CAMBIUM LEARNING GROUP, INC. - 10-Q filing on 2015-08-13

Segment Reporting

6 Months Ended

Jun. 30, 2015

Note 14 — Segment Reporting

The Company operates in three reportable segments with separate management teams and infrastructures that offer various products and services.

Reclassifications

Certain prior period reclassifications have been made to conform to the current period presentation.

Segment Aggregation

Prior to the first quarter of 2015, the Voyager Sopris Learning and Kurzweil Education operating segments were separately reported in the financial statements. As permitted by GAAP, the Company elected to aggregate these two operating segments into a single reportable segment titled Voyager Sopris Learning. The separate Voyager Sopris Learning and Kurzweil Education operating segments have similar economic characteristics as well as similar products and services, production processes, class of customers, and product and service distribution methods. In addition, the Company believes the aggregated presentation is more useful to investors and other financial statement users because both units are in the midst of transitioning to higher concentrations of technology-enabled solutions and because of the relatively small financial contribution of Kurzweil Education to the consolidated results.

Operating Expenses and General Capital Expenditures

Certain operating expenses, such as rent, personnel and consulting fees, previously pooled and reported in Other in the segment information have been reclassified to the applicable reportable segment to which the expense directly supported. Additionally, General Capital Expenditures, also previously reported in Other in the segment information, have been reclassified to the applicable reportable segment to which the expenditure related. These reclassifications were made in order to provide a more complete depiction of the reportable segments as stand-alone operations. Segment disclosures for the three and six months ended June 30, 2014 were conformed to the 2015 presentation.

The following table reports the effect of these reclassifications on prior period disclosures:

	Three Months Ended June 30, 2014
(in thousands)	Learning A-Z		Voyager Sopris Learning		ExploreLearning		Other			Consolidated
Operating expense	$	36	$	170	$	—	$	(206	)	$	—
Expenditures for property, equipment, software and pre-publication costs		406		89		66		(561	)		—

	Six Months Ended June 30, 2014
(in thousands)	Learning A-Z		Voyager Sopris Learning		ExploreLearning		Other			Consolidated
Operating expense	$	69	$	343	$	—	$	(412	)	$	—
Expenditures for property, equipment, software and pre-publication costs		627		208		258		(1,093	)		—

Learning A-Z Segment

Learning A-Z is a preK-6 educational resource company specializing in online delivery of leveled readers and supplementary curriculum. Founded in 2002 to help teachers differentiate instruction and meet the unique needs of all students, Learning A-Z’s resources are currently used in more than half the districts across the United States and Canada and in approximately 190 countries worldwide. Serving a wide range of student needs, including English language learners, intervention, special education, and daily instruction, Learning A-Z’s value proposition focuses on three key elements:

·	Saving teachers time, giving them all the resources they need, all online, all accessible at the click of a mouse

·	Saving teachers money, delivering thousands of resources for a fraction of the cost of print and other online providers

·	Supporting student achievement through differentiated instruction, ensuring the right high-quality resources for every preK-6 student

Learning A-Z operates seven subscription-based websites: Reading A-Z, Raz-Kids, Vocabulary A-Z, Headsprout^®, ReadyTest A-Z, Writing A-Z and Science A-Z. These websites are stand-alone or integrated, for a comprehensive solution that provides online supplemental books, lessons, assessments and other instructional resources for individual classrooms, schools, and districts.

Voyager Sopris Learning Segment

The Voyager Sopris Learning segment is comprised of the Company’s Voyager Sopris Learning and Kurzweil Education brands.

Voyager Sopris Learning Brand

The Voyager Sopris Learning brand is committed to partnering with school districts to overcome obstacles that students, teachers, and school leaders face every day. The suite of instructional and service solutions the Voyager Sopris Learning brand provides is not only research based, but also evidence based—proven to increase student achievement and educator effectiveness. Voyager Sopris Learning’s solutions have been fully tested in the classroom, ensuring that they are easy to implement and teacher friendly. They are innovative, both in overall instructional approach and in the strategic use of technology in blended and 100% online solutions and are supported by an unparalleled commitment to build local capacity for sustained success. With a comprehensive suite of instructional resources, the Voyager Sopris Learning brand provides assessments, professional development and school improvement services, literacy and math instructional tools—comprehensive, intervention and supplemental—and resources to build a positive school climate.

Kurzweil Education Brand

The Kurzweil Education brand delivers award-winning educational technology that solves real problems. The brand’s literacy and learning solutions offer learners a way up and a path forward. Using the principals of Universal Design for Learning, the Kurzweil Education brand provides technology-based solutions that enable all learners to read, understand and demonstrate their learning using technology-based tools and resources.

ExploreLearning Segment

ExploreLearning develops online solutions to improve student learning in math and science. ExploreLearning currently offers two supplemental programs: Gizmos, the world’s largest library of online simulations for math and science in grades 3-12 that help students gain a deep understanding of challenging concepts through active inquiry and exploration; and Reflex, a powerful adaptive online program that helps students in grades 2-8 develop math fact fluency through game-based instruction and practice.

Gizmos and Reflex bring research-proven, standards-aligned instructional strategies to classrooms around the world. They support the tenets of the National Council of Teachers of Mathematics, the National Science Teachers Association and new rigorous state and national standards. Additionally, new studies show students using Reflex are scoring higher and growing faster than their peers on standardized tests.

Other

Other consists of unallocated shared services, such as accounting, legal, human resources and corporate related items, as well as depreciation and amortization expense, other income and expense, and income taxes. The Company does not allocate any of these costs to its segments, and the chief operating decision maker evaluates performance of operating segments excluding these items.

The following tables present the net revenues, operating expenses, income (loss) from operations, and capital expenditures which are used by the Company’s chief operating decision maker to measure the segments’ operating performance. The Company does not track assets directly by segment and the chief operating decision maker does not use assets to measure a segment’s operating performance, and therefore this information is not presented.

	Three Months Ended June 30, 2015
(in thousands)	Learning A-Z		Voyager Sopris Learning		ExploreLearning		Other			Consolidated
Net revenues	$	13,262	$	19,265	$	4,927	$	—		$	37,454
Cost of revenues		404		7,209		664		—			8,277
Amortization expense		—		—		—		4,275			4,275
Total cost of revenues		404		7,209		664		4,275			12,552
Other operating expenses		5,664		6,616		2,366		3,698			18,344
Depreciation and amortization expense		—		—		—		1,000			1,000
Total costs and expenses		6,068		13,825		3,030		8,973			31,896

Income (loss) before interest, other income (expense) and income taxes		7,194		5,440		1,897		(8,973	)		5,558

Net interest expense		—		—		—		(3,626	)		(3,626	)
Other income, net		—		—		—		260			260
Income tax expense		—		—		—		(186	)		(186	)
Segment net income (loss)	$	7,194	$	5,440	$	1,897	$	(12,525	)	$	2,006
Expenditures for property, equipment, software and pre-publication costs	$	1,885	$	2,389	$	634	$	141		$	5,049

	Three Months Ended June 30, 2014
(in thousands)	Learning A-Z		Voyager Sopris Learning		ExploreLearning		Other			Consolidated
Net revenues	$	10,549	$	21,147	$	4,547	$	—		$	36,243
Cost of revenues		472		8,745		713		—			9,930
Amortization expense		—		—		—		4,438			4,438
Total cost of revenues		472		8,745		713		4,438			14,368
Other operating expenses		4,327		7,424		2,512		3,279			17,542
Depreciation and amortization expense		—		—		—		1,036			1,036
Total costs and expenses		4,799		16,169		3,225		8,753			32,946

Income (loss) before interest, other income (expense) and income taxes		5,750		4,978		1,322		(8,753	)		3,297

Net interest expense		—		—		—		(4,420	)		(4,420	)
Loss on extinguishment of debt		—		—		—		(357	)		(357	)
Other income, net		—		—		—		215			215
Income tax expense		—		—		—		(23	)		(23	)
Segment net income (loss)	$	5,750	$	4,978	$	1,322	$	(13,338	)	$	(1,288	)
Expenditures for property, equipment, software and pre-publication costs	$	1,698	$	1,998	$	457	$	221		$	4,374

	Six Months Ended June 30, 2015
(in thousands)	Learning A-Z		Voyager Sopris Learning		ExploreLearning		Other			Consolidated
Net revenues	$	26,197	$	33,011	$	9,717	$	—		$	68,925
Cost of revenues		870		12,951		1,342		—			15,163
Amortization expense		—		—		—		8,278			8,278
Total cost of revenues		870		12,951		1,342		8,278			23,441
Other operating expenses		11,260		13,264		4,963		7,367			36,854
Depreciation and amortization expense		—		—		—		1,993			1,993
Total costs and expenses		12,130		26,215		6,305		17,638			62,288

Income (loss) before interest, other income (expense) and income taxes		14,067		6,796		3,412		(17,638	)		6,637

Net interest expense		—		—		—		(7,300	)		(7,300	)
Other income, net		—		—		—		475			475
Income tax expense		—		—		—		(304	)		(304	)
Segment net income (loss)	$	14,067	$	6,796	$	3,412	$	(24,767	)	$	(492	)
Expenditures for property, equipment, software and pre-publication costs	$	3,697	$	4,674	$	1,248	$	213		$	9,832

	Six Months Ended June 30, 2014
(in thousands)	Learning A-Z		Voyager Sopris Learning		ExploreLearning		Other			Consolidated
Net revenues	$	20,730	$	37,572	$	9,021	$	—		$	67,323
Cost of revenues		894		16,594		1,453		—			18,941
Amortization expense		—		—		—		8,518			8,518
Total cost of revenues		894		16,594		1,453		8,518			27,459
Other operating expenses		8,764		15,396		5,216		6,871			36,247
Depreciation and amortization expense		—		—		—		2,100			2,100
Total costs and expenses		9,658		31,990		6,669		17,489			65,806

Income (loss) before interest, other income (expense) and income taxes		11,072		5,582		2,352		(17,489	)		1,517

Net interest expense		—		—		—		(9,158	)		(9,158	)
Loss on extinguishment of debt		—		—		—		(570	)		(570	)
Other income, net		—		—		—		430			430
Income tax expense		—		—		—		(94	)		(94	)
Segment net income (loss)	$	11,072	$	5,582	$	2,352	$	(26,881	)	$	(7,875	)
Expenditures for property, equipment, software and pre-publication costs	$	3,363	$	3,732	$	990	$	275		$	8,360