WLY 10-Q Quarter ended Jan. 31, 2012

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X]                    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT 1934

For the quarterly period ended January 31, 2012                                                                                                                     Commission File No. 1-11507

OR

[  ]                       TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES ACT OF 1934

For the transition period from_____  to _____

JOHN WILEY & SONS, INC.

(Exact name of Registrant as specified in its charter)

NEW YORK		13-5593032
(State of other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
111 RIVER STREET, HOBOKEN NJ		07030
(Address of principal executive offices)		Zip Code
Registrant’s telephone number, including area code		(201) 748-6000

NOT APPLICABLE

Former name, former address, and former fiscal year, if changed since last report

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.   Yes [x]   No [  ]

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).   Yes [x]   No [  ]

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 definitions of “large accelerated filer” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [X]                                         Accelerated filer [  ]                                      Non-accelerated filer [  ] Smaller reporting company  [  ]

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

YES [  ]     NO [X]

The number of shares outstanding of each of the Registrant’s classes of Common Stock as of February 29, 2012 were:

Class A, par value $1.00 – 50,342,862

Class B, par value $1.00 – 9,537,216

This is the first page of a 36 page document

JOHN WILEY & SONS, INC.

INDEX

PART I	-	FINANCIAL INFORMATION		PAGE NO.
Item 1.		Financial Statements.
		Condensed Consolidated Statements of Financial Position - Unaudited as of January 31, 2012 and 2011, and April 30, 2011		3
		Condensed Consolidated Statements of Income - Unaudited for the three and nine months ended January 31, 2012 and 2011		4
		Condensed Consolidated Statements of Cash Flows – Unaudited for the nine months ended January 31, 2012 and 2011		5
		Notes to Unaudited Condensed Consolidated Financial Statements		6-13
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		14-27
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		28-29
Item 4.		Controls and Procedures		30
PART II	-	OTHER INFORMATION
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		30
Item 6.		Exhibits and Reports on Form 8-K		31
SIGNATURES AND CERTIFICATIONS				32
EXHIBITS				33-36

JOHN WILEY & SONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION - UNAUDITED
(In thousands)
		January 31,								April 30,
		2012				2011				2011
Assets:
Current Assets
Cash and cash equivalents		$	284,456			$	305,441			$	201,853
Accounts receivable			218,370				208,768				168,310
Inventories			104,948				110,231				106,423
Prepaid and other			34,070				40,943				50,904
Total Current Assets			641,844				665,383				527,490
Product Development Assets			113,993				114,700				109,554
Technology, Property & Equipment			172,527				153,367				165,541
Intangible Assets			873,741				911,798				932,730
Goodwill			624,448				627,385				642,898
Other Assets			52,088				48,225				51,928
Total Assets		$	2,478,641			$	2,520,858			$	2,430,141
Liabilities & Shareholders' Equity:
Current Liabilities
Accounts and royalties payable		$	204,304			$	207,336			$	155,262
Deferred revenue			303,646				265,180				321,409
Accrued employment costs			52,056				57,218				87,770
Accrued income taxes			18,668				27,781				5,924
Accrued pension liability			4,326				2,274				4,447
Other accrued liabilities			51,620				48,853				57,853
Current portion of long-term debt			-				106,875				123,700
Total Current Liabilities			634,620				715,517				756,365
Long-Term Debt			483,000				525,025				330,500
Accrued Pension Liability			85,012				123,787				91,594
Deferred Income Tax Liabilities			183,788				172,148				192,909
Other Long-Term Liabilities			68,773				77,531				80,884
Shareholders’ Equity
Class A & Class B common stock			83,190				83,191				83,190
Additional paid-in-capital			267,014				236,689				247,046
Retained earnings			1,264,395				1,117,406				1,136,224
Accumulated other comprehensive loss			(177,066	)			(187,195	)			(127,741	)
Treasury stock			(414,085	)			(343,241	)			(360,830	)
Total Shareholders’ Equity			1,023,448				906,850				977,889
Total Liabilities & Shareholders' Equity		$	2,478,641			$	2,520,858			$	2,430,141
The accompanying notes are an integral part of the condensed consolidated financial statements.

JOHN WILEY & SONS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME – UNAUDITED
(In thousands except per share information)
		For The Three Months								For The Nine Months
		Ended January 31,								Ended January 31,
		2012				2011				2012				2011
Revenue		$	451,111			$	447,855			$	1,328,165			$	1,297,637
Costs and Expenses
Cost of sales			142,131				137,909				404,472				402,717
Operating and administrative expenses			221,648				222,206				686,132				649,097
Additional provision for doubtful trade account			-				9,290				-				9,290
Amortization of intangibles			8,875				8,800				26,965				26,094
Total Costs and Expenses			372,654				378,205				1,117,569				1,087,198
Operating Income			78,457				69,650				210,596				210,439
Interest Expense			(2,768	)			(4,630	)			(6,270	)			(15,161	)
Foreign Exchange Transaction Losses			(184	)			(887	)			(1,149	)			(1,646	)
Interest Income and Other			421				743				2,294				1,626
Income Before Taxes			75,926				64,876				205,471				195,258
Provision For Income Taxes			13,017				19,259				40,990				51,938
Net Income		$	62,909			$	45,617			$	164,481			$	143,320
Earnings Per Share
Diluted		$	1.03			$	0.74			$	2.69			$	2.34
Basic		$	1.05			$	0.76			$	2.72			$	2.39
Cash Dividends Per Share
Class A Common		$	0.20			$	0.16			$	0.60			$	0.48
Class B Common		$	0.20			$	0.16			$	0.60			$	0.48
Average Shares
Diluted			60,845				61,549				61,255				61,175
Basic			59,993				60,384				60,392				60,083
The accompanying notes are an integral part of the condensed consolidated financial statements.

JOHN WILEY & SONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW – UNAUDITED
(In thousands)
		For The Nine Months
		Ended January 31,
		2012				2011
Operating Activities
Net income		$	164,481			$	143,320
Adjustments to reconcile net income to cash provided by operating activities:
Amortization of intangibles			26,965				26,094
Amortization of composition costs			36,877				37,381
Depreciation of technology, property and equipment			37,350				33,806
Additional provision for doubtful trade account (net of tax)			-				6,039
One-time non-cash tax benefits			(16,293	)			(4,155	)
Stock-based compensation			13,055				12,630
Excess tax benefits from stock-based compensation			(1,362	)			(2,529	)
Pension expense, net of contributions			635				8,788
Royalty advances			(82,083	)			(76,992	)
Earned royalty advances			69,367				65,057
Other non-cash charges			32,325				25,981
Change in deferred revenue			(10,632	)			(14,456	)
Net change in operating assets and liabilities, excluding acquisitions			(4,700	)			15,239
Cash Provided by Operating Activities			265,985				276,203
Investing Activities
Composition spending			(37,302	)			(37,060	)
Additions to technology, property and equipment			(47,928	)			(32,704	)
Acquisitions, net of cash acquired			(6,386	)			(6,452	)
Cash Used for Investing Activities			(91,616	)			(76,216	)
Financing Activities
Repayment of long-term debt			(789,137	)			(271,900	)
Borrowings of long-term debt			817,937				254,800
Change in book overdrafts			(27,278	)			(27,874	)
Cash dividends			(36,310	)			(28,969	)
Purchase of treasury stock			(60,638	)			(10,142	)
Debt financing costs			(3,119	)			-
Proceeds from exercise of stock options and other			12,674				24,595
Excess tax benefits from stock-based compensation			1,362				2,529
Cash Used for Financing Activities			(84,509	)			(56,961	)
Effects of Exchange Rate Changes on Cash			(7,257	)			8,902
Cash and Cash Equivalents
Increase for the Period			82,603				151,928
Balance at Beginning of Period			201,853				153,513
Balance at End of Period		$	284,456			$	305,441
Cash Paid During the Period for:
Interest		$	4,745			$	15,235
Income taxes, net		$	26,771			$	14,215
The accompanying notes are an integral part of the condensed consolidated financial statements.

JOHN WILEY & SONS, INC., AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.

Basis of Presentation

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial condition, results of operations and cash flows for the periods presented.  Operating results for the interim period are not necessarily indicative of the results expected for the full year.  These financial statements should be read in conjunction with the most recent audited financial statements included in the Company’s Form 10-K for the fiscal year ended April 30, 2011.

The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

The Company has historically reported sales return reserves, net of an inventory and royalty recovery, as a component of Accounts Receivable in the Condensed Consolidated Statements of Financial Position. In the fourth quarter of fiscal year 2011, the Company changed the presentation of the net sales return reserve to reflect each respective balance sheet account. As such, the Company has reclassified approximately $11.8 million to increase Inventory and $9.9 million to reduce Accounts and Royalties Payable from the previously reported January 31, 2011 Accounts Receivable balance.

The Company has historically presented author advance payments as a component of Investing Activities in the Condensed Consolidated Statements of Cash Flows. In the fourth quarter of fiscal year 2011, the Company changed the presentation of royalty advance payments from an Investing Activity to an Operating Activity. To be consistent with current year presentation, the Company reclassified approximately $77.0 million of royalty advance payments for the nine months ended January 31, 2011 from Investing Activities to Operating Activities.

Certain other prior year amounts have been reclassified to conform to the current year’s presentation.

2.

Recent Accounting Standards

In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2009-13 “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements” (“ASU 2009-13”).  ASU 2009-13 addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products and services separately rather than as a combined unit. Specifically, this guidance amends the existing criteria for separating consideration received in multiple-deliverable arrangements, eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method.  The guidance also establishes a hierarchy for determining the selling price of a deliverable, which is based on vendor-specific objective evidence; third-party evidence; or management estimates.  Expanded disclosures related to the Company’s multiple-deliverable revenue arrangements are also required.  The new guidance was adopted by the Company for all revenue arrangements entered into or materially modified on and after May 1, 2011 and did not have a significant impact on the Company’s consolidated financial statements.

In January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”).  ASU 2010-06 requires new disclosures for transfers in and out of Levels 1 and 2 of the fair value measurement hierarchy, and expands disclosures related to activity in Level 3 fair value measurements.  ASU 2010-06 also clarifies existing disclosures on the level of detail required for assets and liabilities measured at fair value from their respective line items on the statement of financial position, and the valuation techniques and inputs used in fair value measurements that fall within Level 2 or Level 3 of the fair value hierarchy. Except for the disclosures related to the activity in Level 3 fair value measurements, the Company adopted ASU 2010-06 as of May 1, 2010. The requirement to provide detailed disclosures about the activity for Level 3 fair value measurements was adopted by the Company as of May 1, 2011. Since the revised guidance only required additional disclosures about the Company’s fair value measurements, its adoption did not affect the Company’s financial position or results of operations.

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”) which amends U.S. GAAP to provide common fair value measurement and disclosure requirements with International Financial Reporting Standards. The Company does not expect ASU 2011-04 to have a significant effect on its current fair value measurements within the consolidated financial statements, however, the new guidance will result in additional disclosures which will include quantitative information about the unobservable inputs used in all Level 3 fair value measurements. ASU 2011-04 will be effective for the Company as of May 1, 2012.

There have been no other new accounting pronouncements issued that have had, or are expected to have a material impact on the Company’s consolidated financial statements.

3.

Share-Based Compensation

The Company has share-based compensation plans under which employees may be granted options to purchase shares of Company common stock at the fair market value at the time of grant.  In addition to stock options, the Company grants performance-based stock awards and other restricted stock awards to certain management level employees. The Company recognizes the grant date fair value of share-based compensation in net income on a straight-line basis over the requisite service period. The measurement of performance for performance-based stock awards is based on actual financial results for targets established three years in advance. For the three months ended January 31, 2012 and 2011, the Company recognized share-based compensation expense, on a pre-tax basis, of $5.3 million and $4.3 million, respectively. For the nine months ended January 31, 2012 and 2011, the Company recognized share-based compensation expense, on a pre-tax basis, of $13.1 million and $12.6 million, respectively.

The following table provides share-based compensation data for awards granted by the Company:

	For the Nine Months Ended January 31,
	2012		2011
Restricted Stock:
Awards granted (in thousands)	259		256
Weighted average fair value of grant	$49.49		$39.94
Stock Options:
Awards granted (in thousands)	411		413
Weighted average fair value of grant	$14.11		$11.97

The weighted average Black-Scholes fair value assumptions for stock option grants are as follows:

	For the Nine Months Ended January 31,
	2012		2011
Expected life of options (years)	7.3		7.7
Risk-free interest rate	2.3%		2.7%
Expected volatility	29.0%		28.9%
Expected dividend yield	1.6%		1.6%
Fair value of common stock on grant date	$49.55		$40.02

4. Comprehensive Income (Loss)

Comprehensive income (loss) was as follows (in thousands):

	For the Three Months Ended January 31,				For the Nine Months Ended January 31,
	2012		2011		2012		2011
Net income	$62,909		$45,617		$164,481		$143,320
Changes in other comprehensive income (loss):
Foreign currency translation adjustment	(21,162)		603		(53,112)		33,188
Unamortized retirement costs, net of tax	1,490		1,345		3,887		2,712
Unrealized gain (loss) on interest rate swaps, net of tax	17		1,992		(100)		4,551
Comprehensive income	$43,254		$49,557		$115,156		$183,771

A reconciliation of accumulated other comprehensive income (loss) follows (in thousands):

	For the Three Months
	October 31, 2011		Change for Period		January 31, 2012
Foreign currency translation adjustment	$(97,758)		$(21,162)		$(118,920)
Unamortized retirement costs, net of tax	(59,239)		1,490		(57,749)
Unrealized loss on interest rate swaps, net of tax	(414)		17		(397)
Total	$(157,411)		$(19,655)		$(177,066)

	For the Nine Months
	April 30, 2011		Change for Period		January 31, 2012
Foreign currency translation adjustment	$(65,808)		$(53,112)		$(118,920)
Unamortized retirement costs, net of tax	(61,636)		3,887		(57,749)
Unrealized loss on interest rate swaps, net of tax	(297)		(100)		(397)
Total	$(127,741)		$(49,325)		$(177,066)

5.

Reconciliation of Weighted Average Shares Outstanding

A reconciliation of the shares used in the computation of earnings per share follows (in thousands):

	For the Three Months Ended January 31,				For the Nine Months Ended January 31,
	2012		2011		2012		2011
Weighted average shares outstanding	60,197		60,747		60,592		60,426
Less: Unearned restricted shares	(204)		(363)		(200)		(343)
Shares used for basic earnings per share	59,993		60,384		60,392		60,083
Dilutive effect of stock options and other stock awards	852		1,165		863		1,092
Shares used for diluted earnings per share	60,845		61,549		61,255		61,175

Since their inclusion in the calculation of diluted earnings per share would have been anti-dilutive, options to purchase 1,655,362 shares of Class A Common Stock have been excluded for both the three and nine months ended January 31, 2012, and options to purchase 1,656,166 shares have been excluded for both the three and nine months ended January 31, 2011.  For the three and nine months ended January 31, 2012, unearned restricted shares of 5,000 and 48,150, respectively, have also been excluded.  There were no unearned restricted shares excluded from the calculation for the three and nine months ended January 31, 2011.

6. Inventories

Inventories were as follows (in thousands):

	As of January 31,				As of April 30,
	2012		2011		2011
Finished goods	$79,920		$80,512		$87,080
Work-in-process	8,567		8,858		7,850
Paper, cloth and other	11,621		12,856		7,940
	100,108		102,226		102,870
Inventory value from estimated returns	10,072		11,804		9,485
LIFO reserve	(5,232)		(3,799)		(5,932)
Total inventories	$104,948		$110,231		$106,423

7. Segment Information

The Company is a global publisher of print and electronic products, providing content and digital solutions to customers worldwide. Core businesses produce scientific, technical, medical and scholarly journals, encyclopedias, books, online products and services; professional and consumer books, subscription products, certification and training materials, online applications and websites; and educational materials in all media, including integrated online teaching and learning resources, for undergraduate, graduate and advanced placement students, educators and lifelong learners worldwide as well as secondary school students in Australia. The Company maintains publishing, marketing, and distribution centers in Asia, Australia, Canada, Germany, the United Kingdom and the United States. The Company’s reportable segments are based on the management reporting structure used to evaluate performance.

Segment information is as follows (in thousands):

	For the Three Months				For the Nine Months
	Ended January 31,				Ended January 31,
	2012		2011		2012		2011
Revenue
Scientific, Technical, Medical and Scholarly	$245,476		$237,939		$749,261		$712,220
Professional/Trade	107,973		114,468		320,007		327,191
Global Education	97,662		95,448		258,897		258,226
Total	$451,111		$447,855		$1,328,165		$1,297,637
Direct Contribution to Profit
Scientific, Technical, Medical and Scholarly	$98,984		$97,061		$312,323		$293,955
Professional/Trade	27,848		20,555		81,633		71,392
Global Education	42,255		40,177		100,956		104,192
Total	$169,087		$157,793		$494,912		$469,539
Shared Services and Administration Costs
Distribution	$(27,110)		$(27,612)		$(82,511)		$(81,833)
Technology Services	(34,880)		(31,453)		(103,916)		(87,028)
Finance	(11,098)		(11,198)		(33,032)		(31,580)
Other Administration	(17,542)		(17,880)		(64,857)		(58,659)
Total	$(90,630)		$(88,143)		$(284,316)		$(259,100)
Operating Income	$78,457		$69,650		$210,596		$210,439

8.

Intangible Assets

Intangible assets consisted of the following (in thousands):

	As of January 31,				As of April 30,
	2012		2011		2011
Intangible assets with indefinite lives:
Brands and trademarks	$162,560		$170,540		$175,193
Acquired publishing rights	101,421		104,916		111,908
	$263,981		$275,456		$287,101
Net intangible assets with determinable lives:
Acquired publishing rights	$552,299		$574,236		$583,549
Customer relationships	46,397		49,850		50,157
Brands and trademarks	10,796		12,177		11,870
Covenants not to compete	268		79		53
	$609,760		$636,342		$645,629
Total	$873,741		$911,798		$932,730

The changes in intangible assets at January 31, 2012 compared to January 31, 2011 and April 30, 2011 are primarily due to foreign exchange translation and amortization expense.

9.

Income Taxes

The effective tax rate for the first nine months of fiscal year 2012 was 19.9% compared to 26.6% in the prior year.  During the first quarters of fiscal years 2012 and 2011, the Company recorded non-cash deferred tax benefits of $8.8 million ($0.14 per share) and $4.2 million ($0.07 per share), respectively, principally associated with new tax legislation enacted in the United Kingdom (“U.K.”) that reduced the U.K. statutory income tax rates by 2% and 1%, respectively. The benefits recognized by the Company reflect the remeasurement of all applicable U.K. deferred tax balances to the new income tax rates as of April 1, 2012 and 2011, respectively. In addition, during the third quarter of fiscal year 2012 the Company released an income tax reserve of approximately $7.5 million ($0.12 per share). The $7.5 million reserve was originally recorded in conjunction with the purchase accounting for the Blackwell acquisition and was reversed due to the expiration of the statute of limitations.  Excluding the tax benefits described above, the Company’s effective tax rate for the nine month period ending January 31, 2012 was 27.9% compared to 28.7% in the prior year.  The decrease was mainly due to higher tax benefits on non-U.S. earnings.

10.

Defined Benefit Retirement Plans

The components of net pension expense for the defined benefit plans were as follows (in thousands):

	For the Three Months Ended January 31,				For the Nine Months Ended January 31,
	2012		2011		2012		2011
Service Cost	$3,615		$4,210		$12,023		$12,142
Interest Cost	6,966		6,676		20,960		20,011
Expected Return on Plan Assets	(7,198)		(6,456)		(21,840)		(19,109)
Net Amortization of Prior Service Cost	324		222		778		664
Recognized Net Actuarial Loss	1,326		1,894		3,836		5,418
Net Pension Expense	$5,033		$6,546		$15,757		$19,126

Employer pension plan contributions were $15.1 million and $10.3 million for the nine months ended January 31, 2012 and 2011, respectively.

11.	Debt Refinancing

On November 2, 2011, the Company amended and restated its existing credit facility, previously described in the Company’s Form 10-K filed on June 24, 2011, with Bank of America - Merrill Lynch and The Royal Bank of Scotland plc as joint lead arrangers and Bank of America as administrative agent.  The new agreement consists of a $700 million five-year senior revolving credit facility, which can be drawn in multiple currencies. The proceeds of the new revolving credit facility will be used to pay down the Company’s prior credit facility and meet future seasonal operating cash requirements.  The Company has the option of borrowing at the following floating interest rates:  (i) at a rate based on the London Interbank Offered Rate (“LIBOR”) plus an applicable margin ranging from 1.05% to 1.65%, depending on the Company’s consolidated leverage ratio, as defined, or (ii) for U.S. dollar-denominated loans only, at the lender’s base rate plus an applicable margin ranging from zero to 0.65%, depending on the Company’s consolidated leverage ratio.  The lender’s base rate is defined as the highest of (i) the U.S. federal funds effective rate plus a 0.50% margin, (ii) the Eurocurrency rate, as defined, plus a 1.00% margin, or (iii) the Bank of America prime lending rate.  In addition, the Company will pay a facility fee ranging from 0.20% to 0.35% depending on the Company’s consolidated leverage ratio.  The Company also has the option to request a credit limit increase of up to $250 million in minimum increments of $50 million.  The new agreement contains certain restrictive covenants related to the Company’s consolidated leverage ratio and interest coverage ratio.  Due to the fact that there are no principal payments due until the end of the new agreement, the Company has classified its entire debt obligation as of January 31, 2012 as long-term.

12.

Derivative Instruments and Hedging Activities

The Company, from time-to-time, enters into forward exchange and interest rate swap contracts as a hedge against foreign currency asset and liability commitments, changes in interest rates and anticipated transaction exposures, including intercompany purchases. All derivatives are recognized as assets or liabilities and measured at fair value.  Derivatives that are not determined to be effective hedges are adjusted to fair value with a corresponding adjustment to earnings.  The Company does not use financial instruments for trading or speculative purposes.

The Company had approximately $483.0 million of variable rate loans outstanding at January 31, 2012, which approximated fair value. As of January 31, 2012, the Company had an interest rate swap agreement that was designated as a fully effective cash flow hedge as defined under Accounting Standards Codification (“ASC”) 815. During the first nine months of fiscal year 2011, the Company maintained two interest rate swap agreements which were also designated as fully effective cash flow hedges.  As a result, there was no impact on the Company’s Condensed Consolidated Statements of Income for changes in the fair value of the interest rate swaps.  Under ASC 815, fully effective derivative instruments that are designated as cash flow hedges have changes in their fair value recorded initially within Accumulated Other Comprehensive Loss on the Condensed Consolidated Statements of Financial Position. As interest expense is recognized based on the variable rate loan agreements, the corresponding deferred gain or loss on the interest rate swaps is reclassified from Accumulated Other Comprehensive Loss to Interest Expense in the Condensed Consolidated Statements of Income. It is management’s intention that the notional amount of interest rate swaps be less than the variable rate loans outstanding during the life of the derivatives.

On February 16, 2007, the Company entered into an interest rate swap agreement which fixed variable interest due on a portion of its term loan (“Term Loan”). Under the terms of the agreement, the Company paid a fixed rate of 5.076% and received a variable rate of interest based on three month LIBOR (as defined) from the counterparty which was reset every three months for a four-year period ending February 8, 2011, the date that the swap expired.  As of January 31, 2011, the notional amount of the interest rate swap was $200 million.

On October 19, 2007, the Company entered into an interest rate swap agreement which fixed a portion of the variable interest due on its revolving credit facility (“Revolving Credit Facility”).  Under the terms of this interest rate swap, the Company paid a fixed rate of 4.60% and received a variable rate of interest based on three month LIBOR (as defined) from the counterparty which was reset every three months for a three-year period. This interest rate swap expired on August 8, 2010.

On August 19, 2010, the Company entered into an interest rate swap agreement which fixed a portion of the variable interest due on its variable rate loans outstanding.  Under the terms of the agreement, the Company pays a fixed rate of 0.8% and receives a variable rate of interest based on one-month LIBOR (as defined) from the counterparty which is reset every month for a twenty-nine month period ending January 19, 2013.  As of January 31, 2012, the notional amount of the interest rate swap was $125.0 million.

The Company records the fair value of its interest rate swaps on a recurring basis using Level 2 inputs of quoted prices for similar assets or liabilities in active markets.  The fair value of the interest rate swaps as of January 31, 2012 and 2011 and April 30, 2011 was a net deferred loss of $0.7 million, $2.7 million and $0.5 million, respectively. As of January 31, 2012 and January 31, 2011, the deferred losses were recorded in Other Accrued Liabilities, and as of April 30, 2011 the deferred losses were recorded in Other Long-Term Liabilities on the Condensed Consolidated Statements of Financial Position, based on the maturity dates of the contracts. Net losses that were reclassified from Accumulated Other Comprehensive Loss into Interest Expense for the three months ended January 31, 2012 and 2011 were $0.2 million and $2.6 million, respectively.  Net losses that were reclassified from Accumulated Other Comprehensive Loss into Interest Expense for the nine months ended January 31, 2012 and 2011 were $0.6 million and $8.7 million, respectively.

During fiscal years 2012 and 2011, the Company entered into forward exchange contracts to manage the Company’s exposure on certain foreign currency denominated assets and liabilities. Foreign currency denominated assets and liabilities are remeasured at spot rates in effect on the balance sheet date, with the effects of changes in spot rates reported in Foreign Exchange Transaction Losses on the Condensed Consolidated Statements of Income.  The Company did not designate these forward exchange contracts as hedges under current accounting standards as the benefits of doing so were not material due to the short-term nature of the contracts. Therefore, the forward exchange contracts were marked to market through Foreign Exchange Transaction Losses, and carried at their fair value on the Condensed Consolidated Statements of Financial Position. Accordingly, the fair value changes in the forward exchange contracts substantially mitigated the changes in the value of the remeasured foreign currency denominated assets and liabilities attributable to changes in foreign currency exchange rates. The fair value of the contracts were measured on a recurring basis using Level 2 inputs. As of January 31, 2012 and 2011 and April 30, 2011, the Company did not have any open forward contracts. For the three and nine months ended January 31, 2012, the losses recognized on the forward contracts were $2.2 million and $2.4 million, respectively.  For the three and nine months ended January 31, 2011, the losses/(gains) recognized on the forward contracts were $0.8 million and $(0.6) million, respectively.

13.

Additional Provision for Doubtful Trade Account

In the third quarter of fiscal year 2011, the Company recorded a pre-tax bad debt provision of $9.3 million, or $6.0 million after-tax ($0.10 per share), related to Borders Group, Inc. (“Borders”).  The net charge was reflected in the Additional Provision for Doubtful Trade Account line item in the Condensed Consolidated Statements of Income and represented the Company’s outstanding receivable with Borders, net of existing reserves and expected recoveries. On February 16, 2011, Borders filed a petition for reorganization relief under Chapter 11 of the U.S. Bankruptcy code. There were no additional charges or bad debt expense with respect to this customer.

14.

Subsequent Events

On February 16, 2012, the Company acquired all of the stock of Inscape Holdings, Inc. (“Inscape”) for $85 million in cash.  Inscape is a leading provider of DiSC®-based assessments and training products that develop critical interpersonal business skills. The acquisition will enable Wiley’s Professional/Trade business to capitalize on both companies’ content, assets, and relationships, enhance its global reach, and move more aggressively into digital delivery to the growing workplace learning and assessment market. Annually, Inscape generates approximately $20 million in revenue. The Company has not yet completed the initial purchase accounting for this acquisition.

On March 7, 2012, Wiley announced that it will explore opportunities to sell a number of its consumer print and digital publishing assets in its Professional/Trade business as they no longer align with the company’s long-term business strategy.  Fiscal year 2011 revenue associated with the assets to be sold was approximately $85 million with a direct contribution to profit, before shared service expenses, of approximately $6 million.  Assets include travel (including the Frommer’s brand), culinary, general interest, nautical, pets, crafts, Webster’s New World, and CliffsNotes. Wiley will re-deploy resources in its Professional/Trade business to build on its global market-leading positions in business, finance, accounting, leadership, technology, architecture, psychology, education, and through the For Dummies brand.