Contract Assets, Contract Liabilities and Contract Costs and Net Sales

6 Months Ended

Jun. 30, 2021

Revenue From Contract With Customer [Abstract]

Contract Assets, Contract Liabilities and Contract Costs and Net Sales

7. Contract Assets and Liabilities, Contract Costs and Net Sales

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 six months ended June 30, 2021:

	June 30, 2021		December 31, 2020		$ Change			% Change
Contract assets	$	715	$	580	$	135			23.3	%
Contract liabilities (deferred revenue)	$	880,965	$	905,284	$	(24,319	)		(2.7	%)

The $24.3 million decrease in our contract liabilities from December 31, 2020 to June 30, 2021 was primarily due to the satisfaction of performance obligations related to physical and digital products, and services during the period in excess of revenue deferred during the period.

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 $32.4 million and $30.7 million at June 30, 2021 and December 31, 2020, respectively, and amortized $4.9 million during both the six months ended June 30, 2021 and 2020, respectively. 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 $16.9 million and $14.7 million at June 30, 2021 and December 31, 2020, respectively, and are included within prepaid expenses and other assets (current) and other assets (long term) on our consolidated balance sheet. We recorded amortization of $2.7 million and $1.4 million during the six months ended June 30, 2021 and 2020, respectively. The amortization is included in cost of sales, excluding publishing rights and pre-publication amortization.

During the three and six months ended June 30, 2021 and 2020, we recognized the following net sales as a result of changes in the contract assets and contract liabilities balances:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Net sales recognized in the period from:
Amounts included in contract liabilities at the beginning    of the period	$	101,607	$	93,722	$	176,265	$	172,927

As of June 30, 2021, the aggregate amount of the transaction price allocated to the remaining performance obligations, which includes deferred revenue and open orders, was $974.2 million, and we will recognize approximately 73% to net sales over the next 1 to 3 years.

The following table disaggregates our net sales by major source:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020
Core solutions (1)	$	165,528	$	119,210	$	234,199	$	184,442
Extensions (2)		143,144		97,029		220,668		183,676
Net sales	$	308,672	$	216,239	$	454,867	$	368,118

(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.