##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 001-34575
 Cambium Learning Group, Inc.
  Delaware
    
    27-0587428(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)17855 North Dallas Parkway, Suite 400, Dallas, Texas
    
    75287(Address of Principal Executive Offices)
    
    (Zip Code)
 (214) 932-9500
  Common Stock, par value $0.001 per share
    
    The NASDAQ Global Market(Title of class)
    
    (Name of exchange on which registered)
  o þ
 Yes o No þ
 þ o
 o o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
 o þ




---



##### 



TABLE OF CONTENTS
 PagePART IItem 1. Business
    
    
    2Item 1A. Risk Factors
    
    
    12Item 1B. Unresolved Staff Comments
    
    
    18Item 2. Properties
    
    
    18Item 3. Legal Proceedings
    
    
    18Item 4. (Removed and Reserved)
    
    
    18PART IIItem 5. Market for Registrants Common Equity,
Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    18Item 6. Selected Financial Data
    
    
    20Item 7. Managements Discussion and Analysis of
Financial Condition and Results of
Operations
    
    
    21Item 7A. Quantitative and Qualitative Disclosures
About Market Risk
    
    
    39Item 8. Financial Statements and Supplementary Data
    
    
    40Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure
    
    
    87Item 9A. Controls and Procedures
    
    
    87Item 9B. Other Information
    
    
    88PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    88Item 11. Executive Compensation
    
    
    88Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related
Stockholder Matters
    
    
    88Item 13. Certain Relationships and Related
Transactions, and Director Independence
    
    
    88Item 14. Principal Accountant Fees and Services
    
    
    88PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    88SIGNATURE PAGEExhibit 4.3Exhibit 4.4Exhibit 4.5EX-21.1EX-23.1EX-23.2EX-31.1EX-31.2EX-32.1EX-32.2




---



##### Table of Contents



PART I
 Cautionary Note Regarding Forward-looking Statements.
   
 Item 1.
    
    Business.
 Unless otherwise expressly indicated in this Item 1, the discussions set forth herein are as
of December 31, 2010. The Company, we, us, or our when used in this report refers to
Cambium Learning Group, Inc. and its predecessors and consolidated subsidiaries.
 Overview
     2




---



##### Table of Contents



Strategy for Growth and Development
  Continued Focus on the Pre-K Through 12th Grade Intervention Market
 Increased Offering of Technology-Based Learning Solutions:
 Leverage Nationally Recognized Brands, Sales Force and Scalable Platform
 Invest in Key Growth Initiatives:
  3




---



##### Table of Contents



Funding Sources and Industry Information
     
    
    Large and Growing Addressable Market: Total Pre-K through 12th grade enrollment was 56
million in 2008, with enrollments rising. It is estimated that at least 40% of these
students require intervention and represent a large addressable market for us. Demand for
intervention is expected to continue to increase since intervention is typically more cost
effective than special education programs. We believe that, with more attention in
general, increased analysis of U.S. student outcomes versus other countries, focus and
likely inclusion of the graduation rate in the ESEA, and movement to national standards,
the number of children deemed to need intervention is likely to increase from 40% to over
50%, as indicated by proficiency rates of the National Assessment of Educational Progress.
    
    Historically Stable Federal Funding Landscape: The funding environment for Pre-K
through 12th grade education has historically been stable across economic cycles. While the
recent downturn has pressured state and local budgets, the primary sources of federal
funding for education (Title I and IDEA) have been maintained at historically high levels.
Traditional federal funding sources for education have been temporarily augmented by ARRA
funding from 2009 to 2011, including the Race to the Top program.
    
    Increasing Emphasis on Accountability and Measurement: The No Child Left Behind Act
(NCLB) has been a key driver for increased accountability and a measurement of student
performance. School districts are required to demonstrate adequate yearly progress (AYP)
or risk a cut in funding. Intervention products help schools improve performance of the
most challenged learners and allow schools to meet stringent AYP criteria. Furthermore,
there is greater emphasis on evaluating educators based on the performance of their
students. The combination of these factors will continue to drive the demand for
intervention and professional development products.
    
    Proven Return on Investment of Intervention Products: Numerous studies have
demonstrated and quantified the benefits of intervention products for at-risk and special
education students. We believe traditional educational materials are inadequate and not
designed to meet their learning needs. Also, teachers are becoming better trained at
utilizing intervention materials, which we expect will contribute to greater demand for
such products.
  4




---



##### Table of Contents



Product Overview
  
    
    Voyager, our comprehensive intervention solutions;
    
    Sopris, our supplemental solutions;
    
    Cambium Learning Technologies( or CLT), our technology-based solutions
  Voyager
  Voyager Reading Programs ® ® ® ® ® ®
         5




---



##### Table of Contents



Voyager Math Programs ®
      Voyager Professional Development Programs
 Sopris
     6




---



##### Table of Contents



Cambium Learning Technologies
  Learning A-Z TM TM TM TM TM TM
 TM
      7




---



##### Table of Contents



ExploreLearning TM District Administration Magazine Tech and Learning Magazine
 Kurzweil Educational Systems
 
    
    Kurzweil 3000.Kurzweil 3000 is a reading, writing and learning software package
for students with dyslexia, attention deficit disorder or other learning
difficulties, including physical impairments or language learning needs.
    
    Kurzweil 1000.Kurzweil 1000 provides visually impaired users access to printed
and electronic materials. Documents and digital files are converted from text to
speech and read aloud in a variety of voices that can be modified to suit individual
preferences. In addition, this software provides users with document creation and
editing, studying and study skills for note-taking, summarizing and outlining text.
 IntelliTools
 
    
    IntelliKeys®USB, which is a programmable alternative
keyboard with supporting software for students or adults who have difficulty using a
standard keyboard.
    
    IntelliTools Classroom Suite, which is an authoring and application tool intended
to boost achievement on standards-based tests and help meet adequate yearly progress
goals under the No Child Left Behind Act.
    
    IntelliTools, which offers software products with a simple interface for students
to use. The software includes lessons, activities and assessments that reinforce
reading, writing and math skills with the capability to
generate reports and provide detailed data tracking.
 Marketing and Distribution
 Curriculum Development
   8




---



##### Table of Contents



Sales and Marketing
 Sales Force Organization
  Competition
  
    
    Traditional text book suppliers, which often offer intervention products as part
of their core reading and math programs, including Houghton Mifflin/Harcourt,
Pearson, The McGraw-Hill Companies, and Scholastic;
    
    Supplemental suppliers, a market segment that is quite fragmented,
 including the supplementary products divisions of the international textbook publishers named
above, and others including Curriculum Associates, Teacher Created Materials, School
Specialty, Haights Cross Communications and The Hampton-Brown Company;
    
    Technology suppliers, including Scholastic (Read 180, MiniBooks), Adaptive
Curriculum, Carnegie Learning, Renaissance Learning, Don Johnston and TextHelp; and
    
    Service providers, including Americas Choice (recently purchased by Pearson), and
research laboratories such as WestEd.
    
    In addition, with greater use of virtual tools, we compete with a number of
entities like K12 and Florida Virtual School.
 Concentration Risk
  Seasonality
  Governmental Regulations
   9




---



##### Table of Contents



Employees
  Executive Officers
 Ronald Klausner
 David F. Cappellucci
 Bradley C. Almond
 John Campbell
 George A. Logue
 Carolyn W. Getridge
  10




---



##### Table of Contents



Todd W. Buchardt
 Robert H. Pasternack, Ph.D.
 Proprietary Rights
    Website Access to Company Reports
   Code of Ethics
    11




---



##### Table of Contents



Item 1A.
    
    Risk Factors.
  Risks Related to our Business
 Changes in funding for public schools could cause the demand for our products to decrease.
  We receive significant revenues from certain states and reductions in public school education
spending in those states could cause the demand for our products to decrease.
  Changes in school procurement policies may adversely affect our business.
  Our failure to maintain or expand our customer base could diminish incremental revenues from
certain products.
  Our revenue growth and profitability will depend, in part, on our ability to attract and retain
productive resellers.
  Our revenues and profitability will depend on our ability to continue to develop new products and
services that appeal to customers and end users and respond to changing customer preferences.
   12




---



##### Table of Contents



Our business is anticipated to be seasonal and our operating results are anticipated to fluctuate
seasonally.
  If we are unable to compete effectively, we may be unable to successfully attract and retain
customers and our profitability could be materially harmed.
  Our intellectual property protection may be inadequate, which may allow others to use our
technologies and thereby reduce our ability to compete.
  Technology content licensed from third parties may not continue to be available.
  Our products could infringe on the intellectual property of others, which may cause us to engage
in costly litigation and to pay substantial damages or restrict or prohibit us from selling our
products.
  Our success will depend in part on our ability to attract and retain key personnel.
  Increases in operating costs and expenses, many of which are beyond our control, could materially
and adversely affect our operating performance.
   13




---



##### Table of Contents



Merger and acquisition activity could adversely affect our operations.
  We could experience system failures, software errors or capacity constraints, any of which would
cause interruptions in the delivery of electronic content to customers and ultimately may cause
us to lose customers.
   Our systems face security risks and we need to ensure the privacy of our customers.
  We have a single distribution center and could experience significant disruption of business and
ultimately lose customers in the event it was damaged, destroyed or experienced technological
failure.
  Failure to efficiently and effectively manage our direct marketing initiatives could negatively
affect our business.
  Both Cambium and VLCY have been subjected to material accounting irregularities in recent years,
which could result in enhanced regulatory scrutiny in the future and could undermine the
confidence that some investors may have in the integrity of our financial statements.
   14




---



##### Table of Contents



Risks Related to Debt and Ownership of our Common Stock
 We do not foresee paying cash dividends in the foreseeable future and, as a result, our
investors sole source of gain, if any, will depend on capital appreciation, if any.
  Our majority stockholder has a contractual right to increase its percentage of ownership in our
company which, if exercised, would dilute the ownership percentage of all other stockholders and
could reduce the price of our common stock.
  The existence of a majority stockholder may adversely affect the market price of our common stock
and could delay, hinder or prevent a change in corporate control or result in the entrenchment of
management and the board of directors, and our majority stockholder has a contractual right to
maintain its percentage ownership in our company.
     15




---



##### Table of Contents



We are a controlled company within the meaning of the NASDAQ rules and, as a result, qualify
for, and rely on, exemptions from various corporate governance standards, which limits the
presence of independent directors on our board of directors and board committees.
   Certain attributes of our stock may make the stock less liquid.
  We may seek to raise additional funds, finance additional acquisitions or develop strategic
relationships by issuing additional securities, including capital stock.
   Provisions of our organizational documents and Delaware law may delay or deter a change of
control.
  
    
    vest our board of directors with the sole power to set the number of directors of
our company;
    
    provide that our board of directors will be elected on a staggered term basis, so
that generally only one-third of the board will be elected at each annual meeting of
stockholders;
    
    limit the persons that may call special meetings of stockholders;
    
    establish advance notice requirements for stockholder proposals and director
nominations; and
    
    limit stockholder action by written consent.
  16




---



##### Table of Contents



We have a significant amount of senior secured debt and will have the obligation to make interest
payments and comply with restrictions contained in the credit agreements with our senior secured
lenders.
    Borrowing capacity under Cambium Learning, Inc.s revolving credit facility may affect our
ability to finance our operations.
   17




---



##### Table of Contents



Item 1B.
    
    Unresolved Staff Comments.
  
 Item 2.
    
    Properties.
   Total(sq ft)Owned
    
    
    Leased
    
    
    327,543Total
    
    
    327,543
  
 Item 3.
    
    Legal Proceedings.
  
 Item 4.
    
    (Removed and Reserved).
 
 PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
 Market Information
 2010
    
    
    2009Fiscal Quarter
    
    High
    
    
    Low
    
    
    High
    
    
    LowFirst
    
    $
    4.20
    
    
    $
    3.41
    
    
    
    N/A
    
    
    
    N/ASecond
    
    
    5.59
    
    
    
    3.42
    
    
    
    N/A
    
    
    
    N/AThird
    
    
    3.76
    
    
    
    2.77
    
    
    
    N/A
    
    
    
    N/AFourth (Since Dec 9, 2009)
    
    
    3.55
    
    
    
    2.67
    
    
    $
    14.80
    
    
    $
    3.62
 Record
Holders:
 Purchases Of Equity Securities:
 Dividends:
 Securities Authorized for Issuance Under Equity Compensation Plans:
  18




---



##### Table of Contents



(in thousands, except per share amounts)
 Number of securitiesNumber of securities to be
    
    
    Weighted-average
    
    
    remaining available forissued upon exercise of
    
    
    exercise price of
    
    
    future issuanceoutstanding options
    
    
    outstanding options
    
    
    under equityPlan Category
    
    and rights
    
    
    and rights
    
    
    incentive plan (a)Equity compensation plans approved
by security holders
    
    
    3,957
    
    
    $
    5.19
    
    
    
    1,033Equity compensation plans not
approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    3,957
    
    
    $
    5.19
    
    
    
    1,033
 
 (a)
    
    Excludes securities reflected in the first column, Number of securities to be issued upon exercise of
outstanding options and rights, and outstanding restricted stock. Recent
Sales of Unregistered Securities:
 Stock Performance Graph:
 
  19




---



##### Table of Contents



Item 6.
    
    Selected Financial Data.
    SuccessorPeriod fromJanuary 29,
    
    
    
    Predecessor2007
    
    
    
    Period from(Inception)
    
    
    
    January 1,
    
    
    PredecessorYear Ended
    
    
    Year Ended
    
    
    Year Ended 31,
    
    
    through
    
    
    
    2007 through
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December
    
    
    December 31,
    
    
    
    April 11,
    
    
    December 31,(in thousands, except per share data)
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007(1)
    
    
    
    2007
    
    
    2006Statement of Operations Data:Product revenues
    
    $
    160,778
    
    
    $
    90,385
    
    
    $
    89,207
    
    
    $
    71,266
    
    
    
    $
    15,238
    
    
    $
    92,882Service revenues
    
    
    20,482
    
    
    
    10,663
    
    
    
    10,524
    
    
    
    9,581
    
    
    
    
    3,176
    
    
    
    13,542Net revenues
    
    
    181,260
    
    
    
    101,048
    
    
    
    99,731
    
    
    
    80,847
    
    
    
    
    18,414
    
    
    
    106,424Total operating expenses, excluding in-process research and development, impairment, and embezzlement
    
    
    (181,528
    )
    
    
    (115,108
    )
    
    
    (104,648
    )
    
    
    (81,305
    )
    
    
    
    (32,179
    )
    
    
    (97,955
    )Acquired in-process research and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (890
    )
    
    
    
    
    
    
    
    Goodwill impairment(3)
    
    
    
    
    
    
    (9,105
    )
    
    
    (75,966
    )
    
    
    
    
    
    
    
    
    
    
    
    Embezzlement and related recoveries (expense)(2)
    
    
    353
    
    
    
    (129
    )
    
    
    (7,254
    )
    
    
    (5,732
    )
    
    
    
    (1,000
    )
    
    
    (3,261
    )Income (loss) before interest, other income (expense), and income taxes
    
    
    85
    
    
    
    (23,294
    )
    
    
    (88,137
    )
    
    
    (7,080
    )
    
    
    
    (14,765
    )
    
    
    5,208Gain from settlement with previous stockholders(4)
    
    
    
    
    
    
    
    
    
    
    30,202
    
    
    
    
    
    
    
    
    
    
    
    
    Net (loss) income
    
    
    (15,950
    )
    
    
    (35,765
    )
    
    
    (69,560
    )
    
    
    (13,931
    )
    
    
    
    (11,812
    )
    
    
    440Net (loss) income per common share  basic and diluted
    
    $
    (0.36
    )
    
    $
    (1.63
    )
    
    $
    (3.39
    )
    
    $
    (0.68
    )
    
    
    $
    (4.34
    )
    
    $
    0.16
 As of:December 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,(in thousands)
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Balance Sheet Data:Cash and cash equivalents
    
    $
    11,831
    
    
    $
    13,345
    
    
    $
    2,418
    
    
    $
    1,206
    
    
    $
    1,642Total current assets
    
    
    76,177
    
    
    
    74,316
    
    
    
    31,617
    
    
    
    26,601
    
    
    
    25,007Total assets
    
    
    383,062
    
    
    
    393,841
    
    
    
    270,477
    
    
    
    369,138
    
    
    
    138,028Total current liabilities
    
    
    66,774
    
    
    
    58,366
    
    
    
    16,360
    
    
    
    16,849
    
    
    
    26,871Total long term debt, less current portion
    
    
    150,850
    
    
    
    150,487
    
    
    
    153,787
    
    
    
    176,402
    
    
    
    17,500Total liabilities
    
    
    259,050
    
    
    
    254,069
    
    
    
    202,273
    
    
    
    239,058
    
    
    
    59,133Total members interest and stockholders equity
    
    
    124,012
    
    
    
    139,772
    
    
    
    68,204
    
    
    
    130,080
    
    
    
    78,895
 
 Footnotes to the Selected Financial Data:(1)
    
    On January 29, 2007, VSS-Cambium Holdings, LLC was formed for the
purpose of acquiring all of the capital stock of Cambium
Learning. That acquisition was completed on April 12, 2007. The
consolidated financial statements present the Company as of
December 31, 2007 (Successor basis reflecting activity of the
Company from January 29, 2007 and including the results of
Cambium Learning from April 12, 2007) and the period January 1,
2007 through April 11, 2007 (Predecessor basis for the period
prior to Companys acquiring Cambium Learning).(2)
    
    We discovered in 2008 that a former employee had perpetrated a
significant misappropriation of assets during a period beginning
in 2004 and extending through April 2008.(3)
    
    Reflects the non-cash effect of the impairment write-down of
goodwill during 2009 and 2008 resulting from a reduction in the
fair value of assets.(4)
    
    For fiscal 2008, we received a settlement from our previous
stockholders relating to the embezzlement we suffered. For
further information, see Note 3 to our Consolidated Financial
Statements.  20




---



##### Table of Contents



Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations.
  Organization of Information
  
    
    Overview
    
    Results of Operations
    
    Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
    
    Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
    
    Liquidity and Capital Resources
    
    Non-GAAP Measures
    
    Capital Expenditures and Outlook
    
    Commitments and Contractual Obligations
    
    Off-Balance Sheet Arrangements
    
    Critical Accounting Policies and Estimates
    
    Recently Issued Financial Accounting Standards
 Overview
    21




---



##### Table of Contents




    
    Voyager, our comprehensive intervention business;
    
    Sopris, our supplemental solutions education business; and
    
    Cambium Learning Technologies, our technology-based education product business.
   Results of Operations
 Fiscal Year 2010 Compared to Fiscal Year 2009
 Highlights
    22




---



##### Table of Contents




    
    Declines have been realized in our internal order volume metric due to the
elimination of the Reading First program and the economic crisis faced by many states
and local entities. To some extent, we expect the crisis will continue throughout the
following quarters and have a continued depressive effect on general spending and
therefore make order volume growth challenging.
    
    The stimulus funds drove several large multi-year deals in 2009 and 2010 which
helped offset the wind down of Reading First.
    
    We expect continued growth in our online subscription-based products.
    
    We have experienced success growing our portfolio to address the math needs of the
market, including products such as Vmath, Transitional Math and Gizmos
(ExploreLearning). While the Gizmos products have continued strong growth in 2010, our
other math-based products have been flat. We expect that the market for these products
will continue to be strong and will return to growth in the future.
    
    We believe our product diversification will strengthen our ability to sustain market
share in a troubled market and capture market share when the market recovers.
    
    We believe our focus on student outcomes through product usage and an overall
partnership approach with the customer to implement our solutions, in the manner that
the program was designed, results in higher student success rates, and such success, if
achieved, will lead to customer retention and growth through reference sales.
    
    We believe there is a trend of student accountability resulting in greater funding
being directed to at-risk children in the United States with new funding sources, such
as Race to the Top, which could provide additional funds for our products.
    
    Successful efforts to reduce the Companys cost structure were undertaken in 2009 by
both VLCY and Cambium, to better align our cost structure to current market conditions.
In 2010, we achieved significant cost savings as part of an effort to achieve merger
related synergies, which included a reduction in force. The Company will continue to
seek ways to operate more efficiently, but the magnitude of the reductions in 2009 and
2010 are not expected to be replicated.
    
    We invested in several key areas in 2010. These are improved student data management
systems, a separate dedicated sales force and development of an ecommerce engine for
Sopris and continued investment in CLT, primarily in product development, sales and
marketing.
    
    We expect to benefit from continuity of our leadership team and sales organization,
who have now worked together for more than a year.
  23




---



##### Table of Contents



Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31, 2010
    
    
    December 31, 2009
    
    
    December 31, 2008% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of(in thousands)
    
    Amount
    
    
    Revenues
    
    
    Amount
    
    
    Revenues
    
    
    Amount
    
    
    RevenuesNet revenues:Product revenuesVoyager
    
    $
    100,412
    
    
    
    55.4
    %
    
    $
    44,329
    
    
    
    43.9
    %
    
    $
    40,424
    
    
    
    40.5
    %Sopris
    
    
    22,249
    
    
    
    12.3
    %
    
    
    23,431
    
    
    
    23.2
    %
    
    
    27,495
    
    
    
    27.6
    %Cambium Learning Technologies
    
    
    38,117
    
    
    
    21.0
    %
    
    
    22,625
    
    
    
    22.4
    %
    
    
    21,288
    
    
    
    21.3
    %Service revenuesVoyager
    
    
    17,527
    
    
    
    9.7
    %
    
    
    8,594
    
    
    
    8.5
    %
    
    
    7,924
    
    
    
    7.9
    %Sopris
    
    
    2,487
    
    
    
    1.4
    %
    
    
    1,754
    
    
    
    1.7
    %
    
    
    2,217
    
    
    
    2.2
    %Cambium Learning Technologies
    
    
    468
    
    
    
    0.3
    %
    
    
    315
    
    
    
    0.3
    %
    
    
    383
    
    
    
    0.4
    %Total net revenues
    
    
    181,260
    
    
    
    100.0
    %
    
    
    101,048
    
    
    
    100.0
    %
    
    
    99,731
    
    
    
    100.0
    %Cost of revenues:Cost of product revenuesVoyager
    
    
    29,340
    
    
    
    16.2
    %
    
    
    10,678
    
    
    
    10.6
    %
    
    
    11,214
    
    
    
    11.2
    %Sopris
    
    
    6,514
    
    
    
    3.6
    %
    
    
    6,350
    
    
    
    6.3
    %
    
    
    6,003
    
    
    
    6.0
    %Cambium Learning Technologies
    
    
    4,334
    
    
    
    2.4
    %
    
    
    2,537
    
    
    
    2.5
    %
    
    
    3,029
    
    
    
    3.0
    %Shared Services
    
    
    1,395
    
    
    
    0.8
    %
    
    
    26
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Cost of service revenuesVoyager
    
    
    16,455
    
    
    
    9.1
    %
    
    
    5,992
    
    
    
    5.9
    %
    
    
    5,721
    
    
    
    5.7
    %Sopris
    
    
    1,225
    
    
    
    0.7
    %
    
    
    1,093
    
    
    
    1.1
    %
    
    
    1,489
    
    
    
    1.5
    %Cambium Learning Technologies
    
    
    628
    
    
    
    0.3
    %
    
    
    172
    
    
    
    0.2
    %
    
    
    253
    
    
    
    0.3
    %Amortization expense
    
    
    28,511
    
    
    
    15.7
    %
    
    
    17,527
    
    
    
    17.3
    %
    
    
    15,966
    
    
    
    16.0
    %Total cost of revenues
    
    
    88,402
    
    
    
    48.8
    %
    
    
    44,375
    
    
    
    43.9
    %
    
    
    43,675
    
    
    
    43.8
    %Research and development expense
    
    
    10,558
    
    
    
    5.8
    %
    
    
    5,611
    
    
    
    5.6
    %
    
    
    6,416
    
    
    
    6.4
    %Sales and marketing expense
    
    
    45,987
    
    
    
    25.4
    %
    
    
    23,368
    
    
    
    23.1
    %
    
    
    24,600
    
    
    
    24.7
    %General and administrative expense
    
    
    23,857
    
    
    
    13.2
    %
    
    
    30,519
    
    
    
    30.2
    %
    
    
    16,156
    
    
    
    16.2
    %Shipping costs
    
    
    3,570
    
    
    
    2.0
    %
    
    
    1,512
    
    
    
    1.5
    %
    
    
    2,348
    
    
    
    2.4
    %Depreciation and amortization expense
    
    
    9,154
    
    
    
    5.1
    %
    
    
    9,723
    
    
    
    9.6
    %
    
    
    11,453
    
    
    
    11.5
    %Goodwill impairment charge
    
    
    
    
    
    
    0.0
    %
    
    
    9,105
    
    
    
    9.0
    %
    
    
    75,966
    
    
    
    76.2
    %Embezzlement
and related expense (recoveries)
    
    
    (353
    )
    
    
    (0.2
    )%
    
    
    129
    
    
    
    0.1
    %
    
    
    7,254
    
    
    
    7.3
    %Income (loss) before interest, other income (expense) and income taxes
    
    
    85
    
    
    
    0.0
    %
    
    
    (23,294
    )
    
    
    (23.1
    )%
    
    
    (88,137
    )
    
    
    (88.4
    )%Net interest expense
    
    
    (17,292
    )
    
    
    (9.5
    )%
    
    
    (19,477
    )
    
    
    (19.3
    )%
    
    
    (18,434
    )
    
    
    (18.5
    )%Gain from settlement with previous stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,202
    
    
    
    30.3
    %Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,632
    )
    
    
    (5.6
    )%Other income (expense), net
    
    
    674
    
    
    
    0.4
    %
    
    
    (698
    )
    
    
    (0.7
    )%
    
    
    (981
    )
    
    
    (1.0
    )%Income tax benefit
    
    
    583
    
    
    
    0.3
    %
    
    
    7,704
    
    
    
    7.6
    %
    
    
    13,422
    
    
    
    13.5
    %Net loss
    
    $
    (15,950
    )
    
    
    (8.8
    )%
    
    $
    (35,765
    )
    
    
    (35.4
    )%
    
    $
    (69,560
    )
    
    
    (69.7
    )%
 Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
 Net revenues
  Voyager.
  24




---



##### Table of Contents



Sopris.
 Cambium Learning Technologies
 Cost of revenues
  Voyager
 Sopris.
 Cambium Learning Technologies
 Amortization expense
  Research and development expenses
  Sales and marketing expense
   25




---



##### Table of Contents



General and administrative expense
  Shipping costs
  Depreciation and amortization expense
  Goodwill impairment
  Embezzlement and related expenses
  Net interest expense
  Income taxes
    26




---



##### Table of Contents



Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
 Net revenues
  Voyager.
 Sopris.
 Cambium Learning Technologies
 Cost of revenues
  Voyager
 Sopris
 Cambium Learning Technologies
 Amortization expense
   27




---



##### Table of Contents



Research and development expenses
  Sales and marketing expense
  General and administrative expense
  Shipping costs
  Depreciation and amortization expense
  Goodwill impairment
     28




---



##### Table of Contents



Embezzlement and related expenses
  Net interest expense
  Income taxes
   Gain from settlement with previous stockholders
  Loss on extinguishment of debt
  Liquidity and Capital Resources
   29




---



##### Table of Contents



Long-term debt
 9.75% Senior Secured Notes
 Registration Rights Agreement
 New Credit Facility (ABL Facility).
     30




---



##### Table of Contents



Cash flows
  (in thousands)
    
    2010
    
    
    2009
    
    
    2008Operating activities
    
    $
    20,161
    
    
    $
    1,934
    
    
    $
    (13,855
    )Investing activities
    
    
    (14,441
    )
    
    
    (13,092
    )
    
    
    26,889Financing activities
    
    
    (7,234
    )
    
    
    22,085
    
    
    
    (11,822
    )
 Operating activities
 Investing activities.
 Financing
activities
 Non-GAAP Measures
    31




---



##### Table of Contents



Reconciliation Between Net Revenues to Adjusted Net Revenues and Between Net Income (Loss) and Adjusted EBITDA
for the Years Ended December 31, 2009 and 2010
 VLCYPre-MergerResults
    
    
    Pro Forma
    
    
    Pro FormaCambium
    
    
    (342 days)
    
    
    Adjustments (a)
    
    
    Combined
    
    
    Cambium Learning Group2009
    
    
    2010(In thousands)(Unaudited)Total net revenues
    
    $
    101,048
    
    
    $
    98,728
    
    
    $
    (11,565
    )
    
    $
    188,211
    
    
    $
    181,260Non-recurring and non-operational costs included in
net revenues but excluded from adjusted net revenues:Adjustments related to purchase accounting (g)
    
    
    1,392
    
    
    
    
    
    
    
    11,565
    
    
    
    12,957
    
    
    
    12,937Adjusted net revenues
    
    $
    102,440
    
    
    $
    98,728
    
    
    $
    
    
    
    $
    201,168
    
    
    $
    194,197Net loss
    
    $
    (35,765
    )
    
    $
    (34,375
    )
    
    $
    8,870
    
    
    $
    (61,270
    )
    
    $
    (15,950
    )Reconciling items between net loss and EBITDA:Depreciation and amortization
    
    
    27,250
    
    
    
    18,301
    
    
    
    (5,772
    )
    
    
    39,779
    
    
    
    37,665Net interest expense
    
    
    19,477
    
    
    
    558
    
    
    
    71
    
    
    
    20,106
    
    
    
    17,292Other (income) expense
    
    
    698
    
    
    
    (3,279
    )
    
    
    
    
    
    
    (2,581
    )
    
    
    (674
    )Income tax
    
    
    (7,704
    )
    
    
    (190
    )
    
    
    7,894
    
    
    
    
    
    
    
    (583
    )Income (loss) from operations before
interest and other income
(expense), income taxes, and depreciation and
amortization (EBITDA)
    
    
    3,956
    
    
    
    (18,985
    )
    
    
    11,063
    
    
    
    (3,966
    )
    
    
    37,750Non-recurring and non-operational costs included in
EBITDA but excluded from Adjusted EBITDA:Transaction costs (b)
    
    
    13,570
    
    
    
    9,937
    
    
    
    (23,507
    )
    
    
    
    
    
    
    Integration and merger-related costs (c)
    
    
    2,133
    
    
    
    120
    
    
    
    1,864
    
    
    
    4,117
    
    
    
    5,963Legacy VLCY corporate (d)
    
    
    57
    
    
    
    2,247
    
    
    
    
    
    
    
    2,304
    
    
    
    968Stock-based compensation expense(e)
    
    
    37
    
    
    
    179
    
    
    
    552
    
    
    
    768
    
    
    
    1,085Embezzlement and related expenses (recoveries)(f)
    
    
    129
    
    
    
    
    
    
    
    
    
    
    
    129
    
    
    
    (353
    )Adjustments related to purchase accounting (g)
    
    
    1,136
    
    
    
    
    
    
    
    10,028
    
    
    
    11,164
    
    
    
    10,748Goodwill impairment (h)
    
    
    9,105
    
    
    
    27,175
    
    
    
    
    
    
    
    36,280
    
    
    
    Adjustments to CVR liability (i)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,124
    )Adjusted EBITDA
    
    $
    30,123
    
    
    $
    20,673
    
    
    $
    
    
    
    $
    50,796
    
    
    $
    55,037
 (a)
    
    On December 8, 2009, we acquired VLCY. The acquisition was accounted for as a
purchase transaction. Our consolidated financial statements include the results of VLCY from
December 8, 2009, the date of acquisition. Therefore, the historical results of the Company
have been adjusted to show the effect on our statement of operations if the transaction
had been completed at the beginning of 2009. The combined historical net loss includes the
following pro forma adjustments:
 
    
    the pro forma impact of the amortization of intangible assets and the reduction
in deferred revenue and related deferred costs based on the purchase price
allocation;
    
    the pro forma impact of reduced interest income lost as a result of the $58.0
million of cash used in the purchase price consideration (net of $25.0 million
contributed by the sole stockholder of the Company at the time of the merger);
    
    the pro forma impact of certain employment agreements and stock option grants
entered into on the effective date of the merger;
    
    the elimination of merger transaction costs incurred by the Company and VLCY; and
    
    the pro forma tax effect of the merger, which was estimated using a combined
company effective tax rate of 0%.
 (b)
    
    External incremental costs incurred by the Company and VLCY that are directly related
to the merger.(c)
    
    Costs directly associated with the integration of the Company and VLCY, including
severance and other costs incurred to achieve synergies and the cost of retention and change
in control agreements directly related to the merger. The cost for retention and change in
control agreements included was $0.8 million for the year ended December 31, 2009 and $1.7
million for the year ended December 31, 2010.(d)
    
    Legacy VLCY corporate costs representing corporate costs related to legacy VLCY
liabilities such as pension and severance costs for former VLCY employees. For the year ended
December 31, 2009, these also include internal costs related to VLCYs strategic alternative
process, corporate overhead costs related to the restatement of VLCYs financial statements
and the related activities for VLCY to become current with its SEC filings, and costs to
transition VLCYs corporate office from Ann Arbor, Michigan to Dallas, Texas.
  32




---



##### Table of Contents



(e)
    
    Stock-based compensation expense is related to our outstanding options, restricted
stock awards, warrants, and stock appreciation rights (SARs).(f)
    
    During 2008, we discovered certain irregularities relating to the control and use of
cash and certain other general ledger items which resulted from a substantial misappropriation
of assets over more than a three-year period beginning in 2004 and continuing through April 2008. These irregularities were perpetrated by a
former employee, resulting in embezzlement losses, net of recoveries.(g)
    
    Under applicable accounting guidance for business combinations, an acquiring entity
is required to recognize all of the assets acquired and liabilities assumed in a transaction
at the acquisition date fair value. Net revenues have been reduced by $1.4 million and $12.9
million, respectively, for the years ended December 31, 2009 and December 31, 2010 in the
historical financial statements due to the write-down of deferred revenue to its estimated
fair value as of the merger date and in the pro forma adjustments to reflect the impact of the
write-down assuming the merger occurred on January 1, 2009. The write-down was determined by
estimating the cost to fulfill the related future customer obligations plus a normal profit
margin. Partially offsetting this impact, cost of revenues and sales and marketing expenses
were reduced for other purchase accounting adjustments, primarily a write-down of deferred
costs to zero at the acquisition date. During the years ended December 31, 2009, and December
31, 2010, the historical cost of revenues was reduced by $0.2 million and $1.2 million,
respectively, and the historical sales and marketing expenses were reduced by $0.1 million and
$1.0 million, respectively, and the related pro forma adjustments reflect the impact of the
write-down assuming the merger occurred on January 1, 2009. The adjustment of deferred revenue
and deferred costs to fair value is required only at the purchase accounting date; therefore,
its impact on net revenues, cost of revenues, and sales and marketing expense is
non-recurring.(h)
    
    Goodwill impairment charges of $9.1 million for the year ended December 31, 2009 and
pre-merger VLCY goodwill impairment charges of $27.2 million for the year ended December 31,
2009.(i)
    
    Adjustments to the CVR liability as a result of the amendments of the merger
agreement and the related escrow agreement, the expiration of the statute of limitations on
potential tax liabilities and changes in likelihood of collecting potential tax receivables
included in the estimate of the fair value of the CVRs.
    Change
in Adjusted Deferred Revenue for the Years Ended December 31, 2009 and
2010
 As of:(in thousands)
(Unaudited)December 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2009
    
    
    2010Cambium deferred revenue
    
    $
    1,910
    
    
    $
    24,181
    
    
    $
    37,556Legacy VLCY deferred revenue
    
    
    29,507
    
    
    
    
    
    
    
    Total combined deferred revenue
    
    
    31,417
    
    
    
    24,181
    
    
    
    37,556Purchase accounting fair
value adjustment
    
    
    
    
    
    
    14,374
    
    
    
    1,437Adjusted deferred revenue
    
    
    31,417
    
    
    
    38,555
    
    
    
    38,993Change in adjusted deferred revenue
    
    
    
    
    
    $
    7,138
    
    
    $
    438
  33




---



##### Table of Contents



Capital Expenditures and Outlook
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,(Dollars in millions)
    
    2010
    
    
    2009
    
    
    2008Pre-publication costs
    
    $
    4.8
    
    
    $
    2.4
    
    
    $
    2.2Property, equipment and software
    
    
    8.5
    
    
    
    1.0
    
    
    
    1.0Total expenditures for property, equipment,
and pre-publication costs
    
    $
    13.3
    
    
    $
    3.4
    
    
    $
    3.2
   Commitments and Contractual Obligations
   (in millions)
    
    Total
    
    
    2011
    
    
    2012 & 2013
    
    
    2014 & 2015
    
    
    After 2015Senior secured notes as of December 31, 2010
    
    $
    112.4
    
    
    $
    8.9
    
    
    $
    103.5
    
    
    $
    
    
    
    $
    Senior unsecured notes as of December 31, 2010
    
    
    64.2
    
    
    
    
    
    
    
    
    
    
    
    64.2
    
    
    
    Build-to-suit lease obligations as of December 31, 2010
    
    
    6.5
    
    
    
    1.0
    
    
    
    2.2
    
    
    
    2.3
    
    
    
    1.0Other capital lease obligations as of December 31, 2010
    
    
    0.1
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations as of December 31, 2010
    
    
    9.1
    
    
    
    1.5
    
    
    
    3.8
    
    
    
    1.8
    
    
    
    2.0Contingent value rights as of December 31, 2010
    
    
    7.4
    
    
    
    1.6
    
    
    
    5.8
    
    
    
    
    
    
    
    
      34




---



##### Table of Contents



Off-Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
    Revenue Recognition .
      35




---



##### Table of Contents



Impairment of Goodwill .
   Goodwill balance asof December 31, 2010Voyager
    
    $
    76,085Sopris
    
    
    17,300LAZEL
    
    
    19,724KI
    
    
    38,806Total
    
    $
    151,915
    36




---



##### Table of Contents



Impairment of Long Lived Assets .
  Pre-Publication Costs.
 Accounts Receivable
 Inventory
 Income Taxes
  Contingent Value Rights (CVRs )
 
    
    specified VLCY tax refunds received after the effective time of the merger, plus
    
    the lesser of $4.0 million orthe amount of specified post-signing tax refunds of VLCY received after the date of the
merger agreement and on or prior to the date of the closing, which was $1.6 million, plus
  37




---



##### Table of Contents




    
    a portion of funds held for a potential tax indemnity obligation, if such obligation is not paid to its beneficiary, plus
    
    other amounts specified in the escrow agreement,
    Other Contingencies
   Recently Issued Financial Accounting Standards
   38




---



##### Table of Contents



Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk.
 Interest Rate Risk
   Foreign Currency Risk
   39




---



##### Table of Contents



Item 8.
    
    Financial Statements and Supplementary Data.
 Report of Independent Registered Public Accounting Firm
     Internal ControlIntegrated Framework
  
  40




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
  Internal
ControlIntegrated Framework Managements Report on Internal
Control Over Financial Reporting
    Internal
ControlIntegrated Framework
   
  41




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
      
  42




---



##### Table of Contents



Cambium Learning Group, Inc. and Subsidiaries
Consolidated Statements of Operations
 For the Years Ended December 31,(In thousands, except per share data)
    
    2010
    
    
    2009
    
    
    2008Net revenues:Product revenues
    
    $
    160,778
    
    
    $
    90,385
    
    
    $
    89,207Service revenues
    
    
    20,482
    
    
    
    10,663
    
    
    
    10,524Total net revenues
    
    
    181,260
    
    
    
    101,048
    
    
    
    99,731Cost of revenues:Cost of product revenues
    
    
    41,583
    
    
    
    19,591
    
    
    
    20,246Cost of service revenues
    
    
    18,308
    
    
    
    7,257
    
    
    
    7,463Amortization expense
    
    
    28,511
    
    
    
    17,527
    
    
    
    15,966Total cost of revenues
    
    
    88,402
    
    
    
    44,375
    
    
    
    43,675Research and development expense
    
    
    10,558
    
    
    
    5,611
    
    
    
    6,416Sales and marketing expense
    
    
    45,987
    
    
    
    23,368
    
    
    
    24,600General and administrative expense
    
    
    23,857
    
    
    
    30,519
    
    
    
    16,156Shipping and handling costs
    
    
    3,570
    
    
    
    1,512
    
    
    
    2,348Depreciation and amortization expense
    
    
    9,154
    
    
    
    9,723
    
    
    
    11,453Goodwill impairment
    
    
    
    
    
    
    9,105
    
    
    
    75,966Embezzlement and related expense (recoveries)
    
    
    (353
    )
    
    
    129
    
    
    
    7,254Total costs and expenses
    
    
    181,175
    
    
    
    124,342
    
    
    
    187,868Income (loss) before interest, other income (expense)
and income taxes
    
    
    85
    
    
    
    (23,294
    )
    
    
    (88,137
    )Net interest income (expense):Interest income
    
    
    19
    
    
    
    10
    
    
    
    86Interest expense
    
    
    (17,311
    )
    
    
    (19,487
    )
    
    
    (18,520
    )Net interest income (expense)
    
    
    (17,292
    )
    
    
    (19,477
    )
    
    
    (18,434
    )Gain from settlement with previous stockholders
    
    
    
    
    
    
    
    
    
    
    30,202Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (5,632
    )Other income (expense), net
    
    
    674
    
    
    
    (698
    )
    
    
    (981
    )Loss before income taxes
    
    
    (16,533
    )
    
    
    (43,469
    )
    
    
    (82,982
    )Income tax benefit
    
    
    583
    
    
    
    7,704
    
    
    
    13,422Net loss
    
    $
    (15,950
    )
    
    $
    (35,765
    )
    
    $
    (69,560
    )Net loss per common share:Basic net loss per common share
    
    $
    (0.36
    )
    
    $
    (1.63
    )
    
    $
    (3.39
    )Diluted net loss per common share
    
    $
    (0.36
    )
    
    $
    (1.63
    )
    
    $
    (3.39
    )Average number of common shares and equivalents outstanding:Basic
    
    
    44,322
    
    
    
    21,994
    
    
    
    20,493Diluted
    
    
    44,322
    
    
    
    21,994
    
    
    
    20,493
 The accompanying Notes to the Consolidated Financial Statements are an integral part of
these statements.
  43




---



##### Table of Contents



Cambium Learning Group, Inc. and Subsidiaries
Consolidated Balance Sheets
 As of December 31,(In thousands, except per share data)
    
    2010
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,831
    
    
    $
    13,345Accounts receivable, net
    
    
    31,627
    
    
    
    19,127Inventory
    
    
    22,015
    
    
    
    19,812Deferred tax assets
    
    
    3,703
    
    
    
    6,267Restricted assets, current
    
    
    3,064
    
    
    
    9,755Other current assets
    
    
    3,937
    
    
    
    6,010Total current assets
    
    
    76,177
    
    
    
    74,316Property, equipment and software at cost
    
    
    32,944
    
    
    
    24,951Accumulated depreciation and amortization
    
    
    (7,838
    )
    
    
    (4,294
    )Property, equipment and software, net
    
    
    25,106
    
    
    
    20,657Goodwill
    
    
    151,915
    
    
    
    151,915Acquired curriculum and technology intangibles,
net
    
    
    33,063
    
    
    
    44,695Acquired publishing rights, net
    
    
    38,707
    
    
    
    52,312Other intangible assets, net
    
    
    22,132
    
    
    
    28,133Pre-publication costs, net
    
    
    7,834
    
    
    
    5,464Restricted assets, less current portion
    
    
    12,641
    
    
    
    14,930Other assets
    
    
    15,487
    
    
    
    1,419Total assets
    
    $
    383,062
    
    
    $
    393,841
 The accompanying Notes to the Consolidated Financial Statements are an integral part of
these statements.
  44




---



##### Table of Contents



Cambium Learning Group, Inc. and Subsidiaries
Consolidated Balance Sheets
 As of December 31,2010
    
    
    2009LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Notes payable  line of credit
    
    $
    
    
    
    $
    5,000Current portion of long-term debt
    
    
    1,280
    
    
    
    1,280Current portion of capital lease obligations
    
    
    378
    
    
    
    443Accounts payable
    
    
    6,465
    
    
    
    2,308Contingent value rights, current
    
    
    1,623
    
    
    
    3,950Accrued expenses
    
    
    22,888
    
    
    
    23,920Deferred revenue, current
    
    
    34,140
    
    
    
    21,465Total current liabilities
    
    
    66,774
    
    
    
    58,366Long-term liabilities:Long-term debt, less current portion
    
    
    150,850
    
    
    
    150,487Capital lease obligations, less current portion
    
    
    12,317
    
    
    
    12,695Deferred revenue, less current portion
    
    
    3,416
    
    
    
    2,716Contingent value rights, less current portion
    
    
    5,746
    
    
    
    5,649Other liabilities
    
    
    19,947
    
    
    
    24,156Total long-term liabilities
    
    
    192,276
    
    
    
    195,703Commitments and contingencies (See Note 19)Stockholders equity:Preferred stock ($.001 par value, 15,000 shares authorized,
zero shares issued and outstanding at December 31, 2010 and 2009)
    
    
    
    
    
    
    Common stock ($.001 par value, 150,000 shares authorized,
43,869 and 43,859 shares issued and outstanding at
December 31, 2010 and 2009)
    
    
    44
    
    
    
    44Capital surplus
    
    
    259,887
    
    
    
    258,789Accumulated deficit
    
    
    (135,218
    )
    
    
    (119,268
    )Other comprehensive income (loss):Pension and postretirement plans
    
    
    (702
    )
    
    
    206Net unrealized gain on securities
    
    
    1
    
    
    
    1Accumulated other comprehensive income (loss)
    
    
    (701
    )
    
    
    207Total stockholders equity
    
    
    124,012
    
    
    
    139,772Total liabilities and stockholders equity
    
    $
    383,062
    
    
    $
    393,841
 The accompanying Notes to the Consolidated Financial Statements are an integral part of these
statements.
  45




---



##### Table of Contents



Cambium Learning Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
 For the Years Ended December 31,(in thousands)
    
    2010
    
    
    2009
    
    
    2008Operating activities:Net loss
    
    $
    (15,950
    )
    
    $
    (35,765
    )
    
    $
    (69,560
    )Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:Depreciation and amortization expense
    
    
    37,665
    
    
    
    27,250
    
    
    
    27,419Goodwill impairment
    
    
    
    
    
    
    9,105
    
    
    
    75,966Gain from settlement with previous stockholders
    
    
    
    
    
    
    
    
    
    
    (30,202
    )Gain from recovery of property held for sale
    
    
    
    
    
    
    
    
    
    
    (1,578
    )Loss on extinguishment of debt  unamortized debt issuance costs
    
    
    
    
    
    
    
    
    
    
    4,594Non-cash interest expense
    
    
    2,124
    
    
    
    2,309
    
    
    
    1,701Amortization of deferred financing costs
    
    
    
    
    
    
    
    
    
    
    604Loss (gain) on derivative instruments
    
    
    (992
    )
    
    
    (1,390
    )
    
    
    848Change in fair value of contingent value rights obligation
    
    
    (1,124
    )
    
    
    
    
    
    
    Loss on disposal of assets
    
    
    89
    
    
    
    2
    
    
    
    Stock-based compensation and expense
    
    
    1,085
    
    
    
    37
    
    
    
    (618
    )Issuance of subscription rights
    
    
    
    
    
    
    2,222
    
    
    
    Deferred income taxes
    
    
    (1,063
    )
    
    
    (7,975
    )
    
    
    (13,526
    )Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (12,500
    )
    
    
    2,306
    
    
    
    (1,041
    )Inventory
    
    
    (2,203
    )
    
    
    4,725
    
    
    
    (3,152
    )Other current assets
    
    
    2,073
    
    
    
    3,022
    
    
    
    (355
    )Other assets
    
    
    (14,068
    )
    
    
    1,579
    
    
    
    (15
    )Restricted assets
    
    
    8,980
    
    
    
    (7,948
    )
    
    
    Accounts payable
    
    
    4,157
    
    
    
    (1,812
    )
    
    
    (2,941
    )Accrued expenses
    
    
    (40
    )
    
    
    4,980
    
    
    
    (2,651
    )Deferred revenue
    
    
    13,375
    
    
    
    497
    
    
    
    480Other long-term liabilities
    
    
    (1,447
    )
    
    
    (1,115
    )
    
    
    172Other, net
    
    
    
    
    
    
    (95
    )
    
    
    Net cash provided by (used in) operating activities
    
    
    20,161
    
    
    
    1,934
    
    
    
    (13,855
    )Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (1,106
    )
    
    
    (9,697
    )
    
    
    (112
    )Expenditures for property, equipment, software and
pre-publication costs
    
    
    (13,335
    )
    
    
    (3,395
    )
    
    
    (3,201
    )Settlement proceeds from previous stockholders
    
    
    
    
    
    
    
    
    
    
    30,202Net cash provided by (used in) investing activities
    
    
    (14,441
    )
    
    
    (13,092
    )
    
    
    26,889Financing activities:Repayment of debt
    
    
    (1,761
    )
    
    
    (5,585
    )
    
    
    (24,280
    )Principal payments under capital lease obligations
    
    
    (443
    )
    
    
    (289
    )
    
    
    (226
    )Borrowings under revolving credit agreement
    
    
    19,000
    
    
    
    10,000
    
    
    
    5,000Payment of revolving credit facility
    
    
    (24,000
    )
    
    
    (10,000
    )
    
    
    Proceeds from capital contributions
    
    
    (30
    )
    
    
    2,959
    
    
    
    684Proceeds from issuance of common stock in connection with the merger
    
    
    
    
    
    
    25,000
    
    
    
    Borrowings from affiliates
    
    
    
    
    
    
    
    
    
    
    7,000Net cash provided by (used in) financing activities
    
    
    (7,234
    )
    
    
    22,085
    
    
    
    (11,822
    )Increase (decrease) in cash and cash equivalents
    
    
    (1,514
    )
    
    
    10,927
    
    
    
    1,212Cash and cash equivalents, beginning of year
    
    
    13,345
    
    
    
    2,418
    
    
    
    1,206Cash and cash equivalents, end of year
    
    $
    11,831
    
    
    $
    13,345
    
    
    $
    2,418Supplemental disclosure of cash flow information:Income taxes paid (refunded)
    
    $
    15
    
    
    $
    (3,080
    )
    
    $
    742Interest paid
    
    
    12,002
    
    
    
    16,936
    
    
    
    16,215Supplemental disclosure of noncash investing and financing activities:Non-cash acquisition costs paid
    
    
    
    
    
    
    86,546
    
    
    
    Conversion of unsecured notes payable  affiliates
    
    
    
    
    
    
    
    
    
    
    7,000Assets received in settlement  property held for sale
    
    
    
    
    
    
    
    
    
    
    1,578
 The accompanying Notes to the Consolidated Financial Statements are an integral part of
these statements.
  46




---



##### Table of Contents



Cambium Learning Group, Inc. and Subsidiaries
 Consolidated Statements of Stockholders and Members Equity and Comprehensive Income (Loss)
 Additional
    
    
    
    
    
    
    Accumulated OtherCommon Stock
    
    
    Paid in
    
    
    Members
    
    
    Comprehensive
    
    
    Accumulated(Dollars and shares in thousands)
    
    Shares
    
    
    Par Value
    
    
    Capital
    
    
    Interest
    
    
    Income
    
    
    Deficit
    
    
    TotalBalance at December 31, 2007
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    144,023
    
    
    $
    
    
    
    $
    (13,943
    )
    
    $
    130,080Capital contribution by members
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,684
    
    
    
    
    
    
    
    
    
    
    
    7,684Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69,560
    )
    
    
    (69,560
    )Balance at December 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    151,707
    
    
    
    
    
    
    
    (83,503
    )
    
    
    68,204Capital contribution by members
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,959
    
    
    
    
    
    
    
    
    
    
    
    2,959Conversion of members interests to common shares in
connection with the merger (a)
    
    
    20,493
    
    
    
    20
    
    
    
    154,646
    
    
    
    (154,666
    )
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock to members in exchange for a
$25 million capital contribution in
connection with
the merger
    
    
    3,846
    
    
    
    4
    
    
    
    24,996
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,000Issuance of common stock to Voyager stockholders in
connection with the merger
    
    
    19,520
    
    
    
    20
    
    
    
    76,888
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,908Issuance of subscription rights in connection with
the merger
    
    
    
    
    
    
    
    
    
    
    2,222
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,222Stock-based compensation and expense
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,765
    )
    
    
    (35,765
    )Pension plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    206
    
    
    
    
    
    
    
    206Unrealized gain on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,558
    )Balance at December 31, 2009
    
    
    43,859
    
    
    
    44
    
    
    
    258,789
    
    
    
    
    
    
    
    207
    
    
    
    (119,268
    )
    
    
    139,772Issuance of restricted stock
    
    
    10
    
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25Stock-based compensation and expense
    
    
    
    
    
    
    
    
    
    
    1,103
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,103Distribution of former members interest
    
    
    
    
    
    
    
    
    
    
    (30
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,950
    )
    
    
    (15,950
    )Pension plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (908
    )
    
    
    
    
    
    
    (908
    )Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,858
    )Balance at December 31, 2010
    
    
    43,869
    
    
    $
    44
    
    
    $
    259,887
    
    
    $
    
    
    
    $
    (701
    )
    
    $
    (135,218
    )
    
    $
    124,012
 (a)
    
    As the previous members are also majority stockholders in Cambium Learning Group,
Inc., the common shares issued on December 8, 2009 in connection with the merger will be
considered outstanding for all periods presented for purposes of calculating earnings per
share.
 The accompanying Notes to the Consolidated Financial Statements are an integral part of
these statements.
  47




---



##### Table of Contents



Cambium Learning Group, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
 Note 1  Basis of Presentation
 Cambium Learning Group, Inc
  Fiscal Year
 Nature of Operations
    Segments
 Note 2  Significant Accounting Policies
 Use of Estimates
 Principles of Consolidation
  48




---



##### Table of Contents



Revenue Recognition
        49




---



##### Table of Contents



Accounts Receivable
 (in thousands)
    
    2008
    
    
    2009
    
    
    2010Beginning accounts receivable reserve
    
    $
    695
    
    
    $
    706
    
    
    $
    316Charged to costs and expenses
    
    
    18
    
    
    
    5
    
    
    
    62Charged to other accounts (1)
    
    
    (5
    )
    
    
    12
    
    
    
    218Recoveries
    
    
    
    
    
    
    11
    
    
    
    2Write-offs
    
    
    (2
    )
    
    
    (418
    )
    
    
    (41
    )Other
    
    
    
    
    
    
    
    
    
    
    Ending accounts receivable reserve
    
    $
    706
    
    
    $
    316
    
    
    $
    557
 (1)
    
    Charges to other accounts include sales returns
 Net Earnings (Loss) per Common Share
 For the Years Ended December 31,(in thousands)
    
    2010
    
    
    2009
    
    
    2008Basic
    
    
    44,322
    
    
    
    21,994
    
    
    
    20,493Dilutive effect of awards
    
    
    
    
    
    
    
    
    
    
    Diluted
    
    
    44,322
    
    
    
    21,994
    
    
    
    20,493Antidilutive securities:Options
    
    
    3,757
    
    
    
    2,256
    
    
    
    Warrants
    
    
    105
    
    
    
    72
    
    
    
    Subscription rights
    
    
    6,509
    
    
    
    4,711
    
    
    
    
  Cash and Cash Equivalents
 Inventory
 Restricted Assets
  50




---



##### Table of Contents



Property and Equipment
 Estimated Useful LifeBuilding
    
    35 yearsLand improvements
    
    19 yearsMachinery and equipment
    
    8 - 15 yearsFurniture and fixtures
    
    8 yearsComputer equipment and software
    
    3 - 5 yearsLeasehold improvements
    
    Lesser of useful life or lease term
  Purchased and Developed Software
 Acquired Curriculum and Technology
 Acquired Publishing Rights
 Pre-Publication Costs
 Goodwill and Other Intangible Assets
   51




---



##### Table of Contents



Depreciation and Amortization
 For the Years Ended December 31,(in thousands)
    
    2010
    
    
    2009
    
    
    2008Acquired publishing rights
    
    $
    13,605
    
    
    $
    13,949
    
    
    $
    13,566Acquired curriculum and technology
    
    
    11,632
    
    
    
    1,852
    
    
    
    1,328Pre-publication costs
    
    
    2,450
    
    
    
    1,707
    
    
    
    1,072Internally developed software related to product
    
    
    824
    
    
    
    19
    
    
    
    Total amortization included in cost of revenues
    
    
    28,511
    
    
    
    17,527
    
    
    
    15,966Tradenames and trademarks
    
    
    1,467
    
    
    
    1,349
    
    
    
    1,330Other intangible assets
    
    
    4,534
    
    
    
    6,555
    
    
    
    8,650Property, equipment and software
    
    
    3,153
    
    
    
    1,819
    
    
    
    1,473Total depreciation and amortization
included in operating expenses
    
    
    9,154
    
    
    
    9,723
    
    
    
    11,453Total depreciation and amortization
    
    $
    37,665
    
    
    $
    27,250
    
    
    $
    27,419
 Impairment of Long Lived Assets
 Deferred Costs
 Advertising Costs
 Income Taxes
  Royalty Advances
  52




---



##### Table of Contents



Sales Taxes
 Stock-Based Compensation
 Recently Issued Financial Accounting Standards
    Note 3  Embezzlement
  Year/Period
    
    Amount(in thousands)2007 and prior
    
    
    12,1962008
    
    
    1,800Total Embezzlement Loss
    
    $
    13,996
    53




---



##### Table of Contents



Note 4  Acquisitions
 Acquisition of VLCY
  
    
    Capitalizing on the complementary nature of the companies products to enhance certain products
with minimal development costs, achieve critical mass in certain markets, facilitate the
cross-selling of each others products to established customers, and expand sales and marketing
reach.
    
    Leveraging the companies combined implementation services and robust technological capabilities.
    
    Combining two experienced management teams to spread best practices, attract leading authors
and programs, and acquire additional product lines and business as opportunities arise.
    
    Increasing sales into existing and new markets of certain products through complementary sales
channels.
   
    
    at the election of the stockholder, either,
 
    
    one share of Company common stock, or
    
    $6.50 in cash, limited to a maximum of $67.5 million in the aggregate
and prorated in accordance with the merger agreement;
 
    
    plus, regardless of the election made,
 
    
    an amount in cash equal to the amount of certain tax refunds specified
in the merger agreement and received by VLCY prior to the closing of
the mergers (reduced by the amount of the VLCY tax refunds
contractually required to be placed in escrow at closing), divided by
the total number of shares of VLCY common stock outstanding
immediately prior to the effective time of the mergers; plus
    
    a Contingent Value Right (CVR) to receive cash in an amount equal to
the aggregate amount of specified tax refunds received after the
closing of the mergers and various other amounts deposited in escrow
on or after the closing date, reduced by any payments to be made under
the escrow agreement entered into in connection with the mergers, with
respect to agreed contingencies, a potential working capital
adjustment and allowed expenses, divided by the total number of shares
of VLCY common stock outstanding immediately prior to the effective
time of the mergers.
  54




---



##### Table of Contents



(in thousands)Cash paid to shareholders making the cash election
    
    $
    67,499Cash paid to shareholders for specified tax refunds
    
    
    15,523Fair value of shares of Company issued to shareholders
    
    
    76,907Fair value of equity awards converted at acquisition
    
    
    22Fair value of the Contingent Value Rights
    
    
    9,617Total consideration
    
    $
    169,568
     55




---



##### Table of Contents



(in thousands)Cash and cash equivalents
    
    $
    73,325Accounts receivable
    
    
    10,883Income tax receivable
    
    
    4,713Inventory
    
    
    11,687Other current assets
    
    
    11,919Property, plant and equipment
    
    
    3,216Intangible assets
    
    
    50,249Curriculum in development
    
    
    909Other assets
    
    
    11,891Accounts payable and accrued expenses
    
    
    (14,835
    )Deferred revenue
    
    
    (21,774
    )Capital lease obligations
    
    
    (187
    )Other liabilities
    
    
    (17,075
    )Goodwill
    
    
    44,647Total net assets acquired
    
    $
    169,568
  CambiumLearningVoyager
    
    
    Technologies
    
    
    Useful Life(in thousands)Curriculum and technology
    
    $
    23,700
    
    
    $
    19,000
    
    
    7 yearsCustomer relationships
    
    
    3,880
    
    
    
    1,500
    
    
    7 yearsTradenames and trademarks
    
    
    1,610
    
    
    
    559
    
    
    15 years
  Supplemental Pro Forma Information
  Year Ended(in thousands) (unaudited)
    
    December 31, 2009Net revenues
    
    $
    188,211Loss before income taxes
    
    
    (61,270
    )Net loss
    
    
    (61,270
    )Net loss per share  basic and diluted
    
    $
    (1.38
    )
  56




---



##### Table of Contents




    
    the pro forma impact of the amortization of intangible assets and the reduction
in deferred revenue and related deferred costs based on the purchase price
allocation;
    
    the pro forma impact of reduced interest income lost as a result of the $58.0
million of cash used in the purchase price consideration (net of $25.0 million
contributed by the sole stockholder of the Company at the time of the merger);
    
    the pro forma impact of certain employment agreements and stock option grants
entered into on the effective date of the merger, as well as the impact of certain
contractual obligations, severance, retention, and other payments that became
payable as a result of the merger;
    
    the elimination of merger transaction costs incurred by the Company and VLCY;
and
    
    the pro forma tax effect of the merger, which was estimated using a combined
company effective tax rate of 0%.
   Acquisition of Certain Assets of Tobii Assistive Technology, Inc.
  Note 5  Income Taxes
   Years Ended December 31,(in thousands)
    
    2010
    
    
    2009
    
    
    2008Current income tax expense (benefit):United States federal
    
    $
    1
    
    
    $
    
    
    
    $
    State and local
    
    
    888
    
    
    
    272
    
    
    
    103Current income tax expense
    
    
    889
    
    
    
    272
    
    
    
    103Deferred income tax benefitUnited States federal
    
    
    
    
    
    
    (5,571
    )
    
    
    (11,951
    )State and local
    
    
    (1,472
    )
    
    
    (2,405
    )
    
    
    (1,574
    )Deferred income tax benefit
    
    
    (1,472
    )
    
    
    (7,976
    )
    
    
    (13,525
    )Income tax benefit
    
    $
    (583
    )
    
    $
    (7,704
    )
    
    $
    (13,422
    )
  57




---



##### Table of Contents



Years Ended December 31,(in thousands)
    
    2010
    
    
    2009
    
    
    2008Statutory federal income tax benefit
    
    $
    (5,787
    )
    
    $
    (15,214
    )
    
    $
    (29,044
    )Increase (reduction) from:State taxes (net of federal benefit)
    
    
    (584
    )
    
    
    (1,378
    )
    
    
    (1,057
    )Goodwill impairment
    
    
    
    
    
    
    3,187
    
    
    
    26,588Purchase price adjustment
    
    
    
    
    
    
    
    
    
    
    (10,244
    )Merger transaction expenses
    
    
    
    
    
    
    4,745
    
    
    
    Change in valuation allowance
    
    
    6,436
    
    
    
    625
    
    
    
    122Other
    
    
    (648
    )
    
    
    331
    
    
    
    213Income tax benefit
    
    $
    (583
    )
    
    $
    (7,704
    )
    
    $
    (13,422
    )
  (in thousands)
    
    2010
    
    
    2009Deferred tax assets are attributable to:Net operating loss carryforwards
    
    $
    18,682
    
    
    $
    25,916Tax credit carryforwards
    
    
    7,673
    
    
    
    7,670Reserves
    
    
    4,940
    
    
    
    7,164Inventory
    
    
    5,697
    
    
    
    4,435Deferred financing costs
    
    
    1,569
    
    
    
    2,317Embezzlement loss
    
    
    1,404
    
    
    
    1,528Fixed assets
    
    
    1,472
    
    
    
    1,039Other
    
    
    728
    
    
    
    738Total gross deferred tax assets
    
    
    42,165
    
    
    
    50,807Valuation allowance
    
    
    (18,645
    )
    
    
    (14,312
    )Net deferred tax assets
    
    
    23,520
    
    
    
    36,495Deferred tax liabilities are attributable to:Intangibles
    
    
    (24,308
    )
    
    
    (33,981
    )Deferred revenue
    
    
    (38
    )
    
    
    (4,403
    )Total gross deferred tax liabilities
    
    
    (24,346
    )
    
    
    (38,384
    )Net deferred tax liability
    
    $
    (826
    )
    
    $
    (1,889
    )
  (in thousands)
    
    2010
    
    
    2009Short-term deferred tax asset
    
    $
    3,703
    
    
    $
    6,267Long-term deferred tax liability
    
    
    (4,529
    )
    
    
    (8,156
    )Net deferred tax asset (liability)
    
    $
    (826
    )
    
    $
    (1,889
    )
    58




---



##### Table of Contents



Amount as of
    
    
    Expire or start expiring(in thousands)
    
    December 31, 2010
    
    
    at the end of:U.S. net operating loss (1)
    
    $
    49,908
    
    
    
    2028State net operating loss carryforward (net):State tax net operating losses
    
    
    1,214
    
    
    
    2012-2028Tax credits:Minimum tax credit
    
    
    7,254
    
    
    Carry forward indefinitelyResearch and development tax credit
    
    
    419
    
    
    
    2014-2021Total tax credits
    
    
    7,673
 (1)
    
    $35.7 million of the U.S net operating loss (NOL) above is related to the VLCY acquisition. The utilization
of this NOL is subject to an annual limitation of $7.1 million.
   Uncertain Tax Positions
  (in thousands)
    
    2010
    
    
    2009Balance at the beginning of the year
    
    $
    15,437
    
    
    $
    Increases for acquisitions during the period
    
    
    
    
    
    
    14,685Increases for tax positions taken during the period
    
    
    
    
    
    
    752Decreases
for expiration of the statute of limitations
    
    
    (5,058
    )
    
    
    Decreases relating to settlements
    
    
    (3,181
    )
    
    
    Balance at the end of the year
    
    $
    7,198
    
    
    $
    15,437
   59




---



##### Table of Contents



Note 6  Property, Equipment and Software
  Year Ended December 31,2010
    
    
    2009Land and building
    
    $
    13,360
    
    
    $
    13,360Furniture and fixtures
    
    
    1,187
    
    
    
    775Machinery, computers and equipment
    
    
    6,947
    
    
    
    5,867Software
    
    
    10,431
    
    
    
    4,619Leasehold improvements
    
    
    1,019
    
    
    
    330Total
    
    
    32,944
    
    
    
    24,951Less accumulated depreciation and amortization
    
    
    7,838
    
    
    
    4,294Property,equipment and software, net
    
    $
    25,106
    
    
    $
    20,657
  60




---



##### Table of Contents



Note 7  Goodwill and Other Intangible Assets
  (in thousands)
    
    Publishing
    
    
    Voyager
    
    
    Sopris
    
    
    CLT
    
    
    TotalBalance as of December 31, 2008Goodwill
    
    $
    153,533
    
    
    $
    
    
    
    $
    
    
    
    $
    38,806
    
    
    $
    192,339Accumulated impairment losses
    
    
    (75,966
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (75,966
    )77,567
    
    
    
    
    
    
    
    
    
    
    
    38,806
    
    
    
    116,373Goodwill impairment
    
    
    (9,105
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,105
    )Allocation of Publishing goodwill
among Voyager and Sopris segments
    
    
    (68,462
    )
    
    
    51,162
    
    
    
    17,300
    
    
    
    
    
    
    
    Goodwill from acquisitions
    
    
    
    
    
    
    24,923
    
    
    
    
    
    
    
    19,724
    
    
    
    44,647Balance as of December 31, 2009Goodwill
    
    
    
    
    
    
    161,156
    
    
    
    17,300
    
    
    
    58,530
    
    
    
    236,986Accumulated impairment losses
    
    
    
    
    
    
    (85,071
    )
    
    
    
    
    
    
    
    
    
    
    (85,071
    )
    
    
    
    76,085
    
    
    
    17,300
    
    
    
    58,530
    
    
    
    151,915Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Goodwill from acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance as of December 31, 2010Goodwill
    
    
    
    
    
    
    161,156
    
    
    
    17,300
    
    
    
    58,530
    
    
    
    236,986Accumulated impairment losses
    
    
    
    
    
    
    (85,071
    )
    
    
    
    
    
    
    
    
    
    
    (85,071
    )$
    
    
    
    $
    76,085
    
    
    $
    17,300
    
    
    $
    58,530
    
    
    $
    151,915
     61




---



##### Table of Contents



Balance at
    
    
    
    
    
    
    
    
    
    
    Balance at
    
    
    
    
    
    
    
    
    
    
    Balance at(in thousands)
    
    December 31, 2008
    
    
    Additions
    
    
    Disposals
    
    
    December 31, 2009
    
    
    Additions
    
    
    Disposals
    
    
    December 31, 2010Other intangible assets  gross book value:Publishing rights
    
    $
    90,300
    
    
    $
    
    
    
    $
    
    
    
    $
    90,300
    
    
    $
    
    
    
    $
    
    
    
    $
    90,300Trademark
    
    
    15,580
    
    
    
    2,169
    
    
    
    
    
    
    
    17,749
    
    
    
    
    
    
    
    
    
    
    
    17,749Customer relationships
    
    
    13,739
    
    
    
    5,380
    
    
    
    
    
    
    
    19,119
    
    
    
    
    
    
    
    (39
    )
    
    
    19,080Contracts
    
    
    2,100
    
    
    
    
    
    
    
    
    
    
    
    2,100
    
    
    
    
    
    
    
    (2,100
    )
    
    
    Acquired curriculum and technology
    
    
    6,321
    
    
    
    42,700
    
    
    
    
    
    
    
    49,021
    
    
    
    
    
    
    
    
    
    
    
    49,021Reseller network
    
    
    12,300
    
    
    
    
    
    
    
    
    
    
    
    12,300
    
    
    
    
    
    
    
    
    
    
    
    12,300Conference attendees
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    500Non-compete
    
    
    2,600
    
    
    
    
    
    
    
    
    
    
    
    2,600
    
    
    
    
    
    
    
    (2,600
    )
    
    
    Total other intangibles  gross book value
    
    
    143,440
    
    
    
    50,249
    
    
    
    
    
    
    
    193,689
    
    
    
    
    
    
    
    (4,739
    )
    
    
    188,950Other intangible assets  accumulated
amortization:Publishing rights
    
    
    (24,039
    )
    
    
    (13,949
    )
    
    
    
    
    
    
    (37,988
    )
    
    
    (13,605
    )
    
    
    
    
    
    
    (51,593
    )Trademark
    
    
    (2,460
    )
    
    
    (1,349
    )
    
    
    
    
    
    
    (3,809
    )
    
    
    (1,467
    )
    
    
    
    
    
    
    (5,276
    )Customer relationships
    
    
    (7,175
    )
    
    
    (2,915
    )
    
    
    
    
    
    
    (10,090
    )
    
    
    (2,585
    )
    
    
    39
    
    
    
    (12,636
    )Contracts
    
    
    (1,487
    )
    
    
    (555
    )
    
    
    
    
    
    
    (2,042
    )
    
    
    (58
    )
    
    
    2,100
    
    
    
    Acquired curriculum and technology
    
    
    (2,474
    )
    
    
    (1,852
    )
    
    
    
    
    
    
    (4,326
    )
    
    
    (11,632
    )
    
    
    
    
    
    
    (15,958
    )Reseller network
    
    
    (5,426
    )
    
    
    (2,132
    )
    
    
    
    
    
    
    (7,558
    )
    
    
    (1,595
    )
    
    
    
    
    
    
    (9,153
    )Conference attendees
    
    
    (293
    )
    
    
    (86
    )
    
    
    
    
    
    
    (379
    )
    
    
    (53
    )
    
    
    
    
    
    
    (432
    )Non-compete
    
    
    (1,490
    )
    
    
    (867
    )
    
    
    
    
    
    
    (2,357
    )
    
    
    (243
    )
    
    
    2,600
    
    
    
    Total other intangibles  accumulated
amortization
    
    
    (44,844
    )
    
    
    (23,705
    )
    
    
    
    
    
    
    (68,549
    )
    
    
    (31,238
    )
    
    
    4,739
    
    
    
    (95,048
    )Other intangible assets, net
    
    $
    98,596
    
    
    $
    26,544
    
    
    $
    
    
    
    $
    125,140
    
    
    $
    (31,238
    )
    
    $
    
    
    
    $
    93,902
  Amortization -
    
    
    Amortization -
    
    
    Total(in thousands)
    
    Cost of Revenues
    
    
    Operating Expense
    
    
    Amortization2011
    
    $
    21,785
    
    
    $
    4,296
    
    
    $
    26,0812012
    
    
    17,519
    
    
    
    3,440
    
    
    
    20,9592013
    
    
    12,710
    
    
    
    2,779
    
    
    
    15,4892014
    
    
    8,978
    
    
    
    2,436
    
    
    
    11,4142015
    
    
    5,972
    
    
    
    2,175
    
    
    
    8,147Thereafter
    
    
    4,806
    
    
    
    7,006
    
    
    
    11,812$
    71,770
    
    
    $
    22,132
    
    
    $
    93,902
 Note 8  Other Current Assets
  (in thousands)
    
    2010
    
    
    2009Deferred costs
    
    $
    2,163
    
    
    $
    269Prepaid expenses
    
    
    1,463
    
    
    
    2,019Income taxes receivable
    
    
    249
    
    
    
    1,322Other current assets
    
    
    62
    
    
    
    Settlement receivable
    
    
    
    
    
    
    2,400Total
    
    $
    3,937
    
    
    $
    6,010
   62




---



##### Table of Contents



Note 9  Other Assets
  (in thousands)
    
    2010
    
    
    2009Tax receivables
    
    $
    11,168
    
    
    $
    Deferred financing costs
    
    
    1,542
    
    
    
    Collateral investments
    
    
    1,964
    
    
    
    1,061Other
    
    
    813
    
    
    
    358Total
    
    $
    15,487
    
    
    $
    1,419
  Note 10  Accrued Expenses
  (in thousands)
    
    2010
    
    
    2009Salaries, bonuses and benefits
    
    $
    10,183
    
    
    $
    12,428Accrued royalties
    
    
    3,220
    
    
    
    1,770Pension and post-retirement medical benefits
    
    
    1,209
    
    
    
    1,293Deferred compensation
    
    
    525
    
    
    
    633Interest rate swap
    
    
    
    
    
    
    992Other
    
    
    7,751
    
    
    
    6,804Total
    
    $
    22,888
    
    
    $
    23,920
  Note 11  Other Liabilities
  (in thousands)
    
    2010
    
    
    2009Pension and post-retirement medical benefits, long-term portion
    
    $
    10,847
    
    
    $
    10,509Long-term deferred tax liability
    
    
    4,529
    
    
    
    8,156Long-term income tax payable
    
    
    847
    
    
    
    1,255Long-term deferred compensation
    
    
    613
    
    
    
    1,179Other
    
    
    3,111
    
    
    
    3,057Total
    
    $
    19,947
    
    
    $
    24,156
   63




---



##### Table of Contents



Note 12  Leases
 Capital Lease Obligations
    Operating Leases
    (in thousands)2011
    
    $
    1,0732012
    
    
    1,1102013
    
    
    1,0922014
    
    
    1,1382015
    
    
    1,160Thereafter
    
    
    967Total minimum lease payments
    
    
    6,540Less: Amount representing interest
    
    
    (3,692
    )Present value of net minimum lease payments
    
    
    2,848Less: Current portion
    
    
    (378
    )Add: Remaining liability at end of build-to-suit lease
    
    
    9,847Capital lease obligations, less current portion
    
    $
    12,317
  64




---



##### Table of Contents



(in thousands)2011
    
    $
    1,4602012
    
    
    2,1752013
    
    
    1,6322014
    
    
    1,0142015
    
    
    774Thereafter
    
    
    2,061Total minimum lease payments
    
    $
    9,116
 Note 13  Fair Value of Financial Instruments
  
    
    Level 1  Quoted prices for identical instruments in active markets.
    
    Level 2  Quoted prices for similar instruments in active markets;
quoted prices for identical or similar instruments in markets that are
not active; and model-derived valuations in which significant value
drivers are observable.
    
    Level 3  Valuations derived from valuation techniques in which
significant value drivers are unobservable.
    65




---



##### Table of Contents



Fair Value at Reporting Date UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    Unobservable(in thousands)
    
    As of December 31,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs
    
    
    Total GainsDescription
    
    2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    (Losses)Restricted Assets:Money Market
    
    $
    15,705
    
    
    $
    15,705
    
    
    $
    
    
    
    $
    
    
    
    $
    Collateral Investments:Money Market
    
    
    901
    
    
    
    901
    
    
    
    
    
    
    
    
    
    
    
    Certificate of Deposit
    
    
    1,063
    
    
    
    1,063
    
    
    
    
    
    
    
    
    
    
    
    Warrant
    
    
    360
    
    
    
    
    
    
    
    360
    
    
    
    
    
    
    
    23Interest rate swap
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    992CVRs
    
    
    7,369
    
    
    
    
    
    
    
    
    
    
    
    7,369
    
    
    
    1,124
 Fair Value at Reporting Date UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    Unobservable
    
    
    Total(in thousands)
    
    As of December 31,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs
    
    
    GainsDescription
    
    2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    (Losses)Restricted Assets:Money Market
    
    $
    24,686
    
    
    $
    24,686
    
    
    $
    
    
    
    $
    
    
    
    $
    Collateral Investments:Certificate of Deposit
    
    
    1,061
    
    
    
    1,061
    
    
    
    
    
    
    
    
    
    
    
    Warrant
    
    
    280
    
    
    
    
    
    
    
    280
    
    
    
    
    
    
    
    1Interest rate swap
    
    
    992
    
    
    
    
    
    
    
    992
    
    
    
    
    
    
    
    1,390CVRs
    
    
    9,617
    
    
    
    
    
    
    
    
    
    
    
    9,617
    
    
    
    
    66




---



##### Table of Contents



Fair Value Measurements Using Significant Unobservable Inputs (Level 3)CVRs(In thousands)Loss (Gain) for ChangesEstimated Fair Value
    
    
    in Estimated CVR Liability
    
    
    Estimated Fair ValueComponents of CVR Liability:
    
    as of Merger Date
    
    
    2009
    
    
    2010
    
    
    as of December 31, 2010Tax refunds received before closing of the merger
    
    $
    1,583
    
    
    $
    
    
    
    $
    
    
    
    $
    1,583Other specified tax refunds
    
    
    5,932
    
    
    
    
    
    
    
    (1,431
    )
    
    
    4,501Tax indemnity obligation
    
    
    1,717
    
    
    
    
    
    
    
    
    
    
    
    1,717Legal receivable
    
    
    2,400
    
    
    
    
    
    
    
    
    
    
    
    2,400Michigan state tax liability
    
    
    (900
    )
    
    
    
    
    
    
    (140
    )
    
    
    (1,040
    )Other specified tax related liabilities
    
    
    (579
    )
    
    
    
    
    
    
    447
    
    
    
    (132
    )Costs incurred to collect tax refunds and by
stockholders representative
    
    
    (536
    )
    
    
    (18
    )
    
    
    
    
    
    
    (554
    )Estimated fair value of CVR liability
    
    
    9,617
    
    
    
    (18
    )
    
    
    (1,124
    )
    
    
    8,475Payments to holders of CVRs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,106Remaining estimated CVR liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,369
  CVR Escrow Trust(In thousands)Balance as of December 31, 2008
    
    $
    Funding of potential tax indemnity obligation
    
    
    3,000Tax refunds received
    
    
    4,964Costs incurred to collect tax refunds and by stockholders representative
    
    
    (18
    )Balance as of December 31, 2009
    
    
    7,946Tax refunds received
    
    
    370Funds received for legal receivable
    
    
    2,400Payments of specified liabilities
    
    
    (5,280
    )Payments to holders of CVRs
    
    
    (1,106
    )Costs incurred to collect tax refunds and by stockholders representative
    
    
    (152
    )Interest income
    
    
    1Balance as of December 31, 2010
    
    $
    4,179
  67




---



##### Table of Contents



Note 14  Debt
 Long-term debt consists of the following at December 31 2010 and 2009:
 (in thousands)
    
    2010
    
    
    2009$128.0 million of floating rate senior secured notes
due April 11, 2013, interest payable quarterly
    
    $
    95,408
    
    
    $
    97,169$64.2 million of 13.75% senior unsecured notes due
April 11, 2014, interest payable quarterly
    
    
    56,722
    
    
    
    54,598152,130
    
    
    
    151,767Less: Current portion of long-term debt
    
    
    (1,280
    )
    
    
    (1,280
    )Total long-term debt
    
    $
    150,850
    
    
    $
    150,487
 Permanent Waiver
          68




---



##### Table of Contents



Senior Secured Credit Facility
    Senior Unsecured Notes
  Covenants under the Senior Facility and Senior Unsecured Notes
     69




---



##### Table of Contents



Amendments to the Senior Facility and Senior Unsecured Notes
  
    
    Change in Control Definition. Prior to the amendment, the original investors in
Cambium Learning were required to own or control a majority of the outstanding
economic or voting interests of Cambium Learning. This majority threshold was
reduced to 35%.
    
    VSS Funds Ownership. VSS is not permitted to sell or otherwise transfer any of
the Companys common stock that it directly or indirectly owns, unless it continues
to directly or indirectly own or control at least 35% of the outstanding Company
common stock, and it has not sold or otherwise transferred, in the aggregate, more
than 15% of its Company common stock.
    
    Increase in Material Indebtedness. An event of default would occur if a change
in control occurred under any of Cambium Learnings other material indebtedness.
The term material indebtedness includes the Senior Unsecured Notes, as well as any
other debt, the principal amount of which exceeds a specified threshold. The $5
million threshold was increased under the amendment to $7.5 million.
    
    Exceptions to Restricted Payments. Cambium Learning is prohibited from paying
dividends, unless the specific type of payment is permitted. Additional types of
payments were permitted to allow the following:
 
    
    Up to $3.0 million to fund public company, administrative, overhead,
franchise tax and related costs incurred by the Company; and
    
    Up to $750,000 in annual board of director compensation and expenses.
 
    
    The annual monitoring fee previously payable to VSS was eliminated.
    
    Permitted Acquisition Basket Reset. The amount of consideration payable in an
acquisition is limited under the credit agreements, and the limitations were reset
after giving effect to the acquisition of Voyager Expanded Learning by Cambium
Learning in connection with the mergers. The limitation was reset to a cumulative
$150 million amount, but any single acquisition is limited to $20 million until the
ratio of senior secured debt to EBITDA (as calculated under the credit agreements)
does not exceed 2.50 to 1.0, and the ratio of total leverage to EBITDA (as
calculated under the credit agreements) does not exceed 3.50 to 1.0, at which time
the single acquisition limit will be increased to $100 million.
    
    Definition of Consolidated EBITDA. The definition of Consolidated EBITDA, which
is used for calculating leverage ratios under the senior secured credit agreement,
and the minimum EBITDA covenant under the Senior Unsecured Notes Agreement was
modified to allow additional add-backs for the following items:
 
    
    Deferred revenue associated with a permitted acquisition;
    
    Up to $24.0 million in M&A costs related to the mergers;
    
    Up to $2.0 million in costs incurred in closing of locations or lease
terminations in connection with the mergers;
    
    Up to $5.0 million in severance costs incurred in connection with the
mergers;
    
    Up to $3.0 million in integration costs incurred connection with the
mergers; and
    
    Merger and acquisition costs for future transactions (whether or not
completed) of up to $5.0 million for closed transactions and $0.5 million for
failed transactions in any calendar year, and $2.0 million in the aggregate.
    70




---



##### Table of Contents



(in thousands)
    
    20102011
    
    
    1,2802012
    
    
    1,2802013
    
    
    92,8482014
    
    
    64,2232015
    
    
    Thereafter
    
    
    Total debt repayment
    
    $
    159,631
   Note 15  Profit-Sharing, Pension, and Other Postretirement Benefit Plans
 Defined Contribution Plans
    Defined Benefit Plan
   71




---



##### Table of Contents



(in thousands)
    
    2010
    
    
    2009Service cost
    
    $
    
    
    
    $
    Interest cost
    
    
    584
    
    
    
    36Recognized net actuarial loss/(gain)
    
    
    908
    
    
    
    (206
    )Net pension and other postretirement
benefit cost (income)
    
    $
    1,492
    
    
    $
    (170
    )
 Obligation and Funded Status
  (in thousands)
    
    2010
    
    
    2009Change in Benefit ObligationBenefit obligation, beginning of period
    
    $
    11,734
    
    
    $
    12,010Service cost
    
    
    
    
    
    
    Interest cost
    
    
    584
    
    
    
    36Actuarial (gain)/loss
    
    
    908
    
    
    
    (206
    )Benefits paid
    
    
    (1,212
    )
    
    
    (106
    )Benefit obligation, end of year
    
    $
    12,014
    
    
    $
    11,734Change in Plan AssetsFair value, beginning of period
    
    $
    
    
    
    $
    Company contributions
    
    
    1,212
    
    
    
    106Benefits paid
    
    
    (1,212
    )
    
    
    (106
    )Fair value, end of year
    
    $
    
    
    
    $
    Funded/(unfunded) status
    
    $
    (12,014
    )
    
    $
    (11,734
    )Accrued benefit cost
    
    $
    (12,014
    )
    
    $
    (11,734
    )Amounts Recognized in the Consolidated Balance SheetsCurrent accrued benefit liability
    
    
    (1,182
    )
    
    
    (1,266
    )Non-current accrued benefit liability
    
    
    (10,832
    )
    
    
    (10,468
    )Net amount recognized
    
    $
    (12,014
    )
    
    $
    (11,734
    )
  Plan Assumptions
 2010
    
    
    2009Discount rate
    
    
    4.75
    %
    
    
    5.25
    %
  72




---



##### Table of Contents



Additional Information
  (in thousands)
    
    2010
    
    
    2009Projected benefit obligation
    
    $
    12,014
    
    
    $
    11,734Accumulated benefit obligation
    
    
    12,014
    
    
    
    11,734
 Future Contributions
   U.S. Retirement Plans(in thousands)
    
    (Pension Plan and RBP)2011
    
    $
    1,5562012
    
    
    1,2112013
    
    
    1,1732014
    
    
    1,1042015
    
    
    1,0662016 - 2020
    
    
    4,733
 Note 16  Stockholders/Members Equity
 Common Stock
 Shares Authorized and Outstanding
   
    
    20.5 million shares were issued to the former sole stockholder in consideration of its pre-merger interest;
    
    3.8 million shares were issued to the former sole stockholder as
consideration for a $25.0 million capital contribution made in
conjunction with the merger; and
    
    19.5 million shares were issued to the former VLCY stockholders as
part of the purchase price consideration for the acquisition.
 Voting Rights
 Dividend Rights
 Rights Upon Liquidation
  73




---



##### Table of Contents



Preemptive Rights; Subscription Rights
  Preferred Stock
 Shares Authorized and Outstanding
 Blank Check Preferred Stock
 Members Interest
 VSS-Cambium Holdings, LLC
 VSS-Cambium Management, LLC
  74




---



##### Table of Contents



Note 17  Stock-Based Compensation and Expense
  (in thousands)
    
    2010
    
    
    2009Cost of sales
    
    $
    58
    
    
    $
    Research and development expense
    
    
    123
    
    
    
    Sales and marketing expense
    
    
    136
    
    
    
    General and administrative expense
    
    
    768
    
    
    
    2,259Total
    
    $
    1,085
    
    
    $
    2,259
  Stock Option Plan
  Warrant
   The Cambium Specified Asset Recoupment Amount
  The Additional Share Amount
  75




---



##### Table of Contents



 The Formula Amount
 Subscription Right
  
 
  Fair Value of Stock Option and SAR Grants
   2009Expected stock volatility
    
    
    35.00
    %Risk-free interest rate
    
    
    1.02
    %Expected years until exercise
    
    
    0.10 - 2.56Dividend yield
    
    
    0.00
    %
  2009Expected stock volatility
    
    
    35.00
    %Risk-free interest rate
    
    
    2.69
    %Expected years until exercise
    
    
    6.25Dividend yield
    
    
    0.00
    %
  76




---



##### Table of Contents



2010Expected stock volatility
    
    
    35.00
    %Risk-free interest rate
    
    
    2.40% - 2.87
    %Expected years until exercise
    
    
    6.25Dividend yield
    
    
    0.00
    %
    Summary of Stock Option and SAR Activity
  Stock Option Grantees
    
    
    SAR Grantee
    
    
    Restricted StockWeighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageShares
    
    
    Exercise
    
    
    Shares
    
    
    Exercise
    
    
    Shares
    
    
    Grant Date(000s)
    
    
    Price
    
    
    (000s)
    
    
    Price
    
    
    (000s)
    
    
    Fair ValueAwards outstanding at
December 31, 2009
    
    
    2,256
    
    
    $
    6.03
    
    
    
    200
    
    
    $
    8.55
    
    
    
    
    
    
    $
    For the year ended
December 31, 2010:Granted
    
    
    1,755
    
    
    
    5.01
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    3.90Exercised/Restricted Stock Vested
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited/cancelled
    
    
    254
    
    
    
    14.17
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Awards outstanding at
December 31, 2010
    
    
    3,757
    
    
    $
    5.01
    
    
    
    200
    
    
    $
    8.55
    
    
    
    10
    
    
    $
    3.90Awards exercisable at
December 31, 2010
    
    
    937
    
    
    $
    5.00
    
    
    
    200
    
    
    $
    8.55Weighted average fair value of
awards granted during the
year ended December 31, 2010
    
    $
    1.15
    
    
    
    
    
    
    $
    
  77




---



##### Table of Contents



WeightedAverageShares
    
    
    Grant Date(000s)
    
    
    Fair ValueNonvested awards outstanding at
December 31, 2009
    
    
    2,129
    
    
    $
    1.10For the year ended
December 31, 2010:Granted
    
    
    1,755
    
    
    
    1.15Vested
    
    
    916
    
    
    
    1.11Forfeited/cancelled
    
    
    148
    
    
    
    1.15Nonvested awards outstanding at
December 31, 2010
    
    
    2,820
    
    
    $
    1.21
    Awards Outstanding
    
    
    Awards ExercisableWeighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    Average
    
    
    WeightedNumber
    
    
    Remaining
    
    
    Average
    
    
    Number
    
    
    Remaining
    
    
    AverageRange of
    
    Outstanding
    
    
    Contractual
    
    
    Exercise
    
    
    Exercisable
    
    
    Contractual
    
    
    ExerciseExercise Price
    
    (000s)
    
    
    Life (Years)
    
    
    Price
    
    
    (000s)
    
    
    Life (Years)
    
    
    Price$4.50 and below
    
    
    2,742
    
    
    
    9.0
    
    
    $
    4.50
    
    
    
    702
    
    
    
    9.0
    
    
    $
    4.50$4.51  $6.50
    
    
    1,015
    
    
    
    9.0
    
    
    
    6.37
    
    
    
    235
    
    
    
    9.0
    
    
    
    6.49$6.51  $8.55
    
    
    200
    
    
    
    1.3
    
    
    
    8.55
    
    
    
    200
    
    
    
    1.3
    
    
    
    8.553,957
    
    
    
    8.6
    
    
    $
    5.19
    
    
    
    1,137
    
    
    
    7.7
    
    
    $
    5.62
  78




---



##### Table of Contents



Securities Authorized for Issuance
  Number of securitiesNumber of securities to be
    
    
    Weighted-average
    
    
    remaining available forissued upon exercise of
    
    
    exercise price of
    
    
    future issuance(in thousands, except per share amounts)
    
    outstanding options
    
    
    outstanding options
    
    
    under equityPlan Category
    
    and rights
    
    
    and rights
    
    
    incentive plan (a)Equity compensation plans approved
by security holders
    
    
    3,957
    
    
    $
    5.19
    
    
    
    1,033Equity compensation plans not
approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    3,957
    
    
    $
    5.19
    
    
    
    1,033
 (a)
    
    Excludes securities reflected in the first column, Number of securities to be issued upon
exercise of outstanding options and rights, and outstanding restricted stock.
 Note 18  Restructuring
  Total Amount
    
    
    Total Incurred as
    
    
    Incurred in Year
    
    
    Incurred in YearExpected to
    
    
    of December 31,
    
    
    Ended December 31,
    
    
    Ended December 31,(in thousands)
    
    be Incurred
    
    
    2010
    
    
    2010
    
    
    2009One-time termination benefits
    
    $
    1,286
    
    
    $
    1,286
    
    
    $
    743
    
    
    $
    543Warehouse move costs
    
    
    570
    
    
    
    570
    
    
    
    570
    
    
    
    $
    1,856
    
    
    $
    1,856
    
    
    $
    1,313
    
    
    $
    543
   One-Time Termination Benefits
    
    
    Warehouse Move Costs(in thousands)
    
    2010
    
    
    2009
    
    
    2010Beginning Accrual
    
    $
    505
    
    
    $
    
    
    
    $
    Accrual changes
    
    
    743
    
    
    
    543
    
    
    
    570Payments made
    
    
    (1,163
    )
    
    
    (38
    )
    
    
    (570
    )Ending Accrual
    
    $
    85
    
    
    $
    505
    
    
    $
    
  79




---



##### Table of Contents



Total
    
    
    Incurred in
    
    
    Incurred inTotal Amount
    
    
    Incurred as
    
    
    Year Ended
    
    
    Year EndedExpected to
    
    
    of December 31,
    
    
    December 31,
    
    
    December 31,(in thousands)
    
    be Incurred
    
    
    2009
    
    
    2009
    
    
    2008One-time termination benefits
    
    $
    314
    
    
    $
    314
    
    
    $
    16
    
    
    $
    238Other associated costs
    
    
    348
    
    
    $
    348
    
    
    
    40
    
    
    
    307$
    662
    
    
    $
    662
    
    
    $
    56
    
    
    $
    545
  Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,(in thousands)
    
    2009
    
    
    2008Beginning Accrual
    
    $
    48
    
    
    $
    60Accrual changes:One-time termination benefits
    
    
    16
    
    
    
    238Facility-related expenses
    
    
    40
    
    
    
    307Payments made:One-time termination benefits
    
    
    (64
    )
    
    
    (250
    )Facility-related expenses
    
    
    (40
    )
    
    
    (307
    )Ending Accrual
    
    $
    
    
    
    $
    48
 Note 19  Contingent Liabilities
     80




---



##### Table of Contents



Note 20  Related Party Transactions
 Agreements with VSS
        81




---



##### Table of Contents



Stockholders Agreement
  Board of Directors.
 
    
    the written consent of Vowel Representative, LLC, which
consent may be granted or withheld in its sole and absolute
discretion;
    
    the full distribution by the escrow agent of the CVR escrow
fund in accordance with the terms of the escrow agreement
entered into in connection with the merger transaction;
    
    the second anniversary of the effective time of the mergers
with respect to the Voyager Class II designees and the
third anniversary of the effective time with respect to the
Voyager Class III designees; or
    
    the date on which funds managed or controlled by VSS cease
to collectively beneficially own in the aggregate at least
10% of the issued and outstanding shares of the Companys
common stock.
  
    
    none of the funds managed or controlled by VSS nor
VSS-Cambium Holdings III, LLC will vote or otherwise take
any action to amend, modify or repeal the Companys
certificate of incorporation or bylaws to eliminate the
Class II or Class III director classes, to increase or
decrease the size of the board of directors or in any other
manner that would result in a breach of the Stockholders
Agreement; and
    
    VSS-Cambium Holdings III, LLC and funds managed or
controlled by VSS will vote or act by written consent to
maintain a classified or staggered board of directors, with
the director classes and other terms as set forth in the
Companys certificate of incorporation and bylaws.
 Preemptive Rights
 Subscription Rights.
  82




---



##### Table of Contents



Other Agreements
   Note 21  Segment Reporting
   Voyager:
  Sopris:
  Cambium Learning Technologies:
   83




---



##### Table of Contents



Other:
   CambiumLearning(in thousands)
    
    Voyager
    
    
    Sopris
    
    
    Technologies
    
    
    Other
    
    
    ConsolidatedYear ended December 31, 2008Product revenues
    
    $
    40,424
    
    
    $
    27,495
    
    
    $
    21,288
    
    
    $
    
    
    
    $
    89,207Service revenues
    
    
    7,924
    
    
    
    2,217
    
    
    
    383
    
    
    
    
    
    
    
    10,524Net revenues
    
    
    48,348
    
    
    
    29,712
    
    
    
    21,671
    
    
    
    
    
    
    
    99,731Cost of product revenues
    
    
    11,214
    
    
    
    6,003
    
    
    
    3,029
    
    
    
    
    
    
    
    20,246Cost of service revenues
    
    
    5,721
    
    
    
    1,489
    
    
    
    253
    
    
    
    
    
    
    
    7,463Amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,966
    
    
    
    15,966Total cost of revenues
    
    
    16,935
    
    
    
    7,492
    
    
    
    3,282
    
    
    
    15,966
    
    
    
    43,675Other operating expenses
    
    
    20,464
    
    
    
    13,562
    
    
    
    10,657
    
    
    
    4,837
    
    
    
    49,520Embezzlement and related expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,254
    
    
    
    7,254Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,966
    
    
    
    75,966Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,453
    
    
    
    11,453Net interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,434
    
    
    
    18,434Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    981
    
    
    
    981Gain from settlement with previous stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,202
    )
    
    
    (30,202
    )Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,632
    
    
    
    5,632Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,422
    )
    
    
    (13,422
    )Segment net income (loss)
    
    $
    10,949
    
    
    $
    8,658
    
    
    $
    7,732
    
    
    $
    (96,899
    )
    
    $
    (69,560
    )Year ended December 31, 2009Product revenues
    
    $
    44,329
    
    
    $
    23,431
    
    
    $
    22,625
    
    
    $
    
    
    
    $
    90,385Service revenues
    
    
    8,594
    
    
    
    1,754
    
    
    
    315
    
    
    
    
    
    
    
    10,663Net revenues
    
    
    52,923
    
    
    
    25,185
    
    
    
    22,940
    
    
    
    
    
    
    
    101,048Cost of product revenues
    
    
    10,678
    
    
    
    6,350
    
    
    
    2,537
    
    
    
    26
    
    
    
    19,591Cost of service revenues
    
    
    5,992
    
    
    
    1,093
    
    
    
    172
    
    
    
    
    
    
    
    7,257Amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,527
    
    
    
    17,527Total cost of revenues
    
    
    16,670
    
    
    
    7,443
    
    
    
    2,709
    
    
    
    17,553
    
    
    
    44,375Other operating expenses
    
    
    19,836
    
    
    
    10,008
    
    
    
    8,996
    
    
    
    22,170
    
    
    
    61,010Embezzlement and related expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    129
    
    
    
    129Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,105
    
    
    
    9,105Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,723
    
    
    
    9,723Net interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,477
    
    
    
    19,477Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    698
    
    
    
    698Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,704
    )
    
    
    (7,704
    )Segment net income (loss)
    
    $
    16,417
    
    
    $
    7,734
    
    
    $
    11,235
    
    
    $
    (71,151
    )
    
    $
    (35,765
    )Year ended December 31, 2010Product revenues
    
    $
    100,412
    
    
    $
    22,249
    
    
    $
    38,117
    
    
    $
    
    
    
    $
    160,778Service revenues
    
    
    17,527
    
    
    
    2,487
    
    
    
    468
    
    
    
    
    
    
    
    20,482Net revenues
    
    
    117,939
    
    
    
    24,736
    
    
    
    38,585
    
    
    
    
    
    
    
    181,260Cost of product revenues
    
    
    29,340
    
    
    
    6,514
    
    
    
    4,334
    
    
    
    1,395
    
    
    
    41,583Cost of service revenues
    
    
    16,455
    
    
    
    1,225
    
    
    
    628
    
    
    
    
    
    
    
    18,308Amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,511
    
    
    
    28,511Total cost of revenues
    
    
    45,795
    
    
    
    7,739
    
    
    
    4,962
    
    
    
    29,906
    
    
    
    88,402Other operating expenses
    
    
    37,621
    
    
    
    7,750
    
    
    
    18,684
    
    
    
    19,917
    
    
    
    83,972Embezzlement and related expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (353
    )
    
    
    (353
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,154
    
    
    
    9,154Net interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,292
    
    
    
    17,292Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (674
    )
    
    
    (674
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (583
    )
    
    
    (583
    )Segment net income (loss)
    
    $
    34,523
    
    
    $
    9,247
    
    
    $
    14,939
    
    
    $
    (74,659
    )
    
    $
    (15,950
    )
  84




---



##### Table of Contents



Note 22  Interim Financial Information  (Unaudited)
  First
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    Total(in thousands, except per share data)
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Year2010Net revenues
    
    $
    28,222
    
    
    $
    47,901
    
    
    $
    56,607
    
    
    $
    48,530
    
    
    
    181,260Operating expenses
    
    
    43,199
    
    
    
    45,345
    
    
    
    48,462
    
    
    
    44,169
    
    
    
    181,175Earnings (loss) before income taxes
    
    
    (19,355
    )
    
    
    (2,143
    )
    
    
    3,938
    
    
    
    1,027
    
    
    
    (16,533
    )Income tax (expense) benefit
    
    
    (85
    )
    
    
    (34
    )
    
    
    8
    
    
    
    694
    
    
    
    583Net income (loss)
    
    $
    (19,440
    )
    
    $
    (2,177
    )
    
    $
    3,946
    
    
    $
    1,721
    
    
    $
    (15,950
    )Basic income (loss) per share
    
    $
    (0.44
    )
    
    $
    (0.05
    )
    
    $
    0.09
    
    
    $
    0.04
    
    
    $
    (0.36
    )Diluted income (loss) per share
    
    $
    (0.44
    )
    
    $
    (0.05
    )
    
    $
    0.09
    
    
    $
    0.04
    
    
    $
    (0.36
    )2009Net revenues
    
    $
    15,794
    
    
    $
    20,976
    
    
    $
    40,972
    
    
    $
    23,306
    
    
    $
    101,048Operating expenses
    
    
    22,268
    
    
    
    31,918
    
    
    
    30,016
    
    
    
    40,140
    
    
    
    124,342Earnings (loss) before income taxes
    
    
    (11,214
    )
    
    
    (15,950
    )
    
    
    5,811
    
    
    
    (22,116
    )
    
    
    (43,469
    )Income tax (expense) benefit
    
    
    4,317
    
    
    
    2,099
    
    
    
    (1,373
    )
    
    
    2,661
    
    
    
    7,704Net income (loss)
    
    $
    (6,897
    )
    
    $
    (13,851
    )
    
    $
    4,438
    
    
    $
    (19,455
    )
    
    $
    (35,765
    )Basic income (loss) per share
    
    $
    (0.34
    )
    
    $
    (0.68
    )
    
    $
    0.22
    
    
    $
    (0.74
    )
    
    $
    (1.63
    )Diluted income (loss) per share
    
    $
    (0.34
    )
    
    $
    (0.68
    )
    
    $
    0.22
    
    
    $
    (0.74
    )
    
    $
    (1.63
    )
  Note 23  Subsequent Events
  9.75% Senior Secured Notes.
  85




---



##### Table of Contents



Registration Rights Agreement.
 New Credit Facility (ABL Facility).
     86




---



##### Table of Contents



Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A.
    
    Controls and Procedures.
 Managements Report on Internal Control Over Financial Reporting
 (a) Evaluation of Disclosure Controls and Procedures
   (b) Managements Report on Internal Control Over Financial Reporting
        (c) Changes in Internal Control Over Financial Reporting
   87




---



##### Table of Contents



Item 9B.
    
    Other Information.
  
 PART III
 
 Item 10.
    
    Directors, Executive Officers and Corporate Governance.
  
 Item 11.
    
    Executive Compensation.
  
 Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters.
  
 Item 13.
    
    Certain Relationships and
Related Transactions, and Director Independence.
  
 Item 14.
    
    Principal Accounting Fees and
Services.
  
 PART IV
 
 Item 15.
    
    Exhibits and Financial Statement Schedules.
 (a) 1. Financial statements:
  
    
    Reports of Independent Registered Public Accounting Firms
    
    Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008
    
    Consolidated Balance Sheets at December 31, 2010 and 2009
    
    Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008
    
    Consolidated Statements of Stockholders and Members Equity and Comprehensive Income
(Loss) for the years ended December 31, 2010, 2009 and 2008
    
    Notes to the Consolidated Financial Statements
 2. Financial statement schedules:
   88




---



##### Table of Contents



3. Exhibits and Financial Statement Schedules:
  ExhibitNumber

    
    Description*4.1
    
    
    Indenture, dated as of February 17, 2011, by and among Cambium
Learning Group, Inc., the Guarantors named therein and Wells
Fargo Bank, National Association, as Trustee (incorporated by
reference to Exhibit 4.1 of Cambium Learning Group, Inc.s
Current Report on Form 8-K dated February 17, 2011 (File No. 001-34575)).*4.2
    
    
    Form of 9.75% Senior Secured Note due 2017 (included in Exhibit
4.1) (incorporated by reference to Exhibit 4.2 of Cambium
Learning Group, Inc.s Current Report on Form 8-K dated February
17, 2011 (File No. 001-34575)).4.3
    
    

Loan
and Security Agreement, dated  as of February 17, 2011, by and among
Harris N.A. as Lender and as Agent, Barclays Bank PLC as
Collateral Agent, and  Cambium Learning, Inc. as Borrower.4.4
    
    

Purchase Agreement, dated as of February 14, 2011, for $175,000,000 Cambium Learning Group, Inc. 9.75% Senior Secured Notes due 2017.4.5
    
    

Registration Rights Agreement, dated as of February 17, 2011, by and among Cambium Learning Group, Inc., as the Guarantors and Barclays Capital Inc. and BMO Capital Markets Corp., as representatives of the several initial purchasers.*10.1
    
    
    Amendment No. 1, dated September 20, 2010, to Agreement and Plan
of Mergers, by and among Cambium Learning Group, Inc., Voyager
Learning Company, Vowel Acquisition Corp., VSS-Cambium Holdings
II Corp., Consonant Acquisition Corp. and Vowel Representative,
LLC (incorporated by reference to Exhibit 10.1 of Cambium
Learning Group, Inc.s Current Report on Form 8-K dated
September 20, 2010 (File No. 001-34575)).*10.2
    
    
    Amendment No. 1, dated September 20, 2010, to Escrow Agreement,
by and among Wells Fargo Bank, National Association, the
Company, Voyager Learning Company, Vowel Representative, LLC and
Richard J. Surratt (incorporated by reference to Exhibit 10.2 of
Cambium Learning Group, Inc.s Current Report on Form 8-K dated
September 20, 2010 (File No. 001-34575)).*10.3
    
    
    Office Lease Agreement Between Briargrove Place, L.L.C and
Cambium Learning, Inc. Dated July 9, 2010 (incorporated by
reference to Exhibit 10.1 of Cambium Learning Group, Inc.s
Current Report on Form 8-K dated July 9, 2010 (File No. 001-34575)).21.1
    
    
    Subsidiaries of Cambium Learning Group, Inc.23.1
    
    
    Consent of Grant Thornton LLP.23.2
    
    
    Consent of Whitley Penn LLP.31.1
    
    

Certification
of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.31.2
    
    
    Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.32.1
    
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification of Senior Vice President and Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  89




---



##### Table of Contents



SIGNATURES
  Date: March 10, 2011
    Cambium Learning Group, Inc.By:
    /s/ Bradley C. AlmondBradley C. AlmondSenior Vice President and
Chief Financial Officer  Signature
    
    Title
    
    Date/s/ Ronald Klausner

Ronald Klausner
    
    Director and Chief Executive Officer
(Principal Executive Officer)
    
    March 10, 2011/s/ David F. Cappellucci

David F. Cappellucci
    
    Director and President
    
    March 10, 2011/s/ Bradley C. Almond

Bradley C. Almond
    
    Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
    
    March 10, 2011/s/ Barbara Benson

Barbara Benson
    
    Vice President and Controller
(Principal Accounting Officer)
    
    March 10, 2011/s/ Harold O. Levy

Harold O. Levy
    
    Director
    
    March 10, 2011/s/ Thomas Kalinske

Thomas Kalinske
    
    Director
    
    March 10, 2011/s/ Neil Weiner

Neil Weiner
    
    Director
    
    March 10, 2011/s/ Frederick J. Schwab

Frederick J. Schwab
    
    Director
    
    March 10, 2011/s/ Scott J. Troeller

Scott J. Troeller
    
    Director
    
    March 10, 2011/s/ Richard J. Surratt

Richard J. Surratt
    
    Director
    
    March 10, 2011/s/ Jeffrey T. Stevenson

Jeffrey T. Stevenson
    
    Director
    
    March 10, 2011
  90




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber

    
    Description*4.1
    
    
    Indenture, dated as of February 17, 2011, by and among Cambium
Learning Group, Inc., the Guarantors named therein and Wells
Fargo Bank, National Association, as Trustee (incorporated by
reference to Exhibit 4.1 of Cambium Learning Group, Inc.s
Current Report on Form 8-K dated February 17, 2011 (File No. 001-34575)).*4.2
    
    
    Form of 9.75% Senior Secured Note due 2017 (included in Exhibit
4.1) (incorporated by reference to Exhibit 4.2 of Cambium
Learning Group, Inc.s Current Report on Form 8-K dated February
17, 2011 (File No. 001-34575)).4.3
    
    

Loan
and Security Agreement, dated  as of February 17, 2011, by and among
Harris N.A. as Lender and as Agent, Barclays Bank PLC as
Collateral Agent, and  Cambium Learning, Inc. as Borrower.4.4
    
    

Purchase Agreement, dated as of February 14, 2011, for $175,000,000 Cambium Learning Group, Inc. 9.75% Senior Secured Notes due 2017.4.5
    
    

Registration Rights Agreement, dated as of February 17, 2011, by and among Cambium Learning Group, Inc., as the Guarantors and Barclays Capital Inc. and BMO Capital Markets Corp., as representatives of the several initial purchasers.*10.1
    
    
    Amendment No. 1, dated September 20, 2010, to Agreement and Plan
of Mergers, by and among Cambium Learning Group, Inc., Voyager
Learning Company, Vowel Acquisition Corp., VSS-Cambium Holdings
II Corp., Consonant Acquisition Corp. and Vowel Representative,
LLC (incorporated by reference to Exhibit 10.1 of Cambium
Learning Group, Inc.s Current Report on Form 8-K dated
September 20, 2010 (File No. 001-34575)).*10.2
    
    
    Amendment No. 1, dated September 20, 2010, to Escrow Agreement,
by and among Wells Fargo Bank, National Association, the
Company, Voyager Learning Company, Vowel Representative, LLC and
Richard J. Surratt (incorporated by reference to Exhibit 10.2 of
Cambium Learning Group, Inc.s Current Report on Form 8-K dated
September 20, 2010 (File No. 001-34575)).*10.3
    
    
    Office Lease Agreement Between Briargrove Place, L.L.C and
Cambium Learning, Inc. Dated July 9, 2010 (incorporated by
reference to Exhibit 10.1 of Cambium Learning Group, Inc.s
Current Report on Form 8-K dated July 9, 2010 (File No. 001-34575)).21.1
    
    
    Subsidiaries of Cambium Learning Group, Inc.23.1
    
    
    Consent of Grant Thornton LLP.23.2
    
    
    Consent of Whitley Penn LLP.31.1
    
    

Certification
of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.31.2
    
    

Certification
of the Principal  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.32.1
    
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification of Senior Vice President and Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  91