This section should be read in conjunction with the Consolidated Financial Statements of the Company and the notes thereto included in this Annual Report on Form 10-K for the year ended December 31, 2012.

Organization of Information

Management's Discussion and Analysis of Financial Condition and Results of Operations includes the following sections:

• Overview

• Results of Operations

• Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

• Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

• 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

On December 8, 2009, we completed the business combination of Cambium and VLCY as contemplated by the Agreement and Plan of Mergers, dated as of June 20, 2009, among us, VLCY, Vowel Acquisition Corp., our wholly-owned subsidiary, Cambium, a wholly-owned subsidiary of VSS-Cambium Holdings III, LLC, Consonant Acquisition Corp., our wholly owned subsidiary, and Vowel Representative, LLC, solely in its capacity as stockholders' representative. We refer to this agreement and plan of mergers in this report as the merger agreement. Pursuant to the merger agreement, we acquired all of the common stock of each of Cambium and VLCY through the merger of Consonant Acquisition Corp. with and into Cambium, with Cambium continuing as the surviving corporation (the "Cambium Merger"), and the concurrent merger of Vowel Acquisition Corp. with and into VLCY, with VLCY continuing as the surviving corporation (the "Voyager Merger"). As a result of the effectiveness of the mergers, Cambium and VLCY became our wholly owned subsidiaries.

Under the terms of the merger agreement, each outstanding share of VLCY's common stock was converted in the Voyager Merger into the right to receive at the election of each stockholder, either (i) $6.50 in cash, without interest, or
(ii) one share of our common stock, plus, regardless of the election made, additional consideration consisting of cash and a contingent value right, as described in the merger agreement. The amount of cash available to satisfy cash elections by the VLCY stockholders was limited to $67.5 million in the aggregate. The cash consideration payable to the former VLCY stockholders was insufficient to accommodate all of the cash elections that were made. Accordingly, the amount of cash paid to the former VLCY stockholders who elected to exchange shares of VLCY common stock for cash was reduced, pro rata, in accordance with agreed procedures set forth in the merger agreement. Pursuant to these procedures, we paid $67.5 million in cash to the former holders of VLCY's common stock and issued to those stockholders a total of 19.5 million shares of common stock. The cash consideration paid to the former VLCY stockholders consisted of $25 million contributed by VSS-Cambium Holdings III, LLC and $42.5 million contributed by VLCY. In exchange for its contribution of $25 million, VSS-Cambium Holdings III, LLC received 3.8 million shares of our common stock issued at the ascribed value of $6.50 per share. The shares of Cambium's common stock held by VSS-Cambium Holdings III, LLC, its sole stockholder, were converted in the Cambium Merger into the right to receive 20.5 million shares of our common stock. In addition, as part of the merger consideration, VSS-Cambium Holdings III, LLC received a warrant to purchase a number of shares of our common stock determined by a

formula set forth in the merger agreement, which is currently equal to 737,213 shares. In connection with the consummation of this transaction, we entered into a stockholders agreement pursuant to which we granted VSS-Cambium Holdings III, LLC and funds managed and controlled by VSS the right to purchase up to 7.5 million shares of our common stock as provided for in the stockholders agreement as well as certain preemptive rights set forth therein. In August 2011, VSS-Cambium Holdings III, LLC, exercised its subscription rights in full to purchase 7,246,376 shares of our common stock, at a purchase price of $2.76 per share, or an aggregate purchase price of $20.0 million.

The merger transaction was accounted for as an "acquisition" of VLCY by Cambium, as that term is used under GAAP, for accounting and financial reporting purposes under the applicable accounting guidance for business combinations. In making this determination, management considered that (a) the newly developed entity did not have any significant pre-combination activity and, therefore, did not qualify to be the accounting acquirer, and (b) the former sole stockholder of Cambium is the majority holder of the combined entity, while the prior owners of VLCY became minority holders in the combined entity. As a result, the historical financial statements of Cambium have become the historical financial statements of the Company. The results of VLCY are included in the Company's operations beginning with the December 8, 2009 merger date; therefore, the 2009 financials include VLCY for the last 23 days of that year and the results of the Company for the full year.

We operate as two reportable segments with separate management teams and infrastructures that offer various products and services, as follows:

• VSL, which provides educators with results-based products, services and learning solutions that improve school and student performance in literacy and math; and

• CLT, which creates software and hardware products that serve students from Pre-K through adult and enable the educators who help them learn.

Unallocated shared services, such as accounting, legal, human resources and corporate-related items, are recorded in a "Shared Services" category. Depreciation and amortization expense, interest income and expense, other income and expense, goodwill impairments, and taxes are included in this Shared Services category.

In 2011 and 2010, we reported separate segment results for Voyager Learning, a comprehensive intervention business, and Sopris Learning, a supplemental solutions education business. In late 2012, the management teams and infrastructures for these operations were merged into our combined VSL business unit. Our historical segment reporting results have been combined for comparative purposes to reflect the current organizational structure. See Note 21 to the Consolidated Financial Statements for further information on our reportable segments.

Results of Operations

Highlights

Fiscal Year 2012

Constraints on federal and state funding to our school district customers continued to pose challenges to our performance in fiscal year 2012. During the first three quarters of 2012, order volumes declined versus 2011. This is in large part attributable to the expiration of the ARRA funding in September 2011. We expect governmental spending austerity to continue and have a depressive effect on general education spending and, therefore, make order volume growth challenging. However, the fourth quarter 2012 order volumes were better than the fourth quarter 2011, indicating that there could be stabilization of order volume declines when considering a more comparative funding environment.

The decline in overall order volumes were partially offset by growth in the CLT segment's Learning A-Z and ExploreLearning product lines and in our service offerings within the VSL segment led by the school turnaround product line. These pockets of growth are promising, and we believe that we will continue to see growth in services and technology offerings.

In order to align our organization to our strategic goals and to provide savings as a means to fund our strategic initiatives, we completed a series of reengineering and restructuring initiatives starting in late 2011 and continuing throughout 2012. Reengineering and restructuring activities included:

• Obtaining new leadership and employee skill sets that support our transformation to focus more heavily on technology solutions and services and other strategic objectives;

• Outsourcing warehouse operations to a third party logistics provider, which will allow us to take advantage of a lower and more variable cost structure for our print based products, as well as locate operations closer to the geographic center of our nationwide customer base;

• Rationalizing facilities space by consolidating facilities and subleasing entire or partial facilities where feasible;

• Assessing and implementing optimization projects to improve cost efficiencies and enhance the customer experience throughout the order to cash, professional service delivery, procurement processes, and sales channel structure;

• Reduction of job positions that do not support the Company's key strategic goals; and

• Other reductions and costs to improve our cost structure.

The total expense for all reengineering and restructuring initiatives from the fourth quarter of 2011 through the end of 2012 was $9.6 million, including both cash and non-cash items, and capital expenditures were $0.7 million. We realized approximately $5.0 million in savings in 2012 from these activities. The reengineering and restructuring activities are expected to yield cumulative savings in 2013 of approximately $14.0 million relative to 2011 spending levels. The Company further expects to continue on this path to ultimately secure cumulative annualized savings of $15.0 million, a part of which is intended to be reinvested in critical growth areas.

The CLT segment is considered one of our critical growth areas, particularly the Learning A-Z and ExploreLearning product lines within that segment. As such, to foster growth in 2012, we increased CLT segment expenditures for research and development and sales and marketing. Our spending for the VSL segment in 2012 was held relatively flat with 2011 levels, excluding the reengineering and restructuring initiatives and volume-driven costs such as cost of goods sold and sales commissions. Given the order volume declines within the VSL segment, we plan to reduce spending in 2013. Reengineering and restructuring activities, cost reduction actions taken at the end of 2012 and the recent merger of the Voyager Learning and Sopris Learning segments will provide the expected cost savings. Reductions in spending are expected in cost of revenues, research and development expense, sales and marketing expense, and general and administrative expense.

During 2012, we recorded goodwill impairment charges of $66.9 million, with VSL segment goodwill written down by $52.2 million and goodwill related to the Kurzweil Educational Systems and IntelliTools product lines in the CLT segment written down by $14.7 million. The goodwill impairment was the result of a decline in order volumes and a reduction in our estimates of future cash flows primarily impacted by expected continued funding pressure. These same triggering factors resulted in impairment charges of $27.8 million related to VSL segment's intangible assets including Acquired curriculum and technology intangibles, Acquired publishing rights and Other intangible assets.

Fiscal Year 2011

In fiscal year 2011, we experienced overall order volume declines driven by the VSL segment, partially offset by order volume growth in the CLT segment. The adverse education funding environment impacted our intervention products in particular. The Company believes that results were also adversely impacted by certain internal factors, such as decreased focus on the customer experience, an over-reliance on the field sales force versus utilizing multiple channels of sales and marketing, and delays in strategic decision making.

The VSL segment experienced growth in the first half of 2011, which we believe was at least partially attributable to some positive impact, both directly and indirectly, from ARRA funding and also due to growth in our service offerings. However, the educational funding environment remained challenging and order volumes gained in the first half of the year were lost during the third quarter. Order volumes declined even further in the fourth quarter as most of the ARRA funding expired in September 2011 and several large multi-year transactions completed in the fourth quarter of 2010 could not be replicated in 2011. In October 2011 we completed the acquisition of Class.com. Class.com provides high-quality, research proven, online instruction, supplemental education, and intervention programs online and through its fully accredited high school, Lincoln National Academy.

Our CLT segment had another year of order volume growth, as the market acceptance for technology-based solutions has been robust and appears less impacted by funding issues. CLT growth was also fueled by investments made in prior years for product development, sales and marketing. Within the CLT segment we continued to experience significant growth in our two online offerings, ExploreLearning and Learning A-Z. This growth was partially offset by declines in the Kurzweil and IntelliTools product lines.

Expenses in 2011 benefitted from our 2010 cost-savings initiatives. We continued to pursue cost-savings and productivity initiatives in 2011, although not to the same extent as in 2010, and we redeployed these savings into growth investments. Investments in 2011 were focused on our digital assets, including our student data management system, our online subscription products, new online adaptive solutions, and online intervention programs for math and literacy.

We recorded goodwill impairment charges in 2011 of $19.2 million related to our VSL segment and $18.4 million related to the Kurzweil Educational Systems and IntelliTools product lines in our CLT segment. The goodwill impairment charges were primarily the result of the 2011 declines in order volumes and the expected near term impact of continued funding pressures on these two reporting units.

The following tables set forth information on results and percentages for the years ended December 31, 2012, 2011 and 2010 regarding Cambium's net revenues, costs and expenses, and other components of our statements of operations.

                                          Year Ended                      Year Ended                      Year Ended
(in thousands)                        December 31, 2012                December 31, 2011               December 31, 2010
                                                     % of                            % of                            % of
                                    Amount         Revenues         Amount         Revenues         Amount         Revenues
Net revenues:
Product revenues
Voyager Sopris Learning           $   78,463            52.8 %     $ 102,853            59.7 %     $ 122,661            67.7 %
Cambium Learning Technologies         51,284            34.5 %        48,993            28.4 %        38,117            21.0 %
Service revenues
Voyager Sopris Learning               18,399            12.4 %        19,914            11.6 %        20,014            11.0 %
Cambium Learning Technologies            413             0.3 %           498             0.3 %           468             0.3 %

Total net revenues                   148,559           100.0 %       172,258           100.0 %       181,260           100.0 %
Cost of revenues:
Cost of product revenues
Voyager Sopris Learning               26,406            17.8 %        29,879            17.3 %        35,854            19.8 %
Cambium Learning Technologies          4,644             3.1 %         4,121             2.4 %         4,334             2.4 %
Shared Services                        1,578             1.1 %             2             0.0 %         1,395             0.8 %
Cost of service revenues
Voyager Sopris Learning               17,679            11.9 %        18,372            10.7 %        17,680             9.8 %
Cambium Learning Technologies            656             0.4 %           791             0.5 %           628             0.3 %
Amortization expense                  24,716            16.6 %        27,799            16.1 %        28,511            15.7 %

Total cost of revenues                75,679            50.9 %        80,964            47.0 %        88,402            48.8 %
Research and development
expense                               10,907             7.3 %         9,933             5.8 %        10,558             5.8 %
Sales and marketing expense           46,367            31.2 %        45,747            26.6 %        45,987            25.4 %
General and administrative
expense                               21,427            14.4 %        23,456            13.6 %        23,857            13.2 %
Shipping and handling costs            2,834             1.9 %         2,259             1.3 %         3,570             2.0 %
Depreciation and amortization
expense                                6,182             4.2 %         7,224             4.2 %         9,154             5.1 %
Goodwill impairment                   66,893            45.0 %        37,618            21.8 %            -              0.0 %
Embezzlement and related
expense (recoveries)                     516             0.3 %        (3,096 )          (1.8 )%         (353 )          (0.2 )%
Impairment of long-lived assets       33,707            22.7 %            -              0.0 %            -              0.0 %

Income (loss) before interest,
other income (expense) and
income taxes                        (115,953 )         (78.1 )%      (31,847 )         (18.5 )%           85             0.0 %
Net interest income (expense)        (18,683 )         (12.6 )%      (18,431 )         (10.7 )%      (17,292 )          (9.5 )%
Other income (expense), net            1,125             0.8 %           848             0.5 %           674             0.4 %
Income tax benefit (expense)            (272 )          (0.2 )%          (11 )          (0.0 )%          583             0.3 %

Net loss                          $ (133,783 )         (90.1 )%    $ (49,441 )         (28.7 )%    $ (15,950 )          (8.8 )%

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Net revenues

Net revenues for the year ended December 31, 2012 decreased $23.7 million, or 13.8%, to $148.6 million from $172.3 million in the same period for 2011. This decrease in net revenue was primarily driven by a decline in order volume in our VSL segment and our Kurzweil/IntelliTools product lines within the CLT segment. These reductions were partially offset by growth in the CLT segment's Learning A-Z and ExploreLearning product lines.

Voyager Sopris Learning. The VSL segment's net revenues in 2012 decreased $25.9 million, or 21.1%, to $96.9 million from net revenues of $122.8 million in 2011. This decrease in net revenue was primarily driven by

a decline in product order volume. Product revenues decreased $24.4 million, or 23.7%, to $78.5 million from net revenues of $102.9 million in 2011. Service revenues decreased $1.5 million, or 7.6%, to $18.4 million from net revenues of $19.9 million in 2011. Although order volumes were higher in 2012 for services, revenues are recognized as the services are performed and the timing of the revenue recognition resulted in a year over year decrease.

Cambium Learning Technologies. The CLT segment's net revenues in 2012 increased $2.2 million, or 4.5%, to $51.7 million from net revenues of $49.5 million in 2011. This increase in net revenue was primarily due to an increase in order volume in our Learning A-Z and ExploreLearning product lines partially offset by a decline in our Kurzweil/IntelliTools product lines.

Cost of revenues

Cost of product revenues include expenses to print, purchase, handle and warehouse product, as well as order processing and royalty costs. Cost of service revenues include costs to provide services and support to customers. Total cost of revenues, excluding amortization, for the year ended December 31, 2012 decreased $2.2 million, or 4.1%, to $51.0 million from $53.2 million in 2011. This decline in cost of revenues was primarily due to a decline in order volume. This decline was partially offset by $1.6 million in charges related to our reengineering and restructuring initiative and an increase in inventory reserves.

Voyager Sopris Learning. The VSL segment's cost of revenues in 2012 decreased $4.2 million, or 8.6%, to $44.1 million from $48.3 million in 2011. Cost of product revenues decreased $3.5 million, or 11.6%, to $26.4 million from $29.9 million in 2011. Cost of service revenues for the year ended December 31, 2012 decreased $0.7 million, or 3.8%, to $17.7 million from $18.4 million in 2011.

Cambium Learning Technologies. The CLT segment's cost of revenues in 2012 increased $0.4 million, or 7.9%, to $5.3 million from cost of revenues of $4.9 million in 2011. Cost of product revenues increased $0.5 million, or 12.7%, to $4.6 million from cost of product revenues of $4.1 million in 2011. Cost of service revenues decreased $0.1 million, or 17.1%, to $0.7 million from cost of service revenues of $0.8 million in 2011.

Amortization expense

Amortization expense included in cost of revenues includes amortization for acquired pre-publication costs and technology, acquired publishing rights, and developed pre-publication and technology. Amortization for 2012 decreased $3.1 million, or 11.1%, to $24.7 million from $27.8 million in 2011 due to the impact of the impairments recognized on certain of our intangible assets during the fourth quarter of 2012.

See "Critical Accounting Policies and Estimates" below and the Notes to the Consolidated Financial Statements for further information on our intangible asset impairment reviews.

Research and development expense

Research and development expenditures include costs to research, evaluate and develop educational products, net of capitalization. Research and development expenses for year ended December 31, 2012 increased $1.0 million, or 9.8%, to $10.9 million from $9.9 million in the same period of 2011. This increase was primarily due to increased investments in the CLT segment.

Sales and marketing expense

Sales and marketing expenditures include all costs to maintain our various sales channels, including the salaries and commission paid to our sales force, and costs related to our advertising and marketing efforts. Sales and marketing expenses for the year ended December 31, 2012 increased $0.7 million, or 1.4%, to $46.4 million from $45.7 million in the same period of 2011. This change is primarily due to increased investments in the CLT

segment, and also includes costs related to our restructuring and reengineering efforts. These increases were partially offset by declines in samples and commissions paid to our sales force commensurate with the decline in order volume.

General and administrative expense

General and administrative expenses for the year ended December 31, 2012 decreased $2.1 million, or 8.7%, to $21.4 million from $23.5 million in the same period of 2011. The decline includes the impact of cost reductions as a result of 2012 productivity initiatives. Additionally, 2012 general and administrative expense includes severance costs of $0.6 million, costs related to mergers and acquisitions of $0.8 million, stock based compensation of $0.6 million and a loss of $0.9 million to reflect an increase in the estimated fair value of the contingent value rights ("CVR") liability issued in connection with the merger. 2011 general and administrative expense includes severance costs of $0.9 million, costs related to mergers and acquisitions of $1.1 million, stock based compensation of $1.0 million and a loss of $1.3 million to reflect an increase in the estimated fair value of the CVR liability issued in connection with the merger.

Shipping and handling costs

Shipping costs for the year ended December 31, 2012 increased $0.5 million, or 25.5%, to $2.8 million from $2.3 million in 2011. $0.4 million of this increase is attributable to costs incurred to move inventory to the new warehouse as part of our reengineering and restructuring initiative partially offset by reduced shipping and handling costs from lower sales volumes. Additionally, costs can be impacted by geographical mix, carrier selection and timing. We will continue to work with our third party provider to ensure costs are as economical as possible and it is expected that we will gain efficiency in this area.

Depreciation and amortization expense

Depreciation and amortization expense for the year ended December 31, 2012 decreased $1.0 million, or 14.4%, to $6.2 million from $7.2 million in the same period of 2011. This decrease is primarily due to our use of accelerated amortization methodologies for the majority of our assets. Additionally, depreciation and amortization expense declined from 2011 due to the impact of the impairments recognized on certain of our intangible assets during the fourth quarter of 2012.

See "Critical Accounting Policies and Estimates" below and the Notes to the Consolidated Financial Statements for further information on our intangible asset impairment reviews.

Goodwill impairment

We review the carrying value of goodwill for impairment at least annually and whenever certain triggering events occur.

We determined during the second quarter of 2012 that the goodwill balance for the reporting unit comprising the Kurzweil and IntelliTools product lines from the CLT segment was partially impaired. As such an impairment charge of $14.7 million was recorded. The goodwill impairment charge was primarily the result of lowered forecasts of future sales for that reporting unit.

As a result of our annual impairment review for the year ended December 31, 2012, the goodwill balance for the VSL segment was determined to be partially impaired, and an impairment charge of $52.2 million was recorded. Order volumes for the VSL segment declined in 2011 and 2012, and our estimates of future cash flows were impacted by expected continued funding pressure. The decline in supplemental funding sources that school districts use to purchase our products has resulted in significant reductions to curriculum and programs for struggling students. We do not expect federal funding to improve in the near term and, as a result, customer retention and sales growth may be challenging.

See "Critical Accounting Policies and Estimates" below and the Notes to the Consolidated Financial Statements for further information on our goodwill impairment reviews.

Embezzlement and related expense (recoveries)

In 2008, we discovered certain irregularities relating to the control and use of cash and certain other general ledger items which revealed a misappropriation of assets over more than a three-year period beginning in 2004 and continuing . . .