Goodwill and Other Intangibles

3 Months Ended

Feb. 28, 2013

Goodwill and Intangible Assets Disclosure [Text Block]

7. Goodwill and Other Intangibles

Goodwill and other intangible assets with indefinite lives are reviewed annually for impairment or more frequently if impairment indicators arise.

The following table summarizes the activity in Goodwill as of the dates indicated:

	February 28, 2013			May 31, 2012			February 29, 2012
Gross beginning balance	$	178.5		$	175.0		$	175.0
Accumulated impairment		(20.8	)		(20.8	)		(20.8	)
Beginning balance	$	157.7		$	154.2		$	154.2
Additions due to acquisition		—			2.7			7.8
Foreign currency translation		0.1			0.0			0.0
Other		0.2			0.8			0.9
Gross ending balance	$	178.8		$	178.5		$	183.7
Accumulated impairment		(20.8	)		(20.8	)		(20.8	)
Ending balance	$	158.0		$	157.7		$	162.9

On February 8, 2012, the Company acquired the business and certain assets of Weekly Reader®, a publisher of weekly educational classroom magazines designed for children in grades Pre-K–12, for $2.0 in cash and $4.8 in assumed liabilities, which have been fulfilled by the Company. The Company utilized Level 3 fair value measurement inputs including internally-developed discounted cash flow forecasts and market comparisons of royalty rates to determine the fair value of the assets acquired and the amount to be allocated to goodwill. As a result, the Company recognized $1.4 of goodwill and $5.4 of intangible assets. The results of operations of this business subsequent to the acquisition date are included in the Classroom and Supplemental Materials Publishing segment.

On January 3, 2012, the Company acquired Learners Publishing, a Singapore-based publisher of supplemental learning materials for English-Language Learners, for $3.0, net of cash acquired. The Company utilized Level 3 fair value measurement inputs, using its own assumptions, including internally-developed discounted cash flow forecasts, to determine the fair value of the assets acquired and the amount of goodwill to be allocated to the Learners Publishing business. As a result of this transaction, the Company recorded $1.5 of goodwill. The results of operations of this business subsequent to the acquisition date are included in the International segment.

The Company assesses goodwill annually or more frequently if impairment indicators are such that the goodwill is more likely than not impaired. The Company continues to monitor impairment indicators in light of reduced earnings, changes in market conditions, near and long-term demand for the Company’s products and other relevant factors. Goodwill of $64.0 is attributed to a reporting unit (Classroom and Community Group) within the Classroom and Supplemental Materials Publishing segment. During the third quarter of fiscal 2013, the Company determined that this reporting unit had impairment indicators. The Company performed a valuation of this reporting unit and determined that the fair value exceeds the carrying value by greater than 20% as of January 31, 2013. The Company employed Level 3 valuation measures, including expected discounted cash flow analysis and market comparisons. Cash flow forecasts and other assumptions were developed consistent with the internal planning and budgeting processes of the reporting unit. A discount rate of 16% was employed for the discounted cash flow analysis and a factor of 4.5 times EBITDA was used to compare to similar public companies. The discount rate and EBITDA multiples utilized reflect risks specific to the reporting unit, including forecast risk and product diversity risk. Using a discount rate of 18% combined with a multiple of 3.8 times EBITDA would not result in an impairment based upon the valuation methodology employed.

The following table summarizes the activity in Total other intangibles subject to amortization as of the dates indicated:

	February 28, 2013			May 31, 2012			February 29, 2012
Beginning balance - customer lists	$	4.3		$	0.7		$	0.7
Additions due to acquisition		0.1			3.8			—
Amortization expense		(0.7	)		(0.2	)		(0.2	)
Foreign currency translation		0.0			0.0			0.0
Customer lists, net of accumulated amortization	$	3.7		$	4.3		$	0.5
Accumulated amortization - customer lists	$	2.0		$	1.3		$	1.3
Beginning balance - other intangibles	$	10.4		$	17.3		$	17.3
Impairment charge		—			(5.4	)		(0.5	)
Amortization expense		(1.2	)		(1.4	)		(1.1	)
Other		0.1			(0.1	)		—
Other intangibles, net of accumulated amortization	$	9.3		$	10.4		$	15.7
Accumulated amortization - other intangibles	$	11.7		$	10.5		$	5.3
Total other intangibles subject to amortization	$	13.0		$	14.7		$	16.2

Intangible assets with definite lives consist principally of customer lists, covenants not to compete and publishing and trademark rights. Intangible assets with definite lives are amortized over their estimated useful lives. The weighted-average remaining useful lives of all amortizable intangible assets is seven years.

The following table summarizes Total other intangibles amortization expense for the periods indicated:

	Nine months ended
	February 28, 2013		February 29, 2012
Total other intangibles amortization expense	$	1.9	$	1.3

In fiscal 2012, due to declining revenues associated with certain publishing and trademark rights in the Children’s Book Publishing and Distribution segment, the Company determined that the intangible assets associated with these rights were not fully recoverable and recognized an impairment in amortization expense of $4.9 based upon the difference between the carrying value and the fair value of the assets, and reduced the expected useful life of these assets. The Company employed Level 3 fair value measurement techniques to determine the fair value of these assets, including the relief from royalty method.

The following table summarizes Other intangibles not subject to amortization as of the dates indicated:

	February 28, 2013		May 31, 2012		February 29, 2012
Net carrying value by major class:
Trademarks and other	$	2.0	$	2.0	$	0.4
Total	$	2.0	$	2.0	$	0.4