Note 11 – Goodwill and Intangible Assets

Goodwill

The following table summarizes the activity in goodwill by segment as of April 30:

	2018 ⁽¹⁾		Acquisition ⁽²⁾		Foreign Translation Adjustment			2019
Research	$	463,419	$	—	$	(24,908	)	$	438,511
Publishing		283,851		—		(706	)		283,145
Solutions		272,531		110,805		(9,326	)		374,010
Total	$	1,019,801	$	110,805	$	(34,940	)	$	1,095,666

(1)	The April 30, 2018 goodwill balances were revised for the Publishing segment which decreased and the Solutions segment which increased to reflect foreign translation adjustments of $11.6 million.

(2)	Refer to Note 4, “Acquisition,” in the Notes to Consolidated Financial Statements for more information related to the acquisition of Learning House on November 1, 2018.

Prior to fiscal year 2019, we reviewed goodwill for impairment on a reporting unit basis annually during the third quarter of each year, using a measurement date of January 31, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. While we are permitted to conduct a qualitative assessment to determine whether it is necessary to perform a two-step quantitative goodwill impairment test, for our annual goodwill impairment test in the third quarter of 2018 and 2017 we performed a quantitative test for all of our reporting units.

As discussed below, during the fourth quarter of 2018, we voluntarily changed our annual impairment assessment date from January 31 to February 1 for all of our reporting units and our indefinite-lived intangible assets. For our annual goodwill impairment test in the fourth quarter of 2019 we performed a quantitative test for all of our reporting units and in the fourth quarter of 2018 we performed a qualitative assessment for all of our reporting units.

The goodwill impairment test involves a two-step process. In step one, we compare the fair value of each of our reporting units to its carrying value, including the goodwill allocated to the reporting unit. If the fair value of the reporting unit exceeds its carrying value, there is no indication of impairment and no further testing is required. If the fair value of the reporting unit is less than the carrying value, we must perform step two of the impairment test to measure the amount of impairment loss, if any. In step two, the reporting unit’s fair value is allocated to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination. If the implied fair value of the reporting unit’s goodwill is less than the carrying value, the difference is recorded as an impairment loss.

2019 Annual Impairment Test as of February 1, 2019

During the fourth quarter of 2019, we completed step one of our annual goodwill impairment test for our reporting units. We concluded that the fair values of these reporting units were above their carrying values and, therefore, there was no indication of impairment.

We estimated the fair value of these reporting units using a weighting of fair values derived from an income and a market approach. Under the income approach, we determined the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on management’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the business and the projected cash flows. The market approach estimates fair value based on market multiples of current and forward 12-month operating performance results, as applicable, derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit.

As noted above, the fair value determined under step one of the goodwill impairment test completed in the fourth quarter of 2019 exceeded the carrying value for each reporting unit. Therefore, there was no impairment of goodwill. However, if the fair value decreases in future periods, we may fail step one of the goodwill impairment test and be required to perform step two. In performing step two, the fair value would have to be allocated to all of the assets and liabilities of the reporting unit. Therefore, any potential goodwill impairment charge would be dependent upon the estimated fair value of the reporting unit at that time and the outcome of step two of the impairment test. The fair values of the assets and liabilities of the reporting unit, including the intangible assets, could vary depending on various factors.

The future occurrence of a potential indicator of impairment, such as a decrease in expected net earnings, adverse equity market conditions, a decline in current market multiples, a decline in our common stock price, a significant adverse change in legal factors or business climates, an adverse action or assessment by a regulator, unanticipated competition, strategic decisions made in response to economic or competitive conditions, or a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or disposed of, could require an interim assessment for some or all of the reporting units before the next required annual assessment.

We also review our indefinite-lived intangible assets for impairment annually, which consists of brands and trademarks and certain acquired publishing rights. During the fourth quarter of 2019, we completed our annual impairment test related to the indefinite lived intangible assets. We concluded that the fair values of these indefinite-lived intangible assets were above their carrying values and, therefore, there was no indication of impairment. We also concluded that one of our indefinite-lived trademarks had an excess of estimated fair value over its carrying value of approximately 7% as of the 2019 annual impairment test.

Change in Annual Impairment Assessment Date

During the fourth quarter of 2018, we voluntarily changed our annual impairment assessment date from January 31 to February 1 for all of our reporting units and our indefinite-lived intangible assets. This change was made to improve alignment of impairment testing procedures with year-end financial reporting, our annual business planning and budgeting process and the multi-year strategic forecast, which begins in the fourth quarter of each year. As a result, the goodwill and indefinite-lived intangible asset impairment testing will reflect the result of inputs from each of the businesses in the development of the budget and forecast process, including the impact of seasonality of our financial results. Accordingly, management considers this accounting change preferable. This change does not accelerate, delay, avoid, or cause an impairment charge, nor does this change result in adjustments to previously issued financial statements.

In connection with the change in the date of the annual goodwill impairment test, we completed a qualitative assessment of the goodwill by reporting unit as of February 1, 2018 and concluded that it was more likely than not that the fair value of each of the reporting units exceeded its carrying amount. In addition, we also completed a qualitative assessment of our indefinite-lived intangible assets as of February 1, 2018 and concluded that it was more likely than not that the fair value of each of the indefinite-lived intangible assets exceeded its carrying amount.

Intangibles

Intangible assets, net as of April 30 were as follows:

	2019										2018
	Cost		Accumulated Amortization			Accumulated Impairment			Net		Cost		Accumulated Amortization			Accumulated Impairment			Net
Intangible Assets with Determinable Lives, net
Content and Publishing Rights ⁽¹⁾	$	806,628	$	(417,456	)	$	—		$	389,172	$	824,146	$	(387,386	)	$	—		$	436,760
Customer Relationships ⁽¹⁾		310,977		(65,147	)		—			245,830		212,020		(50,291	)		—			161,729
Brands and Trademarks		32,802		(19,809	)		—			12,993		32,111		(16,011	)		—			16,100
Covenants not to Compete		1,681		(1,236	)		—			445		1,499		(844	)		—			655
Total		1,152,088		(503,648	)		—			648,440		1,069,776		(454,532	)		—			615,244
Intangible Assets with Indefinite Lives
Brands and Trademarks		134,509		—			(3,600	)		130,909		142,189		—			(3,600	)		138,589
Content and Publishing Rights		86,223		—			—			86,223		94,238		—			—			94,238
Total		220,732		—			(3,600	)		217,132		236,427		—			(3,600	)		232,827
Total Intangible Assets, Net	$	1,372,820	$	(503,648	)	$	(3,600	)	$	865,572	$	1,306,203	$	(454,532	)	$	(3,600	)	$	848,071

⁽¹⁾ As of April 30, 2019, amounts include intangible assets acquired as part of the acquisition of Learning House on November 1, 2018. Refer to Note 4, “Acquisition,” in the Notes to Consolidated Financial Statements for more information related to the acquisition of Learning House.

Based on the current amount of intangible assets subject to amortization and assuming current foreign exchange rates, the estimated amortization expense for the following years are as follows:

Fiscal Year	Amount
2020	$	50,419
2021		48,517
2022		44,115
2023		40,305
2024		37,929
Thereafter		427,155
Total	$	648,440

In conjunction with a business review performed in the Publishing segment associated with the restructuring activities in the first quarter of the year ended April 30, 2018, we identified an indefinite-lived brand with forecasted cash flows that did not exceed its carrying value. As a result, an impairment charge of $3.6 million was recorded in the first quarter of the year ended April 30, 2018 to reduce the carrying value of the brand to its fair value of $1.2 million, which will now be amortized over an estimated useful life of 5 years. This impairment charge was included in Operating and Administrative Expenses on the Consolidated Statements of Income.