30, 2020 and December 31, 2019.

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Retirement and Postretirement Benefit Plans

9 Months Ended

Sep. 30, 2020

Compensation And Retirement Disclosure [Abstract]

Retirement and Postretirement Benefit Plans

11. Retirement and Postretirement Benefit Plans

We have a noncontributory, qualified defined benefit pension plan (the “Retirement Plan”), which covers certain employees. The Retirement Plan is a cash balance plan, which accrues benefits based on pay, length of service, and interest. The funding policy is to contribute amounts subject to minimum funding standards set forth by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. The Retirement Plan’s assets consist principally of common stocks, fixed income securities, investments in registered investment companies, and cash and cash equivalents. We also have a nonqualified defined benefit plan, or nonqualified plan, that previously covered employees who earned over the qualified pay limit as determined by the Internal Revenue Service. The nonqualified plan accrues benefits for the participants based on the cash balance plan calculation. The nonqualified plan is not funded. We use a December 31 date to measure the pension and postretirement liabilities. In 2007, both the qualified and nonqualified pension plans eliminated participation in the plans for new employees hired after October 31, 2007.

We recognize the funded status of defined benefit pension and other postretirement plans as an asset or liability in the balance sheet and recognize actuarial gains and losses and prior service costs and credits in other comprehensive loss and subsequently amortize those items in the statement of operations.

Net periodic benefit (credit) cost for our pension and other postretirement benefit plans consisted of the following:

	Pension Plans
	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Interest cost	$	1,097		$	1,511		$	3,291		$	4,533
Expected return on plan assets		(1,855	)		(1,918	)		(5,565	)		(5,755	)
Amortization of net loss		581			251			1,743			752
Net periodic benefit credit	$	(177	)	$	(156	)	$	(531	)	$	(470	)

	Other Post Retirement Plans
	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Service cost	$	17		$	15		$	51		$	44
Interest cost		107			145			321			436
Amortization of prior service cost		11			10			33			32
Amortization of net loss		(2	)		(40	)		(6	)		(123	)
Net periodic benefit cost	$	133		$	130		$	399		$	389

There were $3.7 million and $1.2 million in contributions to the pension plans during the nine months ended September 30, 2020 and 2019, respectively.

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Fair Value Measurements

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements

12. Fair Value Measurements

The accounting standard for fair value measurements, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. The accounting standard establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Level 1 Observable input such as quoted prices in active markets for identical assets or liabilities;

Level 2 Observable inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3 Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value are based on one or more of three valuation techniques identified in the tables below. Where more than one technique is noted, individual assets or liabilities were valued using one or more of the noted techniques. The valuation techniques are as follows:

^(a)  Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;

^(b)  Cost approach: Amount that would be currently required to replace the service capacity of an asset (current replacement cost); and

^(c)  Income approach: Valuation techniques to convert future amounts to a single present amount based on market expectations (including present value techniques).

On a recurring basis, we measure certain financial assets and liabilities at fair value, including our money market funds, short-term investments which consist of U.S. treasury securities and U.S. agency securities, foreign exchange forward contracts, and interest rate derivatives contracts. The accounting standard for fair value measurements defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty and its credit risk in its assessment of fair value.

Financial Assets and Liabilities

The following tables present our financial assets and liabilities measured at fair value on a recurring basis:

	September 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Valuation Technique
Financial assets
Money market funds	$	250,522	$	250,522	$	—	(a)
	$	250,522	$	250,522	$	—
Financial liabilities
Foreign exchange derivatives	$	156	$	—	$	156	(a)
	$	156	$	—	$	156

	December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Valuation Technique
Financial assets
Money market funds	$	276,654	$	276,654	$	—	(a)
	$	276,654	$	276,654	$	—
Financial liabilities
Interest rate derivatives	$	986	$	—	$	986	(a)
Foreign exchange derivatives		127		—		127	(a)
	$	1,113	$	—	$	1,113

Our money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted prices in active markets for identical instruments. In addition to $250.5 million and $276.7 million invested in money market funds as of September 30, 2020 and December 31, 2019, respectively, we had $21.0 million and $19.7 million of cash invested in bank accounts as of September 30, 2020 and December 31, 2019, respectively.

Our foreign exchange derivatives consist of forward contracts and are classified within Level 2 of the fair value hierarchy because they are valued based on observable inputs and are available for substantially the full term of our derivative instruments. We use foreign exchange forward contracts to fix the functional currency value of forecasted commitments, payments and receipts. The aggregate notional amount of the outstanding foreign exchange forward contracts was $12.8 million and $15.2 million at September 30, 2020 and December 31, 2019, respectively. Our foreign exchange forward contracts contain netting provisions to mitigate credit risk in the event of counterparty default, including payment default and cross default. At September 30, 2020 and December 31, 2019, the fair value of our counterparty default exposure was less than $1.0 million and spread across several highly rated counterparties.

Our interest rate derivatives are classified within Level 2 of the fair value hierarchy because they are valued based on observable inputs and are available for substantially the full term of our derivative instruments. Our interest rate risk relates primarily to U.S. dollar borrowings, partially offset by U.S. dollar cash investments. We have historically used interest rate derivative instruments to manage our earnings and cash flow exposure to changes in interest rates by converting floating-rate debt into fixed-rate debt. There were no aggregate notional amounts outstanding of the interest rate derivative instruments as of September 30, 2020. We designate these derivative instruments either as fair value or cash flow hedges under the accounting guidance related to derivatives and hedging. We record changes in the value of fair value hedges in interest expense, which is generally offset by changes in the fair value of the hedged debt obligation. Interest payments made or received related to our interest rate derivative instruments are included in interest expense. We record the effective portion of any change in the fair value of derivative instruments designated as cash flow hedges as unrealized gains or losses in other comprehensive loss, net of tax, until the hedged cash flow occurs, at which point the effective portion of any gain or loss is reclassified to earnings. In the event the hedged cash flow does not occur, or it becomes no longer probable that it will occur, we reclassify the amount of any gain or loss on the related cash flow hedge to interest expense at that time.

We believe we do not have significant concentrations of credit risk arising from our interest rate derivative instruments, whether from an individual counterparty or a related group of counterparties. We manage the concentration of counterparty credit risk on our interest rate derivatives instruments by limiting acceptable counterparties to a diversified group of major financial institutions with investment grade credit ratings, limiting the amount of credit exposure to each counterparty, and actively monitoring their credit ratings and outstanding fair values on an ongoing basis. Furthermore, none of our derivative transactions contain provisions that are dependent on our credit ratings from any credit rating agency.

We also employ master netting arrangements that reduce our counterparty payment settlement risk on any given maturity date to the net amount of any receipts or payments due between us and the counterparty financial institution. Thus, the maximum loss due to counterparty credit risk is limited to the unrealized gains in such contracts net of any unrealized losses should any of these counterparties fail to perform as contracted. Although these protections do not eliminate concentrations of credit risk, as a result of the above considerations, we do not consider the risk of counterparty default to be significant.

Non-Financial Assets and Liabilities

Our non-financial assets, which include goodwill, other intangible assets, property, plant, and equipment, and pre-publication costs, are not required to be measured at fair value on a recurring basis. However, if certain trigger events occur, or if an annual impairment test is required, we evaluate the non-financial assets for impairment. If an impairment did occur, the asset is required to be recorded at the estimated fair value. An impairment analysis was performed for the preparation of the first quarter report, as there were triggering events for the three months ended March 31, 2020 related to the decline in our stock price attributed to the market environment. There were no non-financial liabilities that were required to be measured at fair value on a nonrecurring basis during the three or nine months ended September 30, 2020 and 2019.

	September 30, 2020		Significant Unobservable Inputs (Level 3)		Total Impairment		Valuation Technique
Non-financial assets
Goodwill	$	454,977	$	454,977	$	262,000		(a)
	$	454,977	$	454,977	$	262,000

In evaluating goodwill for impairment, we first compare our reporting unit's fair value to its carrying value. We estimate the fair values of our reporting units by considering our market capitalization and other judgments. There was no goodwill impairment recorded for the three months ended September 30, 2020. Impairment recorded for goodwill for the nine months ended September 30, 2020 was $262.0 million. There was no impairment recorded for the nine months ended September 30, 2019.

Non-Marketable Investments

At September 30, 2020 and December 31, 2019, the carrying value of our non-marketable investments, which were comprised of equity interests in educational technology private partnerships, was $4.0 million and $2.3 million, respectively. The amounts are included in other assets in our consolidated balance sheets. Our non-marketable investments are accounted for using the cost method and are adjusted for observable transactions as appropriate. Gains from non-marketable investments were $1.7 million during the three and nine months ended September 30, 2020 and are included in gain on investments in our consolidated statements of operations.

Fair Value of Debt

The following table presents the carrying amounts and estimated fair market values of our debt at September 30, 2020 and December 31, 2019. The fair value of debt is deemed to be the amount at which the instrument could be exchanged in an orderly transaction between market participants at the measurement date.

	September 30, 2020				December 31, 2019
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Debt
$380,000 Term loan	$	349,892	$	314,903	$	361,294	$	360,391
$306,000 Senior secured notes	$	297,174	$	286,773		295,893		301,441

The fair market values of our debt were estimated based on quoted market prices on a private exchange for those instruments that are traded and are classified as Level 2 within the fair value hierarchy at September 30, 2020 and December 31, 2019. The fair market values require varying degrees of management judgment. The factors used to estimate these values may not be valid on any subsequent date. Accordingly, the fair market values of the debt presented may not be indicative of their future values.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2020

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

13. Commitments and Contingencies

There were no material changes in our commitments under contractual obligations, as disclosed in our audited consolidated financial statements, which were included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

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

In April 2019, we were notified of an unasserted claim by the Commonwealth of Puerto Rico with regards to payments in the amount of approximately $33.0 million that we received in the normal course of business during the four year period prior to the May 3, 2017 bankruptcy petition of the Commonwealth public instrumentalities. Management believes, based on discussions with its legal counsel, that we have meritorious defenses against such unasserted claim. The Company will vigorously defend this matter if such claim is asserted.

In September 2019, we were notified of an unasserted claim by Riverside Assessments LLC (“Riverside”) with regard to purported breaches of the Asset Purchase Agreement between the Company and Riverside dated September 12, 2018 (“APA”) and the Transition Services Agreement between the Company and Riverside dated October 1, 2018. Management believes, based on discussions with its legal counsel, that we have meritorious defenses against such unasserted claim. With regard to the alleged breaches of the APA, the APA provides that the Company may be liable only for that portion of Riverside’s damages that exceeds $1.4 million, and in an amount that shall not exceed $1.4 million, which we believe would be the maximum exposure. For damages above $2.8 million, Riverside obtained a representation and warranty insurance policy as required by the APA. The Company will vigorously defend this matter if such claim is asserted.

In January 2018, Vanderbilt University (“Vanderbilt”) filed a complaint against the Company and others in connection with a license agreement originally entered into between Vanderbilt and Scholastic Inc. in 1997 and subsequently assigned to the Company as part of our acquisition of Scholastic’s Educational Technology and Services business pursuant to the stock and asset purchase agreement dated April 23, 2015. Vanderbilt alleges entitlement to additional royalties in connection with READ 180 and other products acquired from Scholastic and alleges trademark infringement in the marketing of these products. The Company is vigorously defending this matter.

In connection with an agreement with a development content provider, we agreed to act as guarantor to that party’s loan to finance such development. Such guarantee is expected to remain until 2021. Under the guarantee, we believe the maximum future payments to approximate $11.2 million. In the unlikely event that we are required to make payments on behalf of the development content provider, we would have recourse against the development content provider.

We were contingently liable for $1.4 million and $2.5 million of performance-related surety bonds for our operating activities as of September 30, 2020 and December 31, 2019, respectively. An aggregate of $19.2 million and $23.7 million of letters of credit existed at September 30, 2020 and December 31, 2019, respectively, of which $0.7 million backed the aforementioned performance-related surety bonds as of September 30, 2020 and December 31, 2019.

We routinely enter into standard indemnification provisions as part of license agreements involving use of our intellectual property. These provisions typically require us to indemnify and hold harmless licensees in connection with any infringement claim by a third-party relating to the intellectual property covered by the license agreement. Although the term of these provisions and the maximum potential amounts of future payments we could be required to make is not limited, we have never incurred any costs to defend or settle claims related to these types of indemnification provisions. We therefore believe the estimated fair value of these provisions is inconsequential and have no liabilities recorded for them as of September 30, 2020 and December 31, 2019.

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Net (Loss) Income Per Share

9 Months Ended

Sep. 30, 2020

Earnings Per Share [Abstract]

Net (Loss) Income Per Share

14. Net (Loss) Income Per Share

The following table sets forth the computation of basic and diluted earnings per share (“EPS”):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2020			2019		2020			2019
Numerator
Net (loss) income attributable to common stockholders	$	(12,552	)	$	69,260	$	(396,693	)	$	(88,715	)
Denominator
Weighted average shares outstanding
Basic		125,799,018			124,315,491		125,317,284			124,089,257
Diluted		125,799,018			124,807,488		125,317,284			124,089,257
Net (loss) income per share attributable to common    stockholders
Basic	$	(0.10	)	$	0.56	$	(3.17	)	$	(0.71	)
Diluted	$	(0.10	)	$	0.55	$	(3.17	)	$	(0.71	)

As we incurred a net loss in the three month period ended September 30, 2020 and nine month periods ended September 30, 2020 and 2019, all outstanding stock options and restricted stock units for those periods have an anti-dilutive effect and therefore are excluded from the computation of diluted weighted average shares outstanding. Accordingly, basic and diluted weighted average shares outstanding are equal for such periods.

The following table summarizes our weighted average outstanding common stock equivalents that were anti-dilutive attributable to common stockholders during the periods, and therefore excluded from the computation of diluted EPS:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Stock options		1,947,212		3,115,013		1,947,212		3,108,926
Restricted stock units		5,060,063		1,820,356		4,013,767		3,622,096

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Segment Reporting

9 Months Ended

Sep. 30, 2020

Segment Reporting [Abstract]

Segment Reporting

15. Segment Reporting

As of September 30, 2020, we had two reportable segments (Education and HMH Books & Media). Our Education segment provides educational products, technology platforms and services to meet the diverse needs of today’s classrooms. These products and services include print and digital content in the form of textbooks, digital courseware, instructional aids, educational assessment and intervention solutions, which are aimed at improving achievement and supporting learning for students who are not keeping pace with peers, professional development and school reform services. Our HMH Books & Media segment primarily develops, markets and sells consumer books in print and digital formats, and licenses book rights to other publishers and electronic businesses in the United States and abroad. The principal distribution channels for HMH Books & Media products are retail stores, both physical and online, and wholesalers.

We measure and evaluate our reportable segments based on net sales and segment Adjusted EBITDA. We exclude from our segments certain corporate-related expenses, as our corporate functions do not meet the definition of a segment, as defined in the accounting guidance relating to segment reporting. In addition, certain transactions or adjustments that our Chief Operating Decision Maker considers to be non-operational, such as amounts related to goodwill and other intangible asset impairment charges, derivative instruments charges, acquisition/disposition-related activity, restructuring, severance costs, equity compensation charges, gains or losses from investments, gains or losses from divestitures, amortization and depreciation expenses, as well as interest and taxes, are excluded from segment Adjusted EBITDA. Although we exclude these amounts from segment Adjusted EBITDA, they are included in reported consolidated net loss and are included in the reconciliation below.

	Three Months Ended September 30,
(in thousands)	Education		HMH Books & Media		Corporate/ Other
2020
Net sales	$	330,926	$	55,664	$	—
Segment Adjusted EBITDA		97,673		10,267		(10,665	)
2019
Net sales	$	517,614	$	48,054	$	—
Segment Adjusted EBITDA		153,415		8,302		(13,002	)
	Nine Months Ended September 30,
(in thousands)	Education		HMH Books & Media		Corporate/ Other
2020
Net sales	$	698,574	$	129,157	$	—
Segment Adjusted EBITDA		137,188		9,841		(31,273	)
2019
Net sales	$	1,021,259	$	127,940	$	—
Segment Adjusted EBITDA		188,906		12,260		(31,671	)

The following table disaggregates our net sales by major source:

	Three Months Ended September 30, 2020
(in thousands)	Education		HMH Books & Media		Consolidated
Core solutions (1)	$	206,641	$	—	$	206,641
Extensions (2)		124,285		—		124,285
HMH Books & Media products		—		55,664		55,664
Net sales	$	330,926	$	55,664	$	386,590
	Nine Months Ended September 30, 2020
(in thousands)	Education		HMH Books & Media		Consolidated
Core solutions (1)	$	391,084	$	—	$	391,084
Extensions (2)		307,490		—		307,490
HMH Books & Media products		—		129,157		129,157
Net sales	$	698,574	$	129,157	$	827,731

	Three Months Ended September 30, 2019
(in thousands)	Education		HMH Books & Media		Consolidated
Core solutions (1)	$	273,262	$	—	$	273,262
Extensions (2)		244,352		—		244,352
HMH Books & Media products		—		48,054		48,054
Net sales	$	517,614	$	48,054	$	565,668
	Nine Months Ended September 30, 2019
(in thousands)	Education		HMH Books & Media		Consolidated
Core solutions (1)	$	493,273	$	—	$	493,273
Extensions (2)		527,986		—		527,986
HMH Books & Media products		—		127,940		127,940
Net sales	$	1,021,259	$	127,940	$	1,149,199

(1) Comprehensive solutions primarily for reading, math, science and social studies programs.

(2) Primarily consists of our Heinemann brand, intervention, supplemental, and formative assessment products as well as professional services.

Reconciliation of Adjusted EBITDA to the consolidated statements of operations is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2020			2019			2020			2019
Total Adjusted EBITDA	$	97,275		$	148,715		$	115,756		$	169,495
Interest expense		(16,168	)		(11,597	)		(50,433	)		(35,142	)
Interest income		32			509			873			1,698
Depreciation expense		(12,566	)		(13,901	)		(38,016	)		(46,945	)
Amortization expense – film asset		(4,698	)		—			(4,854	)		(6,772	)
Amortization expense		(42,682	)		(52,043	)		(128,157	)		(147,876	)
Non-cash charges – goodwill impairment		—			—			(262,000	)		—
Non-cash charges – stock-compensation		(3,112	)		(3,835	)		(8,751	)		(11,094	)
Non-cash charges – gain (loss) on derivative instruments		432			(737	)		172			(1,171	)
Fees, expenses or charges for equity offerings, debt or    acquisitions/dispositions		(339	)		(183	)		(366	)		(731	)
Restructuring/severance and other charges		(33,545	)		—			(33,545	)		—
Gain on investments		1,738			(270	)		1,738			(5,921	)
(Loss) income before taxes		(13,633	)		66,658			(407,583	)		(84,459	)
Provision (benefit) for income taxes		(1,081	)		(2,602	)		(10,890	)		4,256
Net (loss) income	$	(12,552	)	$	69,260		$	(396,693	)	$	(88,715	)

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Subsequent Events

9 Months Ended

Sep. 30, 2020

Subsequent Events [Abstract]

Subsequent Events

16. Subsequent Events

In November 2020, we announced that we will explore a potential sale of the HMH Books and Media business. Such a sale would be intended to build on our other strategic restructuring efforts and further align our cost structure to our digital-first strategy.

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Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Recent Accounting Standards

4. Recent Accounting Standards

Recent accounting pronouncements, not included below, are not expected to have a material impact on our consolidated financial position or results of operations.

Recently Issued Accounting Standards

In December 2019, the Financial Accounting Standards Board (“FASB”) issued new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles, including simplification of areas such as franchise taxes, step-up in tax basis of goodwill, intraperiod allocations, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. The standard will be effective in 2021, with early adoption permitted. We are currently evaluating the impact of adopting this new accounting guidance, but do not expect it to have a material impact on our consolidated financial statements.  

Recently Adopted Accounting Standards

In August 2018, the FASB issued new guidance on a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor (i.e., a service contract). Under the new guidance, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement to develop or obtain internal use software. Accordingly, the guidance requires a customer to determine the stage of a project that the implementation activity relates to and the nature of the associated costs in order to determine whether those costs should be expensed as incurred or capitalized. The guidance also requires the customer to amortize the capitalized implementation costs as an expense over the term of the hosting arrangement. We adopted the guidance on January 1, 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In January 2017, the FASB issued updated guidance to simplify the test for goodwill impairment by the elimination of Step 2 in the determination on whether goodwill should be considered impaired. The annual assessments are still required to be completed. We adopted the guidance on January 1, 2020.  

In June 2016, the FASB issued new guidance that requires credit losses on financial assets measured at amortized cost basis to be presented at the net amount expected to be collected, not based on incurred losses, as well as additional disclosures. The estimate of expected credit losses should consider historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. We adopted the guidance on January 1, 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements.

We are exposed to credit losses primarily through our accounts receivable. We develop estimates to reflect the risk of credit loss which are based on an evaluation of accounts receivable aging, prior collection experience, current conditions and reasonable and supportable forecasts of the economic conditions that will exist through the contractual life of the financial asset. We write off the asset when it is no longer deemed collectible. We monitor our ongoing credit exposure through an active review of collection trends. Our activities include monitoring the timeliness of payment collection and performing timely account reconciliations. At September 30, 2020, we reported allowances for doubtful accounts of $3.9 million, compared to $3.0 million at December 31, 2019, reflecting an increase of $1.4 million, prior to write-offs of $0.5 million for the nine months ended September 30, 2020.

We are also exposed to losses on our royalty advances. Royalty advances to authors are capitalized and represent amounts paid in advance of the sale of an author’s product and are recovered as earned. As advances are recorded, a partial reserve may be recorded immediately based primarily upon historical sales experience. Additionally, advances are evaluated periodically to determine if they are expected to be recovered on a title-by-title basis. Any portion of a royalty advance that is not expected to be recovered is fully reserved. At September 30, 2020, we reported a reserve for royalty advances of $132.9 million, compared to $119.7 million at December 31, 2019, reflecting an increase of $13.2 million for the nine months ended September 30, 2020.

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Inventories (Tables)

9 Months Ended

Sep. 30, 2020

Inventory Disclosure [Abstract]

Schedule of Inventories

Inventories consisted of the following:

	September 30, 2020		December 31, 2019
Finished goods	$	170,169	$	203,103
Raw materials		5,651		9,956
Inventories	$	175,820	$	213,059

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Contract Assets, Contract Liabilities and Contract Costs (Tables)

9 Months Ended

Sep. 30, 2020

Revenue From Contract With Customer [Abstract]

Summary of Changes in Contract Assets and Contract Liabilities

The following table presents changes in contract assets and contract liabilities during the nine months ended September 30, 2020:

	September 30, 2020		December 31, 2019		$ Change			% Change
Contract assets	$	27	$	109	$	(82	)		(75.2	%)
Contract liabilities (deferred revenue)	$	953,453	$	848,106	$	105,347			12.4	%

Summary of Net Sales Recognised from Changes in Contract Asset and Contract Liabilities

During the three and nine months ended September 30, 2020 and 2019, we recognized the following net sales as a result of changes in the contract assets and contract liabilities balances:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Net sales recognized in the period from:
Amounts included in contract liabilities at the beginning    of the period	$	81,768	$	70,686	$	254,695	$	194,509

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Goodwill and Other Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2020

Goodwill And Intangible Assets Disclosure [Abstract]

Schedule of Change in the Carrying Amount of Goodwill Relates to the Education Segment

The change in the carrying amount of goodwill, which all relates to the Education segment, for the nine months ended September 30, 2020 is as follows:

Balance at December 31, 2019	$	716,977
Impairment		(262,000	)
Balance at September 30, 2020	$	454,977

Schedule of Other Intangible Assets

Other intangible assets consisted of the following:

	September 30, 2020							December 31, 2019
	Cost		Accumulated Amortization			Total		Cost		Accumulated Amortization			Total
Trademarks and tradenames: indefinite-lived	$	161,000	$	—		$	161,000	$	161,000	$	—		$	161,000
Trademarks and tradenames: definite-lived		164,130		(49,794	)		114,336		164,130		(38,948	)		125,182
Publishing rights		1,180,000		(1,154,721	)		25,279		1,180,000		(1,139,426	)		40,574
Customer related and other		449,840		(310,344	)		139,496		449,840		(302,371	)		147,469
Other intangible assets, net	$	1,954,970	$	(1,514,859	)	$	440,111	$	1,954,970	$	(1,480,745	)	$	474,225

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Debt (Tables)

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Long-Term Debt

Our debt consisted of the following:

	September 30, 2020			December 31, 2019
$380,000 term loan due November 22, 2024, interest payable    quarterly (net of discount and issuance costs)	$	349,892		$	361,294
$306,000 senior secured notes due February 15, 2025, interest    payable semi-annually (net of discount and issuance costs)	$	297,174		$	295,893
		647,066			657,187
Less: Current portion of long-term debt		(19,000	)		(19,000	)
Total long-term debt, net of discount and issuance costs	$	628,066		$	638,187
Revolving credit facility	$	—		$	—

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Restructuring, Severance and Other Charges (Tables)

9 Months Ended

Sep. 30, 2020

2020 Restructuring Plan [Member]

Components of Severance/Restructuring and Other Charges

The following table provides a summary of our total costs associated with the 2020 Restructuring Plan, included in the restructuring/severance and other charges line item within our consolidated statements of operations, for the three and nine months ended September 30, 2020, by major type of cost:

	Three Months Ended		Nine Months Ended		Total Amount
	September 30,		September 30,		Incurred
Type of Cost	2020		2020		to Date
Restructuring charges: (1)
Severance and termination benefits	$	33,545	$	33,545	$	33,545
	$	33,545	$	33,545	$	33,545

(1) All restructuring charges are included within Corporate and Other.

Summary of Restructuring Liabilities Comprised of Accruals for Severance and Termination Benefits

The following is a rollforward of our liabilities associated with the 2020 Restructuring Plan:

	2020
	Restructuring						Restructuring
	accruals at						accruals at
	December 31,				Cash		September 30,
	2019		Charges		payments		2020
Severance and termination benefits	$	—	$	33,545	$	(1,250)	$	32,295
	$	—	$	33,545	$	(1,250)	$	32,295

2019 Restructuring Plan [Member]

Components of Severance/Restructuring and Other Charges

A summary of the significant components of the severance costs, which are not allocated to our segments and instead are included in the Corporate and Other category, is as follows:

	2020
	Severance/ other accruals at December 31, 2019		Severance/ other expense		Cash payments			Severance/ other accruals at September 30, 2020
Severance costs	$	758	$	—	$	(758	)	$	—
	$	758	$	—	$	(758	)	$	—

A summary of the significant components of the severance costs and other accruals, which are not allocated to our segments and included in the Corporate and Other category, is as follows:

	2019
	Severance/ other accruals at December 31, 2018			Severance/ other expense		Cash payments			Severance/ other accruals at September 30, 2019
Severance costs	$	1,420		$	2,534	$	(2,642	)	$	1,312
Other accruals		270	(1)		—		—			—
	$	1,690		$	2,534	$	(2,642	)	$	1,312

(1) In connection with the adoption of the new leasing standard on January 1, 2019, the restructuring liabilities related to office space consolidation were reclassed on the balance sheet as a reduction of operating lease assets.

Summary of Restructuring Liabilities Comprised of Accruals for Severance and Termination Benefits

The following is a rollforward of our liabilities associated with the 2019 Restructuring Plan:

	2020
	Restructuring							Restructuring
	accruals at							accruals at
	December 31,				Cash			September 30,
	2019		Charges		payments			2020
Severance and termination benefits	$	11,649	$	—	$	(9,043	)	$	2,606
	$	11,649	$	—	$	(9,043	)	$	2,606

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Retirement and Postretirement Benefit Plans (Tables)

9 Months Ended

Sep. 30, 2020

Compensation And Retirement Disclosure [Abstract]

Net Periodic Benefit Cost Components

Net periodic benefit (credit) cost for our pension and other postretirement benefit plans consisted of the following:

	Pension Plans
	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Interest cost	$	1,097		$	1,511		$	3,291		$	4,533
Expected return on plan assets		(1,855	)		(1,918	)		(5,565	)		(5,755	)
Amortization of net loss		581			251			1,743			752
Net periodic benefit credit	$	(177	)	$	(156	)	$	(531	)	$	(470	)

	Other Post Retirement Plans
	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Service cost	$	17		$	15		$	51		$	44
Interest cost		107			145			321			436
Amortization of prior service cost		11			10			33			32
Amortization of net loss		(2	)		(40	)		(6	)		(123	)
Net periodic benefit cost	$	133		$	130		$	399		$	389

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

Summary of Financial Assets and Liabilities Measured at Fair Value on Recurring Basis

The following tables present our financial assets and liabilities measured at fair value on a recurring basis:

	September 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Valuation Technique
Financial assets
Money market funds	$	250,522	$	250,522	$	—	(a)
	$	250,522	$	250,522	$	—
Financial liabilities
Foreign exchange derivatives	$	156	$	—	$	156	(a)
	$	156	$	—	$	156

	December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Valuation Technique
Financial assets
Money market funds	$	276,654	$	276,654	$	—	(a)
	$	276,654	$	276,654	$	—
Financial liabilities
Interest rate derivatives	$	986	$	—	$	986	(a)
Foreign exchange derivatives		127		—		127	(a)
	$	1,113	$	—	$	1,113

Summary of Non-financial Assets and Liabilities Measured at Fair Value on Nonrecurring Basis

Our non-financial assets, which include goodwill, other intangible assets, property, plant, and equipment, and pre-publication costs, are not required to be measured at fair value on a recurring basis. However, if certain trigger events occur, or if an annual impairment test is required, we evaluate the non-financial assets for impairment. If an impairment did occur, the asset is required to be recorded at the estimated fair value. An impairment analysis was performed for the preparation of the first quarter report, as there were triggering events for the three months ended March 31, 2020 related to the decline in our stock price attributed to the market environment. There were no non-financial liabilities that were required to be measured at fair value on a nonrecurring basis during the three or nine months ended September 30, 2020 and 2019.

	September 30, 2020		Significant Unobservable Inputs (Level 3)		Total Impairment		Valuation Technique
Non-financial assets
Goodwill	$	454,977	$	454,977	$	262,000		(a)
	$	454,977	$	454,977	$	262,000

Summary of Carrying Amounts and Estimated Fair Market Values of Debt

The following table presents the carrying amounts and estimated fair market values of our debt at September 30, 2020 and December 31, 2019. The fair value of debt is deemed to be the amount at which the instrument could be exchanged in an orderly transaction between market participants at the measurement date.

	September 30, 2020				December 31, 2019
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Debt
$380,000 Term loan	$	349,892	$	314,903	$	361,294	$	360,391
$306,000 Senior secured notes	$	297,174	$	286,773		295,893		301,441

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Net (Loss) Income Per Share (Tables)

9 Months Ended

Sep. 30, 2020

Earnings Per Share [Abstract]

Computation of Basic and Diluted Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share (“EPS”):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2020			2019		2020			2019
Numerator
Net (loss) income attributable to common stockholders	$	(12,552	)	$	69,260	$	(396,693	)	$	(88,715	)
Denominator
Weighted average shares outstanding
Basic		125,799,018			124,315,491		125,317,284			124,089,257
Diluted		125,799,018			124,807,488		125,317,284			124,089,257
Net (loss) income per share attributable to common    stockholders
Basic	$	(0.10	)	$	0.56	$	(3.17	)	$	(0.71	)
Diluted	$	(0.10	)	$	0.55	$	(3.17	)	$	(0.71	)

Summary of Anti-Dilutive Securities Excluded from Computation of Diluted EPS

The following table summarizes our weighted average outstanding common stock equivalents that were anti-dilutive attributable to common stockholders during the periods, and therefore excluded from the computation of diluted EPS:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Stock options		1,947,212		3,115,013		1,947,212		3,108,926
Restricted stock units		5,060,063		1,820,356		4,013,767		3,622,096

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Segment Reporting (Tables)

9 Months Ended

Sep. 30, 2020

Segment Reporting [Abstract]

Consolidated Net Income (Loss)

Although we exclude these amounts from segment Adjusted EBITDA, they are included in reported consolidated net loss and are included in the reconciliation below.

	Three Months Ended September 30,
(in thousands)	Education		HMH Books & Media		Corporate/ Other
2020
Net sales	$	330,926	$	55,664	$	—
Segment Adjusted EBITDA		97,673		10,267		(10,665	)
2019
Net sales	$	517,614	$	48,054	$	—
Segment Adjusted EBITDA		153,415		8,302		(13,002	)
	Nine Months Ended September 30,
(in thousands)	Education		HMH Books & Media		Corporate/ Other
2020
Net sales	$	698,574	$	129,157	$	—
Segment Adjusted EBITDA		137,188		9,841		(31,273	)
2019
Net sales	$	1,021,259	$	127,940	$	—
Segment Adjusted EBITDA		188,906		12,260		(31,671	)

Summary of Net Sales

The following table disaggregates our net sales by major source:

	Three Months Ended September 30, 2020
(in thousands)	Education		HMH Books & Media		Consolidated
Core solutions (1)	$	206,641	$	—	$	206,641
Extensions (2)		124,285		—		124,285
HMH Books & Media products		—		55,664		55,664
Net sales	$	330,926	$	55,664	$	386,590
	Nine Months Ended September 30, 2020
(in thousands)	Education		HMH Books & Media		Consolidated
Core solutions (1)	$	391,084	$	—	$	391,084
Extensions (2)		307,490		—		307,490
HMH Books & Media products		—		129,157		129,157
Net sales	$	698,574	$	129,157	$	827,731

	Three Months Ended September 30, 2019
(in thousands)	Education		HMH Books & Media		Consolidated
Core solutions (1)	$	273,262	$	—	$	273,262
Extensions (2)		244,352		—		244,352
HMH Books & Media products		—		48,054		48,054
Net sales	$	517,614	$	48,054	$	565,668
	Nine Months Ended September 30, 2019
(in thousands)	Education		HMH Books & Media		Consolidated
Core solutions (1)	$	493,273	$	—	$	493,273
Extensions (2)		527,986		—		527,986
HMH Books & Media products		—		127,940		127,940
Net sales	$	1,021,259	$	127,940	$	1,149,199

(1) Comprehensive solutions primarily for reading, math, science and social studies programs.

(2) Primarily consists of our Heinemann brand, intervention, supplemental, and formative assessment products as well as professional services.

Consolidated Statements of Operations

Reconciliation of Adjusted EBITDA to the consolidated statements of operations is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2020			2019			2020			2019
Total Adjusted EBITDA	$	97,275		$	148,715		$	115,756		$	169,495
Interest expense		(16,168	)		(11,597	)		(50,433	)		(35,142	)
Interest income		32			509			873			1,698
Depreciation expense		(12,566	)		(13,901	)		(38,016	)		(46,945	)
Amortization expense – film asset		(4,698	)		—			(4,854	)		(6,772	)
Amortization expense		(42,682	)		(52,043	)		(128,157	)		(147,876	)
Non-cash charges – goodwill impairment		—			—			(262,000	)		—
Non-cash charges – stock-compensation		(3,112	)		(3,835	)		(8,751	)		(11,094	)
Non-cash charges – gain (loss) on derivative instruments		432			(737	)		172			(1,171	)
Fees, expenses or charges for equity offerings, debt or    acquisitions/dispositions		(339	)		(183	)		(366	)		(731	)
Restructuring/severance and other charges		(33,545	)		—			(33,545	)		—
Gain on investments		1,738			(270	)		1,738			(5,921	)
(Loss) income before taxes		(13,633	)		66,658			(407,583	)		(84,459	)
Provision (benefit) for income taxes		(1,081	)		(2,602	)		(10,890	)		4,256
Net (loss) income	$	(12,552	)	$	69,260		$	(396,693	)	$	(88,715	)

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Basis of Presentation - Additional Information (Detail) Student in Millions, Educator in Millions	9 Months Ended	12 Months Ended
	Sep. 30, 2020 Student Country Educator Segment	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Services provided, number of students | Student	50
Services provided, number of countries | Country	150
Services provided, number of educators | Educator	3
Number of business segments | Segment	2
Seasonal Concentration Risk [Member] | Consolidated Net Sales [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Consolidated net sales, realized percentage		67.00%	67.00%	67.00%
Seasonal Concentration Risk [Member] | Consolidated Net Sales [Member] | Education [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Consolidated net sales, realized percentage		87.00%

XML

Impact of the COVID-19 Pandemic - Additional Information (Detail)					3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2020	Sep. 30, 2020 Employee	Sep. 04, 2020 Employee	Sep. 30, 2020 USD ($)	Mar. 31, 2020 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)
Unusual Or Infrequent Item [Line Items]
Impairment charge for goodwill					$ 0	$ 262,000,000.0	$ 262,000,000	$ 0
Percentage of fair value in excess of carrying value	18.00%	18.00%	18.00%		18.00%	12.00%	18.00%
2020 Restructuring Plan [Member]
Unusual Or Infrequent Item [Line Items]
Restructuring program, positions eliminated percentage		22.00%
Restructuring program, number of positions eliminated		525	525
Restructuring program, cash expenditure					$ 33,500,000
Restructuring program, completion month and year	2020-10
2020 Restructuring Plan [Member] | Retirement Incentive Program [Member]
Unusual Or Infrequent Item [Line Items]
Minimum eligible age of employees to offer voluntary retirement program				55 years
Minimum years of employee service to offer voluntary retirement program				5 years
Number of employees eligible to participate in voluntary retirement program | Employee				165
Percentage of employee base, eligible to participate in voluntary retirement program				5.00%

XML

Recent Accounting Standards - Additional Information (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Allowance for doubtful accounts	$ 3.9	$ 3.0
Increase in allowance for doubtful accounts	1.4
Allowance for doubtful accounts, write-offs	0.5
Reserve for Royalty Advances [Member]
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Reserve balance	132.9	$ 119.7
Increase in advance royalties reserve	$ 13.2

XML

Inventories - Schedule of Inventories (Detail) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Inventory Disclosure [Abstract]
Finished goods	$ 170,169	$ 203,103
Raw materials	5,651	9,956
Inventories	$ 175,820	$ 213,059

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Contract Assets, Contract Liabilities and Contract Costs - Summary of Changes in Contract Assets and Contract Liabilities (Detail) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
Change In Contract With Customer Asset And Liability [Abstract]
Contract with customer assets	$ 27	$ 109
Contract with customer assets change	$ (82)
Contract with customer assets percentage change	(75.20%)
Contract with customer liabilities	$ 953,453	$ 848,106
Contract with customer liabilities change	$ 105,347
Contract with customer liabilities percentage change	12.40%

XML

Contract Assets, Contract Liabilities and Contract Costs - Additional Information (Detail) - USD ($) $ in Thousands	9 Months Ended		12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Capitalized Contract Cost [Line Items]
Net increase in contract assets and liabilities	$ 105,400		$ 105,400
Aggregate amount of transaction price allocated to remaining performance obligations	$ 1,003,700
Percentage of transaction recognized	73.00%
Deferred commissions	$ 32,972		$ 29,291
Amortization of deferred commissions	11,000	$ 11,000
Contract cost	13,200
Amortization contract cost	$ 2,600	$ 2,300
Minimum [Member]
Capitalized Contract Cost [Line Items]
Period of duration for recognition of transaction	1 year
Maximum [Member]
Capitalized Contract Cost [Line Items]
Period of duration for recognition of transaction	3 years

XML

Contract Assets, Contract Liabilities and Contract Costs - Summary of Net Sales Recognised from Changes in Contract Asset and Contract Liabilities (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Revenues [Abstract]
Amounts included in contract liabilities at the beginning of the period	$ 81,768	$ 70,686	$ 254,695	$ 194,509

XML

Goodwill and Other Intangible Assets - Schedule of Change in the Carrying Amount of Goodwill Relates to the Education Segment (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Mar. 31, 2020	Sep. 30, 2020	Sep. 30, 2019
Goodwill And Intangible Assets Disclosure [Abstract]
Balance at December 31, 2019		$ 716,977,000	$ 716,977,000
Impairment	$ 0	$ (262,000,000.0)	(262,000,000)	$ 0
Balance at September 30, 2020	$ 454,977,000		$ 454,977,000

XML

Goodwill and Other Intangible Assets - Additional Information (Detail) - USD ($)	3 Months Ended			9 Months Ended
	Sep. 30, 2020	Mar. 31, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Finite-Lived Intangible Assets [Line Items]
Accumulated impairment losses on goodwill	$ 262,000,000.0			$ 262,000,000.0
Impairment charge for goodwill	0	$ 262,000,000.0		262,000,000	$ 0
Amortization expense	$ 4,761,000		$ 6,341,000	15,295,000	20,217,000
Definite-lived Trademarks and Tradenames, Publishing Rights and Customer Related and Other Intangibles [Member]
Finite-Lived Intangible Assets [Line Items]
Amortization expense				$ 34,100,000	$ 39,700,000

XML

Goodwill and Other Intangible Assets - Schedule of Other Intangible Assets (Detail) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Finite-Lived Intangible Assets [Line Items]
Cost	$ 1,954,970	$ 1,954,970
Accumulated Amortization	(1,514,859)	(1,480,745)
Total	440,111	474,225
Trademarks and Trade Names [Member]
Finite-Lived Intangible Assets [Line Items]
Trademarks and tradenames indefinite-lived	161,000	161,000
Cost	164,130	164,130
Accumulated Amortization	(49,794)	(38,948)
Total	114,336	125,182
Publishing Rights [Member]
Finite-Lived Intangible Assets [Line Items]
Cost	1,180,000	1,180,000
Accumulated Amortization	(1,154,721)	(1,139,426)
Total	25,279	40,574
Customer Related and Other [Member]
Finite-Lived Intangible Assets [Line Items]
Cost	449,840	449,840
Accumulated Amortization	(310,344)	(302,371)
Total	$ 139,496	$ 147,469

XML

Debt - Long-Term Debt (Detail) - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
Long term debt	$ 647,066,000	$ 657,187,000
Less: Current portion of long-term debt	(19,000,000)	(19,000,000)
Total long-term debt, net of discount and issuance costs	628,066,000	638,187,000
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Revolving credit facility	0
Term Loan Due November 22, 2024 [Member] | Term Loan [Member]
Debt Instrument [Line Items]
Long term debt	349,892,000	361,294,000
Senior Secured Notes Due February 15, 2025 [Member] | Senior Secured Notes [Member]
Debt Instrument [Line Items]
Long term debt	$ 297,174,000	$ 295,893,000

XML

Debt - Long-Term Debt (Parenthetical) (Detail) - USD ($) $ in Thousands		9 Months Ended	12 Months Ended
	Nov. 22, 2019	Sep. 30, 2020	Dec. 31, 2019
Term Loan Due November 22, 2024 [Member] | Term Loan [Member]
Debt Instrument [Line Items]
Term loan, face amount	$ 380,000	$ 380,000	$ 380,000
Term loan, due date	Nov. 22, 2024	Nov. 22, 2024	Nov. 22, 2024
Senior Secured Notes Due February 15, 2025 [Member] | Senior Secured Notes [Member]
Debt Instrument [Line Items]
Term loan, face amount	$ 306,000	$ 306,000	$ 306,000
Term loan, due date	Feb. 15, 2025	Feb. 15, 2025	Feb. 15, 2025

XML

Debt - Additional Information (Detail)			3 Months Ended		9 Months Ended		12 Months Ended
	Nov. 22, 2019 USD ($)	Jul. 22, 2015	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Dec. 31, 2019 USD ($)	Aug. 17, 2015 USD ($)
Debt Instrument [Line Items]
Net change in unrealized gain (loss) on derivative financial instruments			$ 258,000	$ (257,000)	$ 987,000	$ (3,661,000)
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Revolving Credit Facility, maximum borrowing capacity	$ 250,000,000.0
Revolving Credit Facility, outstanding			0		$ 0
Financial covenants, description					As of September 30, 2020, the minimum fixed charge coverage ratio covenant under our revolving credit facility was not applicable, due to our level of borrowing availability. The minimum fixed charge coverage ratio, which is only tested in limited situations, is 1.0 to 1.0 through the end of the facility.
Revolving Credit Facility [Member] | Letter Of Credit Subfacility [Member]
Debt Instrument [Line Items]
Revolving Credit Facility, current capacity	50,000,000.0
Revolving Credit Facility [Member] | Swingline [Member]
Debt Instrument [Line Items]
Revolving Credit Facility, current capacity	20,000,000.0
Revolving Credit Facility [Member] | Subfacility [Member]
Debt Instrument [Line Items]
Revolving Credit Facility, maximum borrowing capacity	100,000,000.0
Minimum [Member] | Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Fixed charge coverage ratio		1.0			1.0
Interest Rate Hedging [Member]
Debt Instrument [Line Items]
Aggregate notional amount of derivative instruments								$ 400,000,000.0
Derivative contracts maturity date					Jul. 22, 2020
Net change in unrealized gain (loss) on derivative financial instruments					$ 1,000,000.0	$ (3,700,000)
Total hedge liability included within current other liabilities							$ 1,000,000.0
Reclassified from other comprehensive loss to earnings					1,900
Interest rate derivative contracts outstanding			0		0
Interest Rate Hedging [Member] | Maximum [Member]
Debt Instrument [Line Items]
Unrealized gain (loss) on interest rate derivative instruments					100,000
Interest Rate Hedging [Member] | Not Designated as Hedging Instrument [Member]
Debt Instrument [Line Items]
Aggregate notional amount of derivative instruments	29,500,000
Interest Rate Hedging [Member] | Cash Flow Hedging [Member] | Designated as Hedging Instrument [Member]
Debt Instrument [Line Items]
Aggregate notional amount of derivative instruments	29,500,000
Senior Secured Notes [Member] | Senior Secured Notes Due February 15, 2025 [Member]
Debt Instrument [Line Items]
Term loan, face amount	$ 306,000,000.0		306,000,000		$ 306,000,000		$ 306,000,000
Debt instrument, interest rate, stated percentage	9.00%
Term loan, due date	Feb. 15, 2025				Feb. 15, 2025		Feb. 15, 2025
Debt instrument basis spread	9.00%
Repayment frequency					Interest is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2020.
Percentage of outstanding borrowing commitment issued as discount	2.00%
Term Loan Facility [Member]
Debt Instrument [Line Items]
Percentage of principal for subject to prepayment premium					1.00%
Term Loan Facility [Member] | Term Loan Due November 22, 2024 [Member]
Debt Instrument [Line Items]
Term loan, face amount	$ 380,000,000.0		$ 380,000,000		$ 380,000,000		$ 380,000,000
Term loan, due date	Nov. 22, 2024				Nov. 22, 2024		Nov. 22, 2024
Debt instrument basis spread					7.25%
Percentage of outstanding borrowing commitment issued as discount	4.00%
Amount to be repaid quarterly	$ 4,800,000
Term Loan Facility [Member] | Term Loan Due November 22, 2024 [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument [Line Items]
Debt instrument basis spread	6.25%
Term Loan Facility [Member] | Term Loan Due November 22, 2024 [Member] | Alternate Base Rate [Member]
Debt Instrument [Line Items]
Debt instrument basis spread	5.25%

XML

Restructuring, Severance and Other Charges - Additional Information (Detail)						3 Months Ended			9 Months Ended
	Sep. 30, 2020 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2020 USD ($) Employee	Sep. 04, 2020 Employee	Oct. 15, 2019	Sep. 30, 2020 USD ($)	Dec. 31, 2019 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)
Restructuring Cost and Reserve [Line Items]
Restructuring/severance and other charges						$ 33,545,000		$ 270,000	$ 33,545,000	$ 5,921,000
Severance Costs [Member]
Restructuring Cost and Reserve [Line Items]
Payments for severance cost									$ 800,000
2020 Restructuring Plan [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring program, positions eliminated percentage		22.00%
Restructuring program, number of positions eliminated		525	525
Payments for severance cost						33,500,000
Restructuring program, completion month and year	2020-10
2020 Restructuring Plan [Member] | Retirement Incentive Program [Member]
Restructuring Cost and Reserve [Line Items]
Minimum eligible age of employees to offer voluntary retirement program				55 years
Minimum years of employee service to offer voluntary retirement program				5 years
Number of employees eligible to participate in voluntary retirement program | Employee				165
Percentage of employee base, eligible to participate in voluntary retirement program				5.00%
2019 Restructuring Plan [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring program, positions eliminated percentage					10.00%
Payments for severance cost										2,642,000
Percentage of reduction in content development expenditures					20.00%
Description of workforce reduction									The workforce reductions were completed in the first quarter of 2020.
Restructuring/severance and other charges						0	$ 15,800,000	$ 0	$ 0	0
Severance and other charges	$ 34,900,000	$ 34,900,000	$ 34,900,000			$ 34,900,000	$ 12,400,000		34,900,000
2019 Restructuring Plan [Member] | Operating Lease Assets [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring costs										3,400,000
2019 Restructuring Plan [Member] | Severance Costs [Member]
Restructuring Cost and Reserve [Line Items]
Payments for severance cost									$ 758,000	2,642,000
Restructuring/severance and other charges										$ 2,500,000

XML

Restructuring, Severance and Other Charges - Summary of Restructuring/Severance Total Costs (Detail) - USD ($) $ in Thousands		1 Months Ended	3 Months Ended		9 Months Ended
		Sep. 30, 2020	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Condensed Comprehensive Income [Line Items]
Restructuring charges			$ 33,545	$ 270	$ 33,545	$ 5,921
2020 Restructuring Plan [Member] | Severance and Termination Benefits [Member]
Condensed Comprehensive Income [Line Items]
Restructuring charges	[1]	$ 33,545	$ 33,545		$ 33,545

[1] All restructuring charges are included within Corporate and Other.

XML

Restructuring, Severance and Other Charges - Summary of Restructuring Liabilities Comprised of Accruals for Severance and Termination Benefits (Detail) - USD ($)		1 Months Ended	3 Months Ended			9 Months Ended
		Sep. 30, 2020	Sep. 30, 2020	Dec. 31, 2019	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Condensed Comprehensive Income [Line Items]
Charges			$ 33,545,000		$ 270,000	$ 33,545,000	$ 5,921,000
2020 Restructuring Plan [Member]
Condensed Comprehensive Income [Line Items]
Cash payments			(33,500,000)
2020 Restructuring Plan [Member] | Severance and Termination Benefits [Member]
Condensed Comprehensive Income [Line Items]
Charges	[1]	$ 33,545,000	33,545,000			33,545,000
Cash payments						(1,250,000)
Severance/restructuring and other accruals, Ending balance		32,295,000	32,295,000			32,295,000
2019 Restructuring Plan [Member]
Condensed Comprehensive Income [Line Items]
Severance/restructuring and other accruals, Beginning balance				$ 1,312,000			1,690,000
Charges			0	15,800,000	0	0	0
Cash payments							(2,642,000)
Severance/restructuring and other accruals, Ending balance					$ 1,312,000		$ 1,312,000
2019 Restructuring Plan [Member] | Severance and Termination Benefits [Member]
Condensed Comprehensive Income [Line Items]
Severance/restructuring and other accruals, Beginning balance						11,649,000
Cash payments						(9,043,000)
Severance/restructuring and other accruals, Ending balance		$ 2,606,000	$ 2,606,000	$ 11,649,000		$ 2,606,000

[1] All restructuring charges are included within Corporate and Other.

XML

Restructuring, Severance and Other Charges - Components of Severance/Restructuring and Other Charges (Detail) - USD ($) $ in Thousands		9 Months Ended
		Sep. 30, 2020	Sep. 30, 2019
Severance Costs [Member]
Restructuring Cost and Reserve [Line Items]
Cash payments		$ (800)
2019 Restructuring Plan [Member]
Restructuring Cost and Reserve [Line Items]
Severance/restructuring and other accruals, Beginning balance			$ 1,690
Severance/other expense			2,534
Cash payments			(2,642)
Severance/restructuring and other accruals, Ending balance			1,312
2019 Restructuring Plan [Member] | Severance Costs [Member]
Restructuring Cost and Reserve [Line Items]
Severance/restructuring and other accruals, Beginning balance		758	1,420
Severance/other expense			2,534
Cash payments		$ (758)	(2,642)
Severance/restructuring and other accruals, Ending balance			1,312
2019 Restructuring Plan [Member] | Other Accruals [Member]
Restructuring Cost and Reserve [Line Items]
Severance/restructuring and other accruals, Beginning balance	[1]		$ 270

[1] In connection with the adoption of the new leasing standard on January 1, 2019, the restructuring liabilities related to office space consolidation were reclassed on the balance sheet as a reduction of operating lease assets.

XML

Income Taxes - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Income Tax Disclosure [Abstract]
Income tax (benefit) expense	$ (1,081)	$ (2,602)	$ (10,890)	$ 4,256
Effective tax rate	7.90%	(3.90%)	2.70%	(5.00%)
Unrecognized tax benefits (excluding interest and penalties)	$ 15,700		$ 15,700		$ 15,700

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Retirement and Postretirement Benefit Plans - Net Periodic Benefit Cost Components (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Pension Plans [Member]
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Interest cost	$ 1,097	$ 1,511	$ 3,291	$ 4,533
Expected return on plan assets	(1,855)	(1,918)	(5,565)	(5,755)
Amortization of net loss	581	251	1,743	752
Net periodic benefit cost (credit)	(177)	(156)	(531)	(470)
Other Post Retirement Plans [Member]
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Service cost	17	15	51	44
Interest cost	107	145	321	436
Amortization of prior service cost	11	10	33	32
Amortization of net loss	(2)	(40)	(6)	(123)
Net periodic benefit cost (credit)	$ 133	$ 130	$ 399	$ 389

XML

Retirement and Postretirement Benefit Plans - Additional Information (Detail) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Compensation And Retirement Disclosure [Abstract]
Contributions to pension plans	$ 3.7	$ 1.2

XML

Fair Value Measurements - Summary of Financial Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Financial assets
Financial assets	$ 250,522	$ 276,654
Financial liabilities
Financial liabilities	156	1,113
Money Market Funds [Member]
Financial assets
Financial assets	250,522	276,654
Interest Rate Derivatives [Member]
Financial liabilities
Financial liabilities		986
Foreign Exchange Derivatives [Member]
Financial liabilities
Financial liabilities	156	127
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Financial assets
Financial assets	250,522	276,654
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Money Market Funds [Member]
Financial assets
Financial assets	250,522	276,654
Significant Other Observable Inputs (Level 2) [Member]
Financial liabilities
Financial liabilities	156	1,113
Significant Other Observable Inputs (Level 2) [Member] | Interest Rate Derivatives [Member]
Financial liabilities
Financial liabilities		986
Significant Other Observable Inputs (Level 2) [Member] | Foreign Exchange Derivatives [Member]
Financial liabilities
Financial liabilities	$ 156	$ 127

XML

Fair Value Measurements - Additional Information (Detail) - USD ($)	3 Months Ended			9 Months Ended
	Sep. 30, 2020	Mar. 31, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets	$ 250,522,000			$ 250,522,000		$ 276,654,000
Impairment charge for goodwill	0	$ 262,000,000.0		262,000,000	$ 0
Non-marketable investments	2,300,000			2,300,000		4,000,000.0
Gains from non-marketable investments	1,738,000		$ (270,000)	1,738,000	$ (5,921,000)
Foreign Exchange Forward Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Aggregate notional amount of derivative instruments	12,800,000			12,800,000		15,200,000
Interest Rate Derivatives [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Aggregate notional amount of derivative instruments	0			0
Maximum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of counterparty default exposure	1,000,000.0			1,000,000.0		1,000,000.0
Money Market Funds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets	250,522,000			250,522,000		276,654,000
Significant Other Observable Inputs (Level 2) [Member] | Bank Time Deposits [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets	$ 21,000,000.0			$ 21,000,000.0		$ 19,700,000

XML

Fair Value Measurements - Summary of Non-financial Assets and Liabilities Measured at Fair Value on Nonrecurring Basis (Detail) $ in Thousands	9 Months Ended
	Sep. 30, 2020 USD ($)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Non-financial assets	$ 454,977
Total Impairment	262,000
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Non-financial assets	454,977
Goodwill [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Non-financial assets	454,977
Total Impairment	262,000
Goodwill [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Non-financial assets	$ 454,977

XML

Fair Value Measurements - Summary of Carrying Amounts and Estimated Fair Market Values of Debt (Detail) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Schedule Of Carrying Values And Estimated Fair Values Of Debt Instruments [Line Items]
Debt, carrying value	$ 647,066	$ 657,187
Term Loan [Member]
Schedule Of Carrying Values And Estimated Fair Values Of Debt Instruments [Line Items]
Debt, carrying value	349,892	361,294
Debt, estimated fair value	314,903	360,391
$306,000 Senior Secured Notes [Member]
Schedule Of Carrying Values And Estimated Fair Values Of Debt Instruments [Line Items]
Debt, carrying value	297,174	295,893
Debt, estimated fair value	$ 286,773	$ 301,441

XML

Commitments and Contingencies - Additional Information (Detail) - USD ($)	1 Months Ended		9 Months Ended
	Sep. 30, 2019	Apr. 30, 2019	Sep. 30, 2020	Dec. 31, 2019
Loss Contingencies [Line Items]
Guarantee expiration period			2021
Guarantee future payments			$ 11,200,000
Performance related surety bonds for which the Company is contingently liable			1,400,000	$ 2,500,000
Aggregate letter of credit			19,200,000	23,700,000
Letter of credit backed by performance related surety bonds			700,000	700,000
Indemnification liabilities			$ 0	$ 0
Minimum [Member]
Loss Contingencies [Line Items]
Liable for portion of damages	$ 1,400,000
Requirement of warranty insurance for damages limit amount	2,800,000
Unasserted Claim [Member]
Loss Contingencies [Line Items]
Unasserted claim, payments in the amount		$ 33,000,000.0
Unasserted Claim [Member] | Maximum [Member]
Loss Contingencies [Line Items]
Unasserted claim, payments in the amount	$ 1,400,000

XML

Net (Loss) Income Per Share - Computation of Basic and Diluted Earnings per Share (Detail) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2020	Sep. 30, 2019
Numerator
Net (loss) income attributable to common stockholders	$ (12,552)	$ (38,168)	$ (345,973)	$ 69,260	$ (40,613)	$ (117,362)	$ (396,693)	$ (88,715)
Denominator
Weighted average shares outstanding Basic	125,799,018			124,315,491			125,317,284	124,089,257
Weighted average shares outstanding Diluted	125,799,018			124,807,488			125,317,284	124,089,257
Net (loss) income per share attributable to common stockholders
Basic	$ (0.10)			$ 0.56			$ (3.17)	$ (0.71)
Diluted	$ (0.10)			$ 0.55			$ (3.17)	$ (0.71)

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Net (Loss) Income Per Share - Summary of Anti-Dilutive Securities Excluded from Computation of Diluted EPS (Detail) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of diluted EPS	1,947,212	3,115,013	1,947,212	3,108,926
Restricted Stock Units [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of diluted EPS	5,060,063	1,820,356	4,013,767	3,622,096

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Segment Reporting - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2020 Segment
Segment Reporting [Abstract]
Number of reportable segments	2

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Segment Reporting - Consolidated Net Income (Loss) (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Segment Reporting Information [Line Items]
Net sales	$ 386,590	$ 565,668	$ 827,731	$ 1,149,199
Segment Adjusted EBITDA	97,275	148,715	115,756	169,495
Operating Segments [Member]
Segment Reporting Information [Line Items]
Net sales	386,590	565,668	827,731	1,149,199
Operating Segments [Member] | Education [Member]
Segment Reporting Information [Line Items]
Net sales	330,926	517,614	698,574	1,021,259
Segment Adjusted EBITDA	97,673	153,415	137,188	188,906
Operating Segments [Member] | HMH Books & Media [Member]
Segment Reporting Information [Line Items]
Net sales	55,664	48,054	129,157	127,940
Segment Adjusted EBITDA	10,267	8,302	9,841	12,260
Corporate/Other [Member]
Segment Reporting Information [Line Items]
Segment Adjusted EBITDA	$ (10,665)	$ (13,002)	$ (31,273)	$ (31,671)

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Segment Reporting - Summary of Net Sales (Detail) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
		Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Net sales		$ 386,590	$ 565,668	$ 827,731	$ 1,149,199
Operating Segments [Member]
Net sales		386,590	565,668	827,731	1,149,199
Operating Segments [Member] | Education [Member]
Net sales		330,926	517,614	698,574	1,021,259
Operating Segments [Member] | HMH Books & Media [Member]
Net sales		55,664	48,054	129,157	127,940
Core Solutions [Member] | Operating Segments [Member]
Net sales	[1]	206,641	273,262	391,084	493,273
Core Solutions [Member] | Operating Segments [Member] | Education [Member]
Net sales	[1]	206,641	273,262	391,084	493,273
Extensions [Member] | Operating Segments [Member]
Net sales	[2]	124,285	244,352	307,490	527,986
Extensions [Member] | Operating Segments [Member] | Education [Member]
Net sales	[2]	124,285	244,352	307,490	527,986
HMH Books & Media Products [Member] | Operating Segments [Member]
Net sales		55,664	48,054	129,157	127,940
HMH Books & Media Products [Member] | Operating Segments [Member] | HMH Books & Media [Member]
Net sales		$ 55,664	$ 48,054	$ 129,157	$ 127,940

[1] Comprehensive solutions primarily for reading, math, science and social studies programs.

[2] Primarily consists of our Heinemann brand, intervention, supplemental, and formative assessment products as well as professional services.

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Segment Reporting - Consolidated Statements of Operations (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Segment Reporting [Abstract]
Total Adjusted EBITDA	$ 97,275	$ 148,715	$ 115,756	$ 169,495
Interest expense	(16,168)	(11,597)	(50,433)	(35,142)
Interest income	32	509	873	1,698
Depreciation expense	(12,566)	(13,901)	(38,016)	(46,945)
Amortization expense – film asset	(4,698)		(4,854)	(6,772)
Amortization expense	(42,682)	(52,043)	(128,157)	(147,876)
Non-cash charges – goodwill impairment			(262,000)
Non-cash charges – stock-compensation	(3,112)	(3,835)	(8,751)	(11,094)
Non-cash charges – gain (loss) on derivative instruments	432	(737)	172	(1,171)
Fees, expenses or charges for equity offerings, debt or acquisitions/dispositions	(339)	(183)	(366)	(731)
Restructuring/severance and other charges	(33,545)	(270)	(33,545)	(5,921)
Gain on investments	1,738	(270)	1,738	(5,921)
(Loss) income before taxes	(13,633)	66,658	(407,583)	(84,459)
Provision (benefit) for income taxes	(1,081)	(2,602)	(10,890)	4,256
Net (loss) income	$ (12,552)	$ 69,260	$ (396,693)	$ (88,715)