Goodwill and Other Intangibles

12 Months Ended

May 31, 2013

Goodwill and Intangible Assets Disclosure [Text Block]

Goodwill and Intangible Assets Disclosure [Text Block]

8. GOODWILL AND OTHER INTANGIBLES

Goodwill is reviewed for impairment annually or more frequently if impairment indicators arise.

The following table summarizes the activity in Goodwill for the fiscal years ended May 31:

	2013			2012
Gross beginning balance	$	178.5		$	175.0
Accumulated impairment		(20.8	)		(20.8	)
Beginning balance		157.7			154.2
Additions due to acquisition		—			2.7
Impairment charge		—			—
Foreign currency translation		0.0			0.0
Other		0.2			0.8
Gross ending balance		178.7			178.5
Accumulated impairment		(20.8	)		(20.8	)
Ending balance	$	157.9		$	157.7

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 were fulfilled by the Company as of May 31, 2012. The Company utilized 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, and certain assets will benefit the Children’s Book Publishing and Distribution 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 an interim impairment review 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. Internal cash flow forecasts and other assumptions were developed consistent with the highest and best use 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. A qualitative review was performed as of May 31, 2013 and no impairment was noted.

The reporting unit associated with the Company’s book clubs operations was the only reporting unit valued using a quantitative analysis as of May 31, 2013, as changes in market conditions and declining revenues in the period were indicative of a potential for goodwill impairment. The fair value of the unit declined from the prior year from $65.0 to $59.5, but remained higher than the carrying value of $48.8. This reporting unit has $13.4 of associated goodwill. The Company used forecasted cash flows, and to a lesser extent, observable revenue multiples for comparable companies, consistent with determining its fair value. A discount rate of 15% and a perpetual growth rate of 3% were employed for the discounted cash flow analysis and revenue multiples used were between 0.4 times historical revenues and 0.5 times future revenues. The value of the reporting unit is largely dependent on the success of the Storia ereading app which was launched in fiscal 2012. Should Storia not achieve its projected revenue, and the Company is unable to adjust its strategy to effectively compensate, there is a potential for an impairment of goodwill in this reporting unit in future periods.

The following table summarizes Other intangibles as of May 31:

	2013			2012
Beginning balance-Customer lists	$	4.3		$	0.7
Additions due to acquisition		0.1			3.8
Amortization expense		(1.0	)		(0.2	)
Foreign currency translation		0.0			0.0
Customer lists, net of accumulated amortization of $2.3 and $1.3, respectively	$	3.4		$	4.3
Beginning balance-Other intangibles	$	10.4		$	17.3
Additions due to acquisition		0.2			—
Impairment charge		—			(5.4	)
Amortization expense		(1.5	)		(1.4	)
Other		0.1			(0.1	)
Other intangibles, net of accumulated amortization of $12.0 and $10.5, respectively	$	9.2		$	10.4
Total other intangibles subject to amortization	$	12.6		$	14.7
Trademarks and other	$	2.0		$	2.0
Total other intangibles not subject to amortization	$	2.0		$	2.0
Total other intangibles	$	14.6		$	16.7

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 this asset and reduced the expected useful life of the asset. The Company employed Level 3 fair value measurement techniques to determine the fair value of these assets as of May 31, 2012, including the relief from royalty method. Amortization expense for Other intangibles totaled $2.5, $6.5 and $1.4 for the fiscal years ended May 31, 2013, 2012 and 2011, respectively.

The following table reflects the estimated amortization expense for intangibles for the next five fiscal years ending May 31:

2014	$	2.4
2015		2.3
2016		2.2
2017		2.2
2018		0.5

Intangible assets with definite lives consist principally of customer lists, covenants not to compete and trademarks. Intangible assets with definite lives are amortized over their estimated useful lives. The weighted-average remaining useful lives of all amortizable intangible assets is 9 years.