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Dynamic quotes 
OFFON

HOUGHTON MIFFLIN HARCOURT COMPANY

(HMHC)
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HOUGHTON MIFFLIN HARCOURT : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

02/25/2021 | 07:05am EDT
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 our consolidated financial statements and the related notes
thereto included elsewhere in this Annual Report on Form 10-K. The following
discussion and analysis of our financial condition and results of operations
contains forward-looking statements about our business, operations and industry
that involve risks and uncertainties, such as statements regarding our plans,
objectives, expectations and intentions. Actual results and the timing of events
may differ materially from those expressed or implied in such forward-looking
statements due to a number of factors, including those set forth under "Risk
Factors" and elsewhere in this Annual Report on Form 10-K. See "Risk Factors"
and "Special Note Regarding Forward-Looking Statements."

Discussion and analysis of the year ended December 31, 2019 compared to the year
ended December 31, 2018 is included under the heading "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" in our
Annual Report on Form 10-K for the year ended December 31, 2019 as filed with
the SEC on February 27, 2020.

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 mitigate the impact of COVID-19 on our business included: (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.



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The majority of the HMH workforce has continued to work remotely subsequent to
March 2020. 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 Plan 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. Further, the deferral of the payment of our
employer payroll taxes allowed under the CARES Act during 2020 was repaid in
full in December 2020.



Given the ongoing COVID-19 situation, our Education business will continue to be
impacted during 2021, and significant uncertainty is likely to persist in the
marketplace. Additionally, our HMH Books & Media business may continue to be
impacted.



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, discussed below, 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
resulted 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 $33.6
million. 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 the 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.

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Other Events


In November 2020, the Company announced that it will explore a potential sale of
the HMH Books and Media segment. 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 81%, 87% and 85% of our total net sales
for the years ended December 31, 2020, 2019 and 2018, respectively. Our HMH
Books & Media segment represented approximately 19%, 13% and 15% of our total
net sales for the years ended December 31, 2020, 2019 and 2018, 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.

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 50% 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

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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 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;


  • 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.

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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. Florida called for K-12 English Language Arts materials in 2020
for purchase beginning in 2021 and has called for K-12 Mathematics for review in
2021 and purchase beginning in 2022. 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.

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 different 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

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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 $25.6 million for the year ended December 31, 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.

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
6 to 25 years. The expense for the year ended December 31, 2020 was
$25.6 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 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
year ended December 31, 2020 was $66.0 million.

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Results of Operations


Consolidated Operating Results for the Years Ended December 31, 2020 and 2019



                                             Year Ended         Year Ended
                                            December 31,       December 31,        Dollar        Percent
(dollars in thousands)                          2020               2019            change         Change
Net sales                                  $    1,031,292$    1,390,674$ (359,382 )        (25.8 )%
Costs and expenses:
Cost of sales, excluding publishing
rights and
  pre-publication amortization                    497,816            668,108       (170,292 )        (25.5 )%
Publishing rights amortization                     20,056             26,557         (6,501 )        (24.5 )%
Pre-publication amortization                      126,180            149,515        (23,335 )        (15.6 )%
Cost of sales                                     644,052            844,180       (200,128 )        (23.7 )%
Selling and administrative                        478,101            662,606       (184,505 )        (27.8 )%
Other intangible asset amortization                25,585             25,310            275            1.1 %
Impairment charge for goodwill                    279,000                  -        279,000             NM
Restructuring/severance and other
charges                                            33,643             21,742         11,901           54.7 %
Operating loss                                   (429,089 )         (163,164 )     (265,925 )           NM
Other income (expense):
Retirement benefits non-service
(expense) income                                     (856 )              167         (1,023 )           NM
Interest expense                                  (65,959 )          (48,778 )      (17,181 )        (35.2 )%
Interest income                                       899              3,157         (2,258 )        (71.5 )%
Change in fair value of derivative
instruments                                           672               (899 )        1,571             NM
Gain on investments                                 2,091                  -          2,091             NM
Income from transition services
agreement                                               -              4,248         (4,248 )           NM
Loss on extinguishment of debt                          -             (4,363 )        4,363             NM
Loss before taxes                                (492,242 )         (209,632 )     (282,610 )           NM
Income tax (benefit) expense                      (12,404 )            4,201        (16,605 )           NM
Net loss                                   $     (479,838 )$     (213,833 )$ (266,005 )           NM




NM = not meaningful

Net sales for the year ended December 31, 2020 decreased $359.4 million, or
25.8%, from $1,390.7 million in 2019 to $1,031.3 million. The net sales decrease
was driven by a $371.1 million decrease in our Education segment, offset by a
$11.7 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 $252.0 million from
$632.0 million in 2019 to $380.0 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. Also,
contributing to the decrease was lower professional services with the decline of
the in-person learning environment as a result of the COVID-19 pandemic.
Further, there were lower net sales from Core Solutions which decreased by
$119.0 million from $578.0 million in 2019 to $459.0 million, 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 $9.6 million of licensing revenue from a new
production series, a $3.4 million increase in licensing revenue attributed to
the Carmen Sandiego series on Netflix, and strong net sales of the frontlist
titles The 99% Invisible City, Compromised and Defined Dish. 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.

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Operating loss for the year ended December 31, 2020 unfavorably changed from a
loss of $163.2 million in 2019 to a loss of $429.1 million, due primarily to the
following:

• A $359.4 million decrease in net sales;



        •   An impairment charge for goodwill in 2020 of $279.0 million. This
            non-cash impairment is a direct result of the adverse impact that the
            COVID-19 pandemic has had on the Company;


        •   A $11.9 million increase in costs associated with our
            restructuring/severance and other charges due to $33.6 million of
            severance costs associated with the 2020 Restructuring Plan;

Partially offset by:


        •   A $184.5 million decrease in selling and administrative expenses,
            primarily due to lower labor costs of $77.0 million, resulting from
            cost savings associated with our employee furlough initiative, which
            began in April and ceased at the end of July, in response to COVID-19,
            our 2020 Restructuring Plan and a freeze on hiring. Also, there was a
            decrease of $52.0 million of variable expenses such as

commissions and

            transportation due to lower billings. Further, there were lower
            discretionary costs of $44.0 million primarily related to

travel and

            expense reduction measures and marketing along with lower

depreciation

            expense of $11.0 million;


• A $170.3 million decrease in our cost of sales, excluding publishing

            rights and pre-publication amortization, from $668.1 million in 2019
            to $497.8 million, primarily due to lower billings. Our cost of sales,
            excluding publishing rights and pre-publication amortization, as a
            percentage of sales, was essentially flat year over year; and


        •   A $29.6 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.

Retirement benefits non-service (expense) income for the year ended December 31, 2020 changed unfavorably by $1.0 million due to the recognition of a $1.1 million settlement charge related to the pension plan during 2020.


Interest expense for the year ended December 31, 2020 increased $17.2 million
from $48.8 million in 2019 to $66.0 million, primarily due to our 2019
Refinancing during the fourth quarter of 2019. Further, there was an increase of
$2.4 million of net settlement payments on our interest rate derivative
instruments during 2020.

Interest income for the year ended December 31, 2020 decreased $2.3 million from
$3.2 million in 2019 to $0.9 million, primarily due to lower interest rates on
our money market funds in 2020.

Change in fair value of derivative instruments for the year ended December 31,
2020 favorably changed by $1.6 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 year ended December 31, 2020 was $2.1 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 year ended December 31, 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. We had
no income from transition services agreement for the year ended December 31,
2020.

Loss on extinguishment of debt for the year ended December 31, 2019 consisted of
a $3.4 million write-off related to unamortized deferred financing fees
associated with the portion of our previous term loan facility that was
accounted for as an extinguishment. Further, there was a $1.0 million write off
of the remaining balance of the debt discount associated with the previous term
loan facility. We had no loss on extinguishment of debt for the year ended
December 31, 2020.

                                       38

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Income tax (benefit) expense for the year ended December 31, 2020 decreased $16.6 million, from an expense of $4.2 million in 2019, to a benefit of $12.4 million. The change was due to an income tax benefit primarily due to the impairment charge on goodwill, which reduced related deferred tax liabilities. The effective tax rate was 2.5% and (2.0%) for the years ended December 31, 2020 and 2019, respectively.

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 and
impairment charges, or levels of depreciation or amortization along with costs
such as severance, separation and facility closure costs, inventory obsolescence
related to our strategic transformation plan, 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 to Adjusted EBITDA for the years ended December 31, 2020 and 2019:



                                                           Years Ended December 31,
                                                            2020               2019
Net loss                                               $     (479,838 )$   (213,833 )
Interest expense                                               65,959            48,778
Interest income                                                  (899 )          (3,157 )
Provision (benefit) for income taxes                          (12,404 )     

4,201

Depreciation expense                                           50,715       

61,475

Amortization expense-film asset                                13,953       

9,835

Amortization expense                                          171,821       

201,382

Non-cash charges-goodwill impairment                          279,000       

-

Non-cash charges-stock-compensation                            11,573       

13,968

Non-cash charges- (gain) loss on derivative

  instruments                                                    (672 )     

899

Inventory obsolescence related to strategic
transformation plan                                                 -       

9,758

Fees, expenses or charges for equity offerings,

  debt or acquisitions/dispositions                             1,080       

6,327

Restructuring/severance and other charges                      33,643       

21,742

Gain on investments                                            (2,091 )     

-

Loss on extinguishment of debt                                      -             4,363
Adjusted EBITDA                                        $      131,840$    165,738




                                       39
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Segment Operating Results

Results of Operations-Comparing Years Ended December 31, 2020 and 2019

Education



                                                                              2020 vs. 2019
                                        Years Ended December 31,          Dollar         Percent
                                         2020              2019           change         change
Net sales                            $     839,553$ 1,210,646$ (371,093 )         (30.7 )%
Costs and expenses:
Cost of sales, excluding
publishing rights and
  pre-publication amortization             368,876          547,094       (178,218 )         (32.6 )%
Publishing rights amortization              14,800           20,611         (5,811 )         (28.2 )%
Pre-publication amortization               125,966          148,850        (22,884 )         (15.4 )%
Cost of sales                              509,642          716,555       (206,913 )         (28.9 )%
Selling and administrative                 360,755          520,153       (159,398 )         (30.6 )%
Impairment charge for goodwill             279,000                -        279,000              NM
Other intangible asset
amortization                                22,948           19,878          3,070            15.4 %
Operating loss                       $    (332,792 )$   (45,940 )$ (286,852 )            NM
Net loss                             $    (332,792 )$   (45,940 )$ (286,852 )            NM
Adjustments from net loss to
Education segment
   Adjusted EBITDA
Depreciation expense                 $      35,940$    43,749$   (7,809 )         (17.8 )%
Amortization expense                       163,714          189,340        (25,626 )         (13.5 )%
Inventory obsolescence related to
strategic transformation plan                    -            9,758         (9,758 )            NM
Impairment charge for goodwill             279,000                -        279,000              NM
Education segment
  Adjusted EBITDA                    $     145,862$   196,907$  (51,045 )         (25.9 )%




NM = not meaningful

Our Education segment net sales for the year ended December 31, 2020 decreased
$371.1 million, or 30.7%, from $1,210.6 million in 2019 to $839.6 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 $252.0 million from
$632.0 million in 2019 to $380.0 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. Also,
contributing to the decrease was lower professional services with the decline of
the in-person learning environment as a result of the COVID-19 pandemic.
Further, there were lower net sales from Core Solutions which decreased by
$119.0 million from $578.0 million in 2019 to $459.0 million, 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 year ended December 31, 2020
decreased $206.9 million, or 28.9%, from $716.6 million in 2019 to
$509.6 million. Our cost of sales, excluding publishing rights and
pre-publication amortization, decreased $178.2 million from $547.1 million in
2019 to $368.9 million, largely due to the decline in net sales. Our cost of
sales, excluding publishing rights and pre-publication amortization, as a
percentage of sales, decreased year over year from 45.2% to 43.9%.
Pre-publication amortization decreased by $22.9 million from 2019 primarily due
to the timing and large amount of 2019 major product releases, and publishing
rights amortization decreased $5.8 million attributed to our use of accelerated
amortization methods.

Our Education segment selling and administrative expense for the year ended
December 31, 2020 decreased $159.4 million, or 30.6%, from $520.2 million in
2019 to $360.8 million. The decrease was driven by lower labor costs primarily
attributed to cost savings associated with our employee furlough initiative in
response to the COVID-19 pandemic and our 2020 Restructuring Plan and a freeze
on hiring. Further, lower variable expenses such

                                       40

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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 year
ended December 31, 2020 increased $3.1 million from 2019, due to accelerated
amortization of certain intangible assets.

Our Education segment Adjusted EBITDA for the year ended December 31, 2020
decreased $51.0 million, or 25.9%, from $196.9 million in 2019 to
$145.9 million. Our Education segment Adjusted EBITDA excludes depreciation,
amortization, inventory obsolescence related to our strategic transformation
plan and goodwill impairment charges. The decrease 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



                                                                                  2020 vs. 2019
                                             Years Ended December 31,         Dollar        Percent
                                               2020              2019         change         change
Net sales                                  $     191,739$ 180,028$  11,711            6.5 %
Costs and expenses:
Cost of sales, excluding publishing

rights and pre-publication

  amortization                                   128,940         121,014         7,926            6.5 %
Publishing rights amortization                     5,256           5,946          (690 )        (11.6 )%
Pre-publication amortization                         214             665          (451 )        (67.8 )%
Cost of sales                                    134,410         127,625         6,785            5.3 %
Selling and administrative                        50,507          55,071        (4,564 )         (8.3 )%
Other intangible asset amortization                2,637           5,432        (2,795 )        (51.5 )%
Operating income (loss)                    $       4,185$  (8,100 )$  12,285             NM
Net income (loss)                          $       4,185$  (8,100 )$  12,285             NM
Adjustments from net income (loss) to
HMH Books
   & Media segment Adjusted EBITDA
Depreciation expense                       $         382       $   1,131$    (749 )        (66.2 )%
Amortization expense film asset                   13,953           9,835         4,118           41.9 %
Amortization expense                               8,107          12,042        (3,935 )        (32.7 )%
HMH Books & Media segment
  Adjusted EBITDA                          $      26,627$  14,908$  11,719           78.6 %




NM = not meaningful

Our HMH Books & Media segment net sales for the year ended December 31, 2020
increased $11.7 million, or 6.5%, from $180.0 million in 2019 to $191.7 million.
The increase in net sales was primarily due to $9.6 million of licensing revenue
from a new production series, a $3.4 million increase in licensing revenue
attributed to the Carmen Sandiego series on Netflix, and strong net sales of the
frontlist titles The 99% Invisible City, Compromised and Defined Dish.
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 certain new frontlist
titles.

Our HMH Books & Media segment cost of sales for the year ended December 31, 2020
increased $6.8 million, or 5.3%, from $127.6 million in 2019 to $134.4 million.
The majority of the increase was driven by our cost of sales, excluding
publishing rights and pre-publication amortization, which increased $7.9 million
due to higher net sales. Our cost of sales, excluding publishing rights and
pre-publication amortization, as a percentage of net sales, remained essentially
flat.

Our HMH Books & Media segment selling and administrative expense for the year
ended December 31, 2020 decreased $4.6 million from $55.1 million in 2019, to
$50.5 million. The decrease was due to labor savings

                                       41

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associated with our employee furlough initiative in response to the COVID-19 pandemic, and our 2020 Restructuring Plan and a freeze on hiring.

Our HMH Books & Media segment other intangible asset amortization expense for the year ended December 31, 2020, decreased $2.8 million from 2019, due to certain definite-lived intangible assets being fully amortized in 2019.


Our HMH Books & Media segment Adjusted EBITDA for the year ended December 31,
2020 changed favorably from $14.9 million in 2019 to $26.6 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.

                                       42

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Corporate and Other



                                                                                  2020 vs. 2019
                                             Years Ended December 31,         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                        66,839          87,382       (20,543 )        (23.5 )%
Restructuring/severance and other
charges                                           33,643          21,742        11,901           54.7 %
Operating loss                             $    (100,482 )$ (109,124 )$   8,642            7.9 %
Retirement benefits non-service
(expense) income                                    (856 )           167        (1,023 )           NM
Interest expense                                 (65,959 )       (48,778 )     (17,181 )        (35.2 )%
Interest income                                      899           3,157        (2,258 )        (71.5 )%
Change in fair value of derivative
instruments                                          672            (899 )       1,571             NM
Gain on investments                                2,091               -         2,091             NM
Income from transition services
agreement                                              -           4,248        (4,248 )           NM
Loss on extinguishment of debt                         -          (4,363 )       4,363             NM
Loss before taxes                               (163,635 )      (155,592 )      (8,043 )         (5.2 )%
Income tax (benefit) expense                     (12,404 )         4,201       (16,605 )           NM
Net loss                                   $    (151,231 )$ (159,793 )$   8,562            5.4 %
Adjustments from net loss to Corporate
and Other
  Adjusted EBITDA
Interest expense                           $      65,959$   48,778$  17,181           35.2 %
Interest income                                     (899 )        (3,157 )       2,258           71.5 %
Provision for income taxes                       (12,404 )         4,201       (16,605 )           NM
Depreciation expense                              14,393          16,595        (2,202 )        (13.3 )%
Non-cash charges-loss on derivative
instruments                                         (672 )           899        (1,571 )           NM
Non-cash charges-stock compensation               11,573          13,968        (2,395 )        (17.1 )%
Fees, expenses or charges for equity
offerings, debt or
  acquisitions/dispositions                        1,080           6,327        (5,247 )        (82.9 )%
Severance, separation costs and facility
closures                                          33,643          21,742        11,901           54.7 %
Loss on extinguishment of debt                         -           4,363        (4,363 )           NM
Gain on investments                               (2,091 )             -        (2,091 )           NM
Corporate and Other Adjusted
  EBITDA                                   $     (40,649 )$  (46,077 )$   5,428           11.8 %




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 restructuring,
severance and other non-operating costs.

Our selling and administrative expense for the Corporate and Other category for
the year ended December 31, 2020 decreased $20.5 million from $87.4 million in
2019 to $66.8 million, primarily attributed to labor savings associated with our
employee furlough initiative in response to the COVID-19 pandemic and our 2020
Restructuring Plan and a freeze on hiring. Additionally, selling and
administrative expenses were lower due to lower stock compensation charges and
depreciation.

                                       43

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Our restructuring/severance and other charges for the year ended December 31, 2020 increased by $11.9 million primarily due to $33.6 million of severance costs associated with the 2020 Restructuring Plan.

Retirement benefits non-service (expense) income for the year ended December 31, 2020 changed unfavorably by $1.0 million due to the recognition of a $1.1 million settlement charge related to the pension plan during 2020.


Interest expense for the year ended December 31, 2020 increased $17.2 million
from $48.8 million in 2019 to $66.0 million, primarily due to our 2019
Refinancing during the fourth quarter of 2019. Further, there was an increase of
$2.4 million of net settlement payments on our interest rate derivative
instruments during 2020.

Interest income for the year ended December 31, 2020 decreased $2.3 million from
$3.2 million in 2019 to $0.9 million, primarily due to lower interest rates on
our money market funds in 2020.

Change in fair value of derivative instruments for the year ended December 31,
2020 favorably changed by $1.6 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 year ended December 31, 2020 was $2.1 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 year ended December 31, 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. We had
no income from transition services agreement for the year ended December 31,
2020.

Loss on extinguishment of debt for the year ended December 31, 2019 consisted of
a $3.4 million write-off related to unamortized deferred financing fees
associated with the portion of our previous term loan facility that was
accounted for as an extinguishment. Further, there was a $1.0 million write off
of the remaining balance of the debt discount associated with the previous term
loan facility. We had no loss on extinguishment of debt for the year ended
December 31, 2020.

Income tax (benefit) expense for the year ended December 31, 2020 decreased $16.6 million, from an expense of $4.2 million in 2019, to a benefit of $12.4 million. The change was due to an income tax benefit primarily due to the impairment charge on goodwill, which reduced related deferred tax liabilities. The effective tax rate was 2.5% and (2.0%) for the years ended December 31, 2020 and 2019, respectively.


Adjusted EBITDA for the Corporate and Other category for the year ended
December 31, 2020 favorably changed $5.4 million, or 11.8%, from a loss of
$46.1 million in 2019 to a loss of $40.6 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,
restructuring costs, and loss on extinguishment of debt. 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.

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 not following this historic pattern.

                                       44

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Approximately 81% of our net sales for the year ended December 31, 2020 were
derived from our Education segment, which is a markedly seasonal business.
Schools 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 66% 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 based on 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.

The following table is indicative of the seasonality of our business and the related results:

Quarterly Results of Operations



                            First         Second         Third         Fourth         First         Second         Third        Fourth
                           Quarter        Quarter       Quarter      

Quarter Quarter Quarter Quarter Quarter (in thousands)

               2019          2019          2019           2019           2020          2020          2020          2020

Education segment $ 153,844$ 349,801$ 517,614$ 189,387$ 151,585$ 216,063$ 330,926$ 140,979HMH Books & Media segment

                       40,791        39,095        48,054         

52,088 38,340 35,153 55,664 62,582 Net sales

                    194,635       388,896       565,668        241,475        189,925       251,216       386,590       203,561
Costs and expenses:
Cost of sales,
excluding publishing
rights and pre-
  publication
amortization                  96,055       190,831       246,527       

134,695 90,012 124,360 182,767 100,677 Publishing rights amortization

                   7,605         6,271         6,341          

6,340 5,825 4,709 4,761 4,761 Pre-publication amortization

                  33,082        35,739        39,319         

41,375 30,638 31,758 31,647 32,137 Cost of sales

                136,742       232,841       292,187        

182,410 126,475 160,827 219,175 137,575 Selling and administrative

               151,983       175,266       188,957        146,400        133,353       106,329       127,324       111,095
Impairment charge for
goodwill                           -             -             -              -        262,000             -             -        17,000
Other intangible asset
amortization                   6,524         6,612         6,383         

5,791 6,273 6,272 6,274 6,766 Restructuring/severance and other charges

              1,221         4,430           270         15,821              -             -        33,545            98
Operating (loss) income     (101,835 )     (30,253 )      77,871       (108,947 )     (338,176 )     (22,212 )         272       (68,973 )
Other income (expense)
Retirement benefits
non-service (expense)
income                            42            42            41             42             61            61            61        (1,039 )
Interest expense             (11,582 )     (11,963 )     (11,597 )      

(13,636 ) (16,783 ) (17,482 ) (16,168 ) (15,526 ) Interest income

                1,092            97           509          1,459            766            75            32            26

Change in fair value of derivative instruments (450 ) 16 (737 ) 272

           (380 )         120           432           500
Gain on investments                -             -             -              -              -             -         1,738           353
Income from transition
services agreement             1,826         1,851           571              -              -             -             -             -
Loss on extinguishment
of debt                            -             -             -         (4,363 )            -             -             -             -
(Loss) income before
taxes                       (110,907 )     (40,210 )      66,658       

(125,173 ) (354,512 ) (39,438 ) (13,633 ) (84,659 ) Income tax expense (benefit)

                      6,455           403        (2,602 )          

(55 ) (8,539 ) (1,270 ) (1,081 ) (1,514 ) Net (loss) income $ (117,362 )$ (40,613 )$ 69,260$ (125,118 )$ (345,973 )$ (38,168 )$ (12,552 )$ (83,145 )




                                       45
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During the fourth quarter of 2020, we recorded an adjustment of $17.0 million
and $1.0 million to increase both the goodwill impairment charge and income tax
benefit recorded, respectively, to correct an error of the previously recorded
goodwill impairment of $262.0 million and related income tax benefit in the
first quarter of 2020. Management believes these adjustments are not material to
the current period financial statements or any prior periods.

Liquidity and Capital Resources



                                                            December 31,
(in thousands)                                        2020                 2019
Cash and cash equivalents                       $        281,200$       296,353
Current portion of long-term debt                         19,000            

19,000

Long-term debt, net of discount and issuance
costs                                                    624,692            

638,187

Revolving credit facility                                      -            

-

Borrowing availability under revolving credit
facility                                                 104,806              161,961

                                                      Years ended December 31,
                                                      2020                 2019

Net cash provided by operating activities $ 115,248 $

254,975

Net cash used in investing activities                   (112,271 )            (96,320 )
Net cash used in financing activities                    (18,130 )           (115,667 )


Operating activities

Net cash provided by operating activities was $115.2 million for the year ended
December 31, 2020, a $139.7 million decrease from the $255.0 million of net cash
provided by operating activities for the year ended December 31, 2019. The
decrease in cash provided by operating activities was primarily driven by
unfavorable changes in net operating assets and liabilities of $78.4 million
primarily due to changes in deferred revenue of $143.3 million and $29.3 million
of royalties related to greater billings in 2019, accounts payable of $22.8
million related to timing of disbursements and severance and other charges of
$3.4 million due to the 2020 Restructuring Plan, offset by favorable period over
period inventory changes of $74.9 million, favorable period over period changes
in accounts receivable of $12.4 million, an increase in operating lease
liabilities of $15.3 million, pension and postretirement benefits of $8.2
million, interest payable of $3.5 million due to the timing of our 2019
refinancing and other assets and liabilities of $6.1 million. Additionally,
operating profit, net of non-cash items, decreased by $61.4 million.

Investing activities


Net cash used in investing activities was $112.3 million for the year ended
December 31, 2020, an increase of $16.0 million from the year ended December 31,
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
$27.8 million in connection with previously planned reductions in content
development, and by the acquisition of a business for $5.4 million along with an
investment in preferred stock of $0.8 million in 2019.

Financing activities


Net cash used in financing activities was $18.1 million for the year ended
December 31, 2020, a decrease of $97.6 million from the year ended December 31,
2019. The decrease in cash used in financing activities was primarily due to a
reduction in net debt principal repayments of $88.3 million in connection with
the 2019 Refinancing along with payments of financing fees of $8.5 million
related to our notes offering, term loan facility and revolving credit facility
amendments in 2019. Additionally, there was a decrease in tax withholding
payments related to net share settlements of restricted stock units of $2.0
million partially offset by lower net collections under the transition services
agreement of $1.1 million.

                                       46

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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.

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 December 31, 2020, we had
$306.0 million ($297.6 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 December 31, 2020, we had $361.0 million ($346.1 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 December
31, 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.

                                       47

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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.
To the extent that we are successful in the divestiture of our Books & Media
business, we plan to utilize a portion of the proceeds to reduce our outstanding
indebtedness, which will increase recurring free cash flow resulting from
reduced interest expense. 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. We were not required
to make a payment under the excess cash flow provision in 2020 and 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").

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 December 31, 2020, there were no amounts outstanding on the revolving
credit facility. As of December 31, 2020, we had approximately $18.8 million of
outstanding letters of credit and approximately $104.8 million of borrowing
availability under the revolving credit facility. As of February 25, 2021, 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 December 31, 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.

                                       48

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General


We had $281.2 million of cash and cash equivalents and no short-term investments
at December 31, 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, and we have performed a
sensitivity analysis on these assumptions to forecast the impact of a
slower-than-anticipated recovery. Based on the actions enacted in 2020, we have
concluded we have sufficient liquidity to fund our current obligations, capital
spending, debt service requirements and working capital requirements over at
least the next twelve months.

Critical Accounting Policies and Estimates


The preparation of financial statements in conformity with U.S. GAAP requires
the use of estimates, assumptions and judgments by management that affect the
reported amounts of assets, liabilities, net sales, expenses and related
disclosure of contingent assets and liabilities in the amounts reported in the
financial statements and accompanying notes. On an on-going basis, we evaluate
our estimates and assumptions, including, but not limited to, book returns and
variable consideration, deferred revenue and related standalone selling price
estimates, allowance for bad debts, recoverability of advances to authors,
valuation of inventory, financial instruments valuation, income taxes, pensions
and other postretirement benefits obligations, contingencies, litigation,
depreciation and amortization periods, and the recoverability of long-term
assets such as property, plant and equipment, capitalized pre-publication costs,
other identified intangibles, and goodwill. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from those
estimates. For a complete description of our significant accounting policies,
see Note 2 to the consolidated financial statements. The following policies and
account descriptions include those identified as critical to our business
operations and the understanding of our results of operations.

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 as 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.

Revenue Recognition


Revenue is recognized when a customer obtains control of promised goods or
services, in an amount that reflects the consideration which we expect to
receive in exchange for those goods or services. To determine revenue
recognition for arrangements that we determine are within the scope of the new
revenue recognition accounting standard, we perform the following five steps:
(i) identify the contract with a customer; (ii) identify the performance
obligations in the contract; (iii) determine the transaction price;
(iv) allocate the transaction price to the performance obligations in the
contract; and (v) recognize revenue when (or as) we satisfy a performance
obligation. We only apply the five-step model to contracts when it is probable
that we will collect the consideration we are entitled to in exchange for the
goods or services we transfer to the customer. At contract inception, we assess
the goods or services promised within each contract and determine those that are
performance obligations and assess whether each promised good or service is
distinct. We then recognize as revenue the amount of the transaction price that
is allocated to the respective performance obligation when (or as) the
performance obligation is satisfied.

                                       49

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Revenue is measured as the amount of consideration we expect to receive in
exchange for transferring products or services to a customer. To the extent the
transaction price includes variable consideration, which generally reflects
estimated future product returns, we estimate the amount of variable
consideration that should be included in the transaction price utilizing the
expected value method to which we expect to be entitled. Variable consideration
is included in the transaction price if, in our judgment, it is probable that a
significant future reversal of cumulative revenue under the contract will not
occur. Estimates of variable consideration and the determination of whether to
include estimated amounts in the transaction price are based largely on all
information (historical, current and forecasted) that is reasonably available.
Sales, value add, and other taxes collected on behalf of third parties are
excluded from revenue.

We estimate the collectability of contracts upon execution. For contracts with
rights of return, the transaction price is adjusted to reflect the estimated
returns for the arrangement on these sales and is made at the time of sale based
on historical experience by product line or customer. The transaction prices
allocated are adjusted to reflect expected returns and are based on historical
return rates and sales patterns. Shipping and handling fees charged to customers
are included in net sales.

When determining the transaction price of a contract, an adjustment is made if
payment from a customer occurs either significantly before or significantly
after performance, resulting in a significant financing component. We do not
assess whether a significant financing component exists if the period between
when we perform our obligations under the contract and when the customer pays is
one year or less. Significant financing components' income is included in
interest income.

Contracts are often modified to account for changes in contract specifications
and requirements. Contract modifications exist when the modification either
creates new, or changes the existing, enforceable rights and obligations.
Generally, contract modifications are for products or services that are not
distinct from the existing contract due to the inability to use, consume or sell
the products or services on their own to generate economic benefits and are
accounted for as if they were part of that existing contract. The effect of such
a contract modification on the transaction price and measure of progress for the
performance obligation to which it relates is recognized as an adjustment to
revenue (either as an increase in or a reduction of revenue) on a cumulative
catch-up basis.

Physical product revenue is recognized when the customer obtains control of our
product, which occurs at a point in time, and may be upon shipment or upon
delivery based on the contractual shipping terms of a contract. Revenues from
static digital content commence upon delivery to the customer of the digital
entitlement that is required to access and download the content and is typically
recognized at a point in time. Revenues from subscription software licenses,
related hosting services and product support are recognized evenly over the
license term as we believe this best represents the pattern of transfer to the
customer. The perpetual software licenses provide the customer with a functional
license to our products and their related revenues are recognized when the
customer receives entitlement to the software. Revenue associated with the
digital content hosting services related to perpetual licenses is recognized
evenly over the contract term. The delivery/start date is the date access to the
hosted content is granted. For the technical services provided to customers in
connection with the software license, we recognize revenue upon delivery of the
services. As the invoices are based on each day of service, this is directly
linked to the transfer of benefit to the customer.

If the contract contains a single performance obligation, the entire transaction
price is allocated to the single performance obligation. We enter into certain
contracts that have multiple performance obligations, one or more of which may
be delivered subsequent to the delivery of other performance obligations. These
performance obligations may include print and digital media, professional
development services, training, software licenses, access to hosted content, and
various services related to the software including but not limited to hosting,
maintenance and support, and implementation. We allocate the transaction price
based on the estimated relative standalone selling prices of the promised
products or services underlying each performance obligation. We determine
standalone selling prices based on the price at which the performance obligation
is sold separately. If the standalone selling price is not observable through
past transactions, we estimate the standalone selling price taking into account
available information such as market conditions and internally approved standard
pricing discounts related to the performance obligations. Generally, our
performance obligations include print and digital textbooks and instructional
materials, trade books, reference materials, formative assessment materials and
multimedia instructional programs; licenses to book rights and content; access
to hosted content; and services including professional development, consulting
and training. Our contracts may also contain software performance obligations
including perpetual and subscription-based licenses and software maintenance and
support services.

                                       50
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Deferred Revenue


Our contract liabilities consist of advance payments and billings in excess of
revenue recognized and are classified as deferred revenue on our consolidated
balance sheets. Our contract assets and liabilities are accounted for and
presented on a net basis as either a contract asset or contract liability at the
end of each reporting period. We classify deferred revenue as current or
noncurrent based on the timing of when we expect to recognize revenue. In order
to determine revenue recognized in the period from contract liabilities, we
first allocate revenue to the individual contract liability balance outstanding
at the beginning of the period until the revenue exceeds that balance. If
additional advances are received on those contracts in subsequent periods, we
assume all revenue recognized in the reporting period first applies to the
beginning contract liability as opposed to a portion applying to the new
advances for the period.

Allowance for Doubtful Accounts and Reserves for Book Returns


Accounts receivable include amounts billed and currently due from customers and
are recorded net of allowances for doubtful accounts and reserves for book
returns. In the normal course of business, we extend credit to customers that
satisfy predefined criteria. We estimate the collectability of our receivables
and develop those estimates to reflect the risk of credit loss. Allowances for
doubtful accounts are established through the 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 monitor our ongoing credit exposure
through an active review of collection trends and specific facts and
circumstances. Our activities include monitoring the timeliness of payment
collection and performing timely account reconciliations. At the time we
determine that a receivable balance, or any portion thereof, is deemed to be
permanently uncollectible, the balance is written off. Reserves for book returns
are based on historical return rates and sales patterns. We determine the
required reserves by segregating our returns into the applicable product or
sales channel pools. Returns in the K-12 market have been historically low. We
have experienced higher returns with respect to sales to resellers,
international sales and HMH Books & Media sales, which all result in a greater
degree of risk and subjectivity when establishing the appropriate level of
reserves for this customer base. We estimate the amount of returns using the
expected value method to reduce transaction price at the time of the sale. The
allowance for doubtful accounts and reserve for returns are reported as
reductions of the accounts receivable balance and amounted to $4.0 million and
$14.6 million, and $3.0 million and $16.7 million as of December 31, 2020 and
2019, respectively.

Inventories

Inventories are substantially stated at the lower of weighted average cost or
net realizable value. The level of obsolete and excess inventory is estimated on
a program or title-level basis by comparing the number of units in stock with
the expected future demand. The expected future demand of a program or title is
determined by the copyright year, the previous years' sales history, the
subsequent year's sales forecast, known forward-looking trends including our
development cycle to replace the title or program and competing titles or
programs. A change in sales trends, or strategic direction of our product
development, could affect the estimated reserve. The inventory obsolescence
reserve is reported as a reduction of the inventories balance and amounted to
$64.8 million and $57.4 million as of December 31, 2020 and 2019, respectively.

Pre-publication Costs


Pre-publication costs are capitalized and 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 young readers and general interest books, for
which we expense such costs as incurred. Additionally, pre-publication costs
recorded for most intervention products are amortized over 7 years on a
projected sales pattern. The amortization methods and periods chosen best
reflects the pattern of expected sales generated from individual titles or
programs. On a quarterly basis, we evaluate the remaining lives and
recoverability of capitalized pre-publication costs, which are often dependent
upon program acceptance by state adoption authorities.

                                       51

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Amortization expense related to pre-publication costs for the years ended December 31, 2020, 2019 and 2018 were $126.2 million, $149.5 million and $109.3 million, respectively.

For the years ended December 31, 2020, 2019 and 2018, no pre-publication costs were deemed to be impaired.

Goodwill and Indefinite-Lived Intangible Assets


Goodwill and indefinite-lived intangible assets (certain tradenames) are not
amortized, but are reviewed at least annually for impairment or earlier, if an
indication of impairment exists. Goodwill is allocated entirely to our Education
reporting unit. Determining the fair value of a reporting unit is judgmental in
nature and involves the use of significant estimates and assumptions. These
estimates and assumptions may include net sales growth rates and operating
margins, risk-adjusted discount rates, future economic and market conditions,
the determination of appropriate market comparables as well as the fair value of
certain individual assets and liabilities.

We have the option of first assessing qualitative factors to determine whether
it is necessary to perform a quantitative impairment test for goodwill or we can
perform the quantitative impairment test without performing the qualitative
assessment. In performing the qualitative assessment, we consider certain events
and circumstances specific to the reporting unit and to the entity as a whole,
such as macroeconomic conditions, industry and market considerations, overall
financial performance and cost factors when evaluating whether it is more likely
than not that the fair value of the reporting unit is less than its carrying
amount.

If the results of the quantitative test indicate the fair value of a reporting
unit exceeds the carrying value of the net assets assigned to a reporting unit,
goodwill is considered not impaired and no further testing is required. If the
carrying value of the net assets assigned to a reporting unit exceeds the fair
value of a reporting unit, goodwill is deemed impaired and is written down to
the extent of the difference between the fair value of the reporting unit and
the carrying value.

We estimate the total fair value of the Education reporting unit by using one or
more various valuation techniques including an evaluation of our market
capitalization and peer company multiples depending on the best approximation of
fair value of the Education reporting unit in the current social and economic
environment. With regard to indefinite-lived intangible assets, which includes
the Houghton Mifflin Harcourt tradename at December 31, 2020 and 2019, the
recoverability is evaluated using a one-step process whereby we determine the
fair value by asset and then compare it to its carrying value to determine if
the asset is impaired. We estimate 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
include: 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 is based on the weighted-average
cost of capital method at the date of the evaluation. Adverse changes in our
market capitalization or peer company multiples by an equivalent amount could
give rise to an impairment.

We recorded a goodwill impairment charge of $279.0 million for the year ended
December 31, 2020. Refer to Note 2 of the consolidated financial statements for
a discussion of the factors and circumstances leading to the goodwill
impairment.



We completed our annual goodwill impairment tests as of October 1, 2020 and
2019. The fair value of the Education reporting unit was in excess of its
carrying value by approximately 18% as of October 1, 2020 and 2019. There was no
goodwill impairment for the years ended December 31, 2019 and 2018. We will
continue to monitor and evaluate the carrying value of goodwill. If market and
economic conditions or business performance deteriorate, this could increase the
likelihood of us recording an impairment charge.



We completed our annual indefinite-lived asset impairment tests as of October 1,
2020 and 2019. No indefinite-lived intangible assets were deemed to be impaired
for the years ended December 31, 2020, 2019 and 2018.

                                       52

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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 to estimate the likelihood of
recovery. Additionally, advances are evaluated periodically to determine if they
are expected to be recovered on a title-by-title basis, with consideration given
to the other titles in the author's portfolio also earning against the
outstanding advance. Any portion of a royalty advance that is not expected to be
recovered is fully reserved. The reserve for royalty advances is reported as a
reduction of the royalty advances to authors balance and amounted to $96.7
million and $119.7 million as of December 31, 2020 and 2019, respectively.

Impact of Inflation and Changing Prices


We believe that inflation has not had a material impact on our results of
operations during the years ended December 31, 2020, 2019 and 2018. 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 December 31, 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.

Contractual Obligations

The following table provides information with respect to our estimated commitments and obligations as of December 31, 2020 (in thousands):




                                                      Less than                                    More than
Contractual Obligations                  Total          1 year       1-3 years      3-5 years       5 years
Term loan due November 22, 2024 (1)   $   361,000$   19,000$   38,000$  304,000     $        -
Interest payable on term loan due
November 22,
  2024 (2)                                 92,177         25,540         46,950         19,687              -
9.0% senior secured notes due
February 15, 2025                         306,000              -              -        306,000              -
Interest payable on 9.0% senior
secured notes due February 15, 2025       123,701         27,464         54,927         41,310              -
Revolver commitment fees                   11,033          2,794          5,642          2,597              -
Operating leases (3)                      295,393         30,955         64,385         68,817        131,236
Purchase obligations (4)                   39,317         24,599         13,249          1,469              -

Total cash contractual obligations $ 1,228,621$ 130,352$ 223,153$ 743,880$ 131,236



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(1) The term loan facility principal amortizes at a rate of 5.0% per annum of

the original $380.0 million amount.

(2) As of December 31, 2020, the interest rate was 7.25%.

(3) Represents minimum lease payments under non-cancelable operating leases.

(4) Purchase obligations are agreements to purchase goods or services that are

enforceable and legally binding. These goods and services consist primarily

of author advances, subcontractor expenses, information technology licenses,

and outsourcing arrangements.



In addition to the payments described above, we have employee benefit
obligations that require future payments. For example, we expect to make $4.8
million of contributions in 2021 relating to our pension and postretirement
benefit plans. We expect to periodically draw and repay borrowings under the
revolving credit facility. We believe that we will be able to meet our cash
interest obligations on our outstanding debt when they are due and payable.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

                                       54

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