WLY 10-Q Quarter ended March 1, 2013

---

---

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, 2013                                                                                                                                                             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, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” 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 28, 2013 were:

Class A, par value $1.00 – 49,789,886

Class B, par value $1.00 – 9,501,492

This is the first page of a 44 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, 2013 and 2012, and April 30, 2012		3
		Condensed Consolidated Statements of Income - Unaudited for the three and nine months ended January 31, 2013 and 2012		4
		Condensed Consolidated Statements of Comprehensive Income - Unaudited for the three and nine months ended January 31, 2013 and 2012		5
		Condensed Consolidated Statements of Cash Flows – Unaudited for the nine months ended January 31, 2013 and 2012		6
		Notes to Unaudited Condensed Consolidated Financial Statements		7-15
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		16-35
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		36-38
Item 4.		Controls and Procedures		38
PART II	-	OTHER INFORMATION
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		38
Item 6.		Exhibits and Reports on Form 8-K		39
SIGNATURES AND CERTIFICATIONS				40-44
EXHIBITS

	JOHN WILEY & SONS, INC. AND SUBSIDIARIES
	CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION - UNAUDITED
	(In thousands)
			January 31,				April 30,
			2013		2012		2012
	Assets:
	Current Assets
	Cash and cash equivalents	$	285,858	$	284,456	$	259,830
	Accounts receivable		238,112		218,370		171,561
	Inventories		85,999		104,948		101,237
	Prepaid and other		53,552		34,070		41,972
	Total Current Assets		663,521		641,844		574,600
	Product Development Assets		99,186		113,993		108,414
	Technology, Property & Equipment		193,856		172,527		187,979
	Intangible Assets		989,534		873,741		915,495
	Goodwill		844,673		624,448		690,619
	Other Assets		90,114		52,088		55,839
	Total Assets	$	2,880,884	$	2,478,641	$	2,532,946
	Liabilities & Shareholders' Equity:
	Current Liabilities
	Accounts and royalties payable	$	199,621	$	204,304	$	151,350
	Deferred revenue		287,063		303,646		342,034
	Accrued employment costs		57,116		52,056		64,482
	Accrued income taxes		15,478		18,668		18,812
	Accrued pension liability		3,606		4,326		3,589
	Other accrued liabilities		57,843		51,620		60,663
	Total Current Liabilities		620,727		634,620		640,930
	Long-Term Debt		734,800		483,000		475,000
	Accrued Pension Liability		141,855		85,012		145,815
	Deferred Income Tax Liabilities		214,480		183,788		181,716
	Other Long-Term Liabilities		72,531		68,773		71,917
	Shareholders’ Equity
	Class A & Class B common stock		83,190		83,190		83,190
	Additional paid-in-capital		292,131		267,014		271,809
	Retained earnings		1,393,735		1,264,395		1,300,713
	Accumulated other comprehensive loss		(205,191)		(177,066)		(200,410)
	Treasury stock		(467,374)		(414,085)		(437,734)
	Total Shareholders’ Equity		1,096,491		1,023,448		1,017,568
	Total Liabilities & Shareholders' Equity	$	2,880,884	$	2,478,641	$	2,532,946
	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,
			2013		2012		2013		2012
	Revenue	$	472,435	$	451,111	$	1,314,924	$	1,328,165
	Costs and Expenses
	Cost of sales		141,794		142,131		398,592		404,472
	Operating and administrative expenses		235,857		221,648		689,833		686,132
	Restructuring charges		-		-		4,841		-
	Impairment of consumer publishing programs		-		-		15,521		-
	Amortization of intangibles		11,158		8,875		30,404		26,965
	Total Costs and Expenses		388,809		372,654		1,139,191		1,117,569
	Gain on Sale of Travel Publishing Program		-		-		9,829		-
	Operating Income		83,626		78,457		185,562		210,596
	Interest Expense		(3,827)		(2,768)		(9,557)		(6,270)
	Foreign Exchange Transaction Losses		(1,147)		(184)		(1,599)		(1,149)
	Interest Income and Other		342		421		1,569		2,294
	Income Before Taxes		78,994		75,926		175,975		205,471
	Provision For Income Taxes		21,894		13,017		39,701		40,990
	Net Income	$	57,100	$	62,909	$	136,274	$	164,481
	Earnings Per Share
	Diluted	$	0.95	$	1.03	$	2.26	$	2.69
	Basic	$	0.96	$	1.05	$	2.28	$	2.72
	Cash Dividends Per Share
	Class A Common	$	0.24	$	0.20	$	0.72	$	0.60
	Class B Common	$	0.24	$	0.20	$	0.72	$	0.60
	Average Shares
	Diluted		60,254		60,845		60,349		61,255
	Basic		59,621		59,993		59,656		60,392
	The accompanying notes are an integral part of the condensed consolidated financial statements.

	JOHN WILEY & SONS, INC. AND SUBSIDIARIES
	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – UNAUDITED
	(In thousands)
			For The Three Months				For The Nine Months
			Ended January 31,				Ended January 31,
			2013		2012		2013		2012
	Net Income	$	57,100	$	62,909	$	136,274	$	164,481
	Other Comprehensive Income /(Loss):
	Foreign currency translation adjustment		(5,686)		(21,162)		(11,644)		(53,112)
	Unamortized retirement costs, net of tax		2,819		1,490		6,714		3,887
	Unrealized gain/(loss) on interest rate swaps, net of tax		237		17		149		(100)
	Total Other Comprehensive Loss		(2,630)		(19,655)		(4,781)		(49,325)
	Comprehensive Income	$	54,470	$	43,254	$	131,493	$	115,156
	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, comprehensive income 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, 2012.

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.

2.

Recent Accounting Standards

There have been no new accounting standards 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, 2013 and 2012, the Company recognized share-based compensation expense, on a pre-tax basis, of $2.0 million and $5.3 million, respectively.  For the nine months ended January 31, 2013 and 2012, the Company recognized share-based compensation expense, on a pre-tax basis, of $10.0 million and $13.1 million, respectively.  In the third quarter of fiscal year 2013, the Company reduced the estimated number of performance-based restricted shares to be distributed under its long-term incentive plans based on the Company’s expected operating performance relative to targets previously established resulting in a decrease in share-based compensation expense.

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

		For the Nine Months Ended January 31,
		2013		2012
	Restricted Stock:
	Awards granted (in thousands)	294		259
	Weighted average fair value of grant	$47.34		$49.49
	Stock Options:
	Awards granted (in thousands)	401		411
	Weighted average fair value of grant	$12.26		$14.11

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

		For the Nine Months Ended January 31,
		2013		2012
	Expected life of options (years)	7.3		7.3
	Risk-free interest rate	1.2%		2.3%
	Expected volatility	30.2%		29.0%
	Expected dividend yield	2.0%		1.6%
	Fair value of common stock on stock option grant date	$48.06		$49.55

4. Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss were as follows (in thousands):

		As of January 31,				As of April 30,
		2013		2012		2012
	Foreign currency translation adjustment	$(107,625)		$(118,920)		$(95,981)
	Unamortized retirement costs, net of tax	(96,667)		(57,749)		(103,381)
	Unrealized loss on interest rate swaps, net of tax	(899)		(397)		(1,048)
	Total	$(205,191)		$(177,066)		$(200,410)

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,
		2013		2012		2013		2012
	Weighted average shares outstanding	59,856		60,197		59,874		60,592
	Less: Unearned restricted shares	(235)		(204)		(218)		(200)
	Shares used for basic earnings per share	59,621		59,993		59,656		60,392
	Dilutive effect of stock options and other stock awards	633		852		693		863
	Shares used for diluted earnings per share	60,254		60,845		60,349		61,255

Since their inclusion in the calculation of diluted earnings per share would have been anti-dilutive, options to purchase 2,717,744 shares of Class A Common Stock have been excluded for both the three and nine months ended January 31, 2013, and options to purchase 1,655,362 shares have been excluded for both the three and nine months ended January 31, 2012.  For the three and nine months ended January 31, 2013, unearned restricted shares of 30,750 and 23,000, respectively, have been excluded as their inclusion would have been anti-dilutive. The three and nine month periods ended January 31, 2012 exclude 5,000 and 48,150 anti-dilutive shares, respectively.

6. Acquisitions

Deltak:

On October 25, 2012, the Company acquired all of the stock of Deltak.edu, LLC (“Deltak”) for approximately $220 million in cash, net of cash acquired. Deltak works in close partnership with leading colleges and universities to develop and support online degree and certificate programs. The business provides technology platforms and services including market research to validate program demand, instructional design, marketing, and student recruitment and retention services to leading national and regional colleges and universities throughout the United States.  Deltak currently supports more than 100 online programs and was generating annual revenue of approximately $54 million prior to the acquisition. The acquisition will enable Wiley’s Global Education business to accelerate its digital learning strategy and diversify its service offerings to include operational and academic solutions for higher education institutions.

The acquisition was financed through additional borrowings under the Company’s revolving credit facility, which included an increase in the facility’s credit limit from $700 million to $825 million. There were no other changes to the terms of the Company’s revolving credit facility which were previously disclosed in the Company’s April 30, 2012 Form 10-K. The $220 million purchase price was allocated on a preliminary basis to identifiable long-lived intangible assets ($99.4 million) comprised primarily of institutional relationships; and long-term deferred tax liabilities ($34.4 million); with the remainder allocated to technology and working capital. The excess of the purchase price over the fair value of net assets acquired ($149.6 million) was recorded as goodwill. Goodwill represents the estimated value of Deltak’s workforce, unidentifiable intangible assets and the fair value of expected synergies. None of the goodwill is deductible for tax purposes. The identifiable long-lived intangible assets are primarily amortized over an estimated useful life of approximately 20 years.  Unaudited proforma financial information has not been presented since the effects of the acquisition were not material. The Company expects the purchase accounting to be substantially completed by April 30, 2013.

Efficient Learning Systems:

On November 1, 2012, the Company acquired all of the stock of Efficient Learning Systems, Inc. (“ELS”) for approximately $24 million in cash, net of cash acquired. ELS is an e-learning system provider focused in the areas of professional finance and accounting.  ELS’ flagship product, CPAexcel, is a modular, digital platform comprised of online self-study, videos, mobile apps, and sophisticated planning tools that has helped over 65,000 professionals prepare for the CPA exam since 1998. The acquisition enhances Wiley’s position in the growing CPA test preparation market and provides the Company with a scalable platform that can be leveraged across other areas of its Professional Development business. ELS was generating annual revenue of approximately $7 million prior to the acquisition.  The $24 million purchase price was allocated on a preliminary basis to identifiable long-lived intangible assets ($7.0 million); technology ($3.6 million); and long-term deferred tax liabilities ($3.1 million); with the remainder allocated to working capital. The excess of the purchase price over the fair value of net assets acquired ($16.7 million) was recorded as goodwill.  Goodwill represents the estimated value of ELS’ workforce, unidentifiable intangible assets and the fair value of expected synergies. None of the goodwill is deductible for tax purposes. Unaudited proforma financial information has not been presented since the effects of the acquisition were not material. The Company expects the purchase accounting to be substantially completed by April 30, 2013.

7. Sale and Impairment of Consumer Publishing Programs

In March 2012, the Company announced that it intended to explore opportunities to sell a number of its consumer publishing assets in its Professional Development business as they no longer align with the Company’s long-term business strategy.  Those assets include travel (including the well-known Frommer’s brand), culinary, general interest, nautical, pets, crafts, Webster’s New World, and CliffsNotes.

Sale of Travel Publishing Program:

On August 10, 2012, the Company entered into a definitive agreement with Google, Inc. (“Google”) for the sale of its travel publishing program, including all of its interests in the Frommer’s, Unofficial Guides, and WhatsonWhen brands for $22 million in cash, of which $3.3 million is held in escrow related to standard commercial representations and warranties. The effective date of the transaction was August 31, 2012.  As a result, the Company recorded a $9.8 million pre-tax gain on the sale, or $6.2 million after tax ($0.10 per share), in the second quarter of fiscal year 2013.  In connection with the sale, the Company also entered into a transition services agreement.

Sale and Impairment of the Culinary, CliffsNotes and Webster’s New World Publishing Programs:

In September 2012, the Company entered into negotiations with Houghton Mifflin Harcourt (“HMH”) regarding the sale of the Company’s culinary, CliffsNotes, and Webster’s New World Dictionary consumer publishing programs. As a result, the Company began accounting for these publishing programs as Assets Held for Sale and recorded a pre-tax impairment charge of $12.1 million ($0.12 per share) in the second quarter of fiscal year 2013 to reduce the carrying value of the assets within these programs to approximately $9.9 million, which represented their fair value based on the estimated sales price, less costs to sell of $1.1 million.  On November 5, 2012, the Company completed the sale of these publishing programs to HMH for $11.0 million in cash, which approximated the estimated sale price, of which $1.1 million is held in escrow related to standard commercial representations and warranties.  In connection with the sale, the Company also entered into a transition services agreement.

Impairment of Certain Other Consumer Publishing Programs:

The Company is continuing to explore opportunities to sell its remaining consumer publishing programs which include pets, crafts, nautical and general interest.  If a sale is not feasible, the Company plans to discontinue publishing within these remaining programs.  As a result, in the second quarter of fiscal year 2013, the Company recorded a pre-tax impairment charge of $3.4 million, or $2.1 million after tax ($0.04 per share), to reduce the carrying value of inventory and royalty advances within the consumer publishing programs to their estimated realizable value.

8. Restructuring Charges

As part of the Company’s ongoing transition and transformation to digital products and services, certain activities have been identified that will either be discontinued, outsourced, or relocated to a lower cost region.  As a result, the Company recorded a pre-tax restructuring charge of approximately $4.8 million, or $3.5 million after tax ($0.06 per share), in the first quarter of fiscal year 2013 for redundancy and separation benefits, which is reflected in the Restructuring Charges line item of the Condensed Consolidated Statements of Income. Approximately $3.0 million, $1.3 million and $0.2 million of the restructuring charge was recorded within the Scientific, Technical, Medical and Scholarly (“STMS”), Professional Development (“PD”), and Global Education (“GEd”) reporting segments, respectively, with the remainder recognized in Shared Service costs.

During the three and nine months ended January 31, 2013, the Company made severance payments of approximately $1.2 million and $2.5 million, respectively, resulting in a remaining liability of approximately $2.3 million as of January 31, 2013, which is reflected in the Accrued Employment Costs line item in the Condensed Consolidated Statements of Financial Position. The remaining severance payments are expected to be completed by April 30, 2013.

9. Segment Information

The Company provides content and content-enabled digital services to customers worldwide. Core businesses produce scientific, technical, medical and scholarly journals, reference works, books, database services and advertising; professional books, subscription products, certification and training services and online applications; and educational content and services. Education content and services includes integrated online teaching and learning resources for undergraduate and graduate students, educators and lifelong learners worldwide as well as secondary school students in Australia. The Company takes full advantage of its content from all three core businesses in developing and cross-marketing products to its diverse customer base of researchers, professionals, students, and educators. The use of technology enables the Company to make its content efficiently more accessible to its customers around the world. The Company maintains publishing, marketing, and distribution centers in Asia, Australia, Canada, Europe and the United States.

In fiscal year 2013, the Company changed the name of its Professional/Trade segment to Professional Development. The change is part of a portfolio realignment to focus on content and workflow solutions for professionals in business, finance, accounting, talent management, leadership, technology, behavioral health, engineering/architecture and professional education.

As of May 1, 2012, the Company changed its internal reporting of segment measures for the purposes of assessing performance and making resource allocation decisions. Accordingly, the Company now reports on segment performance after the allocation of certain direct Shared Services and Administrative Costs, identified as Contribution to Profit. These costs were previously reported as independent activities and not reflected within each segment's operating results. In addition, the management responsibility and reporting of certain PD and GEd product lines were realigned as of May 1, 2012.  Prior year results have been restated for comparative purposes for each of the changes described above.

Segment information is as follows (in thousands):

		For the Three Months				For the Nine Months
		Ended January 31,				Ended January 31,
		2013		2012		2013		2012
	SCIENTIFIC, TECHNICAL, MEDICAL AND SCHOLARLY:
	Revenue	$240,902		$245,476		$726,679		$749,261
	Direct Contribution to Profit	$100,369		$98,984		$300,624		$312,323
	Allocated Shared Services and Administrative Costs:
	Distribution	(11,495)		(11,513)		(34,813)		(36,358)
	Technology Services	(17,694)		(16,561)		(52,878)		(49,230)
	Occupancy and Other	(4,642)		(4,104)		(16,412)		(15,392)
	Contribution to Profit	$66,538		$66,806		$196,521		$211,343
	PROFESSIONAL DEVELOPMENT:
	Revenue	$113,106		$106,224		$316,360		$314,963
	Direct Contribution to Profit (*)	$30,780		$26,906		$71,949		$78,688
	Allocated Shared Services and Administrative Costs:
	Distribution	(10,196)		(11,221)		(30,937)		(34,132)
	Technology Services	(7,357)		(6,426)		(21,908)		(18,680)
	Occupancy and Other	(1,469)		(1,998)		(8,054)		(9,584)
	Contribution to Profit (*)	$11,758		$7,261		$11,050		$16,292
	GLOBAL EDUCATION :
	Revenue	$118,427		$99,411		$271,885		$263,941
	Direct Contribution to Profit	$48,376		$43,197		$99,150		$103,901
	Allocated Shared Services and Administrative Costs:
	Distribution	(4,074)		(4,362)		(11,646)		(11,985)
	Technology Services	(8,300)		(6,896)		(23,047)		(19,872)
	Occupancy and Other	(1,198)		(531)		(4,893)		(4,033)
	Contribution to Profit	$34,804		$31,408		$59,564		$68,011
	Total Contribution to Profit	$113,100		$105,475		$267,135		$295,646
	Unallocated Shared Services and Administrative Costs	(29,474)		(27,018)		(81,573)		(85,050)
	Operating Income	$83,626		$78,457		$185,562		$210,596

(*) Professional Development Direct Contribution to Profit and Contribution to Profit for the nine months ended January 31, 2013 include the effects of a $15.5 million impairment charge on certain assets within its consumer publishing programs and a $9.8 million gain on the sale of its travel publishing program (see Note 7 for further discussion of these items).

10.

Inventories

Inventories were as follows (in thousands):

		As of January 31,				As of April 30,
		2013		2012		2012
	Finished goods	$67,472		$79,920		$86,954
	Work-in-process	6,830		8,567		6,487
	Paper, cloth and other	9,911		11,621		8,072
		84,213		100,108		101,513
	Inventory value of estimated sales returns	8,508		10,072		7,246
	LIFO reserve	(6,722)		(5,232)		(7,522)
	Total inventories	$85,999		$104,948		$101,237

11.

Intangible Assets and Goodwill

Intangible assets consisted of the following (in thousands):

		As of January 31,				As of April 30,
		2013		2012		2012
	Intangible assets with indefinite lives:
	Brands and trademarks	$156,776		$162,560		$165,896
	Content and publishing rights	103,654		101,421		102,031
		$260,430		$263,981		$267,927
	Net intangible assets with determinable lives:
	Content and publishing rights	$553,390		$552,299		$567,052
	Customer relationships	158,843		46,397		66,237
	Brands and trademarks	15,729		10,796		13,973
	Covenants not to compete	1,142		268		306
		$729,104		$609,760		$647,568
	Total	$989,534		$873,741		$915,495

The following table summarizes the activity in goodwill by segment:

									Foreign
			As of April 30,						Translation		As of January 31,
			2012		Acquisitions		Divestments		Adjustment		2013
	STMS		$473,209		$           -		$          -		$(7,095)		$466,114
	PD		217,410		16,678		(4,955)		(177)		228,956
	GEd		-		149,603		-		-		149,603
	Total		$690,619		$166,281		$(4,955)		$(7,272)		$844,673

The acquisitions for PD and GEd relate to the ELS and Deltak acquisitions, respectively. The divestments reflect the portion of goodwill allocated to the divestment of the consumer publishing programs.

In the third quarter of fiscal year 2013, the Company completed its annual review of goodwill and indefinite-lived intangible assets. No impairments were required.

12.

Income Taxes

The effective tax rate for the first nine months of fiscal year 2013 was 22.6% compared to 19.9% in the prior year.  During the first quarters of fiscal years 2013 and 2012, the Company recorded non-cash deferred tax benefits of $8.4 million ($0.14 per share) and $8.8 million ($0.14 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% in each period. The benefits recognized by the Company reflect the remeasurement of all applicable U.K. deferred tax balances to the new income tax rates. The U.K. statutory tax rate as of January 31, 2013 is 23%.  During the third quarter of fiscal year 2012, the Company released an income tax reserve of approximately $7.5 million ($0.12 per share) due to the expiration of the statute of limitations. The $7.5 million was originally recorded in conjunction with the purchase accounting for the Blackwell acquisition. Excluding the impact of the tax benefits described above, the Company’s effective tax rate decreased from 27.9% to 27.3% principally due to lower U.S. earnings in the first nine months of fiscal year 2013 due to the consumer publishing program impairment charges.

Payments Related to Tax Audit in Germany

In fiscal year 2003, the Company merged several of its German subsidiaries into a new operating entity which enabled the Company to increase (“step-up”) the tax deductible net asset basis of the merged subsidiaries to fair market value. The expected tax benefits to be derived from the step-up are approximately 50 million euros claimed as amortization over 15 years beginning in fiscal year 2003. As part of its routine tax audit process, the German tax authorities notified the Company in May 2012 that they are challenging the Company’s tax position with respect to the amortization of certain stepped-up assets. The Company’s management and its advisors believe that it is “more likely than not” to successfully defend the tax treatment as proper and in accordance with German tax regulations. The circumstances are not unique to the Company.

In June 2012, the Company made a 24 million euro deposit related to amortization claimed on certain “stepped-up” assets through fiscal year 2007.  Under German tax law, the Company must pay all contested taxes and the related interest to have the right to defend its position challenged by the authorities.  The Company expects that it will be required to deposit additional amounts up to 33 million euros plus interest in future periods until the issue is resolved. The challenge is expected to ultimately be decided in court and could take several years to reach resolution. If the Company is successful, as expected, the tax deposits will be returned with 6% simple interest, based on current German legislation. As of January 31, 2013, the USD equivalent of the deposit and accrued interest is approximately $34.1 million and is recorded within Other Assets on the Condensed Consolidated Statements of Financial Position. The Company records the accrued interest at 6% within the Provision for Income Taxes in the Condensed Consolidated Statements of Income.

13.

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,
		2013		2012		2013		2012
	Service Cost	$5,052		$3,615		$14,209		$12,023
	Interest Cost	7,165		6,966		20,954		20,960
	Expected Return on Plan Assets	(7,805)		(7,198)		(23,297)		(21,840)
	Net Amortization of Prior Service Cost	245		324		735		778
	Recognized Net Actuarial Loss	2,822		1,326		7,492		3,836
	Net Pension Expense	$7,479		$5,033		$20,093		$15,757

Employer pension plan contributions were $15.6 million and $15.1 million for the nine months ended January 31, 2013 and 2012, respectively.

14. 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.

Interest Rate Contracts:

The Company had $734.8 million of variable rate loans outstanding at January 31, 2013, which approximated fair value. As of both January 31, 2013 and 2012, the Company maintained interest rate swap agreements that were designated as fully effective cash flow hedges as defined under Accounting Standards Codification (“ASC”) 815 “Derivatives and Hedging”.  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 in 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 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 paid a fixed rate of 0.8% and received a variable rate of interest based on one-month LIBOR (as defined) from the counterparty which was reset every month for a twenty-nine month period ending January 19, 2013, the date that the swap expired. As of January 31, 2012, the notional amount of the interest rate swap was $125.0 million.

On March 30, 2012, 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 0.645% and receives a variable rate of interest based on one-month LIBOR (as defined) from the counterparty which is reset every month for a three-year period ending March 31, 2015. As of January 31, 2013, the notional amount of the interest rate swap was $250.0 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, 2013 and 2012 and April 30, 2012 was a net deferred loss of $1.4 million, $0.7 million, and $1.7 million, respectively.  Based on the maturity dates of the contracts, the deferred loss as of January 31, 2013 and 2012 was recorded in Other Long-Term Liabilities and Other Accrued Liabilities in the Condensed Consolidated Statements of Financial Position, respectively, and $0.5 million and $1.2 million of the deferred loss at April 30, 2012 was recorded in Other Accrued Liabilities and Other Long-Term Liabilities, respectively. Net losses that were reclassified from Accumulated Other Comprehensive Loss into Interest Expense for the three months ended January 31, 2013 and 2012 were $0.4 million and $0.2 million, respectively.  Net losses that were reclassified from Accumulated Other Comprehensive Loss into Interest Expense for the nine months ended January 31, 2013 and 2012 were $1.3 million and $0.6 million, respectively.

Foreign Currency Contracts:

The Company may enter into forward exchange contracts to manage the Company’s exposure on certain foreign currency denominated assets and liabilities. The forward exchange contracts are marked to market through Foreign Exchange Transaction Losses in the Condensed Consolidated Statements of Income, and carried at their fair value in the Condensed Consolidated Statements of Financial Position. 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. As of January 31, 2013, the total notional amount of the open forward exchange contract in U.S. dollars was $60.0 million. The Company did not maintain any open forward contracts as of January 31, 2012 and April 30, 2012.  During the first nine months of fiscal years 2013 and 2012, the Company did not designate any 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. The fair value changes in the forward exchange contracts substantially mitigated the changes in the value of the applicable foreign currency denominated assets and liabilities. The fair values of the contracts were measured on a recurring basis using Level 2 inputs. As of January 31, 2013, the fair value of the open forward exchange contract was a loss of approximately $1.3 million and was recorded within Other Accrued Liabilities. For the three months ended January 31, 2013 and 2012, the losses recognized on the forward contracts were $1.3 million and $2.2 million, respectively. For the nine months ended January 31, 2013 and 2012, the losses recognized on the forward contracts were $0.7 million and $2.4 million, respectively.

15. Subsequent Events

In March, Wiley announced a program to restructure and realign the Company’s cost base with current and anticipated future market conditions. When implemented, the plan is expected to improve margins by reducing operating expenses and cost of sales and accelerate earnings growth while providing increased capacity for investment to grow our digital businesses. Working with a third-party restructuring firm since January, the Company is progressing towards finalizing plans.

As part of the implementation of the restructuring program, Wiley expects to record a restructuring charge of approximately $25 million in the fourth quarter of this fiscal year. At least one additional charge is expected as phases of the program are implemented over the course of fiscal 2014. The charges will be related principally to severance and other employee separation-related benefits as well as other business transition-related costs.