Guarantor Financial Information

9 Months Ended

Sep. 30, 2015

Organization, Consolidation and Presentation of Financial Statements [Abstract]

On March 22, 2013, in connection with the Founding Acquisition, MHGE Holdings issued $800,000 aggregate principal amount of Notes as described in Note 2. The Notes and the Senior Facilities are jointly and severally, fully and unconditionally guaranteed on a senior unsecured basis subject to certain exceptions, by the Company and each of the Company’s direct and indirect wholly owned domestic subsidiaries (the “Guarantors”). Each of the Guarantors is 100 percent owned, directly or indirectly, by the Company. All other subsidiaries of the Company, either direct or indirect, do not guarantee the Notes and Senior Facilities (“Non-Guarantors”).

The following consolidated financial statements are presented for the information of the holders of the Notes and present the consolidated balance sheets as of September 30, 2015 and December 31, 2014, the consolidated statements of operations for the three and nine months ended September 30, 2015 and September 30, 2014 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2015 and September 30, 2014 of the Company. The consolidated financial statements present MHGE Intermediate, which is a Guarantor of the Notes, the Guarantor subsidiaries of MHGE Intermediate, the Non-Guarantor subsidiaries of MHGE Intermediate and the elimination entries necessary to combine and consolidate MHGE Intermediate with the Guarantor and Non-Guarantor subsidiaries.

Investments in subsidiaries are accounted for using the equity method for purposes of the consolidated presentation. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions. Additionally, substantially all of the assets of the Guarantor subsidiaries are pledged under the Notes and, consequently, will not be available to satisfy the claims of the Company’s general creditors.



	Three Months Ended September 30, 2015
	MHGE Intermediate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			MHGE Intermediate (Consolidated)
Revenue	$	—		$	343,327		$	93,952	$	—		$	437,279
Cost of goods sold	—			75,621			39,052		—			114,673
Gross profit	—			267,706			54,900		—			322,606
Operating expenses
Operating & administration expenses	875			109,466			39,716		238			150,295
Depreciation	—			6,876			60		—			6,936
Amortization of intangibles	—			21,098			1,657		—			22,755
Total operating expenses	875			137,440			41,433		238			179,986
Operating (loss) income	(875		)	130,266			13,467		(238		)	142,620
Interest expense (income), net	31,881			—			55		—			31,936
Equity in (income) loss of subsidiaries	(144,715		)	—					144,715			—
Other (income)	—			(1,275		)	—		—			(1,275		)
Income (Loss) from operations before taxes on income	111,959			131,541			13,412		(144,953		)	111,959
Income tax (benefit) provision	38,610			69,465			3,825		(73,290		)	38,610
Net (loss) income	$	73,349		$	62,076		$	9,587	$	(71,663	)	$	73,349
Comprehensive (loss) income	$	73,349		$	62,076		$	2,020	$	(71,663	)	$	65,782



	Three Months Ended September 30, 2014
	MHGE Intermediate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			MHGE Intermediate (Consolidated)
Revenue	$	—		$	353,288		$	108,840		$	—		$	462,128
Cost of goods sold	—			82,510			44,109			—			126,619
Gross profit	—			270,778			64,731			—			335,509
Operating expenses
Operating & administration expenses	875			118,061			45,233			2,300			166,469
Depreciation	—			1,380			667			—			2,047
Amortization of intangibles	—			20,242			2,019			—			22,261
Transaction costs	162			—			—			—			162
Total operating expenses	1,037			139,683			47,919			2,300			190,939
Operating (loss) income	(1,037		)	131,095			16,812			(2,300		)	144,570
Interest expense (income), net	35,551			—			(85		)	—			35,466
Equity in (income) loss of subsidiaries	(146,967		)	—			—			146,967			—
Other (income)	—			(1,275		)	—			—			(1,275		)
(Loss) income from operations before taxes on income	110,379			132,370			16,897			(149,267		)	110,379
Income tax (benefit) provision	13,186			15,813			5,475			(21,288		)	13,186
Net (loss) income	97,193			116,557			11,422			(127,979		)	97,193
Less: Net (income) loss attributable to noncontrolling interests	—			—			—			—			—
Net (loss) income attributable to McGraw-Hill Global Education Intermediate Holdings, LLC	$	97,193		$	116,557		$	11,422		$	(127,979	)	$	97,193
Comprehensive (loss) income attributable to McGraw-Hill Global Education Intermediate Holdings, LLC	$	97,193		$	116,557		$	(158	)	$	(127,979	)	$	85,613



	Nine months ended September 30, 2015
	MHGE Intermediate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			MHGE Intermediate (Consolidated)
Revenue	$	—		$	675,319		$	212,700		$	—		$	888,019
Cost of goods sold	—			152,465			92,095			—			244,560
Gross profit	—			522,854			120,605			—			643,459
Operating expenses
Operating & administration expenses	2,625			311,862			121,880			(52		)	436,315
Depreciation	—			19,365			112			—			19,477
Amortization of intangibles	—			64,398			5,005			—			69,403
Total operating expenses	2,625			395,625			126,997			(52		)	525,195
Operating (loss) income	(2,625		)	127,229			(6,392		)	52			118,264
Interest expense (income), net	97,696			—			537			—			98,233
Equity in (income) loss of subsidiaries	(128,957		)	—			—			128,957			—
Other (income)	—			(8,604		)	—			—			(8,604		)
Income (Loss) from operations before taxes on income	28,636			135,833			(6,929		)	(128,905		)	28,635
Income tax (benefit) provision	12,741			68,847			(1,778		)	(67,070		)	12,740
Net (loss) income	$	15,895		$	66,986		$	(5,151	)	$	(61,835	)	$	15,895
Comprehensive (loss) income	$	15,895		$	66,986		$	(17,756	)	$	(61,835	)	$	3,290



	Nine months ended September 30, 2014
	MHGE Intermediate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			MHGE Intermediate (Consolidated)
Revenue	$	—		$	680,746		$	237,698		$	—		$	918,444
Cost of goods sold	—			153,892			97,731			—			251,623
Gross profit	—			526,854			139,967			—			666,821
Operating expenses
Operating & administration expenses	2,625			350,981			135,485			(685		)	488,406
Depreciation	—			8,308			2,650			—			10,958
Amortization of intangibles	—			82,631			(3,624		)	—			79,007
Transaction costs	3,583			—			—			—			3,583
Total operating expenses	6,208			441,920			134,511			(685		)	581,954
Operating (loss) income	(6,208		)	84,934			5,456			685			84,867
Interest expense (income), net	115,876			—			(264		)	—			115,612
Equity in (income) loss of subsidiaries	(102,792		)	—			—			102,792			—
Other (income)	—			(11,154		)	—			—			(11,154		)
(Loss) income from operations before taxes on income	(19,292		)	96,088			5,720			(102,107		)	(19,591		)
Income tax (benefit) provision	(5,753		)	14,839			1,948			(16,787		)	(5,753		)
Net (loss) income	(13,539		)	81,249			3,772			(85,320		)	(13,838		)
Less: Net (income) loss attributable to noncontrolling interests	—			—			299			—			299
Net (loss) income attributable to McGraw-Hill Global Education Intermediate Holdings, LLC	$	(13,539	)	$	81,249		$	4,071		$	(85,320	)	$	(13,539	)
Comprehensive (loss) income attributable to McGraw-Hill Global Education Intermediate Holdings, LLC	$	(13,539	)	$	81,249		$	1,765		$	(85,320	)	$	(15,845	)



	September 30, 2015
	MHGE Intermediate			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			MHGE Intermediate (Consolidated)
ASSETS
Current assets:
Cash and equivalents	$	—		$	495,767	$	58,575		$	(359,392	)	194,950
Accounts receivable	—			165,573		88,524			—			254,097
Related party receivable	—			261,551		—			(254,321		)	7,230
Inventories, net	—			48,403		25,733			52			74,188
Deferred income taxes	—			22,745		7,913			—			30,658
Prepaid and other current assets	62,715			22,113		15,803			(60,091		)	40,540
Total current assets	62,715			1,016,152		196,548			(673,752		)	601,663
Pre-publication costs, net	—			55,478		12,921			—			68,399
Property, plant and equipment, net	—			90,214		1,990			—			92,204
Goodwill	—			425,307		48,944			—			474,251
Other intangible assets, net	—			778,739		55,935			—			834,674
Investments	1,970,996			102		6,484			(1,970,996		)	6,586
Deferred income taxes non-current	—			33,639		1,531			—			35,170
Other non-current assets	57,368			49,153		1,637			—			108,158
Total assets	$	2,091,079		$	2,448,784	$	325,990		$	(2,644,748	)	$	2,221,105
LIABILITIES AND EQUITY
Current liabilities
Accounts payable	$	362,017		$	102,519	$	10,945		$	(359,392	)	$	116,089
Accrued royalties	—			32,012		8,322			—			40,334
Accrued compensation and contributions to retirement plans	—			30,003		11,366			—			41,369
Deferred revenue	—			175,463		11,258			—			186,721
Current portion of long-term debt	6,790			—		—			—			6,790
Related party	—			619		253,700			(254,319		)	—
Other current liabilities	50,302			92,571		21,085			(60,084		)	103,874
Total current liabilities	419,109			433,187		316,676			(673,795		)	495,177
Long-term debt	1,445,738			—		—			—			1,445,738
Deferred income taxes	—			—		7,993			—			7,993
Other non-current liabilities	—			36,496		2,970			—			39,466
Total liabilities	1,864,847			469,683		327,639			(673,795		)	1,988,374
Commitments and contingencies
Equity
Member's equity	292,474			1,811,369		46,905			(1,812,285		)	338,463
Accumulated deficit	(66,242		)	167,732		(9,064		)	(158,668		)	(66,242		)
Accumulated other comprehensive loss	—			—		(39,490		)	—			(39,490		)
Total equity	226,232			1,979,101		(1,649		)	(1,970,953		)	232,731
Total liabilities and equity	$	2,091,079		$	2,448,784	$	325,990		$	(2,644,748	)	$	2,221,105



	December 31, 2014
	MHGE Intermediate			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			MHGE Intermediate (Consolidated)
ASSETS
Current assets:
Cash and equivalents	$	—		$	466,617	$	49,737		$	(284,256	)	$	232,098
Accounts receivable	—			122,047		82,025			—			204,072
Related party	—			253,071		—			(253,071		)	—
Inventories, net	—			50,330		27,164			(502		)	76,992
Deferred income taxes	—			22,745		8,793			—			31,538
Prepaid and other current assets	74,577			11,925		17,036			(72,828		)	30,710
Total current assets	74,577			926,735		184,755			(610,657		)	575,410
Pre-publication costs, net	—			63,130		17,850			—			80,980
Property, plant and equipment, net	—			91,926		—			—			91,926
Goodwill	—			423,629		53,695			—			477,324
Other intangible assets, net	—			842,907		63,758			—			906,665
Investments	1,842,551			104		9,115			(1,842,551		)	9,219
Deferred income taxes non-current	—			42,242		1,198			—			43,440
Other non-current assets	63,004			36,689		1,817			—			101,510
Total assets	$	1,980,132		$	2,427,362	$	332,188		$	(2,453,208	)	$	2,286,474
LIABILITIES AND EQUITY
Current liabilities
Accounts payable	$	284,256		$	115,594	$	14,871		$	(284,256	)	$	130,465
Accrued royalties	—			89,796		12,031			—			101,827
Accrued compensation and contributions to retirement plans	—			50,615		15,628			—			66,243
Deferred revenue	—			117,211		7,340			—			124,551
Current portion of long-term debt	6,880			—		—			—			6,880
Related party	—			889		253,071			(253,071		)	889
Other current liabilities	31,186			98,036		32,766			(72,828		)	89,160
Total current liabilities	322,322			472,141		335,707			(610,155		)	520,015
Long-term debt	1,447,473			—		—			—			1,447,473
Deferred income taxes	—			—		8,288			—			8,288
Other non-current liabilities	—			45,244		3,595			—			48,839
Total liabilities	1,769,795			517,385		347,590			(610,155		)	2,024,615
Commitments and contingencies
Equity
Member's equity	292,474			1,809,231		15,396			(1,746,220		)	370,881
Accumulated deficit	(82,137		)	100,746		(3,913		)	(96,833		)	(82,137		)
Accumulated other comprehensive loss	—			—		(26,885		)	—			(26,885		)
Total equity	210,337			1,909,977		(15,402		)	(1,843,053		)	261,859
Total liabilities and equity	$	1,980,132		$	2,427,362	$	332,188		$	(2,453,208	)	$	2,286,474



	Nine months ended September 30, 2015
	MHGE Intermediate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			MHGE Intermediate (Consolidated)
Operating activities
Cash provided by operating activities	$	5,440		$	114,154		$	23,359		$	(75,136	)	$	67,817
Investing activities
Investment in pre-publication costs	—			(27,103		)	(3,818		)	—			(30,921		)
Capital expenditures	—			(30,360		)	(609		)	—			(30,969		)
Acquisitions and investments	—			—			(6,879		)	—			(6,879		)
Proceeds from sale of investment	—			12,500			—			—			12,500
Proceeds from dispositions	—			81			—			—			81
Cash used for investing activities	—			(44,882		)	(11,306		)	—			(56,188		)
Financing activities
Payment of term loan	(5,440		)	—			—			—			(5,440		)
Dividend payment to MHGE Parent	—			(39,822		)	—			—			(39,822		)
Dividends on restricted stock unit	—			(300		)	—			—			(300		)
Cash provided by (used for) financing activities	(5,440		)	(40,122		)	—			—			(45,562		)
Effect of exchange rate changes on cash	—			—			(3,215		)	—			(3,215		)
Net change in cash and cash equivalents	—			29,150			8,838			(75,136		)	(37,148		)
Cash and cash equivalents at the beginning of the period	—			466,617			49,737			(284,256		)	232,098
Cash and cash equivalents, ending balance	$	—		$	495,767		$	58,575		$	(359,392	)	$	194,950



	Nine months ended September 30, 2014
	MHGE Intermediate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			MHGE Intermediate (Consolidated)
Operating activities
Cash provided by operating activities	$	40,160		$	114,915		$	41,303		$	(113,766	)	$	82,612
Investing activities
Investment in pre-publication costs	—			(28,794		)	(6,541		)	—			(35,335		)
Capital expenditures	—			(13,365		)	(1,952		)	—			(15,317		)
Acquisitions and investments	—			—			(56,453		)	—			(56,453		)
Proceeds from sale of investment	—			54			3,250			—			3,304
Proceeds from dispositions	—			17			8,865			—			8,882
Cash used for investing activities	—			(42,088		)	(52,831		)	—			(94,919		)
Financing activities
Payment of term loan	(40,160		)	—			—			—			(40,160		)
Payment of deferred purchase price	—			(53,500		)	—			—			(53,500		)
Dividends paid to noncontrolling interests	—			—			(169		)	—			(169		)
Cash provided by (used for) financing activities	(40,160		)	(53,500		)	(169		)	—			(93,829		)
Effect of exchange rate changes on cash	—			—			(220		)	—			(220		)
Net change in cash and cash equivalents	—			19,327			(11,917		)	(113,766		)	(106,356		)
Cash and cash equivalents at the beginning of the period	—			301,985			67,429			(116,024		)	253,390
Cash and cash equivalents, ending balance	$	—		$	321,312		$	55,512		$	(229,790	)	$	147,034

McGraw-Hill Global Education Intermediate Holdings, LLC 10-Q