UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2008~~March 31, 2009


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number 001-07680

Voyager Learning Company

(Exact name of registrant as specified in its charter)


Delaware		36-3580106
(State or Other Jurisdiction of		(I.R.S. Employer Identification No.)
Incorporation or Organization)		~~36-3580106~~ ~~(I.R.S. Employer Identification No.)~~

1800 Valley View Lane, Suite 400, Dallas, Texas		75234-8923
(Address of Principal Executive Offices)		~~75234-8923~~ (Zip Code)

Registrant’s telephone number, including area code:(214) 932-9500

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filero		Accelerated filerþ		Non-accelerated filero		Smaller reporting companyo

Indicate by ~~check mark~~checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yeso Noþ

The number of shares of the registrant’s common stock, $.001 par value, outstanding as of ~~November~~April 30, ~~2008~~2009 was 29,874,145.

Voyager Learning Company and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

Three Months Ended Nine Months Ended
September 30, September 29, September 30, September 29,
2008 2007 2008 2007

Net sales
$ 27,267 $ 31,837 $ 76,418 $ 88,226
Cost of sales (exclusive of depreciation and amortization shown separately below)
(9,956 ) (9,973 ) (27,837 ) (27,213 )

Gross profit
17,311 21,864 48,581 61,013

Research and development expense
(1,141 ) (1,125 ) (3,743 ) (3,512 )
Sales and marketing expense
(8,005 ) (7,535 ) (25,410 ) (21,308 )
General and administrative expense
(8,077 ) (12,387 ) (24,286 ) (42,944 )
Depreciation and amortization expense
(5,258 ) (5,773 ) (16,083 ) (17,243 )
Lease termination costs
— — (11,673 ) —

Loss from continuing operations before interest and income taxes
(5,170 ) (4,956 ) (32,614 ) (23,994 )

Net interest income (expense):

Interest income
136 683 712 2,848
Interest expense
(77 ) (152 ) (231 ) (3,110 )

Net interest income (expense)
59 531 481 (262 )

Sublease income and other
1 1,218 790 3,179

Loss from continuing operations before income taxes
(5,110 ) (3,207 ) (31,343 ) (21,077 )

Income tax benefit
— 1,226 — 8,056

Loss from continuing operations
(5,110 ) (1,981 ) (31,343 ) (13,021 )

Earnings from discontinued operations (less applicable income taxes of $0, $0, $0, and $1,491, respectively)
— — — 4,594
Gain on sale of discontinued operations (less applicable income taxes of $0, $0, $0, and $11,160, respectively)
— — — 46,572

Net earnings (loss)
$ (5,110 ) $ (1,981 ) $ (31,343 ) $ 38,145

Net earnings (loss) per common share:

Basic:

Loss from continuing operations
$ (0.17 ) $ (0.07 ) $ (1.05 ) $ (0.43 )
Earnings from discontinued operations
— — — 0.15
Gain on sale of discontinued operations
— — — 1.56

Basic net earnings (loss) per common share
$ (0.17 ) $ (0.07 ) $ (1.05 ) $ 1.28

Diluted:

Loss from continuing operations
$ (0.17 ) $ (0.07 ) $ (1.05 ) $ (0.43 )
Earnings from discontinued operations
— — — 0.15
Gain on sale of discontinued operations
— — — 1.56

Diluted net earnings (loss) per common share
$ (0.17 ) $ (0.07 ) $ (1.05 ) $ 1.28

Average number of common shares and equivalents outstanding:

Basic
29,871 29,860 29,871 29,855
Diluted
29,871 29,860 29,871 29,855


	Three Months Ended
	March 31,			March 31,
	2009			2008

Net sales	$	18,716		$	15,637
Cost of sales (exclusive of depreciation and amortization shown separately below)		(6,091	)		(6,533	)

Gross profit		12,625			9,104

Research and development expense		(1,127	)		(1,426	)
Sales and marketing expense		(6,750	)		(8,504	)
General and administrative expense		(6,465	)		(7,877	)
Depreciation and amortization expense		(4,926	)		(5,435	)
Lease termination costs		—			(11,673	)


Loss before interest, other income (expense) and income taxes		(6,643	)		(25,811	)

Net interest income (expense):
Interest income		41			435
Interest expense		(406	)		(49	)


Net interest income (expense)		(365	)		386

Other income (expense), net		1,268			793


Loss before income taxes		(5,740	)		(24,632	)
Income tax benefit		321			—


Net loss	$	(5,419	)	$	(24,632	)


Net loss per common share:
Basic net loss per common share	$	(0.18	)	$	(0.82	)
Diluted net loss per common share	$	(0.18	)	$	(0.82	)

Average number of common shares and equivalents outstanding:
Basic		29,874			29,871
Diluted		29,874			29,871

The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

Voyager Learning Company and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except per share data)


		September 30,			December 29,
		2008			2007				March 31,			December 31,
		(Unaudited)							2009			2008
									(Unaudited)
ASSETS	ASSETS							ASSETS

Current assets:
Cash and cash equivalents		$	23,113		$	53,868			$	50,737		$	67,302
Accounts receivable, net			20,595			9,266				5,472			7,371
Income tax receivable			64,155			65,600				15,623			19,782
Inventory			17,673			16,005				14,791			15,196
Other current assets			25,897			16,489				17,736			33,826

Total current assets			151,433			161,228				104,359			143,477

Property, equipment, and software at cost			15,807			23,925				17,618			16,543
Accumulated depreciation and amortization			(9,043	)		(8,584	)			(10,639	)		(9,718	)

Net property, equipment, and software			6,764			15,341
Net property, equipment and software										6,979			6,825

Goodwill			142,858			142,858				99,717			99,717
Acquired curriculum intangibles, net			41,707			51,206				35,776			38,594
Other intangible assets, net			5,478			6,411				4,958			5,218
Developed curriculum, net			8,861			9,333				8,897			8,903
Other assets			1,361			16,350				1,363			1,363


Total assets		$	358,462		$	402,727			$	262,049		$	304,097


LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Current maturities of capital lease obligations		$	176		$	789			$	131		$	149
Accounts payable			4,043			4,403				3,302			1,962
Accrued expenses			35,337			25,315				10,971			40,866
Deferred revenue			26,828			19,822				21,985			27,917

Total current liabilities			66,384			50,329				36,389			70,894

Long-term liabilities:
Capital lease obligations, less current maturities			125			810				66			96
Other liabilities			32,451			61,258				18,462			20,348

Total long-term liabilities			32,576			62,068				18,528			20,444


Commitments and contingencies (See Note 16)
Commitments and contingencies (See Note 13)

Shareholders’ equity:
Common stock ($.001 par value, 50,000 shares authorized, 30,550 shares issued and 29,874 shares outstanding at September 30, 2008, and 30,552 shares issued and 29,883 shares outstanding at December 29, 2007)			30			30
Common stock ($.001 par value, 50,000 shares authorized, 30,550 shares issued and 29,874 shares outstanding at March 31, 2009 and December 31, 2008)										30			30
Capital surplus			357,523			356,683				357,823			357,741
Accumulated earnings (deficit)			(79,066	)		(47,723	)			(134,646	)		(129,227	)
Treasury stock, at cost (676 shares at September 30, 2008 and 669 shares at December 29, 2007)			(16,836	)		(16,742	)
Treasury stock, at cost (676 shares at March 31, 2009 and December 31, 2008)										(16,836	)		(16,836	)
Other comprehensive income (loss):
Pension and postretirement plans, net of tax			(2,108	)		(2,088	)
Net unrealized gain (loss) on securities, net of tax			(41	)		170
Pension and postretirement plans, net of tax benefit of $392 and $713 at March 31, 2009 and December 31, 2008, respectively										803			1,093
Net unrealized gain (loss) on securities, net of tax expense of $39 in each year										(42	)		(42	)


Accumulated other comprehensive income (loss)			(2,149	)		(1,918	)
Accumulated other comprehensive income										761			1,051


Total shareholders’ equity			259,502			290,330				207,132			212,759


Total liabilities and shareholders’ equity		$	358,462		$	402,727			$	262,049		$	304,097

Voyager Learning Company and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(InDollars in thousands)

(Unaudited)


	Nine Months Ended						Three Months Ended
	September 30,			September 29,			March 31,			March 31,
	2008			2007			2009			2008
Operating activities:

Net earnings (loss)	$	(31,343	)	$	38,145
Adjustments to reconcile net earnings (loss) to net cash used in operating activities:
Net loss							$	(5,419	)	$	(24,632	)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization		16,083			17,243			4,926			5,435
Stock-based compensation (benefit)		688			(203	)
Non-cash lease termination costs		673			—			—			673
Gain on sale of available for sale securities		(136	)		(508	)
Gain on sale of discontinued operations, net of tax		—			(46,572	)
Deferred income taxes		—			(8,332	)
Earnings from discontinued operations, net of tax		—			(4,594	)
Amortization and write-off of deferred financing costs		—			2,236
Stock-based compensation								80			279
Loss/(gain) on sale of available for sale securities								1			(124	)
Non-cash tax benefit								(321	)		—

Changes in operating assets and liabilities:
Accounts receivable, net		(11,329	)		(60,524	)		1,899			2,851
Tax receivable								4,159			500
Inventory		(1,668	)		(3,669	)		405			(2,494	)
Other current assets		5,875			51,805			15,992			224
Other assets		(11	)		(1,181	)		—			(6	)
Accounts payable		(360	)		839			1,340			1,951
Accrued expenses		(10,004	)		(63,623	)		(29,895	)		(10,485	)
Deferred revenue		7,593			(283	)		(5,382	)		(2,718	)
Other long-term liabilities		(1,838	)		(13,298	)		(2,403	)		(918	)
Other, net		53			(15	)		(14	)		42


Net cash used in operating activities of continuing operations		(25,724	)		(92,534	)
Net cash used in operating activities								(14,632	)		(29,422	)

Investing activities:
Expenditures for property, equipment, curriculum development costs, and software		(5,904	)		(7,037	)
Expenditures for property, equipment, developed curriculum, and software								(1,993	)		(1,585	)
Purchases of equity investments available for sale		(675	)		(7,699	)		(7	)		(203	)
Proceeds from sales of equity investments available for sale		1,756			8,674			115			508
Proceeds from sale of discontinued operations, net		—			186,342


Net cash provided by (used in) investing activities of continuing operations		(4,823	)		180,280
Net cash used in investing activities								(1,885	)		(1,280	)

Financing activities:
Repayment of debt		—			(58,225	)
Principal payments under capital lease obligations		(208	)		(623	)		(48	)		(79	)
Debt issuance costs		—			(302	)


Net cash used in financing activities of continuing operations		(208	)		(59,150	)

Increase (decrease) in cash and cash equivalents of continuing operations		(30,755	)		28,596

Net cash used in discontinued operations:
Net cash used in operating activities		—			(19,891	)
Net cash used in investing activities		—			(2,540	)
Net cash used in financing activities		—			(730	)		(48	)		(79	)


Net cash used in discontinued operations		—			(23,161	)

Increase (decrease) in cash and cash equivalents		(30,755	)		5,435
Decrease in cash and cash equivalents								(16,565	)		(30,781	)

Cash and cash equivalents, beginning of period		53,868			39,902			67,302			53,868


Cash and cash equivalents, end of period	$	23,113		$	45,337		$	50,737		$	23,087

Voyager Learning Company and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Note 1 — Basis of Presentation

The Condensed Consolidated Financial Statements include the accounts of Voyager Learning Company and its subsidiaries (collectively the “Company”) and are unaudited. All intercompany transactions are eliminated.

On February 9, 2007, we sold ProQuest Information and Learning (“PQIL”) to Cambridge Scientific Abstracts, LP. The operating results and the gain on sale of PQIL have been segregated from our continuing operations for all periods presented in our Condensed Consolidated Financial Statements and are separately reported as discontinued operations (see Note 6 herein).

As permitted under the Securities and Exchange Commission (“SEC”) requirements for interim reporting, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. ~~We believe~~The Company believes that these financial statements include all necessary and recurring adjustments for the fair presentation of the interim period results. These financial statements should be read in conjunction with the Consolidated Financial Statements and related notes included in ~~our~~the Company’s annual report on Form 10-K for the fiscal year ended December ~~29, 2007 (the “2007 10-K”).~~31, 2008. Due to seasonality, the results of operations for the three ~~and nine~~ months ended ~~September 30, 2008~~March 31, 2009 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2008.~~2009.

Certain reclassifications to the ~~2007~~2008 Consolidated Financial Statements have been made to conform to the ~~2008~~2009 presentation. In 2007 cost of sales includes expenses to print, handle and warehouse product and provide services and support to customers. Additionally, in 2007, cost of sales included amortization related to our acquired and developed curriculum and certain other operational assets. All depreciation and amortization for the periods presented herein have been segregated and shown separately.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Subsequent actual results may differ from those estimates.

Note 2 ~~— Change in Fiscal Year~~

On December 20, 2007, the Board of Directors of the Company adopted a resolution changing the Company’s fiscal year end from the Saturday nearest to December 31 to a calendar year. This change is effective for the fiscal year ending on December 31, 2008. The Company’s fiscal 2007 year ended on December 29, 2007. The two-day transition period between December 29, 2007 and the 2008 annual fiscal year, which began January 1, 2008, will be included in the Company’s Annual Report on Form 10-K for the year ending December 31, 2008. The Quarterly Report on Form 10-Q for the period ended March 31, 2008 was the first report filed by the Company for the newly adopted fiscal year and included the two-day transition period.

~~Note 3~~ — Accounts Receivable

Accounts receivable are stated net of allowances for doubtful accounts and estimated sales returns. The allowance for doubtful accounts and estimated sales returns totaled $0.7 million ~~and $1.3 million~~ at ~~September 30, 2008~~March 31, 2009 and December ~~29, 2007, respectively.~~31, 2008. The allowance for doubtful accounts is based on a review of the outstanding accounts receivable balances and historical collection experience. The allowance for sales returns is based on historical rates of return.

Note 43 — Stock-Based Compensation

The total amount of pre-tax expense ~~(benefit)~~ for stock-based compensation recognized in general and administrative expense ~~was $0.2 million and $0.4 million~~ in the quarters ended ~~September 30,~~March 31, 2009 and March 31, 2008 ~~and September 29, 2007, respectively, and $0.7~~was $0.1 million and ~~$(0.2)~~$0.3 million, ~~in the nine month periods ended September 30, 2008 and September 29, 2007,~~ respectively. ~~Additionally, a pre-tax benefit for~~

There were no issuances of stock-based compensation ~~of $(0.1) million is recognized~~awards during the three months ended March 31, 2009.

On April 9, 2009, 440,000 options granted in ~~earnings from discontinued operations for the nine month period ended September 29, 2007.~~

~~In June 2008 the Company issued 15,714 cash-based restricted stock units~~2004 to ~~members~~one of the Company’s ~~Board of Directors (2,619 units per board member). Under this grant,~~key executives under the cash based restricted stock units vest after six months. No actual shares will be issued in relation to this grant, but instead, the grant was intended to provide payment to the members of the Board of Directors in a form of compensation that is related to the price of the Company’s stock. As of September 30, 2008, 2,619 awards have beenLong Term Incentive Performance plan, were cancelled due to ~~the resignation~~voluntary forfeiture of one of the board members. All remaining cash settled restricted stock units related to this grant have been classified as liability awards based on their cash settlement provisions. Liability and expense amounts related to this grant are not material at September 30, 2008.these options.

Note 54 — Net ~~Earnings (Loss)~~Loss per Common Share

Basic net ~~earnings/ (loss)~~loss per common share ~~are~~is computed by dividing net ~~earnings/ (loss)~~loss by the weighted average number of common shares outstanding during the period. Diluted net ~~earnings/(loss)~~loss per common share is computed by dividing net ~~earnings/(loss)~~loss by the weighted average number of common shares outstanding during the period, including the potential dilution that could occur if all of the Company’s outstanding stock awards that are in-the-money were exercised, using the treasury stock method. A reconciliation of the weighted average number of common shares and equivalents outstanding used in the calculation of basic and diluted net ~~earnings~~loss per common share are shown in the table below for the periods indicated:


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,		September 29,		September 30,		September 29,		March 31,		March 31,
*(Shares in thousands)*	2008		2007		2008		2007		2009		2008

Basic		29,871		29,860		29,871		29,855		29,874		29,871
Dilutive effect of awards		—		—		—		—		—		—


Diluted		29,871		29,860		29,871		29,855		29,874		29,871

Note 65 — ~~Discontinued Operations~~Fair Value Measurements

In ~~the second quarter of~~September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”). This statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. In February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157”, which delayed the effective date of SFAS No. 157 for non-recurring measurements of non-financial assets and liabilities to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. The Company ~~determined~~adopted SFAS No. 157 for all recurring financial assets and liabilities beginning fiscal 2008. The Company adopted SFAS No. 157 for all other nonfinancial assets and liabilities beginning fiscal 2009. The adoption of SFAS No. 157 had no impact on the Company’s Condensed Consolidated Financial Statements.

SFAS No. 157 defines fair value as the exchange price that would be received for an asset or paid to ~~sell parts of its operations to raise capital to repay its outstanding debt. The Board authorized the plan of sale and investment bankers were retained to assist the Company~~transfer a liability (an exit price) in the ~~sales. On February 9, 2007,~~principal or most advantageous market for the ~~Company sold PQIL~~asset or liability in an orderly transaction between market participants on the measurement date. SFAS No. 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and ~~all~~minimize the use of ~~its remaining foreign subsidiaries~~unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to ~~Cambridge Scientific Abstracts, LP. The Company used a portion~~measure fair value.

All of the ~~proceeds from that sale to pay down all its remaining debt, excluding capital leases.~~

~~The operating results of sold businesses have been segregated from continuing operations. The Condensed Consolidated Statements of Operations separately reflect the earnings of PQIL~~Company’s financial assets and the gain on sale of PQIL as discontinued operations. Interest expense of zero and $0.8 million for the three and nine months ended September 29, 2007, respectively, was allocated to discontinued operations based on the ratio of sold assets to total net assets of the consolidated company.

~~Results from discontinued operations, all of~~liabilities are valued using quoted prices in active markets, which ~~occurred in the first quarter of 2007 and relate to the PQIL business,~~ are ~~shown below:~~considered Level 1 inputs under SFAS No. 157.

(Dollars in thousands)

Net sales from discontinued operations
$ 26,062

Earnings from discontinued operations before interest and income taxes
6,932

Interest expense, net
(847 )
Income tax expense
(1,491 )

Earnings from discontinued operations, net of taxes
$ 4,594

~~The gain on sale of discontinued operations recorded in the first quarter of 2007, which relates to the PQIL business, was derived as follows~~:

(Dollars in thousands)

Sale price
$ 195,249
Net assets, related liabilities, and selling costs⁽¹⁾
(137,517 )

Gain on sale
57,732
Income tax expense
(11,160 )

Gain on sale of discontinued operations, net of tax
$ 46,572


⁽¹⁾		~~Net assets sold includes goodwill of $68.0 million~~

Comprehensive ~~income (loss)~~loss is shown in the table below for the periods indicated:

Three Months Ended Nine Months Ended
September 30, September 29, September 30, September 29,
(Dollars in thousands) 2008 2007 2008 2007

Net earnings (loss)
$ (5,110 ) $ (1,981 ) $ (31,343 ) $ 38,145

Other comprehensive income (loss):

Foreign currency translation adjustments
— — — (1,313 )
Pension and postretirement plans
(7 ) 8 (20 ) 23
Unrealized gain (loss) on securities
(11 ) 10 (211 ) (434 )

Comprehensive income (loss)
$ (5,128 ) $ (1,963 ) $ (31,574 ) $ 36,421


	Three Months Ended
	March 31,			March 31,
*(Dollars in thousands)*	2009			2008

Net loss	$	(5,419	)	$	(24,632	)

Other comprehensive loss:
Pension and postretirement plans		31			(7	)
Unrealized gain (loss) on securities		—			(180	)
Write-off of tax benefit on pension settlement		(321	)		—


Comprehensive loss	$	(5,709	)	$	(24,819	)

Note 87 — Other Current Assets

Other current assets at ~~September 30, 2008~~March 31, 2009 and December ~~29, 2007~~31, 2008 consisted of the following:


	As of				As of
	September 30,		December 29,		March 31,		December 31,
*(Dollars in thousands)*	2008		2007		2009		2008

Available for sale securities					$	13,039	$	13,137
Short-term deferred tax asset	$	2,566	$	2,566		1,994		1,994
Deferred costs		2,024		1,434		1,513		1,907
Available for sale securities		2,467		3,629
Insurance receivable		15,707		1,217		—		15,000
Other		3,133		7,643		1,190		1,788


Total	$	25,897	$	16,489	$	17,736	$	33,826

Note 1411 — Corporate Transition ~~and Lease Termination Costs~~

On February 12, 2007, after the sale of ProQuest Business Solutions ~~(“PQBS”)~~ and ~~PQIL,~~ProQuest Information and Learning, the Company’s Board of Directors approved and announced to employees the closing of the corporate office in Ann Arbor, Michigan. The transition plan, which was completed by year-end 2008, included the elimination of redundant positions and transitioning the performance of certain operational activities to Dallas, Texas. The Company expects to incur approximately $4.4 million in severance and retention expense related to the transition plan, all of which ~~has been~~was accrued asin prior years. As of ~~September 30, 2008.~~March 31, 2009, approximately $2.1 million remains accrued. Related costs are included in general and administrative expense. The change in the accruals for corporate transition costs related to severance and retention payments for the ~~nine month period~~three months ended ~~September 30, 2008~~March 31, 2009 is as follows:

(Dollars in thousands)

Balance as of January 1, 2007
$ —

Accruals
4,338

Payments made
(1,372 )

Balance as of December 29, 2007
$ 2,966

Accruals
103

Payments made
(442 )

Balance as of September 30, 2008
$ 2,627

Current portion
$ 1,868

Long-term portion
$ 759

On January 1, 2008, the Company entered into an agreement with one of its lessors, Relational, LLC f/k/a Relational Funding Corporation (“Relational”) and ProQuest LLC (formerly known as ProQuest-CSA LLC) (“CSA”) relating to certain obligations regarding the capital and operating leases for certain property and equipment used at its facilities at 777 Eisenhower Parkway (the “777 Facility”) and 789 Eisenhower Parkway (the “789 Facility”) in Ann Arbor, Michigan. The aforementioned leases originated as early as fiscal year 2005 with up to five year terms. Effective January 1, 2008, the Company conveyed, assigned, transferred and delivered to CSA all of its right, title and interest and benefit of certain property and equipment. The Company was released from any and all obligations relating to these leases and Relational, as lessor, consented to such assignments and releases. Due to these assignments, the write off of certain assets and liabilities under capital leases, such as office furniture, phone and power supply systems, and video equipment, totaled a net charge of $0.1 million in the first quarter of 2008.


*(Dollars in thousands)*

Balance as of December 29, 2007	$	2,966

Accruals		103

Payments made		(513	)


Balance as of December 31, 2008	$	2,556

Accruals		—

Payments made		(481	)


Balance as of March 31, 2009	$	2,075


Current portion	$	1,734


Long-term portion	$	341

119

On January 25, 2008, the Company entered into a series of agreements with its current landlord, Transwestern Great Lakes, LP (“Transwestern”) and CSA relating to certain obligations regarding the long term leases for the facilities in Ann Arbor, Michigan. On March 4, 2008, the Company paid CSA $11.0 million, a portion of which was distributed to Transwestern for termination of the lease relating to office space at the 777 Facility. Upon the Closing Date of March 7, 2008, the Company was released from any and all obligations relating to the 15 year lease the Company previously entered into for the 777 Facility. Through assignment, the Company was also released from any and all obligations relating to the 15 year lease the Company previously entered into for office space at the 789 Facility. The Company assigned all of its rights under the lease for the 789 Facility to CSA and CSA assumed the obligations of tenant under such lease, as amended. Transwestern, as landlord, consented to such assignment. In connection with the termination and assignment of these long term facility leases, certain leasehold improvements and deferred rent were written off, which totaled a net charge of $0.6 million in the first quarter of 2008. The Company recorded a total charge to expense in the first quarter of 2008 of $11.7 million for all lease termination costs.

Note 1512 — Uncertain Tax Positions

There were no material changes in the Company’s uncertain tax positions during the first quarter ~~or year to date period.~~of 2009.

The Company ~~or one of its subsidiaries~~ files income tax returns in the U.S. federal jurisdiction and various U.S. state jurisdictions. The Company is currently under examination by the IRS for 2006 and 2007.

Under the sale agreements with Snap-On Incorporated and Cambridge Scientific Abstracts, LP (“CSA”), the Company is liable to indemnify Snap-On Incorporated or CSA for any income taxes assessed against ProQuest Business Solutions (“PQBS”) or ProQuest Information and Learning (“PQIL”) for periods prior to the sale of PQBS or PQIL. The Company has established a liability for those matters where it is not probable that the position will be sustained. The amount of the liability is based on management’s best estimate given the Company’s history with similar matters and interpretations of current laws and regulations.

Note 1613 — Contingent Liabilities

Putative Securities Class Actions

Between February and April 2006, four putative securities class actions, consolidated and designatedIn re ProQuest Company Securities Litigation,were filed in the U.S. District Court for the Eastern District of Michigan (the “Court”) against the Company and certain of its former and then-current officers and directors. Each of these substantially similar lawsuits alleged that the Company and certain officers and directors (“the Defendants”) violated Sections 10(b) and/or 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as the associated Rule 10b-5, in connection with the Company’s proposed restatement.

On May 2, 2006, the Court ordered the four cases consolidated and appointed lead plaintiffs and lead plaintiffs’ counsel. By stipulation of the parties, the consolidated lawsuit was stayed pending restatement of the Company’s financial statements. On January 24, 2007, lead plaintiffs filed their amended consolidated complaint, which Defendants moved to dismiss on March 15, 2007. The Court denied Defendants’ motion to dismiss on November 6, 2007.

On July 22, 2008, the Company reached an agreement in principle to settle the consolidated shareholder securities class action ~~lawsuit filed against it and certain officers and directors in the U.S. District Court for the Eastern District of Michigan~~law suit for $20 million. The settlement will be funded largely by insurance. Under the terms of the agreement, the Company would pay approximately $4.5 million in fees and settlement amounts to settle all claims related to the financial statements with remaining amounts to be paid by insurers. A Stipulation and Agreement of Settlement was signed by the parties and the Court granted preliminary approval of such agreement. ~~The~~During January 2009, the Company paid $4.0 million and its insurers funded the remaining portion of the settlement into an escrow ~~account on January 9, 2009.~~account. The Court entered final ~~settlement is subject to final Court~~ approval ~~and the participation of a sufficient percentage~~ of the ~~putative class. There is no assurance that a final Court approval will be obtained or putative class member participation will be sufficient. If~~settlement on March 30, 2009. This Final Order and Judgment fully resolves the ~~settlement arrangement is not finalized, the Company intends to defend itself vigorously.~~securities matters raised in this litigation.

On January 29, 2008, the Court entered an order consolidating the two cases and approving co-lead and co-liaison counsel representing plaintiffs. ~~Pursuant to a stipulated scheduling order entered on February 15,~~On March 20, 2008, plaintiffs filed a consolidated amended complaint ~~on March 20, 2008. The consolidated amended complaint purports to state~~alleging claims for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment, rescission, imposition of a constructive trust, violations of the Sarbanes-Oxley Act of 2002 and violations of the ~~Securities~~ Exchange Act ~~of 1934~~ against current and former officers or directors of the Company and one of its subsidiaries. On December 3, 2008 the Company reached an agreement in principle to settle the shareholder derivative litigation ~~lawsuit filed against it and certain officers and directors in the U.S. District Court for the Eastern District of Michigan.~~law suit. Under the terms of the agreement, the Company and its insurers would pay an amount not to exceed $650,000 in attorneys’ fees and agree to maintain or adopt additional corporate governance standards. The Company’s portion of this amount is equal to $500,000. The ~~settlement is subject to completion of a~~parties entered into Stipulation of Settlement ~~to be signed by the parties, preliminary and final court approval and the provision of notice to shareholders. There is no assurance that a final~~on January 9, 2009. This Stipulation of Settlement will be completed, court approval will be obtained or putative class member participation will be sufficient. If the derivative litigation settlement arrangement is not finalized, the Company intends to defend itself vigorously.

~~Securities and Exchange Commission Investigation~~

In February 2006, the Division of Enforcement of the SEC commenced an informal inquiry regarding the Company’s announcement of a possible restatement. In April 2006, the Division of Enforcement of the SEC commenced a formal, non-public investigation in connection with the Company’s restatement. On July 22, 2008, the SEC (“Commission”) filed a settled enforcement action against the Company in the U.S. District Court for the Eastern District of Michigan. Pursuant to that settlement, the terms of which were disclosed previously by the Company, without admitting or denying the allegations in the Complaint, the Company consented to the filing by the Commission of a Complaint, and to the impositionwas approved by the Court ofand a ~~final judgment of permanent injunction against the Company. The Complaint alleges civil violations of the reporting, books~~Final Judgment and ~~records and internal controls provisions of the Securities Exchange Act of 1934. The final judgment~~Order was signed by the Court on ~~July 28, 2008 and permanently enjoins the Company from future violations of those provisions. No monetary penalty was imposed. The settlement resolved fully the previously disclosed SEC investigation~~March 31, 2009. Subject to an annual review of the ~~Company’s restatement.~~

~~Data Driven Software Corporation vs. Voyager Expanded Learning et al.~~

~~Voyager Expanded Learning (“VEL”) was a defendant~~corporate governance standards by the Court, this Final Judgment and Order fully resolves the matters asserted in ~~an arbitration styled: D2 Data Driven Software Corporation f/k/a EdSoft Software Corporation (“EdSoft”) v. Voyager Expanded Learning, Inc., et al.~~,~~before the American Arbitration Association, No. 71 117 Y 00238 06.~~

Effective on or about January 24, 2008, VEL, the individual respondents and EdSoft executed a mutual release and settlement agreement. VEL subsequently paid EdSoft $5.4 million in connection with that settlement. In addition to providing mutual releases between EdSoft, on one hand, and VEL and the individual respondents, on the other hand, the parties agreed to dismiss all lawsuits with prejudice. EdSoft also executed a release of arbitration award. The Company accrued $5.4 million related to this ~~settlement as of year end of 2006.~~litigation.

Other Contingent Liabilities

~~We are~~The Company is also involved in various legal proceedings incidental to our business. Management believes that the outcome of these proceedings will not have a material adverse effect upon our consolidated operations or financial condition and we believe we have recognized appropriate reserves as necessary based on facts and circumstances known to management.

~~We have~~The Company has letters of credit in the amount of $1.1 million outstanding as of ~~September 30, 2008~~March 31, 2009 to support workers’ compensation insurance coverage as well as collateral for the Company’s credit card and Automated Clearinghouse (ACH) programs.

~~Note 17 — Retirement Plans (Subsequent Event)~~

During the fourth quarter of 2008, the Company provided an opportunity for participants in its replacement benefit plan (“RBP”) and its defined benefit pension plan to receive a discounted lump sum distribution to settle retirement obligations. The RBP, which represented a liability of $5.5 million as of September 30, 2008, includes a small number of terminated and retired executives and one current executive. The defined benefit pension plan, which represented a liability of $20.3 million as of September 30, 2008, covers certain terminated and retired former domestic employees. Prior to the distribution opportunity, both plans were frozen, with no participants entitled to make additional contributions or earn additional service years. Based on the responses received, the Company expects that it will pay cash out of approximately $7.9 million in January 2009 related to these lump sum payments. The Company is still assessing the impact of the partial settlement on its financial statements, but currently expects to record a gain of approximately $3 to $5 million.

1511

Item 2.

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

This section should be read in conjunction with the Consolidated Financial Statements of Voyager Learning Company and ~~Subsidiaries~~its subsidiaries (collectively the “Company”) and the notes thereto included in the annual report on Form 10-K for the year ~~ended~~ December ~~29, 2007 (the “2007 Form 10-K”),~~31, 2008, as well as the accompanying interim financial statements and the notes thereto for the ~~three and nine month~~ period ending ~~September 30, 2008.~~March 31, 2009.

Safe Harbor for Forward-looking Statements

Except for the historical information and discussions contained herein, statements contained in this document may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. ~~These statements involve a number of risks, uncertainties and other factors, which could cause actual results to differ materially.~~ In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, “continue”, “projects”, “intends”, “prospects”, “priorities”, or the negative of such terms or similar terminology. These statements involve a number of risks, uncertainties and other factors, including those described in “Item 1A. Risk Factors,” among others, which could cause actual results to differ materially. These factors may cause our actual results to differ from any forward-looking statements. ~~We undertake~~All forward-looking statements made by us or by persons acting on our behalf apply only as of the date of this Quarterly Report on Form 10-Q. The Company undertakes no obligation to update any of our forward-looking statements.

~~Results~~First Quarter of ~~Continuing Operations~~Fiscal 2009 Compared to the First Quarter of Fiscal 2008

Learning A-Z was acquired in 2004 and Voyager Expanded Learning and ExploreLearning were both acquired in 2005. These operations together are Voyager Education (“VED”) and comprise our single reporting segment. The continuing operations presented below include the operational activities for VED and the activities based in Ann Arbor, Michigan required to finalize the restatement efforts and transition the corporate office to Dallas, Texas.


	Three Months Ended
	March 31, 2009						March 31, 2008						Year Over Year Change
				% of						% of			Favorable / (Unfavorable)
*(Dollars in millions)*	Amount			sales			Amount			sales			$			%

Net sales	$	18.7			100.0		$	15.6			100.0		$	3.1			19.9
Cost of sales (exclusive of depreciation and amortization shown separately below)		(6.1	)		(32.6	)		(6.5	)		(41.7	)		0.4			6.2

Gross profit		12.6			67.4			9.1			58.3			3.5			38.5

Research and development expense		(1.1	)		(5.9	)		(1.4	)		(9.0	)		0.3			21.4
Sales and marketing expense		(6.7	)		(35.8	)		(8.5	)		(54.5	)		1.8			21.2
General and administrative expense		(6.5	)		(34.8	)		(7.9	)		(50.6	)		1.4			17.7
Depreciation and amortization expense		(4.9	)		(26.2	)		(5.4	)		(34.6	)		0.5			9.3
Lease termination costs		—			—			(11.7	)		(75.0	)		11.7			100.0


Loss before interest, other income and income taxes		(6.6	)		(35.3	)		(25.8)			(165.4	)		19.2			74.4

Net interest income (expense)		(0.4	)		(2.1	)		0.4			2.6			(0.8	)		(200.0	)
Other income (expense)		1.3			7.0			0.8			5.1			0.5			62.5
Income tax benefit		0.3			1.6			—			—			0.3			100.0


Net loss	$	(5.4	)		(28.9	)	$	(24.6	)		(157.7	)	$	19.2			78.0

We determined to sell ProQuest Business Solutions (“PQBS”) and ProQuest Information and Learning (“PQIL”) in the second quarter of 2006. PQBS was sold on November 28, 2000 and PQIL was sold on February 9, 2007 and therefore, its results were classified as discontinued operations and are excluded from the following discussion.

Overview

Adverse developments in the education funding environment, including the reductions in Reading First funding ~~effective 2008~~ and reductions in available state and local funds as property taxes decline, have significantly decreased the funding available to schools to purchase our products and services. Some school districts have found it difficult to secure alternative funding sources in the midst of the current market conditions. These reductions have impacted our operations during the current year and may continue to have an impact on our future sales, profits, cash flows and carrying value of assets.

The following trends have or may have had a positive impact on our revenues and profitability:

In February 2009, the American Reinvestment and Recovery Act (ARRA) was passed. The Act provides significant new federal funding for various education initiatives over the next two years. While the education funding is for a broad set of initiatives, a meaningful amount is anticipated to be targeted for programs often used by schools for our products. While success in winning some of these funds for our products is not certain at this time, we believe it has the potential to stabilize some of the negative funding trends which emerged in 2008.

Sales of our online subscription based products grew significantly in 2008 and we expect growth to continue in the coming years.

We believe our product diversification, such as growth in the online offerings and new intervention products for higher grades, will allow us to strengthen our ability to sustain share in a troubled market and capture share when the market recovers.

We believe our focus on usage and partnership with the customer to implement our solutions with fidelity will result in higher success rates and such success, if achieved, will lead to customer retention and growth through reference sales.

Efforts were taken in 2008 to reduce our cost structure for 2009, including a reduction in force, which better aligns our cost structure to current market conditions.

Sales and gross profit are subject to seasonality with the first and fourth quarters being the weakest.

1613

~~Third Quarter of Fiscal 2008 Compared to the Third Quarter of Fiscal 2007~~

Three Months Ended
September 30, 2008 September 29, 2007 Year Over Year Change
% of % of Favorable / (Unfavorable)
(Dollars in millions) Amount sales Amount sales $ %

Net sales
$ 27.3 100.0 $ 31.8 100.0 $ (4.5 ) (14.2 )
Cost of sales (exclusive of depreciation and amortization shown separately below)
(10.0 ) (36.6 ) (9.9 ) (31.1 ) (0.1 ) (1.0 )

Gross profit
17.3 63.4 21.9 68.9 (4.6 ) (21.0 )

Research and development expense
(1.1 ) (4.0 ) (1.1 ) (3.5 ) — —
Sales and marketing expense
(8.0 ) (29.3 ) (7.6 ) (23.9 ) (0.4 ) (5.3 )
General and administrative expense
(8.1 ) (29.7 ) (12.4 ) (39.0 ) 4.3 34.7
Depreciation and amortization expense
(5.3 ) (19.4 ) (5.8 ) (18.2 ) 0.5 8.6

Loss from continuing operations before interest and income taxes
(5.2 ) (19.0 ) (5.0 ) (15.7 ) (0.2 ) (4.0 )

Net interest income
0.1 0.3 0.5 1.5 (0.4 ) (80.0 )
Sublease income and other
— — 1.2 3.8 (1.2 ) (100.0 )
Income tax benefit
— — 1.3 4.1 (1.3 ) (100.0 )

Loss from continuing operations
$ (5.1 ) (18.7 ) $ (2.0 ) (6.3 ) $ (3.1 ) (155.0 )

Net Sales.

Our total net sales ~~from continuing operations decreased $4.5~~increased $3.1 million, or ~~14.2%~~19.9%, to ~~$27.3~~$18.7 million in the ~~third~~first quarter of ~~2008. The decrease was primarily driven by lower~~2009. We experienced a decline in order volume in the first quarter of 2009 compared to the first quarter of 2008 due to market conditions and a decline in the education funding environment. However, the company experienced an overall increase in net sales, or revenues, due to higher recognition of deferred revenue. Thus, the recognition in the first quarter of 2009 of revenue ~~deferral rates in~~deferred from fiscal 2008 ~~compared~~served to ~~fiscal 2007. We experienced weakness~~increase revenue in markets and products that have heavy reliance on federal, state and local funding sources. Our reading intervention for middle school students and its online offerings continue to grow, but growth was not enough to offset declines in products with heavy reliance on federal funding. In 2008, we deferred a ~~larger percentage~~period of sales compared to 2007 as we continue the trend of including more service and technology in our products. On-line access and service elements are delivered over time rather than immediately shipped to customers like printed materials.order decline. We defer ~~the~~ revenue associated with ~~those~~certain services and ~~on-line access~~technology components and recognize the revenue over the period they are delivered. In fiscal 2008 the company had an increase in revenue deferral rates due to more of these service and technology components in our products. These deferral rates have stabilized in 2009. During the quarter ended March 31, 2009, deferred revenue balances decreased $5.4 million, totaling $29.5 million at December 31, 2008 ,and $24.1 million at March 31, 2009. Comparatively, during the quarter ended March 31, 2008, deferred revenue balances decreased $2.7 million, totaling $21.1 million at December 31, 2007 and $18.4 million at March 31, 2008.

Gross Profit.

Cost of sales includes expenses to print, purchase, handle and warehouse our product and to provide services and support to customers. Our gross profit percentage for the ~~third~~first quarter of ~~2008 decreased 5.5~~2009 increased 9.1 percentage points to ~~63.4%~~67.4% compared to ~~68.9%~~58.3% for the ~~third~~first quarter of ~~2007. The decrease is primarily due~~2008. We recognized more deferred revenue in the first quarter of 2009 as compared to the ~~deferral~~same period of ~~a larger percentage~~fiscal 2008, which increased net sales during the first quarter of 2009, while cost of sales remained relatively flat. The revenue recognized in ~~2008 versus 2007,~~the first quarter of 2009 from prior year deferred revenue is largely for technology, which ~~reduced net sales but did not have an offsetting and corresponding decrease in cost of sales.~~is at a higher margin.

Research and ~~Development.~~Development Expense.

Research and development expenditures include costs to research, evaluate and develop educational products, net of capitalization. Research and development expense for the ~~third~~first quarter of ~~2008 remained flat at~~2009 decreased $0.3 million to $1.1 million compared to the ~~third~~first quarter of ~~fiscal 2007.~~2008, due to the timing of expenditures and the ratio of capitalizable versus non-capitalizable activities performed during the respective quarters.

General and ~~Administrative.~~Administrative Expense.

Three Months Ended Year Over Year Change
September 30, September 29, Favorable / (Unfavorable)
(Dollars in millions) 2008 2007 $ %

VED
$ 2.9 $ 3.8 $ 0.9 23.7
Corporate
5.2 8.6 3.4 39.5

Total
$ 8.1 $ 12.4 $ 4.3 34.7

General and administrative expenses decreased ~~$4.3~~$1.4 million, or ~~34.7%~~17.7%, to ~~$8.1~~$6.5 million compared to the ~~third~~first quarter of fiscal ~~2007. General~~2008. This decrease is primarily attributable to a significant decline in corporate expenses and ~~administrative activities include $5.2 million in the third quarter of 2008 and $8.6 million in the third quarter of 2007~~one-time costs related to activities based in Ann Arbor, Michigan that were required to finalize the restatement efforts and transition the corporate office to Dallas, ~~Texas. These corporate expenses decreased $3.4 million, or 39.5%, as a result of lower professional fees incurred in fiscal 2008 related to the restatement efforts~~Texas, as these activities were brought ~~closer~~ to ~~conclusion.~~conclusion by the end of fiscal 2008.

~~Excluding the corporate costs, general~~Depreciation and ~~administrative expenses~~Amortization Expense.

Our depreciation and amortization expense decreased ~~$0.9~~$0.5 million, or ~~23.7%~~9.3%, ~~year over year, and represented 10.6% and 11.9% as a percentage of net sales for the third quarter of fiscal 2008 and 2007, respectively. The decrease is primarily due~~ to ~~reduced costs incurred in 2008 as a result of winding down the restatement and the effort to transition the Ann Arbor activities.~~

~~Net Interest Income.~~

Three Months Ended Year Over Year Change
September 30, September 29, Favorable / (Unfavorable)
(Dollars in millions) 2008 2007 $ %

Interest income
$ 0.1 $ 0.7 (0.6 ) 85.7
Interest expense
— (0.2 ) 0.2 100.0

Total
$ 0.1 $ 0.5 $ (0.4 ) 80.0

~~Net interest income totaled $0.1~~$4.9 million in the ~~third~~first quarter of fiscal 2008 versus $0.5 million in the third quarter of fiscal 2007. On February 9, 2007, we sold PQIL and all of our remaining foreign subsidiaries to Cambridge Scientific Abstracts, LP. We used a portion of the proceeds from that sale to pay down all remaining debt, excluding capital leases. The result of this activity was to eliminate interest expense associated with long-term debt other than capital leases effective February 2007. Additionally, lower cash balances and a change in the mix of investments and related interest rates during 2008 relative to 2007 decreased interest earned on cash balances and investments.

~~Sublease Income and Other.~~

The Company announced plans after the sale of PQBS and PQIL to transition all of our corporate functions from the Ann Arbor headquarters to Dallas during 2007 and 2008. From the date of the sale of PQIL in February 2007, the Company subleased substantial space to the buyer of PQIL through March 2008 resulting in sublease income totaling $1.2 million for the third quarter of fiscal 2007.

~~Income Tax Benefit.~~

For the third quarter of 2008, the Company recorded no income tax benefit or expense for the loss from continuing operations as we cannot assume future taxable income. For the third quarter of fiscal 2007, the Company attributed an income tax benefit to continuing operations of $1.2 million, which represents an effective tax rate of 38.2%.

~~Results of Operations~~

~~Nine Month Period ended September 30, 2008 Compared to the Nine Month Period ended September 29, 2007~~

Nine Months Ended
September 30, 2008 September 29, 2007 Year Over Year Change
% of % of Favorable / (Unfavorable)
(Dollars in millions) Amount sales Amount sales $ %

Net sales
$ 76.4 100.0 $ 88.2 100.0 $ (11.8 ) (13.4 )
Cost of sales (exclusive of depreciation and amortization shown separately below)
(27.8 ) (36.4 ) (27.2 ) (30.8 ) (0.6 ) (2.2 )

Gross profit
48.6 63.6 61.0 69.2 (12.4 ) (20.3 )

Research and development expense
(3.7 ) (4.9 ) (3.5 ) (4.1 ) (0.2 ) (5.7 )
Sales and marketing expense
(25.4 ) (33.2 ) (21.3 ) (24.1 ) (4.1 ) (19.2 )
General and administrative expense
(24.3 ) (31.8 ) (42.9 ) (48.6 ) 18.6 43.4
Depreciation and amortization expense
(16.1 ) (21.1 ) (17.3 ) (19.6 ) 1.2 6.9
Lease termination costs
(11.7 ) (15.3 ) — — (11.7 ) (100.0 )

Loss from continuing operations before interest and income taxes
(32.6 ) (42.7 ) (24.0 ) (27.2 ) (8.6 ) (35.8 )

Net interest income (expense)
0.5 0.7 (0.3 ) (0.3 ) 0.8 266.7
Sublease income and other
0.8 1.0 3.2 3.6 (2.4 ) (75.0 )
Income tax benefit
— — 8.1 9.2 (8.1 ) (100.0 )

Loss from continuing operations
$ (31.3 ) (41.0 ) $ (13.0 ) (14.7 ) (18.3 ) (140.8 )

~~Net Sales.~~

Our total net sales from continuing operations decreased $11.8 million, or 13.4%, to $76.4 million for the nine month period ended September 30, 2008. The decrease was primarily driven by lower order volume and higher revenue deferral rates in fiscal 2008 compared to fiscal 2007. We experienced weakness in markets and products that have heavy reliance on federal, state and local funding sources. Our reading intervention for middle school students and its online offerings continue to grow, but growth was not enough to offset declines in products with heavy reliance on federal funding. In 2008, we deferred a larger percentage of sales compared to 2007 as we continue the trend of including more service and technology in our products. On-line access and service elements are delivered over time rather than immediately shipped to customers like printed materials. We defer the revenue associated with those services and on-line access and recognize the revenue over the period they are delivered.

~~Gross Profit.~~

Cost of sales includes expenses to print, purchase, handle and warehouse product and to provide services and support to customers. Our gross profit percentage for the nine month period ended September 30, 2008 decreased 5.6 percentage points to 63.6% compared to 69.2% for the nine month period ended September 29, 2007.2009. The decrease is primarily due to the ~~deferral~~use of ~~a larger percentage of sales~~an accelerated depreciation method on our acquired curriculum, which results in ~~2008 versus 2007, which reduced net sales but did not have an offsetting and corresponding decrease on cost of sales. VED sales and, therefore, its gross profit are subject to seasonality with~~higher amortization expense in the ~~first and fourth quarters being the weakest.~~

~~Research and Development.~~

~~Research and development expenditures include costs to research, evaluate and develop educational products, net of capitalization. Research and development expense for the nine month~~previous period ~~ended September 30, 2008 remained relatively flat year over year, increasing $0.2 million to $3.7 million~~when compared to the ~~same period in 2007.~~current period.

~~Sales and Marketing.~~

Sales and marketing expenditures include all selling effort and marketing costs. Sales and marketing expense for the nine month period ended September 30, 2008 increased $4.1 million to $25.4 million compared to the nine month period ended September 29, 2007, as we sought to maintain sales volumes in an increasingly challenging market and due to costs associated with our participation in several 2008 state adoptions.

~~General and Administrative.~~

Nine Months Ended Year Over Year Change
September 30, September 29, Favorable / (Unfavorable)
(Dollars in millions) 2008 2007 $ %

VED
$ 8.8 $ 9.6 $ 0.8 8.3
Corporate
15.5 33.3 17.8 53.5

Total
$ 24.3 $ 42.9 $ 18.6 43.4

General and administrative expenses decreased $18.6 million, or 43.4%, to $24.3 million compared to the nine month period ended September 29, 2007. General and administrative activities include $15.5 million for the nine month period ended September 30, 2008 and $33.3 million for the comparable nine month period of 2007 related to activities based in Ann Arbor, Michigan required to finalize the restatement efforts, transition the corporate office to Dallas, Texas, and complete the sale of PQIL. These corporate expenses decreased $17.8 million, or 53.5%, as a result of lower professional fees incurred in fiscal 2008 related to the restatement efforts and completing the sale of PQIL as these activities were brought closer to conclusion in 2008.

Excluding the corporate costs, general and administrative expenses decreased $0.8 million, or 8.3%, year over year, and represented 11.5% and 10.9% as a percentage of net sales for the nine month periods in fiscal 2008 and 2007, respectively. The decrease is primarily due to reduced costs incurred in 2008 as a result of winding down the restatement and the effort to transition the Ann Arbor activities.

~~Net Interest Income (Expense).~~

Nine Months Ended Year Over Year Change
September 30, September 29, Favorable / (Unfavorable)
(Dollars in millions) 2008 2007 $ %

Interest income
$ 0.7 $ 2.8 (2.1 ) (75.0 )
Interest expense
(0.2 ) (3.1 ) 2.9 93.5

Total
$ 0.5 $ (0.3 ) $ 0.8 266.7

Net interest income (expense) totaled $0.5 million for the nine month period in fiscal 2008 versus $(0.3) million in the comparable fiscal 2007 period. On February 9, 2007, we sold PQIL and all of our remaining foreign subsidiaries to Cambridge Scientific Abstracts, LP. We used a portion of the proceeds from that sale to pay down all remaining debt, excluding capital leases. The result of this activity was to eliminate interest expense associated with long-term debt other than capital leases effective February 2007. Additionally, lower cash balances and a change in the mix of investments and related interest rates during 2008 relative to 2007 decreased earnings on cash balances and investments.

~~Sublease Income and~~ Lease Termination Costs.

We announced plans after the sale of PQBS and PQIL to transition all of our corporate functions from the Ann Arbor headquarters to Dallas during 2007 and 2008. The transition plan was completed by year-end 2008. From the date of the sale of PQIL in February 2007, we subleased substantial space to the buyer of PQIL through March 2008 resulting in sublease income totaling $0.8 million for the nine month period ended September 30, 2008.

On January 1, 2008, we entered into an agreement with one of our lessors, Relational, LLC f/k/a Relational Funding Corporation (“Relational”) and ProQuest LLC (formerly known as ProQuest-CSA LLC) (“CSA”) relating to certain obligations regarding the capital and operating leases for certain property and equipment used at our facilities at 777 Eisenhower Parkway (the “777 Facility”) and 789 Eisenhower Parkway (the “789 Facility”) in Ann Arbor, Michigan. The aforementioned leases originated as early as fiscal 2005 with up to five year terms. Effective January 1, 2008, we conveyed, assigned, transferred and delivered to CSA all of our right, title and interest and benefit of certain property and equipment. We were released from any and all obligations relating to these leases and Relational, as lessor, consented to such assignments and releases. Due to these assignments, the write off of certain assets and liabilities under capital leases, such as office furniture, phone and power supply systems, and video equipment, totaled a net charge of $0.1 million in the first quarter of 2008.

2215

On January 25, 2008, we entered into a series of agreements with our current landlord, Transwestern Great Lakes, LP (“Transwestern”) and CSA relating to certain obligations regarding the long term leases for the facilities in Ann Arbor, Michigan. On March 4, 2008, we paid CSA $11.0 million, a portion of which was distributed to Transwestern for termination of the lease relating to office space at the 777 Facility. Upon the Closing Date of March 7, 2008, we were released from any and all obligations relating to the 15 year lease we previously entered into for the 777 Facility. Through assignment, we were also released from any and all obligations relating to the 15 year lease we previously entered into for office space at the 789 Facility. We assigned all of our rights under the lease for the 789 Facility to CSA and CSA assumed the obligations of tenant under such lease, as amended. Transwestern, as landlord, consented to such assignment. In connection with the termination and assignment of these long term facility leases, certain leasehold improvements and deferred rent were written off, which totaled a net charge of $0.6 million in the first quarter of 2008. We recorded a total charge to expense in the first quarter of 2008 of $11.7 million for all lease termination costs.

Net Interest Income (Expense).


	Three Months Ended					Year Over Year Change
	March 31,			March 31,		Favorable / (Unfavorable)
*(Dollars in millions)*	2009			2008		$			%

Interest income	$	—		$	0.4	$	(0.4	)		(100.0	)
Interest expense		(0.4	)		—		(0.4	)		(100.0	)


Total	$	(0.4	)	$	0.4	$	(0.8	)		(200.0	)

Net interest income (expense) for the first quarter of 2009 decreased $0.8 million to ($0.4) million compared to the first quarter of 2008. Interest income declined from $0.4 million in the first quarter of fiscal 2008 to no income for the first quarter of fiscal 2009 as the Company traditionally invests very conservatively in cash deposits and U.S. Treasuries, and the safety and liquidity of these investments in the current economic crisis has led to an interest rate yield near 0%. Interest expense is primarily related to tax-related liabilities resulting from the sales agreements with Snap-On Incorporated and Cambridge Scientific Abstracts, L.P.

Other Income (Expense).

From the date of the sale of ProQuest Information and Learning (“PQIL”) in February 2007, we subleased substantial space to the buyer of PQIL through March 2008 resulting in sublease income totaling $0.8 million, which was recognized in other income, for the first quarter of fiscal 2008. Because this sublease expired in the first quarter of fiscal 2008, we did not recognize any sublease income for the first quarter of fiscal 2009.

During the fourth quarter of 2008, the Company provided an opportunity for participants in its Replacement Benefit Plan (“RBP”) and its U.S. defined benefit pension plan to receive a discounted lump sum distribution to settle retirement obligations. Prior to the distribution opportunity, both plans were frozen, with no participants entitled to make additional contributions or earn additional service years. Based on the number of participants who chose to receive a discounted lump sum distribution, the Company paid participants approximately $7.9 million in January 2009 for these lump sum payments. As a result of the settlements, the Company recorded a gain in January 2009 of $1.3 million, consisting of $1.1 million related to the RBP settlement and $0.2 million related to the settlement of the U.S. defined benefit pension plan.

Income Tax Benefit.

We recorded no income tax benefit or expense for the net loss for the first quarter of 2008 as we cannot assume future taxable income.

For the ~~nine month period ended September 30, 2008,~~first quarter of 2009, we recorded income tax benefit of $0.3 million in connection with the partial settlement of our U.S. defined benefit pension plan. The tax benefit recorded was to write-off a portion of the tax benefit included in accumulated other comprehensive income for our U.S. defined benefit pension plan. Other than this item, we recorded no income tax benefit or expense for the loss ~~from continuing operations~~ as we cannot assume future taxable income. ~~For the nine month period ended September 29, 2007, we attributed an income tax benefit to continuing operations of $8.1 million, which represents an effective tax rate of 38.2%.~~

~~Discontinued Operations.~~

In December 2006, we announced the sale of our PQIL business. The sale was completed in February 2007 for $195.2 million after final adjustments for working capital and assumed liabilities. Accordingly, the operating results of the PQIL business have been segregated from our continuing operations and reported as earnings from discontinued operations. We recognized a gain on the sale of discontinued operations of $46.6 million (net of tax) due to the sale of PQIL in the first quarter of fiscal 2007.

Liquidity and Capital Resources

As of ~~September 30, 2008,~~March 31, 2009, we did not have any debt with the exception of certain capital leases. Cash and cash equivalents decreased to ~~$23.1~~$50.7 million at ~~September 30, 2008~~March 31, 2009 compared to ~~$53.9~~$67.3 million at December ~~29, 2007.~~31, 2008.

During the first quarter of 2009, cash used in operating activities was $14.6 million. Use of cash beyond normal season operating use included $7.9 million related to the partial settlement of our legacy employee benefit plans and $4.0 million escrowed in connection with the settlement of the consolidated shareholder securities class actions lawsuit. These payments were partially offset by the receipt of $4.2 million for income taxes receivable.

2317

During the nine month period ending September 30, 2008, cash used in operating activities from continuing operations was $25.7 million. The decrease in cash is primarily due to expenditures related to personnel and activities based in Ann Arbor, Michigan required to finalize past due financial reporting and transition the corporate office to Dallas, Texas, as well as contributions made to legacy employee benefit plans.

Cash ~~from continuing operations~~ is seasonal with ~~more~~positive net cash typically generated in the second half of the ~~year than in the~~year. The first half of the ~~year. Cash~~year generally results in net cash usage. Positive cash flow is historically generated during the second half of the year because the buying cycle of school districts generally starts at the beginning of each new school year in the fall.

Other significant uses of cash ~~for continuing operations~~ during the ~~nine month period ending September 30, 2008 included:~~

	•		~~$5.9 million of expenditures related to property, equipment, curriculum development costs, and software; and~~

	•		~~$0.2 million for principal payments on capital leases.~~

first quarter of 2009 included $2.0 million of capital expenditures related to property, equipment, curriculum development costs, and software.

Net proceeds generated from the sale or ~~maturity~~maturities of marketable securities were ~~$1.1~~$0.1 million.

~~As of November 30, 2008, we have cash, cash equivalents, and short-term investments totaling $75.2 million with no outstanding debt. We believe~~The Company believes that current cash, cash equivalents and short term investment balances, expected income tax refunds, and cash generated from operations will be adequate to fund the working capital and capital expenditures necessary to support our currently expected sales for the foreseeable future.

The Company ~~is still assessing~~had no off-balance sheet arrangements at March 31, 2009 that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our business.

Contractual Obligations

As of March 31, 2009, there have been no material changes in the ~~impact of~~contractual obligations disclosed in our Annual Report on Form 10-K for the ~~partial settlement on its financial statements, but currently expects to record a gain of approximately $3 to $5 million.~~year ended December 31, 2008.

Recently Issued Financial Accounting Standards

In ~~April~~September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”). This statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. In February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. ~~FAS 142-3, “Determination~~157-2, “Effective Date of FASB Statement No. 157”, which delayed the ~~Useful Life~~effective date of Intangible Assets” (“FAS 142-3”). FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. ~~142, “Goodwill~~157 for non-recurring measurements of non-financial assets and ~~Other Intangible Assets”. FAS 142-3 is effective for~~liabilities to fiscal years beginning after ~~December~~November 15, 2008 ~~and early adoption is prohibited. The Company is currently evaluating the impact, if any, that FAS 142-3 will have on its consolidated financial position, results of operations and cash flows.~~

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51,” (“SFAS No. 160”). Currently, the Company does not have an outstanding noncontrolling interest in one or more subsidiaries, nor does it deconsolidate any subsidiaries. SFAS No. 160 will be effective for fiscal years, and interim periods within those fiscal ~~years,~~years. The Company adopted SFAS No. 157 for all recurring financial assets and liabilities beginning ~~on or after December 15,~~fiscal 2008. The Company ~~does not expect the~~adopted SFAS No. 157 for all other nonfinancial assets and liabilities beginning fiscal 2009. The adoption of SFAS No. ~~160 to have a material effect~~157 had no impact on the Company’s ~~consolidated financial position, results of operations and cash flows.~~Condensed Consolidated Financial Statements.

In December 2007, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued SFAS No. 141 (revised), “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R establishes principles and requirements for how an acquirer accounts for business combinations. SFAS No. 141R includes guidance for the recognition and measurement of the identifiable assets acquired, the liabilities assumed, and any noncontrolling or minority interest in the acquiree. It also provides guidance for the measurement of goodwill, the recognition of contingent consideration, the accounting for pre-acquisition gain and loss contingencies and acquisition-related transaction costs, and the recognition of changes in the acquirer’s income tax valuation allowance. SFAS No. 141R applies prospectively and is effective for business combinations made by the Company beginning January 1, 2009. The provisions of SFAS No. 141R are effective as of our first quarter ended March 31, 2009; however, there was no impact on our consolidated financial statements.

2518

In ~~February~~December 2007, the FASB issued SFAS No. ~~159,~~“~~The Fair Value Option for~~160, “Noncontrolling Interests in Consolidated Financial ~~Assets and Financial Liabilities — Including~~Statements, an ~~Amendment~~amendment of ARB No. 51,” (“SFAS No. ~~115~~”(“160”). Currently, the Company does not have an outstanding noncontrolling interest in one or more subsidiaries, nor does it deconsolidate any subsidiaries. SFAS No. ~~159”). SFAS No. 159 permits entities to choose to measure many financial instruments~~160 will be effective for fiscal years, and ~~other items at fair value. Unrealized gains and losses~~interim periods within those fiscal years, beginning on items for which the fair value option has been elected would be recognized in earnings at each subsequent reporting date. Generally, the fair value option may be applied instrument by instrument and is irrevocable unless a new election date occurs. SFAS No. 159 is effective as of the beginning of the first fiscal year that beginsor after ~~November~~December 15, ~~2007. We adopted the~~2008. The provisions of SFAS No. ~~159, related to recurring financial and non-financial assets and liabilities, on January 1, 2008. The adoption had~~160 are effective as of our first quarter ended March 31, 2009; however, there was no impact on our consolidated financial statements.

In ~~September 2006,~~April 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FAS 142-3”). FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. FAS 142-3 is effective for fiscal years beginning after December 15, 2008 and early adoption is prohibited. The provisions of FAS 142-3 are effective as of our first quarter ended March 31, 2009; however, there was no impact on our consolidated financial statements.

In April 2009, the FASB issued ~~SFAS~~FASB Staff Position No. ~~158,~~“~~Employer’s Accounting~~FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FAS 115-2 and FAS 124-2”), which provides operational guidance for ~~Defined Pension~~determining other-than-temporary impairments (“OTTI”) for debt and ~~Other Postretirement Plans — an amendment of SFASs No. 87, 88, 106~~equity securities classified as available-for-sale and ~~132(R),~~”(“SFAS No. 158”). SFAS No. 158 requires the recognition of the funded status of a benefit plan in the statement of financial position. It also requires the recognition as a component of other comprehensive income, net of tax, the gains or lossesheld-to-maturity. FAS 115-2 and ~~prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost pursuant to SFAS No. 87, “Employers’ Accounting for Pensions”~~(“SFAS No. 87”) or SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pension” (“SFAS No. 106”). The statement also has new provisions regarding the measurement date as well as certain disclosure requirements. The recognition provisions of the statement were effective for our 2006 year end, and the measurement date requirementsFAS 124-2 are effective for ~~our 2008 year end.~~interim and annual periods ending after June 15, 2009. The ~~adoption~~Company is currently evaluating the impact, if any, that FAS 115-2 and FAS 124-2 will have on its consolidated financial position, results of operations and cash flows.

In April 2009, the ~~recognition~~FASB issued FASB Staff Position No. FAS 157-4, “Determining Fair Value When the Volume and ~~disclosure provisions~~Level of ~~SFAS~~Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FAS 157-4”), which provides additional guidance for estimating fair value in accordance with FASB Statement No. ~~158 had~~157, “Fair Value Measurements”, when the volume and level of activity for the asset or liability have significantly decreased. FAS 157-4 also includes guidance on identifying circumstances that indicate a ~~minimal~~transaction is not orderly. FAS 157-4 is effective for interim and annual periods ending after June 15, 2009, and shall be applied prospectively. The Company is currently evaluating the impact, if any, that FAS 157-4 will have on ~~our~~its consolidated financial position, results of operations and cash flows.

In ~~September 2006,~~April 2009, the FASB issued ~~SFAS~~FASB Staff Position No. ~~157, “Fair~~FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value ~~Measurements”~~of Financial Instruments” (“~~SFAS No. 157”~~FAS 107-1 and APB 28-1”), which ~~defines~~amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” to require disclosure about fair value ~~establishes a framework for measuring fair value~~of financial instruments in ~~Generally Accepted Accounting Principles (“GAAP”)~~interim financial statements. FAS 107-1 and APB 28-1 also amends APB Opinion No. 28, “Interim Financial Reporting”, to require those disclosures in summarized financial information at interim reporting periods. FAS 107-1 and expands disclosures regarding fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. Certain provisions of this statement areAPB 28-1 is effective for ~~fiscal years beginning~~interim and annual periods ending after ~~November~~June 15, 2007. We adopted the provisions of SFAS No. 157 related to recurring financial and non-financial assets and liabilities on January 1, 2008. The adoption had no impact on our consolidated financial statements. All financial assets and financial liabilities are valued using level 1 inputs.2009. The Company is currently evaluating the ~~potential~~ impact that ~~the adoption of the deferred portion of SFAS No. 157~~FAS 107-1 and APB 28-1 will have on ~~our~~its consolidated financial position, results of ~~operation or~~operations and cash flows.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and ~~Procedures~~Procedures.

Management of the Company, with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of ~~1934)~~1934 (the “Exchange Act”)) pursuant to Rule 13a-15 of the Exchange Act. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported on a timely basis and that such information is communicated to management, including the Chief Executive Officer, Chief Financial Officer and its Board of Directors to allow timely decisions regarding required disclosure.

Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of ~~September 30, 2008.~~March 31, 2009 to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There has been no change in the Company’s internal control over financial reporting (as such term is defined in Rules ~~13a-15 (f)~~13a-15(f) and ~~15d-15 (f)~~15d-15(f) under the Exchange Act) during the quarter ended ~~September 30, 2008~~March 31, 2009 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

On July 22, 2008, the Company reached an agreement in principle to settle the consolidated shareholder securities class action ~~lawsuit filed against it and certain officers and directors in the U.S. District Court for the Eastern District of Michigan~~law suit for $20 million. The settlement will be funded largely by insurance. Under the terms of the agreement, the Company would pay approximately $4.5 million in fees and settlement amounts to settle all claims related to the financial statements with remaining amounts to be paid by insurers. A Stipulation and Agreement of Settlement was signed by the parties and the Court granted preliminary approval of such agreement. ~~The final settlement is subject to final Court approval~~During January 2009, the Company paid $4.0 million and its insurers funded the ~~participation of a sufficient percentage~~remaining portion of the ~~putative class. There is no assurance that a~~settlement into an escrow account. The Court entered final ~~Court~~ approval ~~will be obtained or putative class member participation will be sufficient. If~~of the settlement ~~arrangement is not finalized,~~on March 30, 2009. This Final Order and Judgment fully resolves the ~~Company intends to defend itself vigorously.~~securities matters raised in this litigation.

Shareholder Derivative Lawsuits

On April 18, 2006 and December 19, 2006, respectively, two shareholder derivative lawsuits were filed in the U.S. District Court for the Eastern District of Michigan (the “Court”), purportedly on behalf of the Company against certain current and former officers and directors of the Company by certain of the Company’s shareholders. Both cases were assigned to Honorable Avern Cohn, who entered a stipulated order staying the litigation pending completion of the Company’s restatement and a special committee investigation into the restatement.

~~Securities and Exchange Commission Investigation~~

2922

Item 1A. Risk Factors.

For a discussion of the Company’s risk factors, please refer to Part 1, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

~~Item 1A.Risk Factors~~

~~For a discussion of the Company’s risk factors, please refer to Part 1, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007.~~

Item 6.Exhibits

(a) Exhibits:

The following exhibits are filed as part of this Quarterly Report. Exhibits preceded by a plus sign (+) indicate a management contract or compensatory plan or arrangement.


Index Number		Description

	+10.1	Employment agreement dated March 3, 2009, between Voyager Expanded Learning and Brad Almond.

	+10.2	Employment agreement dated April 9, 2009, between Voyager Learning Company and Ron Klausner.

	+10.3	Employment agreement dated May 8, 2009, between Voyager Learning Company and Todd Buchardt.

	+10.4	Employment agreement dated May 8, 2009, between Voyager Learning Company and Richard Surratt.

	31.1	Section 302 Certification of the Chief Executive Officer

	31.2	Section 302 Certification of the Chief Financial Officer

	32.1	Certification of Richard J. Surratt, President and CEO of Voyager Learning Company, Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	32.2	Certification of Bradley C. Almond, Vice President and Chief Financial Officer ~~and Assistant Secretary~~ of Voyager Learning Company, Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

3023

EXHIBIT INDEX


Index Number		Description

	10.1	Employment agreement dated March 3, 2009, between Voyager Expanded Learning and Brad Almond.

	10.2	Employment agreement dated April 9, 2009, between Voyager Learning Company and Ron Klausner.

	10.3	Employment agreement dated May 6, 2009, between Voyager Learning Company and Todd Buchardt.

	10.4	Employment agreement dated May 6, 2009, between Voyager Learning Company and Richard Surratt.

	31.1	Section 302 Certification of the Chief Executive Officer

	31.2	Section 302 Certification of the Chief Financial Officer

	32.1	Certification of Richard J. Surratt, President and CEO of Voyager Learning Company, Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	32.2	Certification of Bradley C. Almond, Vice President and Chief Financial Officer ~~and Assistant Secretary~~ of Voyager Learning Company, Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

3225


	Page
PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Statements of Operations — Unaudited for the Three Months Ended March 31, 2009 and ~~Nine Months Ended September 30,~~March 31, 2008 ~~and September 29, 2007~~		1

Condensed Consolidated Balance Sheets as of ~~September 30, 2008~~March 31, 2009 (Unaudited) and December ~~29, 2007~~31, 2008		2

Condensed Consolidated Statements of Cash Flows — Unaudited for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2009 and March 31, 2008 ~~and September 29, 2007~~		3

Notes to the Condensed Consolidated Financial Statements (Unaudited)		4

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1612

Item 3. Quantitative and Qualitative Disclosures about Market Risk		2720

Item 4. Controls and Procedures		2721

PART II OTHER INFORMATION

Item 1. Legal Proceedings		2821

Item 1A. Risk Factors		3023

Item 6. Exhibits		3023

SIGNATURE PAGE		3124

EXHIBITS		25

Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2


	As of				As of
	September 30,		December 29,		March 31,		December 31,
*(Dollars in thousands)*	2008		2007		2009		2008

Salaries, bonuses and benefits	$	9,947	$	12,231	$	3,206	$	6,900
Corporate transition costs		1,868		2,466		1,734		1,879
Pension and post-retirement medical benefits						1,263		6,675
Deferred compensation						748		3,233
Legal contingency accrual		20,000		5,400		582		20,000
Other		3,522		5,218		3,438		2,179


Total	$	35,337	$	25,315	$	10,971	$	40,866


	As of				As of
	September 30,		December 29,		March 31,		December 31,
*(Dollars in thousands)*	2008		2007		2009		2008

Pension benefits, long-term portion	$	18,275	$	18,843
Pension and post-retirement medical benefits, long-term portion					$	9,889	$	10,239
Long-term deferred tax liability		4,453		4,454		2,638		2,638
Long-term deferred revenue						2,140		1,590
Long-term deferred compensation						1,026		2,765
Long-term income tax payable		645		777		640		640
Legal contingency accrual		—		20,000
Long-term deferred compensation		4,743		5,713
Deferred rent		132		7,639
Long-term deferred revenue		1,905		1,317
Other		2,298		2,515		2,129		2,476


Total	$	32,451	$	61,258	$	18,462	$	20,348


	As of
	September 30,			December 29,
*(Dollars in thousands)*	2008			2007

Capital lease obligations:
Capital lease obligations	$	299		$	1,596
Termination costs		2			3


Total capital lease obligations		301			1,599
Less: current maturities		(176	)		(789	)


Capital lease obligations, less current maturities	$	125		$	810


Date: ~~January 9,~~May 8, 2009	VOYAGER LEARNING COMPANY
	/s/ Richard J. Surratt
	President and CEO

	/s/ Bradley C. Almond
	Vice President and Chief Financial Officer (Principal Financial Officer)


*(Dollars in thousands)*

Net sales from discontinued operations	$	26,062

Earnings from discontinued operations before interest and income taxes		6,932

Interest expense, net		(847	)
Income tax expense		(1,491	)


Earnings from discontinued operations, net of taxes	$	4,594


*(Dollars in thousands)*

Sale price	$	195,249
Net assets, related liabilities, and selling costs⁽¹⁾		(137,517	)


Gain on sale		57,732
Income tax expense		(11,160	)


Gain on sale of discontinued operations, net of tax	$	46,572


	Three Months Ended										Three Months Ended
	U.S Defined Benefit				Other Postretirement						U.S. Defined Benefit				Other Postretirement
	Pension Plan				Benefits						Pension Plan				Benefits
	September 30,		September 29,		September 30,			September 29,			March 31,		March 31,		March 31,			March 31,
*(Dollars in thousands)*	2008		2007		2008			2007			2009		2008		2009			2008

Service cost	$	—	$	—	$	—		$	—		$	—	$	—	$	—		$	—
Interest cost		311		297		1			2			172		311		1			1
Expected return on plan assets												—		—		—			—
Amortization of prior service cost		—		—		—			—			—		—		—			—
Recognized net actuarial (gain) loss		18		34		(25	)		(26	)		—		18		(8	)		(25	)


Net pension and other postretirement benefit cost (income)	$	329	$	331	$	(24	)	$	(24	)	$	172	$	329	$	(7	)	$	(24	)


*(Dollars in thousands)*

Balance as of January 1, 2007	$	—

Accruals		4,338

Payments made		(1,372	)


Balance as of December 29, 2007	$	2,966

Accruals		103

Payments made		(442	)


Balance as of September 30, 2008	$	2,627


Current portion	$	1,868


Long-term portion	$	759


	Three Months Ended
	September 30, 2008						September 29, 2007						Year Over Year Change
				% of						% of			Favorable / (Unfavorable)
*(Dollars in millions)*	Amount			sales			Amount			sales			$			%

Net sales	$	27.3			100.0		$	31.8			100.0		$	(4.5	)		(14.2	)
Cost of sales (exclusive of depreciation and amortization shown separately below)		(10.0	)		(36.6	)		(9.9	)		(31.1	)		(0.1	)		(1.0	)


Gross profit		17.3			63.4			21.9			68.9			(4.6	)		(21.0	)

Research and development expense		(1.1	)		(4.0	)		(1.1	)		(3.5	)		—			—
Sales and marketing expense		(8.0	)		(29.3	)		(7.6	)		(23.9	)		(0.4	)		(5.3	)
General and administrative expense		(8.1	)		(29.7	)		(12.4	)		(39.0	)		4.3			34.7
Depreciation and amortization expense		(5.3	)		(19.4	)		(5.8	)		(18.2	)		0.5			8.6


Loss from continuing operations before interest and income taxes		(5.2	)		(19.0	)		(5.0	)		(15.7	)		(0.2	)		(4.0	)

Net interest income		0.1			0.3			0.5			1.5			(0.4	)		(80.0	)
Sublease income and other		—			—			1.2			3.8			(1.2	)		(100.0	)
Income tax benefit		—			—			1.3			4.1			(1.3	)		(100.0	)


Loss from continuing operations	$	(5.1	)		(18.7	)	$	(2.0	)		(6.3	)	$	(3.1	)		(155.0	)