Growth and Value Plan & Discontinued Operations

On September 12, 2011, we announced that our Board of Directors had unanimously approved a comprehensive Growth and Value Plan that includes separation into two companies: McGraw Hill Financial, focused on providing essential information to the capital, commodities and commercial markets, and McGraw-Hill Education ("MHE"), focused on education products and services and digital learning. The Growth and Value Plan has been focused on accelerating growth and increasing shareholder value through not only this separation, but also through substantial cost-cutting initiatives and increased share repurchases.

As we approach the completion of the Growth and Value Plan we have achieved our objectives under our Growth and Value Plan relating to the separation of MHE, cost reductions, increased shareholder return and investing / divesting in targeted assets that position us for long-term growth.

On November 26, 2012, we entered into a definitive agreement to sell MHE to investment funds affiliated with Apollo Global Management, LLC, for a purchase price of $2.5 billion subject to certain closing adjustments. As part of this transaction, McGraw-Hill will receive $250 million in senior unsecured notes issued by the purchaser at an annual interest rate of 8.5%. We are currently in the process of determining the fair value of these notes. For all periods presented in this Form 10-K, the results of operations of MHE have been reclassified to reflect the business as a discontinued operation and the assets and liabilities of the business have been reclassified as held for sale in the consolidated balance sheets. The sale of MHE is subject to various closing conditions and is anticipated to close in the first quarter of 2013. See Item 1a, Risk Factors, in this Form 10-K for updates to certain risk factors related to the sale.

The table below summarizes our costs related to the Growth and Value Plan including restructuring charges for the year ended December 31, 2012:



(in millions)
	Continuing		Discontinued
Professional fees	$	117	$	17
Restructuring charges	68		39
Transaction costs for our S&P Dow Jones Indices LLC joint venture	15		—
Charges related to lease commitments	8		3
Miscellaneous charges	18		2
	$	226	$	61

These are costs necessary to enable separation, reduce our cost structure, accelerate growth and increase shareholder value. Total costs incurred since the Growth and Value Plan was announced in September of 2011 have been $297 million.

The Growth and Value Plan costs are included in selling and general expenses in our consolidated statements of income as follows:



(in millions)	Years ended December 31,
	2012		2011
Growth and Value Plan costs	$	226	$	10
Other selling and general expenses	1,483		1,377
Total selling and general expenses	$	1,709	$	1,387

In addition to the sale of MHE, our discontinued operations for the years ended December 31, 2011 and 2010 also include the Broadcasting Group as we entered into a definitive agreement on October 3, 2011 with The E.W. Scripps Company to sell the Broadcasting Group. The sale was completed on December 30, 2011, when we received net proceeds of approximately $216 million. As a result of the sale, we recognized a pre-tax gain of $123 million, which was included in (loss) income from discontinued operations. For the year ended December 31, 2011 and prior periods presented, we reported our Broadcasting Group, previously included in our C&C segment, as a discontinued operation. The results of operations of the Broadcasting Group have been reclassified to reflect the business as a discontinued operation and assets and liabilities of the business have been removed from the consolidated balance sheet as of December 31, 2011.

The key components of (loss) income from discontinued operations consist of the following:



(in millions)	Years ended December 31,
	2012			2011			2010
Revenue	$	2,062		$	2,382		$	2,529
Expenses	2,287			2,035			2,135
Operating (loss) profit	(225		)	347			394
Interest income, net	(2		)	(3		)	(2		)
(Loss) income before taxes on (loss) income	(223		)	350			396
Provision for taxes on (loss) income	11			116			144
(Loss) income from discontinued operations before gain on sale	(234		)	234			252
Gain from discontinued operations, net of taxes of $48	—			74			—
(Loss) income from discontinued operations, net of tax	$	(234	)	$	308		$	252

Results from discontinued operations for the year ended December 31, 2012 included several non-recurring items:


•	Intangible asset impairments of $497 million that consisted of goodwill, prepublication and inventory assets at MHE's School Education Group ("SEG").


◦	As a result of the offer we received from Apollo Global Management, LLC in the fourth quarter of 2012, we performed a goodwill impairment review at MHE, which resulted in a full impairment of goodwill of $478 million at SEG.


◦	An impairment charge of $19 million was recorded on certain prepublication and inventory assets as targeted school programs were shut down.


•	Restructuring charges of $39 million consisting primarily of employee severance costs related to a workforce reduction of approximately 530 positions.


•	Direct transaction costs of $17 million for legal and professional fees related to the sale of MHE.


•	A charge related to a lease commitment of $3 million.


•	These charges were partially offset by a vacation accrual reversal of $17 million related to a change in our vacation policy as discussed in Note 1 – Accounting Policies.

The components of assets and liabilities classified as discontinued operations in the consolidated balance sheets consist of the following:



(in millions)	December 31,
	2012		2011
Accounts receivable, net	$	333	$	343
Property and equipment, net	122		127
Goodwill	469		944
Other intangible assets, net	156		181
Inventories, net	235		262
Prepublication costs	304		325
Other assets	321		326
Assets held for sale	$	1,940	$	2,508

Accounts payable and accrued expenses	123		157
Unearned revenue	192		117
Other liabilities	349		445
Liabilities held for sale	$	664	$	719