JOHN WILEY & SONS, INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
January 31, 2020
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from_____ to _____
Commission File No.
001-11507
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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(Address of principal executive offices)
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Zip Code
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(
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Registrant’s telephone number, including area code
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Not Applicable
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Former name, former address and former fiscal year, if changed since last report
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol
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Name of each exchange on which registered
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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
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Accelerated filer
☐
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Non-accelerated filer
☐
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
☒
The number of shares outstanding of each of the Registrant’s classes of common stock as of February 29, 2020 were:
Class A, par value $1.00 –
46,970,806
Class B, par value $1.00 –
9,108,555
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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4
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5
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6
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7
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8
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Notes to Unaudited Condensed Consolidated Financial Statements
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10
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10
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13
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15
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16
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17
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18
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19
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24
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24
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25
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25
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27
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28
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Item 2.
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29
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Item 3.
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41
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Item 4.
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42
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PART II
-
OTHER INFORMATION
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Item 1.
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43
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Item 1a.
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43
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Item 2.
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44
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Item 6.
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44
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45
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Cautionary Notice Regarding Forward-Looking Statements “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995:
This report contains certain “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 concerning our business, consolidated financial condition and results of operations. The Securities and Exchange Commission (“SEC”) encourages companies to disclose forward-looking information so that investors can better understand a company’s prospects and make informed investment decisions. Forward-looking statements are subject to risks and uncertainties, many of which are outside our control, which could cause actual results to differ materially from these statements. Therefore, you should not rely on any of these forward-looking statements. Forward-looking statements can be identified by such words as “anticipates,” “believes,” “plan,” “assumes,” “could,” “should,” “estimates,” “expects,” “intends,” “potential,” “seek,” “predict,” “may,” “will” and similar references to future periods. All statements other than statements of historical facts included in this report regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements we make regarding our fiscal year 2020 outlook, anticipated restructuring charges and savings, operations, performance, and financial condition. Reliance should not be placed on forward-looking statements, as actual results may differ materially from those in any forward-looking statements. Any such forward-looking statements are based upon many assumptions and estimates that are inherently subject to uncertainties and contingencies, many of which are beyond our control, and are subject to change based on many important factors. Such factors include, but are not limited to (i) the level of investment in new technologies and products; (ii) subscriber renewal rates for our journals; (iii) the financial stability and liquidity of journal subscription agents; (iv) the consolidation of book wholesalers and retail accounts; (v) the market position and financial stability of key retailers; (vi) the seasonal nature of our educational business and the impact of the used book market; (vii) worldwide economic and political conditions; (viii) our ability to protect our copyrights and other intellectual property worldwide; (ix) our ability to successfully integrate acquired operations and realize expected opportunities; (x) the ability to realize operating savings over time and in fiscal year 2020 in connection with our multi-year Business Optimization Program; and (xi) other factors detailed from time to time in our filings with the SEC. We undertake no obligation to update or revise any such forward-looking statements to reflect subsequent events or circumstances.
Please refer to Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K and as revised and updated by our Quarterly Reports in Form 10-Q for important factors that we believe could cause actual results to differ materially from those in our forward-looking statements. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
Non-GAAP Financial Measures:
We present financial information that conforms to Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”). We also present financial information that does not conform to U.S. GAAP, which we refer to as non-GAAP.
In this report, we may present the following non-GAAP performance measures:
| ● |
Adjusted Earnings Per Share (“Adjusted EPS”);
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| ● |
Free Cash Flow less Product Development Spending;
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Adjusted Revenue;
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Adjusted Operating Income and margin;
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Adjusted Contribution to Profit and margin;
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EBITDA, Adjusted EBITDA and margin;
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Organic revenue; and
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Results on a constant currency basis.
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Management uses these non-GAAP performance measures as supplemental indicators of our operating performance and financial position as well for internal reporting and forecasting purposes, when publicly providing our outlook, to evaluate our performance and to evaluate and calculate incentive compensation. We present these non-GAAP performance measures in addition to U.S. GAAP financial results because we believe that these non-GAAP performance measures provide useful information to investors and financial analysts for operational trends and comparisons over time. The use of these non-GAAP performance measures may also provide a consistent basis to evaluate operating profitability and performance trends by excluding certain items that we do not consider to be controllable activities for this purpose.
For example:
| ● |
Adjusted EPS, Adjusted Revenue, Adjusted Operating Income, Adjusted Contribution to Profit, Adjusted EBITDA, and organic revenue provide a more comparable basis to analyze operating results and earnings and are measures commonly used by shareholders to measure our performance.
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| ● |
Free Cash Flow less Product Development Spending helps assess our ability, over the long term, to create value for our shareholders as it represents cash available to repay debt, pay common stock dividends and fund share repurchases and acquisitions.
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Results on a constant currency basis removes distortion from the effects of foreign currency movements to provide better comparability of our business trends from period to period. We measure our performance before the impact of foreign currency (or at “constant currency”), which means that we apply the same foreign currency exchange rates for the current and equivalent prior period.
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In addition, we have historically provided these or similar non-GAAP performance measures and understand that some investors and financial analysts find this information helpful in analyzing our operating margins, and net income and comparing our financial performance to that of our peer companies and competitors. Based on interactions with investors, we also believe that our non-GAAP performance measures are regarded as useful to our investors as supplemental to our U.S. GAAP financial results, and that there is no confusion regarding the adjustments or our operating performance to our investors due to the comprehensive nature of our disclosures. We have not provided our 2020 outlook for the most directly comparable U.S. GAAP financial measures, as they are not available without unreasonable effort due to the high variability, complexity, and low visibility with respect to certain items, including restructuring charges and credits, gains and losses on foreign currency, and other gains and losses. These items are uncertain, depend on various factors, and could be material to our consolidated results computed in accordance with U.S. GAAP.
Non-GAAP performance measures do not have standardized meanings prescribed by U.S. GAAP and therefore may not be comparable to the calculation of similar measures used by other companies and should not be viewed as alternatives to measures of financial results under U.S. GAAP. The adjusted metrics have limitations as analytical tools and should not be considered in isolation from or as a substitute for U.S. GAAP information. It does not purport to represent any similarly titled U.S. GAAP information and is not an indicator of our performance under U.S. GAAP. Non-U.S. GAAP financial metrics that we present may not be comparable with similarly titled measures used by others. Investors are cautioned against placing undue reliance on these non-U.S. GAAP measures.
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
In thousands
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January 31, 2020
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April 30, 2019
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||||||
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Assets:
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Current Assets
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Cash and cash equivalents
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$
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$
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Accounts receivable, net
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Inventories, net
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Prepaid expenses and other current assets
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Total Current Assets
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||||||
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Product Development Assets, net
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Royalty Advances, net
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Technology, Property and Equipment, net
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Intangible Assets, net
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Goodwill
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Operating Lease Right-of-Use Assets
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Other Non-Current Assets
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Total Assets
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$
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$
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||||
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Liabilities and Shareholders' Equity:
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||||||||
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Current Liabilities
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||||||||
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Accounts payable
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$
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$
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Accrued royalties
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Short-term portion of long-term debt
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Contract liabilities
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Accrued employment costs
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Accrued income taxes
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Short-term portion of operating lease liabilities
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Other accrued liabilities
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Total Current Liabilities
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||||||
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Long-Term Debt
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||||||
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Accrued Pension Liability
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||||||
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Deferred Income Tax Liabilities
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Operating Lease Liabilities
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Other Long-Term Liabilities
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Total Liabilities
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Shareholders’ Equity
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||||||||
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Preferred Stock, $
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Class A Common Stock, $
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Class B Common Stock, $
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Additional paid-in-capital
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Retained earnings
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||||||
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Accumulated other comprehensive loss
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(
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)
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(
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)
|
||||
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Treasury stock (Class A -
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(
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)
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(
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)
|
||||
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Total Shareholders’ Equity
|
|
|
||||||
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Total Liabilities and Shareholders' Equity
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$
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$
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|
||||
See accompanying notes to the unaudited condensed consolidated financial statements.
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
Dollars in thousands except per share information
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Three Months Ended
January 31,
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Nine Months Ended
January 31,
|
||||||||||||||
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2020
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2019
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2020
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2019
|
|||||||||||||
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Revenue, net
|
$
|
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$
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$
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$
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|
||||||||
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Costs and Expenses
|
||||||||||||||||
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Cost of sales
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|
||||||||||||
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Operating and administrative expenses
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|
||||||||||||
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Restructuring and related charges (credits)
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(
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)
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|
|||||||||||
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Amortization of intangibles
|
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|
||||||||||||
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Total Costs and Expenses
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|
||||||||||||
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Operating Income
|
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|
||||||||||||
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Interest Expense
|
(
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)
|
(
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)
|
(
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)
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(
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)
|
||||||||
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Foreign Exchange Transaction Losses
|
(
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)
|
(
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)
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(
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)
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(
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)
|
||||||||
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Interest and Other Income
|
|
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|
||||||||||||
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Income Before Taxes
|
|
|
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|
||||||||||||
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Provision for Income Taxes
|
|
|
|
|
||||||||||||
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Net Income
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Earnings Per Share
|
||||||||||||||||
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Basic
|
$
|
|
$
|
|
$
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$
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|
||||||||
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Diluted
|
$
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$
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$
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$
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|
||||||||
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Weighted Average Number of Common Shares Outstanding
|
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Basic
|
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||||||||||||
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Diluted
|
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|
||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
Dollars in thousands
|
|
Three Months Ended
January 31,
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Nine Months Ended
January 31,
|
||||||||||||||
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2020
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2019
|
2020
|
2019
|
|||||||||||||
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Net Income
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$
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|
$
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$
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$
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|
||||||||
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Other Comprehensive Income (Loss):
|
||||||||||||||||
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Foreign currency translation adjustment
|
|
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(
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)
|
|||||||||||
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Unamortized retirement costs, net of tax benefit (provision) of $
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(
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)
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(
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)
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||||||||||
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Unrealized loss on interest rate swaps, net of tax benefit of $
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(
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)
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(
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)
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(
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)
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(
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)
|
||||||||
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Total Other Comprehensive Income (Loss)
|
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(
|
)
|
|||||||||||
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Comprehensive Income
|
$
|
|
$
|
|
$
|
|
$
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|
||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
Dollars in thousands
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Nine Months Ended
January 31,
|
|||||||
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2020
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2019
|
|||||||
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Operating Activities
|
||||||||
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Net income
|
$
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$
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|
||||
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Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
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Amortization of intangibles
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|
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Amortization of product development assets
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Depreciation and amortization of technology, property and equipment
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Restructuring and related charges
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||||||
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Stock-based compensation expense
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|
||||||
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Employee retirement plan expense
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|
||||||
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Royalty advances
|
(
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)
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(
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)
|
||||
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Earned royalty advances
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|
||||||
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Foreign exchange transaction losses
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|
||||||
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Other non-cash charges
|
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|
||||||
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Net change in operating assets and liabilities
|
(
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)
|
(
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)
|
||||
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Net Cash Provided By Operating Activities
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|
||||||
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Investing Activities
|
||||||||
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Product development spending
|
(
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)
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(
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)
|
||||
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Additions to technology, property and equipment
|
(
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)
|
(
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)
|
||||
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Businesses acquired in purchase transactions, net of cash acquired
|
(
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)
|
(
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)
|
||||
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Acquisitions of publication rights and other
|
(
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)
|
(
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)
|
||||
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Net Cash Used in Investing Activities
|
(
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)
|
(
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)
|
||||
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Financing Activities
|
||||||||
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Repayment of long-term debt
|
(
|
)
|
(
|
)
|
||||
|
Borrowing of long-term debt
|
|
|
||||||
|
Payment of debt issuance costs
|
(
|
)
|
|
|||||
|
Purchase of treasury shares
|
(
|
)
|
(
|
)
|
||||
|
Change in book overdrafts
|
(
|
)
|
(
|
)
|
||||
|
Cash dividends
|
(
|
)
|
(
|
)
|
||||
|
Net (payments) proceeds from exercise of stock options and other
|
(
|
)
|
|
|||||
|
Net Cash Provided by Financing Activities
|
|
|
||||||
|
Effects of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash
|
|
(
|
)
|
|||||
|
Cash Reconciliation:
|
||||||||
|
Cash and Cash Equivalents
|
|
|
||||||
|
Restricted cash included in Prepaid expenses and other current assets
|
|
|
||||||
|
Balance at Beginning of Period
|
|
|
||||||
|
Increase/(Decrease) for the Period
|
|
(
|
)
|
|||||
|
Cash and cash equivalents
|
|
|
||||||
|
Restricted cash included in Prepaid expenses and other current assets
|
|
|
||||||
|
Balance at End of Period
|
$
|
|
$
|
|
||||
|
Cash Paid During the Period for:
|
||||||||
|
Interest
|
$
|
|
$
|
|
||||
|
Income taxes, net of refunds
|
$
|
|
$
|
|
||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
JOHN WILEY & SONS, INC., AND SUBSIDIARIES
Dollars in thousands
|
|
Common Stock
Class A
|
Common Stock
Class B
|
Additional
Paid-in Capital
|
Retained
Earnings
|
Treasury
Stock
|
Accumulated Other
Comprehensive Loss
|
Total
Shareholders' Equity
|
|||||||||||||||||||||
|
Balance at October 31, 2019
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||
|
Restricted Shares Issued under Stock-based Compensation Plans
|
|
|
(
|
)
|
|
|
|
|
||||||||||||||||||||
|
Net (Payments) Proceeds from Exercise of Stock Options and Other
|
|
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||
|
Stock-based Compensation Expense
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Purchase of Treasury Shares
|
|
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||
|
Class A Common Stock Dividends ($
|
|
—
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||
|
Class B Common Stock Dividends ($
|
—
|
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||
|
Common Stock Class Conversions
|
|
(
|
)
|
|
|
|
|
|
||||||||||||||||||||
|
Comprehensive Income, Net of Tax
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Balance at January 31, 2020
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||
|
|
Common Stock
Class A
|
Common Stock
Class B
|
Additional
Paid-in Capital
|
Retained
Earnings
|
Treasury
Stock
|
Accumulated Other
Comprehensive Loss
|
Total
Shareholders' Equity
|
|||||||||||||||||||||
|
Balance at October 31, 2018
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||
|
Restricted Shares Issued under Stock-based Compensation Plans
|
|
|
(
|
)
|
|
|
|
|
||||||||||||||||||||
|
Net (Payments) Proceeds from Exercise of Stock Options and Other
|
|
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||
|
Stock-based Compensation Expense
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Purchase of Treasury Shares
|
|
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||
|
Class A Common Stock Dividends ($
|
|
—
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||
|
Class B Common Stock Dividends ($
|
—
|
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||
|
Issuance of Warrants Related to Acquisition of a Business
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Comprehensive Income, Net of Tax
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Balance at January 31, 2019
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||
See accompanying notes to the audited consolidated financial statements
.
JOHN WILEY & SONS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
– UNAUDITED
Dollars in thousands
|
|
Common Stock
Class A
|
Common Stock
Class B
|
Additional
Paid-in Capital
|
Retained
Earnings
|
Treasury
Stock
|
Accumulated Other Comprehensive Loss
|
Total
Shareholders' Equity
|
|||||||||||||||||||||
|
Balance at April 30, 2019
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||
|
Restricted Shares Issued under Stock-based Compensation Plans
|
|
|
(
|
)
|
|
|
|
|
||||||||||||||||||||
|
Net (Payments) Proceeds from Exercise of Stock Options and Other
|
|
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||
|
Stock-based Compensation Expense
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Purchase of Treasury Shares
|
|
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||
|
Class A Common Stock Dividends ($
|
|
—
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||
|
Class B Common Stock Dividends ($
|
—
|
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||
|
Common Stock Class Conversions
|
|
(
|
)
|
|
|
|
|
|
||||||||||||||||||||
|
Comprehensive Income, Net of Tax
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Balance at January 31, 2020
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||
|
|
Common Stock
Class A
|
Common Stock
Class B
|
Additional
Paid-in Capital
|
Retained
Earnings
|
Treasury
Stock
|
Accumulated Other Comprehensive Loss
|
Total
Shareholders' Equity
|
|||||||||||||||||||||
|
Balance at April 30, 2018
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||
|
Restricted Shares Issued under Stock-based Compensation Plans
|
|
|
(
|
)
|
|
|
|
|
||||||||||||||||||||
|
Net Proceeds from Exercise of Stock Options and Other
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Stock-based Compensation Expense
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Purchase of Treasury Shares
|
|
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||
|
Class A Common Stock Dividends ($
|
|
—
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||
|
Class B Common Stock Dividends ($
|
—
|
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||
|
Common Stock Class Conversions
|
|
(
|
)
|
|
|
|
|
|
||||||||||||||||||||
|
Issuance of Warrants Related to Acquisition of a Business
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Adjustment Due to Adoption of New Revenue Standard
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Comprehensive Income (Loss), Net of Tax
|
|
|
|
|
|
(
|
)
|
|
||||||||||||||||||||
|
Balance at January 31, 2019
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||
See accompanying notes to the audited consolidated financial statements
.
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1
—
Basis of Presentation
Our Unaudited Condensed Consolidated Financial Statements include all the accounts of the Company and our subsidiaries. We have eliminated all intercompany transactions and balances in consolidation. 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 Unaudited Condensed Consolidated 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. All amounts are in thousands, except per share amounts, and approximate due to rounding. These financial statements should be read in conjunction with the most recent audited consolidated financial statements included in our Form 10-K for the fiscal year ended April 30, 2019 as filed with the SEC on July 1, 2019 (“2019 Form 10-K”).
Our Unaudited Condensed Consolidated Financial Statements were prepared in accordance with the interim reporting requirements of the SEC. As permitted under those rules, annual footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted. The preparation of our Unaudited Condensed Consolidated Financial Statements in conformity with U.S. GAAP 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 condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
During the third quarter of 2020, we identified an immaterial error within our Unaudited Condensed Consolidated Statement of Financial Position, including the results for the fiscal year ended April 30, 2019. Certain consideration received for services not yet performed, mainly for our annual subscription licensing revenue agreements, was presented as a reduction to Accounts Receivable, Net, rather than an increase to Contract Liabilities. The correction increases Accounts Receivable, Net and increases Contract Liabilities by approximately $
11.8
million for the fiscal year ended April 30, 2019. There was no impact on Revenue, Net, Operating Income, Net Income, Earnings Per Share, or Net Cash Provided by Operating Activities or the Unaudited Condensed Consolidated Statements of Cash Flows. Management has evaluated all relevant quantitative and qualitative factors and has concluded that the error is not material to the Condensed Consolidated Statement of Financial Position for the previously reported periods. We have revised our accompanying Unaudited Condensed Consolidated Statement of Financial Position to correct this for fiscal year ended April 30, 2019 and any related disclosures.
The current policy for our subscription licensing agreements is to record accounts receivable when performance occurs and recognize contract liabilities once the invoice is due, or cash payment is received from the customer.
Note 2
—
Recent Accounting Standards
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB issued ASU 2018-02 “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. We adopted ASU 2018-02 on May 1, 2019. We did not elect to reclassify the income tax effects from comprehensive income to retained earnings for the stranded tax effects resulting from the Tax Cuts and Jobs Act. Our policy for releasing the income tax effects from accumulated other comprehensive income is when the corresponding pretax accumulated other comprehensive income items are reclassified to earnings.
Targeted Improvements to Accounting for Hedging Activities
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” to simplify and improve the application and financial reporting of hedge accounting. Subsequently, in November 2018, the FASB issued ASU 2018-1
6, “Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes”. ASU 2017-12
eases the requirements for measuring and reporting hedge ineffectiveness and clarifies that changes in the fair value of hedging instruments for cash flow, net investment, and fair value hedges should be reflected in the same income statement line item as the earnings effect of the hedged item. The guidance also permits entities to designate specific components in cash flow and interest rate hedges as the hedged risk, instead of using total cash flows. ASU 2018-16 allows the use of the OIS rate based on the SOFR as a U.S. benchmark interest rate for hedge accounting purposes. We adopted ASU 2017-12, 2018-06 and 2019-04, for those portions related to ASU 2017-02, on May 1, 2019 and there was no impact to our consolidated financial statements at the date of adoption. The future impact will depend on any future hedging activities we may enter into.
Leases
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)”. Subsequently, the FASB issued in March 2019, ASU 2019-01, “Leases (Topic 842): Codification Improvements”, in December 2018 ASU 2018-20, “Leases (Topic 842): Narrow Scope Improvements for Lessors”, and in July 2018 the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements” and ASU 2018-10, “Codification Improvements to Topic 842, Leases”. ASU 2016-02 requires an entity to recognize a right-of-use asset (“ROU”) and lease liability for all leases with terms of more than 12 months and provide enhanced disclosures. Recognition, measurement, and presentation of expenses depends on classification as a finance or operating lease. Similar modifications have been made to lessor accounting in-line with revenue recognition guidance.
The new standard provides a number of optional practical expedients in transition. We elected the practical expedients to forgo a reassessment of (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) initial direct costs. We did not elect the practical expedient allowing the use-of-hindsight which would have required us to reassess the lease term of our leases based on all facts and circumstances through the effective date. In addition, we did not elect the practical expedient pertaining to land easements.
In addition, the new standard provides as a practical expedient, certain policy elections for ongoing lease accounting which we elected at the date of adoption and included the following, (i) to not separate nonlease components from the associated lease component if certain conditions are met, and (ii) to not recognize ROU assets and lease liabilities for leases that qualify as short-term.
A modified retrospective transition approach was required, applying the standard to all leases existing at the date of initial application. A company could choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as of its date of initial application. We adopted the new standard on May 1, 2019 and used the effective date as the date of initial application. Accordingly, previously reported financial information was not updated, and the disclosures required under the new standard will not be provided for dates and periods before May 1, 2019.
At adoption, we recognized operating lease liabilities of $
178
million based on the present value of the remaining minimum rental payments for existing operating leases and ROU assets of $
142
million on our Unaudited Condensed Consolidated Statement of Financial Position. The difference between the ROU assets and operating lease liabilities represents the existing deferred rent liabilities, prepaid rent balances, and applicable restructuring liabilities, which were reclassified upon adoption to reduce the measurement of the ROU assets. The adoption of the standard did not have an impact on our Unaudited Condensed Consolidated Statement of Shareholders’ Equity, Condensed Consolidated Statement of Income or Condensed Consolidated Statement of Cash Flow. See Note 5, “Operating Leases”, for further details on our operating leases.
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This ASU is intended to simplify various aspects related to accounting for income taxes, eliminates certain exceptions within Topic 740, “Income Taxes” and clarifies certain aspects of the current guidance to promote consistent application. The standard is effective for us on May 1, 2021, and early adoption is permitted in any interim period for which financial statements have not yet been issued. We are currently assessing the impact the new guidance will have on our consolidated financial statements.
Intangibles-Goodwill and Other-Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract
In August 2018, the FASB issued ASU 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.” ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for us on May 1, 2020, and interim periods within that fiscal year, with early adoption permitted. We are currently assessing the impact the new guidance will have on our consolidated financial statements.
Changes to the Disclosure Requirements for Defined Benefit Plans
In August 2018, the FASB issued ASU 2018-14, “Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans.” ASU 2018-14 removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and added additional disclosures. The standard is effective for us on May 1, 2021, with early adoption permitted. The amendments in ASU 2018-14 would need to be applied on a retrospective basis. We are currently assessing the impact the new guidance will have on our disclosures.
Changes to the Disclosure Requirements for Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 removes, modifies and added disclosures. The standard is effective for us on May 1, 2020, with early adoption permitted. Certain disclosures in ASU 2018-13 would need to be applied on a retrospective basis and others on a prospective basis. We are currently assessing the impact the new guidance will have on our disclosures.
Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued ASU 2017-04, “Intangibles–Goodwill and Other (Topic 350): “Simplifying the Test for Goodwill Impairment”, which simplifies the measurement of a potential goodwill impairment charge by eliminating the requirement to calculate an implied fair value of the goodwill based on the fair value of a reporting unit’s other assets and liabilities. The new guidance eliminates the implied fair value method and instead measures a potential impairment charge based on the excess of a reporting unit’s carrying value compared to its fair value. The impairment charge cannot exceed the total amount of goodwill allocated to that reporting unit. The standard is effective for us on May 1, 2020, with early adoption permitted. Based on our most recent annual goodwill impairment test completed in the year ended April 30, 2019, we expect no impact upon adoption.
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.” Subsequently, in May 2019, the FASB issued ASU 2019-05 - "Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief”, in April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” in November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses,” in November 2019, the FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses,” and in February 2020, the FASB issued ASU 2020-02, “Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842)—Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) (SEC Update)”. ASU 2016-13 requires entities to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model which includes historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. ASU 2016-13 also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. ASU 2016-13, ASU 2019-05, ASU 2019-04, ASU 2018-19, ASU 2019-11 and ASU 2020-02 are effective for us on May 1, 2020, including interim periods within those fiscal periods, with early adoption permitted. We are currently assessing the impact the new guidance will have on our consolidated financial statements.
Note 3
—
Acquisitions
Fiscal Year 2020
For all the acquisitions in fiscal year 2020, the allocation of the total consideration transferred to the assets acquired and the liabilities assumed is preliminary, and could be revised as a result of additional information obtained due to the finalization of the third-party valuation report, leases and related commitments, tax related matters and contingencies and certain assets and liabilities, including receivables and payables, but such amounts will be finalized within the measurement period, which will not exceed one year from the acquisition dates.
Pro forma financial information related to these acquisitions has not been provided as it is not material to our consolidated results of operations.
mthree
On January 1, 2020, we completed the acquisition of
100
% of the outstanding stock of mthree. mthree is a rapidly growing education services provider that addresses the IT skills gap by finding, training and placing job-ready technology talent in roles with leading corporations worldwide. Its results of operations are included in our Education Services segment.
The preliminary fair value of the consideration transferred at the acquisition date was $
128.6
million (£
97.5
million) which included $
122.2
million of cash and $
6.4
million of additional consideration to be paid after the acquisition date. We financed the payment of the cash consideration primarily through borrowings under our Amended and Restated RCA (as defined below in Note 15, “Debt and Available Credit Facilities”) and using cash on hand. The fair value of the cash consideration transferred including those amounts paid after the acquisition date, net of $
2.3
million of cash acquired was approximately $
126.3
million.
At the time of the acquisition, Wiley entered into agreements with certain employees of mthree who will remain employees after the acquisition. Cash payments will be made based on reaching certain revenue and Adjusted EBITDA targets in each year over a
four-year
period. Such payments are subject to continuing employment and would therefore be considered compensation expense for services provided subsequent to the acquisition. Such expense would be recognized when it becomes probable that the targets will be achieved.
We recorded the preliminary fair value of the assets acquired and liabilities assumed on the acquisition date, which included a preliminary allocation of $
80.3
million of goodwill and $
57.4
million of intangible assets, consisting of customer relationships, trademarks and content.
None
of the goodwill will be deductible for tax purposes. The acquisition related costs to acquire mthree were expensed when incurred and were approximately $
0.8
million. Such costs were allocated to the Education Services segment and are reflected in Operating and Administrative Expenses on the Unaudited Condensed Consolidated Statements of Income in the three and nine months ended January 31, 2020.
mthree’s revenue and operating loss included in our Education Services segment results for the three and nine months ended January 31, 2020 was $
4.5
million and $
1.2
million, respectively.
Zyante Inc.
On July 1, 2019, we completed the acquisition of Zyante Inc. (“zyBooks”), a leading provider of computer science and STEM education courseware. The results of operations of zyBooks is included in our Academic & Professional Learning segment results. The fair value of the consideration transferred at the acquisition date was $
57.1
million which included $
55.9
million of cash and $
1.2
million of additional consideration to be paid after the acquisition date, inclusive of purchase price adjustments which were finalized in the three months ended January 31, 2020. The fair value of the cash consideration transferred including those amounts paid after the acquisition date, net of $
1.8
million of cash acquired was approximately $
54.5
million.
None
of the goodwill will be deductible for tax purposes. zyBooks revenue included in our Academic & Professional Learning segment results for the three and nine months ended January 31, 2020 was $
3.9
million and $
8.8
million, respectively.
The following table summarizes the consideration transferred to acquire zyBooks and the preliminary allocation of the purchase price among the assets acquired and liabilities assumed.
|
|
Preliminary Allocation
as of July 1, 2019
|
|||
|
Total cash consideration transferred at the acquisition date
|
$
|
|
||
|
Assets:
|
||||
|
Current Assets
|
|
|||
|
Technology, Property and Equipment, net
|
|
|||
|
Intangible Assets, net
|
|
|||
|
Goodwill
|
|
|||
|
Total Assets
|
$
|
|
||
|
|
||||
|
Liabilities:
|
||||
|
Current Liabilities
|
|
|||
|
Deferred Income Tax Liabilities
|
|
|||
|
Total Liabilities
|
$
|
|
||
|
|
Estimated
Fair Value
|
Weighted-Average
Useful Life (in
Years)
|
||||||
|
Developed Technology
|
$
|
|
|
|||||
|
Customer Relationships
|
|
|
||||||
|
Content
|
|
|
||||||
|
Trademarks
|
|
|
||||||
|
Total
|
$
|
|
||||||
Other Acquisitions
On May 31, 2019, we completed the acquisition of certain assets of Knewton, Inc. (“Knewton”). Knewton is a provider of affordable courseware and adaptive learning technology. The results of Knewton are included in our Academic & Professional Learning segment results. In addition, in the three months ended July 31, 2019 we also completed the acquisition of
two
immaterial businesses, which are included in our Research Publishing & Platforms segment and in the three months ended October 31, 2019
one
immaterial business included in our Academic & Professional Learning segment results.
The preliminary fair value of cash consideration transferred during the nine months ended January 31, 2020 was approximately $
19.9
million. We recorded the preliminary fair value of the assets acquired and liabilities assumed on the acquisition date, which included a preliminary allocation of $
9.4
million of goodwill and $
16.2
million of intangible assets.
Fiscal Year 2019
The Learning House, Inc.
On November 1, 2018, we completed the acquisition of
100
% of the outstanding stock of The Learning House, Inc. (“Learning House”) a diversified education services provider. The results of operations of Learning House are included in our Education Services segment.
The fair value of the consideration transferred was $
201.3
million which included $
200.7
million of cash and $
0.6
million of warrants, inclusive of purchase price adjustments which were finalized in the three months ended April 30, 2019. We financed the payment of the cash consideration through borrowings under our RCA (as defined below in Note 15, “Debt and Available Credit Facilities”). The warrants were classified as equity and allow the holder to purchase
400,000
shares of our Class A Common Stock at an exercise price of $
90.00
, subject to adjustments. The term of the warrants is
three years
, expiring on November 1, 2021. The fair value of the warrants was determined using the Black-Scholes option pricing model. The final fair value of the cash consideration transferred, net of $
10.3
million of cash acquired was $
190.4
million.
The allocation of the consideration transferred to the assets acquired and the liabilities assumed is final.
Note 4
—
Revenue Recognition, Contracts with Customers
Disaggregation of Revenue
|
|
Three Months Ended
January 31,
|
Nine Months Ended
January 31,
|
||||||||||||||
|
2020
|
2019
|
2020
|
2019
|
|||||||||||||
|
Research Publishing & Platforms:
|
||||||||||||||||
|
Research Publishing
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Research Platforms
|
|
|
|
|
||||||||||||
|
Total Research Publishing & Platforms
|
|
|
|
|
||||||||||||
|
Academic & Professional Learning:
|
||||||||||||||||
|
Education Publishing
|
|
|
|
|
||||||||||||
|
Professional Learning
|
|
|
|
|
||||||||||||
|
Total Academic & Professional Learning
|
|
|
|
|
||||||||||||
|
Education Services:
|
||||||||||||||||
|
Education Services
|
|
|
|
|
||||||||||||
|
mthree
|
|
|
|
|
||||||||||||
|
Total Education Services
|
|
|
|
|
||||||||||||
|
Total Revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Accounts Receivable, net and Contract Liability Balances
When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue when, or as, control of the products or services are transferred to the customer and all revenue recognition criteria have been met.
|
|
January 31, 2020
|
April 30, 2019
|
Increase/
(Decrease)
|
|||||||||
|
Balances from contracts with customers:
|
||||||||||||
|
Accounts receivable, net
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||
|
Contract liabilities
(1)
|
|
|
(
|
)
|
||||||||
|
Contract liabilities (included in Other Long-Term Liabilities)
|
$
|
|
$
|
|
$
|
|
||||||
| (1) |
|
For the nine months ended January 31, 2020, we estimate that we recognized revenue of approximately
85
% that was included in the contract liability balance at April 30, 2019.
Remaining Performance Obligations included in Contract Liability
As of January 31, 2020, the aggregate amount of the transaction price allocated to the remaining performance obligations is approximately $
428.9
million, which included the sales return reserve of $
40.5
million. Excluding the sales return reserve, we expect that approximately $
372.6
million will be recognized in the next
twelve months
with the remaining $
15.8
million to be recognized thereafter.
Assets Recognized for the Costs to Fulfill a Contract
Costs to fulfill a contract are directly related to a contract that will be used to satisfy a performance obligation in the future and are expected to be recovered. These types of costs are incurred in the following revenue streams, (1)
Research Platforms and (2) Education Services.
Our assets associated with incremental costs to fulfill a contract were $
11.2
million at January 31, 2020 and are included within Other Non-Current Assets on our Unaudited Condensed Consolidated Statements of Financial Position. We recorded amortization expense of $
1.0
million and $
3.1
million during the three and nine months ended January 31, 2020, respectively, related to these assets within Cost of Sales on the Unaudited Condensed Consolidated Statements of Income. We recorded amortization expense of $
0.7
million and $
1.9
million during the three and nine months ended January 31, 2019, respectively, related to these assets within Cost of Sales on the Unaudited Condensed Consolidated Statements of Income.
Sales and value-added taxes are excluded from revenues. Shipping and handling costs, which are primarily incurred within the Academic & Professional Learning segment occur before the transfer of control of the related goods. Therefore, in accordance with the new revenue standard, it is not considered a promised service to the customer and would be considered a cost to fulfill our promise to transfer the goods. Costs incurred for third party shipping and handling are reflected in Operating and Administrative Expenses on the Unaudited Condensed Consolidated Statements of Income. We incurred $
7.7
million and $
22.7
million in shipping and handling costs in the three and nine months ended January 31, 2020, respectively. We incurred $
7.9
million and $
24.4
million in shipping and handling costs in the three and nine months ended January 31, 2019, respectively.
Note 5
—
Operating Leases
On May 1, 2019, we adopted a new accounting standard for leases. For further information, see Note 2, “Recent Accounting Standards.”
We have contractual obligations as a lessee with respect to offices, warehouses and distribution centers, automobiles, and office equipment.
We determine if an arrangement is a lease at inception of the contract in accordance with guidance detailed in the new standard and we perform the lease classification test as of the lease commencement date. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.
The present value of the lease payments is calculated using an incremental borrowing rate, which was determined based on the rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. We use an unsecured borrowing rate and risk-adjust that rate to approximate a collateralized rate.
Under the new leasing standard, leases that are more than one year in duration are capitalized and recorded on the Unaudited Condensed Consolidated Statements of Financial Position. Some of our leases offer an option to extend the term of such leases. We utilize the reasonably certain threshold criteria in determining which options we will exercise. Furthermore, some of our lease payments are based on index rates with minimum annual increases. These represent fixed payments and are captured in the future minimum lease payments calculation.
For operating leases, the ROU assets and liabilities are presented in our
Unaudited
Condensed Consolidated Statement of Financial Position as follows:
|
|
January 31, 2020
|
|||
|
Operating lease right-of-use Assets
|
$
|
|
||
|
Short-term portion of operating lease liabilities
|
|
|||
|
Operating lease liabilities, non-current
|
$
|
|
||
During the nine months ended January 31, 2020, we added $
13.3
million to the ROU assets and $
14.9
million to the operating lease liabilities due to new leases as well as modifications and remeasurements to our existing operating leases.
Our total net lease costs are as follows:
|
|
Three Months Ended
January 31, 2020
|
Nine Months Ended
January 31, 2020
|
||||||
|
Operating lease cost
|
$
|
|
$
|
|
||||
|
Variable lease cost
|
|
|
||||||
|
Sublease income
|
(
|
)
|
(
|
)
|
||||
|
Total net lease cost
|
$
|
|
$
|
|
||||
Other supplemental information includes the following:
|
|
Weighted-Average
Remaining
Contractual
Lease Term (Years)
|
Nine Months Ended
January 31, 2020
|
||||||
|
Operating leases
|
|
|||||||
|
Weighted-average discount rate:
|
||||||||
|
Operating leases
|
|
%
|
||||||
|
Cash paid for amounts included in the measurement of lease liabilities:
|
||||||||
|
Operating cash flows from operating leases
|
$
|
|
||||||
The table below reconciles the undiscounted cash flows for the first five years and total of the remaining years to the operating lease liabilities recorded in the Unaudited Condensed Consolidated Statement of Financial Position as of January 31, 2020:
|
Fiscal Year
|
Operating Lease
Liabilities
|
|||
|
2020 (remaining 3 months)
|
$
|
|
||
|
2021
|
|
|||
|
2022
|
|
|||
|
2023
|
|
|||
|
2024
|
|
|||
|
Thereafter
|
|
|||
|
Total undiscounted lease payments
|
|
|||
|
Less: Imputed interest
|
|
|||
|
Present Value of Minimum Lease Payments
|
|
|||
|
Less: Current portion
|
|
|||
|
Noncurrent portion
|
$
|
|
||
Note 6
—
Stock-Based Compensation
We have stock-based compensation plans under which employees may be granted performance-based stock awards and other restricted stock awards. Prior to fiscal year 2017, we also granted options to purchase shares of our common stock at the fair market value at the time of grant. We recognize the grant date fair value of stock-based compensation in net income on a straight-line basis, net of estimated forfeitures 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, 2020 and 2019, we recognized stock-based compensation expense, on a pre-tax basis, of $
5.4
million and $
6.1
million, respectively. For the nine months ended January 31, 2020 and 2019, we recognized stock-based compensation expense, on a pre-tax basis, of $
15.7
million and $
15.0
million, respectively.
|
|
Nine Months Ended
January 31,
|
|||||||
|
2020
|
2019
|
|||||||
|
Restricted Stock:
|
||||||||
|
Awards granted
|
|
|
||||||
|
Weighted average fair value of grant
|
$
|
|
$
|
|
||||
Note 7
—
Accumulated Other Comprehensive Loss
|
|
Foreign
Currency
Translation
|
Unamortized
Retirement
Costs
|
Interest
Rate Swaps
|
Total
|
||||||||||||
|
Balance at October 31, 2019
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
Other comprehensive income (loss) before reclassifications
|
|
(
|
)
|
(
|
)
|
|
||||||||||
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
(
|
)
|
|
|||||||||||
|
Total other comprehensive income (loss)
|
|
(
|
)
|
(
|
)
|
|
||||||||||
|
Balance at January 31, 2020
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
Balance at April 30, 2019
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
Other comprehensive income (loss) before reclassifications
|
|
(
|
)
|
(
|
)
|
|
||||||||||
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
(
|
)
|
|
|||||||||||
|
Total other comprehensive income (loss)
|
|
|
(
|
)
|
|
|||||||||||
|
Balance at January 31, 2020
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
|
Foreign
Currency
Translation
|
Unamortized
Retirement
Costs
|
Interest
Rate Swaps
|
Total
|
||||||||||||
|
Balance at October 31, 2018
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
|||||
|
Other comprehensive income (loss) before reclassifications
|
|
(
|
)
|
|
|
|||||||||||
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
(
|
)
|
(
|
)
|
||||||||||
|
Total other comprehensive income (loss)
|
|
(
|
)
|
(
|
)
|
|
||||||||||
|
Balance at January 31, 2019
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
|||||
|
Balance at April 30, 2018
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
|||||
|
Other comprehensive (loss) income before reclassifications
|
(
|
)
|
|
|
(
|
)
|
||||||||||
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
(
|
)
|
(
|
)
|
||||||||||
|
Total other comprehensive (loss) income
|
(
|
)
|
|
(
|
)
|
(
|
)
|
|||||||||
|
Balance at January 31, 2019
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
|||||
During the three months ended January 31, 2020 and 2019, pre-tax actuarial losses included in Unamortized Retirement Costs of approximately $
1.6
million and $
1.4
million, respectively, and
in the
nine months ended
January 31, 2020 and 2019
, approximately $
4.6
million and $
4.1
million, respectively,
were amortized from Accumulated Other Comprehensive Loss and recognized as pension expense in Operating and Administrative Expenses and Interest and Other Income in the Unaudited Condensed Consolidated Statements of Income.
Note 8
—
Reconciliation of Weighted Average Shares Outstanding
|
|
Three Months Ended
January 31,
|
Nine Months Ended
January 31,
|
||||||||||||||
|
2020
|
2019
|
2020
|
2019
|
|||||||||||||
|
Weighted average shares outstanding
|
|
|
|
|
||||||||||||
|
Less: Unvested restricted shares
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Shares used for basic earnings per share
|
|
|
|
|
||||||||||||
|
Dilutive effect of unvested restricted stock units and other stock awards
|
|
|
|
|
||||||||||||
|
Shares used for diluted earnings per share
|
|
|
|
|
||||||||||||
Since their inclusion in the calculation of diluted earnings per share would have been anti-dilutive, options to purchase
209,394
shares of Class A Common Stock have been excluded for both the three and nine months ended January 31, 2020, respectively and
154,385
shares of Class A Common Stock have been excluded for the three and nine months ended January 31, 2019, respectively.
Warrants to purchase
518,750
shares of Class A Common Stock have not been included for both the three and nine months ended January 31, 2020, respectively. Warrants to purchase
470,000
and
158,148
shares of Class A Common Stock have not been included for the three and nine months ended January 31, 2019, respectively.
Note 9
—
Restructuring and Related Charges
Business Optimization Program
Beginning in fiscal year 2020, we initiated a multi-year Business Optimization Program (the “Business Optimization Program”) to drive efficiency improvement and operating savings.
The following tables summarize the pre-tax restructuring charges related to this program:
|
|
Three Months Ended
January 31,
|
Nine Months Ended
January 31,
|
||||||
|
2020
|
2020
|
|||||||
|
Charges by Segment:
|
||||||||
|
Research Publishing & Platforms
|
$
|
|
$
|
|
||||
|
Academic & Professional Learning
|
|
|
||||||
|
Education Services
|
|
|
||||||
|
Corporate Expenses
|
|
|
||||||
|
Total Restructuring and Related Charges
|
$
|
|
$
|
|
||||
|
Charges by Activity:
|
||||||||
|
Severance and termination benefits
|
$
|
|
$
|
|
||||
|
Operating lease right-of-use asset impairment
|
|
|
||||||
|
Facility related charges
|
|
|
||||||
|
Other activities
|
|
|
||||||
|
Total Restructuring and Related Charges
|
$
|
|
$
|
|
||||
Other Activities for the nine months ended January 31, 2020 relate to reserves associated with the cessation of certain offerings and the impairment of certain software licenses.
The following table summarizes the activity for the Business Optimization Program liability for the nine months ended January 31, 2020:
|
|
April 30, 2019
|
Charges
|
Payments
|
Foreign
Translation
& Other Adjustments
|
January 31, 2020
|
|||||||||||||||
|
Severance and termination benefits
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||
|
Other activities
|
|
|
(
|
)
|
(
|
)
|
|
|||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||
The restructuring liability as of January 31, 2020 for accrued severance and termination benefits is reflected in Accrued Employment Costs in the Unaudited Condensed Consolidated Statement of Financial Position. The restructuring liability as of January 31, 2020 for other activities is reflected in Other Accrued Liabilities in the Unaudited Condensed Consolidated Statement of Financial Position.
Restructuring and Reinvestment Program
Beginning in the year ended April 30, 2013, we initiated a global program (the “Restructuring and Reinvestment Program”) to restructure and realign our cost base with current and anticipated future market conditions. We are targeting a majority of the expected cost savings achieved to improve margins and earnings, while the remainder will be reinvested in high-growth digital business opportunities.
The following tables summarize the pre-tax restructuring (credits) charges related to this program:
|
|
Three Months Ended
January 31,
|
Nine Months Ended
January 31,
|
Total Charges
|
|||||||||||||||||
|
2020
|
2019
(1)
|
2020
|
2019
(1)
|
Incurred to Date
|
||||||||||||||||
|
(Credits) Charges by Segment:
|
||||||||||||||||||||
|
Research Publishing & Platforms
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
||||||||
|
Academic & Professional Learning
|
(
|
)
|
(
|
)
|
|
|
|
|||||||||||||
|
Education Services
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Corporate Expenses
|
(
|
)
|
(
|
)
|
(
|
)
|
|
|
||||||||||||
|
Total Restructuring and Related (Credits) Charges
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
||||||||
|
(Credits) Charges by Activity:
|
||||||||||||||||||||
|
Severance and termination benefits
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
||||||||
|
Consulting and contract termination costs
|
(
|
)
|
|
(
|
)
|
|
|
|||||||||||||
|
Other activities
|
|
|
|
|
|
|||||||||||||||
|
Total Restructuring and Related (Credits) Charges
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
||||||||
| (1) |
|
Other activities for the nine months ended January 31, 2020 include facility related costs. Other activities for the three and nine months ended January 31, 2019 include lease impairment related costs.
The following table summarizes the activity for the Restructuring and Reinvestment Program liability for the nine months ended January 31, 2020:
|
|
April 30, 2019
|
Charges (Credits)
|
Payments
|
Adoption of
New Lease
Standard
(1)
|
Foreign
Translation &
Other Adjustments
|
January 31, 2020
|
||||||||||||||||||
|
Severance and termination benefits
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
|||||||||||
|
Consulting and contract termination costs
|
|
(
|
)
|
(
|
)
|
|
|
|
||||||||||||||||
|
Other activities
|
|
|
|
(
|
)
|
(
|
)
|
|
||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||
| (1) |
|
The restructuring liability as of January 31, 2020 for accrued severance and termination benefits is reflected in Accrued Employment Costs in the Unaudited Condensed Consolidated Statement of Financial Position.
As of January 31, 2020, $
0.3
million of other activities are reflected in Other Long-Term Liabilities and mainly relate to facility relocation and lease impairment related costs.
We currently do not anticipate any further material charges related to the Restructuring and Reinvestment Program.
Note 10
—
Segment Information
As previously announced, we have changed our segment reporting structure to align with our strategic focus areas: (1) Research Publishing & Platforms, which includes the Research publishing and Atypon businesses, (2) Academic & Professional Learning, which is the former “Publishing” segment combined with our corporate training businesses – previously noted as Professional Assessment and Corporate Learning; and (3) Education Services, which includes our Online Program Management and related businesses. Prior period segment results have been revised to the new segment presentation. There were no changes to our consolidated financial results.
We report our segment information in accordance with the provisions of FASB ASC Topic 280. These segments reflect the way our chief operating decision maker evaluates our business performance and manages the operations.
Segment information is as follows:
|
|
Three Months Ended
January 31,
|
Nine Months Ended
January 31,
|
||||||||||||||
|
2020
|
2019
|
2020
|
2019
|
|||||||||||||
|
Revenue
:
|
||||||||||||||||
|
Research Publishing & Platforms
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Academic & Professional Learning
|
|
|
|
|
||||||||||||
|
Education Services
|
|
|
|
|
||||||||||||
|
Total Revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Contribution to Profit:
|
||||||||||||||||
|
Research Publishing & Platforms
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Academic & Professional Learning
|
|
|
|
|
||||||||||||
|
Education Services
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Total Contribution to Profit
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Corporate Expenses
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Operating Income
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Adjusted Contribution to Profit:
(1)
|
||||||||||||||||
|
Research Publishing & Platforms
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Academic & Professional Learning
|
|
|
|
|
||||||||||||
|
Education Services
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Total Adjusted Contribution to Profit
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Adjusted Corporate Expenses
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Total Adjusted Operating Income
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Depreciation and Amortization:
|
||||||||||||||||
|
Research Publishing & Platforms
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Academic & Professional Learning
|
|
|
|
|
||||||||||||
|
Education Services
|
|
|
|
|
||||||||||||
|
Total Depreciation and Amortization
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Corporate Depreciation and Amortization
|
|
|
|
|
||||||||||||
|
Total Depreciation and Amortization
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Adjusted EBITDA:
(2)
|
||||||||||||||||
|
Research Publishing & Platforms
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Academic & Professional Learning
|
|
|
|
|
||||||||||||
|
Education Services
|
|
(
|
)
|
|
(
|
)
|
||||||||||
|
Total Segment Adjusted EBITDA
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Corporate Adjusted EBITDA
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Total Adjusted EBITDA
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
| (1) |
|
| (2) |
|
The following table shows a reconciliation of our consolidated U.S. GAAP net income to Non-GAAP EBITDA and Adjusted EBITDA:
|
|
Three Months Ended
January 31,
|
Nine Months Ended
January 31,
|
||||||||||||||
|
2020
|
2019
|
2020
|
2019
|
|||||||||||||
|
Net Income
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Interest expense
|
|
|
|
|
||||||||||||
|
Provision for income taxes
|
|
|
|
|
||||||||||||
|
Depreciation and amortization
|
|
|
|
|
||||||||||||
|
Non-GAAP EBITDA
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Restructuring and related charges (credits)
|
|
(
|
)
|
|
|
|||||||||||
|
Foreign exchange transaction losses
|
|
|
|
|
||||||||||||
|
Interest and other income
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Non-GAAP Adjusted EBITDA
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Note 11
—
Inventories
|
|
January 31, 2020
|
April 30, 2019
|
||||||
|
Finished Goods
|
$
|
|
$
|
|
||||
|
Work-in-Process
|
|
|
||||||
|
Paper and Other Materials
|
|
|
||||||
|
Total Inventories Before Estimated Sales Returns and LIFO Reserve
|
$
|
|
$
|
|
||||
|
Inventory Value of Estimated Sales Returns
|
|
|
||||||
|
LIFO Reserve
|
(
|
)
|
(
|
)
|
||||
|
Total Inventories
|
$
|
|
$
|
|
||||
Note 12
—
Goodwill and Intangible Assets
Goodwill
The following table summarizes the activity in goodwill by segment as of January 31, 2020:
|
|
April 30, 2019
|
Acquisitions
(1)
|
Foreign
Translation
Adjustment
|
January 31, 2020
|
||||||||||||
|
Research Publishing & Platforms
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Academic & Professional Learning
|
|
|
(
|
)
|
|
|||||||||||
|
Education Services
|
|
|
(
|
)
|
|
|||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
| (1) |
|
As previously announced, we have changed our segment reporting structure to align with our strategic focus areas. See Note 10, “Segment Information,” for more details. Due to this reorganization, we have reallocated goodwill to our reporting units using a relative fair value approach. We tested goodwill for impairment immediately before and after the reorganization, and we concluded that the fair values of the reporting units were above their carrying values and, therefore, there was no indication of impairment.
Intangible Assets
Identifiable intangible assets, net consisted of the following:
|
|
January 31, 2020
|
April 30, 2019
|
||||||
|
Intangible Assets with Determinable Lives, net:
|
||||||||
|
Content and Publishing Rights
(1)
|
$
|
|
$
|
|
||||
|
Customer Relationships
(1)
|
|
|
||||||
|
Brands and Trademarks
(1)
|
|
|
||||||
|
Covenants not to Compete
|
|
|
||||||
|
Developed Technology
(1)
|
|
|
||||||
|
Total
|
|
|
||||||
|
Intangible Assets with Indefinite Lives:
|
||||||||
|
Brands and Trademarks
|
|
|
||||||
|
Content and Publishing Rights
|
|
|
||||||
|
Total
|
|
|
||||||
|
Total Intangible Assets, Net
|
$
|
|
$
|
|
||||
| (1) |
|
Note 13
—
Income Taxes
The effective tax rate for the three months ended January 31, 2020 was
20.7
%, compared with
22.7
% for the three months ended January 31, 2019.
The effective tax rate for the
nine months ended
January 31, 2020
was
20.3
%
compared with
22.6
%
for the
nine months ended
January 31, 2019
. The rates for the
three and nine months
ended
January 31, 2020
were lower than the rates for the
three and nine months
ended
January 31, 2019
due to certain discrete items, primarily the release of certain reserves in connection with the expiration of the statute of limitations, as well as, to a lesser extent a more favorable earnings mix. The decrease in the rate for the nine months ended January 31, 2020 compared to the prior year was also due to a tax-free life insurance recovery.
Note 14
—
Retirement Plans
The components of net pension expense (income) for our global defined benefit plans were as follows:
|
|
Three Months Ended
January 31,
|
Nine Months Ended
January 31,
|
||||||||||||||
|
2020
|
2019
|
2020
|
2019
|
|||||||||||||
|
Service cost
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Interest cost
|
|
|
|
|
||||||||||||
|
Expected return on plan assets
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Net amortization of prior service cost
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Unrecognized net actuarial loss
|
|
|
|
|
||||||||||||
|
Net pension income
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
Employer defined benefit pension plan contributions were $
3.8
million and $
15.8
million for the three months ended January 31, 2020 and 2019, respectively,
and $
11.8
million and $
22.9
million for the
nine months ended
January 31, 2020 and 2019
, respectively.
Included in our defined benefit pension plan contributions for the three and nine months ended January 31, 2019 was a discretionary contribution of $
10.0
million to the U.S. Employees' Retirement Plan of John Wiley & Sons, Inc.
The expense for employer defined contribution plans was approximately $
3.2
million and $
2.6
million for the three months ended January 31, 2020 and 2019, respectively
, and $
10.6
million and $
9.9
million for the
nine months ended
January 31, 2020 and 2019
, respectively
.
Note 15
—
Debt and Available Credit Facilities
Amended and Restated RCA
On May 30, 2019, we entered into a credit agreement that amended and restated our existing revolving credit agreement (“Amended and Restated RCA”). The Amended and Restated RCA provides for senior unsecured credit facilities comprised of a (i)
five-year
revolving credit facility in an aggregate principal amount up to $
1.25
billion, and (ii) a
five-year
term loan A facility consisting of $
250
million.
Under the terms of the Amended and Restated RCA, which can be drawn in multiple currencies, we have 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
0.98
% to
1.50
%, depending on our consolidated net leverage ratio, as defined, or (ii) at the lender’s base rate plus an applicable margin ranging from
zero
to
0.50
%, depending on our consolidated net 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, we pay a facility fee for the revolving credit facility ranging from
0.15
% to
0.25
% depending on our consolidated net leverage ratio. We also have the option to request an increase in the revolving credit facility by an amount not to exceed $
500
million, in minimum increments of $
50
million, subject to the approval of the lenders.
The
Amended and Restated RCA
contains certain customary affirmative and negative covenants, including a financial covenant in the form of a consolidated net leverage ratio and consolidated interest coverage ratio, which we were in compliance with as of January 31, 2020.
In the three months ended July 31, 2019, we incurred an immaterial loss on the write-off of unamortized deferred costs in connection with the refinancing of our RCA (as defined below) which is reflected in Interest and Other Income on the Unaudited Condensed Consolidated Statements of Income for the nine months ended January 31, 2020.
In the three months ended July 31, 2019, we incurred $
4.0
million of costs related to the Amended and Restated RCA which resulted in total costs capitalized of $
5.2
million. The amount related to the term loan A facility was $
0.9
million, consisting of $
0.8
million of lender fees and recorded as a reduction to Long-Term Debt and $
0.1
million of non-lender fees included in Other Non-Current Assets. The amount related to the five-year revolving credit facility was $
4.3
million, all of which is included in Other Non-Current Assets.
The amortization expense of the lender and non-lender fees is recognized over the
five-year
term of the Amended and Restated RCA. Total amortization expense in the three and nine months ended January 31, 2020 was $
0.3
million and $
0.8
million respectively, and is included in Interest Expense on our Unaudited Condensed Consolidated Statement of Income.
Our total debt outstanding as of January 31, 2020 was $
797.4
million, which included $
7.8
million of current portion of long-term debt related to our term loan A under the Amended and Restated RCA and long-term debt of $
789.6
million. The long-term debt consisted of $
238.3
million related to our term loan A under the Amended and Restated RCA (amount is net of unamortized issuance costs of $
0.7
million) and $
551.3
million related to the revolving credit facility under the Amended and Restated RCA.
RCA
As of April 30, 2019, total debt outstanding was $
478.8
million, which consisted of amounts due under our RCA.
We had a revolving credit agreement (“RCA”) with a syndicated bank group led by Bank of America. The RCA consisted of a $
1.1
billion
five-year
senior revolving credit facility payable
March 1, 2021
. Since there were no principal payments due until the end of the agreement in the year ended April 30, 2021, we had classified our entire debt obligation as long-term as of April 30, 2019.
Note 16
—
Derivative Instruments and Hedging Activities
From time-to-time, we enter 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 on our Unaudited Condensed Consolidated Statements of Financial Position. Derivatives that are not determined to be effective hedges are adjusted to fair value with a corresponding adjustment to earnings. We do not use financial instruments for trading or speculative purposes.
Interest Rate Contracts
As of January 31, 2020, we had total debt outstanding of $
797.4
million, net of unamortized issuance costs of $
0.7
million of which $
798.1
million are variable rate loans outstanding under the Amended and Restated RCA, which approximated fair value.
On
August 7, 2019
we entered into a forward starting interest rate swap agreement, which fixed a portion of the variable interest due on our Amended and Restated RCA. Under the terms of the agreement, we pay a fixed rate of
1.400
% and receive a variable rate of interest based on
one-month
LIBOR from the counterparty which is reset every month for a
three-year
period ending
August 15, 2022
. As of January 31, 2020, the notional amount of the interest rate swap was $
100.0
million.
On
June 24, 2019
we entered into a forward starting interest rate swap agreement, which fixed a portion of the variable interest due on our Amended and Restated RCA. Under the terms of the agreement, we pay a fixed rate of
1.650
% and receive a variable rate of interest based on
one-month
LIBOR from the counterparty which is reset every month for a
three-year
period ending
July 15, 2022
. As of January 31, 2020, the notional amount of the interest rate swap was $
100.0
million.
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
April 4, 2016
, we entered into a forward starting interest rate swap agreement which fixed a portion of the variable interest due on a variable rate debt renewal on May 16, 2016. Under the terms of the agreement, which expired on
May 15, 2019
, we paid a fixed rate of
0.92
% and receive a variable rate of interest based on
one-month
LIBOR from the counterparty which was reset every month for a
three-year
period ending
May 15, 2019
. Prior to expiration, the notional amount of the interest rate swap was $
350.0
million.
As of January 31, 2020 and April 30, 2019, the interest rate swap agreements maintained by us were designated as cash flow hedges as defined under ASC 815 “Derivatives and Hedging.” As a result, there was no impact on our Unaudited Condensed Consolidated Statements of Income for changes in the fair value of the interest rate swaps as they were fully offset by changes in the interest expense on the underlying variable rate debt instruments.
We record the fair value of our 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, 2020 and April 30, 2019 was a deferred loss of $
1.2
million and a deferred gain of $
0.5
million, respectively. Based on the maturity dates of the contracts, the entire deferred loss as of January 31, 2020 was recorded within Other Long-Term Liabilities and the entire deferred gain as of April 30, 2019 was recorded within Prepaid Expenses and Other Current Assets.
The pre-tax gains that were reclassified from Accumulated Other Comprehensive Loss into Interest Expense for the three months ended January 31, 2020 and 2019 were $
0.1
million and $
1.3
million, respectively.
The pre-tax gains that were reclassified from Accumulated Other Compensation Loss into Interest Expense
in the Unaudited Condensed Consolidated Statements of Income
for the
nine
months ended
January 31, 2020 and 2019
were $
0.6
million and $
3.4
million, respectively.
Foreign Currency Contracts
We may enter into forward exchange contracts to manage our exposure on certain foreign currency denominated assets and liabilities. The forward exchange contracts are marked to market through Foreign Exchange Transaction Losses in the Unaudited Condensed Consolidated Statements of Income and carried at their fair value in the Unaudited 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 in the Unaudited Condensed Consolidated Statements of Income.
As of January 31, 2020, and April 30, 2019, we did not maintain any open forward exchange contracts. In addition, we did not maintain any open forward contracts during the three and nine months ended January 31, 2020 and 2019.
Note 17
—
Capital Stock and Changes in Capital Accounts
Share Repurchases
The following table summarizes the shares repurchased of Class A Common Stock.
|
|
Three Months Ended
January 31,
|
Nine Months Ended
January 31,
|
||||||||||||||
|
2020
|
2019
|
2020
|
2019
|
|||||||||||||
|
Shares Repurchased
|
|
|
|
|
||||||||||||
|
Average Price
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Dividends
The following table summarizes the cash dividends paid during the nine months ended January 31, 2020:
|
Date of Declaration by
Board of Directors
|
Quarterly Cash Dividend
|
Total Dividend
|
Class of Common
Stock
|
Dividend Paid Date
|
Shareholders of
Record as of Date
|
|||||
|
|
$
|
$
|
Class A and
Class B
|
|
|
|||||
|
|
$
|
$
|
Class A and
Class B
|
|
|
|||||
|
|
$
|
$
|
Class A and
Class B
|
|
|
Changes in Common Stock
The following is a summary of changes during the nine months ended January 31, in shares of our common stock and common stock in treasury (shares in thousands):
|
Changes in Common Stock A:
|
2020
|
2019
|
||||||
|
Number of shares, beginning of year
|
|
|
||||||
|
Common stock class conversions
|
|
|
||||||
|
Number of shares issued, end of period
|
|
|
||||||
|
Changes in Common Stock A in treasury:
|
||||||||
|
Number of shares held, beginning of year
|
|
|
||||||
|
Purchase of treasury shares
|
|
|
||||||
|
Restricted shares issued under stock-based compensation plans - non-PSU Awards
|
(
|
)
|
(
|
)
|
||||
|
Restricted shares issued under stock-based compensation plans - PSU Awards
|
(
|
)
|
(
|
)
|
||||
|
Restricted shares, forfeited
|
|
|
||||||
|
Restricted shares issued from exercise of stock options
|
(
|
)
|
(
|
)
|
||||
|
Shares withheld for taxes
|
|
|
||||||
|
Other
|
|
|
||||||
|
Number of shares held, end of period
|
|
|
||||||
|
Number of Common Stock A outstanding, end of period
|
|
|
||||||
|
Changes in Common Stock B:
|
2020
|
2019
|
||||||
|
Number of shares, beginning of year
|
|
|
||||||
|
Common stock class conversions
|
(
|
)
|
(
|
)
|
||||
|
Number of shares issued, end of period
|
|
|
||||||
|
Changes in Common Stock B in treasury:
|
||||||||
|
Number of shares held, beginning of year
|
|
|
||||||
|
Number of shares held, end of period
|
|
|
||||||
|
Number of Common Stock B outstanding, end of period
|
|
|
||||||
Note 18
—
Commitments and Contingencies
We are involved in routine litigation in the ordinary course of our business. A provision for litigation is accrued when information available to us indicates that it is probable a liability has been incurred and the amount of loss can be reasonably estimated. Significant judgment may be required to determine both the probability and estimates of loss. When the amount of the loss can only be estimated within a range, the most likely outcome within that range is accrued. If no amount within the range is a better estimate than any other amount, the minimum amount within the range is accrued. When uncertainties exist related to the probable outcome of litigation and/or the amount or range of loss, we do not record a liability, but disclose facts related to the nature of the contingency and possible losses if management considers the information to be material. Reserves for legal defense costs are recognized when incurred. The accruals for loss contingencies and legal costs are reviewed regularly and may be adjusted to reflect updated information on the status of litigation and advice of legal counsel. In the opinion of management, the ultimate resolution of all pending litigation as of January 31, 2020, will not have a material effect upon our Unaudited Condensed Consolidated Statements of Financial Position or Unaudited Condensed Consolidated Statements of Income.
The information in our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read together with our Condensed Consolidated Financial Statements and related notes set forth in Item 1 of Part I of this Quarterly Report on Form 10-Q, our MD&A set forth in Item 7 of Part II of our 2019 Form 10-K and our Consolidated Financial Statements and related notes set forth in Item 8 of Part II of our 2019 Form 10-K. See Part II, Item 1A, “Risk Factors,” below and “Cautionary Notice Regarding Forward-Looking Statements “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995,” above, and the information referenced therein, for a description of risks that we face and important factors that we believe could cause actual results to differ materially from those in our forward-looking statements. All amounts and percentages are approximate due to rounding and all dollars are in thousands, except per share amounts or where otherwise noted. When we cross-reference to a “Note,” we are referring to our “Notes to Unaudited Condensed Consolidated Financial Statements,” unless the context indicates otherwise.
RESULTS OF OPERATIONS – THREE MONTHS ENDED JANUARY 31, 2020
CONSOLIDATED OPERATING RESULTS
Recent Events:
| ● |
On January 1, 2020, we completed the acquisition of mthree
from ECI Partners LLP. mthree is a rapidly growing education services provider that addresses the IT skills gap by finding, training and placing job-ready technology talent in roles with leading corporations worldwide. The results of mthree are included in the Education Services segment.
|
| ● |
The current coronavirus (COVID-19) outbreak did not impact our results for the three months ended January 31, 2020. However, it may interfere with the ability of our employees, contractors, customers and other business partners to perform our and their respective responsibilities and obligations relative to the conduct of our business in the future. The extent of this impact on our business remains uncertain. See “Item 1a. Risk Factors,” for further information.
|
Revenue:
Revenue for the three months ended January 31, 2020 increased $17.8 million, or 4%, as compared with the prior year on a reported and on a constant currency basis. This increase was mainly driven by the following factors:
| ● |
an increase of $9.0 million in the Education Services business of which $4.5 million reflected the contribution from mthree,
|
| ● |
an increase of $6.3 million in the Research Publishing & Platforms business, and,
|
| ● |
an increase of $2.8 million in the Academic & Professional Learning business.
|
Excluding the impact of acquisitions, revenue on a constant currency basis increased 2%.
See the “Segment Operating Results” below for additional details on each segment’s revenue and Adjusted EBITDA performance.
Cost of Sales:
Cost of sales for the three months ended January 31, 2020 increased $10.0 million, or 7%, as compared with the prior year on a reported and on a constant currency basis. This increase was primarily due to employment related costs in the Education Services business, and to a lesser extent, an increase in royalty costs, partially offset by lower marketing costs.
Operating and Administrative Expenses:
Operating and administrative expenses for the three months ended January 31, 2020 increased $5.0 million, or 2%, as compared with the prior year on a reported and on a constant currency basis. The increase was primarily due to investments in growth and optimization initiatives, including technology, administrative related costs, and additional resources in editorial support. Also contributing to the increase in these expenses was higher consulting fees related to acquisitions. These factors were partially offset by a decrease in other administrative support costs related to employee benefits partially due to timing, and lower occupancy related costs as a result of our restructuring actions.
Restructuring and Related Charges:
Business Optimization Program
Beginning in fiscal year 2020, we initiated a multi-year Business Optimization Program to drive efficiency improvement and operating savings with improved workflows and cycle times and enhanced researcher experiences. We anticipate approximately $15 million to $20 million of restructuring charges, of which approximately $10 million to $15 million to be severance-related costs and the remainder to be other related costs. We anticipate gross savings over the three-year period to be approximately $100 million, with most of that amount to be reinvested in the Company to drive and sustain profitable revenue growth.
For the three months ended January 31, 2020, we recorded pre-tax restructuring charges of $3.8 million related to this program. These charges are reflected in Restructuring and Related Charges (Credits) in the Unaudited Condensed Consolidated Statements of Income. See Note 9, “Restructuring and Related Charges” for more details on these charges.
Restructuring and Reinvestment Program
Beginning in fiscal year 2013, we initiated the Restructuring and Reinvestment Program to restructure and realign our cost base with current and anticipated future market conditions. We are targeting most of the cost savings achieved to improve margins and earnings, with the remainder reinvested in growth opportunities.
For the three months ended January 31, 2020 and 2019, we recorded pre-tax restructuring credits of $0.5 million and $0.3 million, respectively, related to this program. These credits are reflected in Restructuring and Related Charges (Credits) in the Unaudited Condensed Consolidated Statements of Income. See Note 9, “Restructuring and Related Charges” for more details on these charges.
For the impact of both of our restructuring programs on diluted earnings per share, see the section below, “Diluted Earnings per Share (“EPS”).”
Amortization of Intangibles:
Amortization of intangibles was $15.7 million for the three months ended January 31, 2020, an increase of $1.0 million, or 6%, as compared with the prior year on a reported and on a constant currency basis. The increase in amortization was primarily due to the intangibles acquired as part of the acquisitions completed in fiscal year 2020. See Note 3, “Acquisitions” for more details on these transactions.
Operating Income:
Operating income was $48.5 million for the three months ended January 31, 2020, a decrease of $1.9 million, or 4%, as compared with the prior year. This decrease was primarily due to higher amortization of intangibles. On a constant currency basis and excluding restructuring charges (credits), Adjusted EBITDA increased 7% primarily due to higher revenue, partially offset by higher cost of sales and operating and administrative expenses as discussed above.
Interest Expense:
Interest expense for the three months ended January 31, 2020 was $6.3 million compared with the prior year of $5.3 million. This increase was due to higher average debt balances outstanding, which included borrowings for the funding of acquisitions and a higher weighted average effective borrowing rate.
Foreign Exchange Transaction Losses:
Foreign exchange transaction losses were $1.7 million for the three months ended January 31, 2020 and were primarily due to the net impact of the change in average foreign exchange rates as compared to the U.S. dollar on our third-party and intercompany accounts receivable and payable balances. For the three months ended January 31, 2019, foreign exchange transaction losses were $2.5 million and were primarily due to the net impact of the change in average foreign exchange rates as compared to the U.S. dollar on our third-party accounts receivable and payable balances.
Provision for Income Taxes:
The effective tax rate for the three months ended January 31, 2020 was 20.7%, compared with 22.7% for the prior year. The rate for the three months ended January 31, 2020 was lower than the rate for the prior year
due to certain discrete items, primarily the release of certain reserves in connection with the expiration of the statute of limitations, as well as, to a lesser extent, a more favorable earnings mix.
Diluted Earnings per Share (“EPS”):
EPS for the three months ended January 31, 2020 was $0.63 per share compared with $0.61 per share for the three months ended January 31, 2019.
|
|
Three Months Ended January 31,
|
|||||||
|
2020
|
2019
|
|||||||
|
U.S. GAAP EPS
|
$
|
0.63
|
$
|
0.61
|
||||
|
Adjustments:
|
||||||||
|
Restructuring and related charges
|
0.04
|
—
|
||||||
|
Foreign exchange losses on intercompany transactions
|
0.01
|
—
|
||||||
|
Non-GAAP Adjusted EPS
|
$
|
0.68
|
$
|
0.61
|
||||
Excluding the impact of the items included in the table above, Adjusted EPS for the three months ended January 31, 2020 increased 11% to $0.68 per share compared with $0.61 per share for the three months ended January 31, 2019. On a constant currency basis, Adjusted EPS increased 10% primarily due to the increase in Adjusted EBITDA.
SEGMENT OPERATING RESULTS
|
|
Three Months Ended
January 31,
|
Constant Currency
|
||||||||||||||
|
RESEARCH PUBLISHING & PLATFORMS:
|
2020
|
2019
|
% Change Favorable (Unfavorable)
|
% Change Favorable (Unfavorable)
|
||||||||||||
|
Revenue:
|
||||||||||||||||
|
Research Publishing
|
$
|
223,393
|
$
|
217,973
|
2
|
%
|
2
|
%
|
||||||||
|
Research Platforms
|
10,163
|
9,064
|
12
|
%
|
12
|
%
|
||||||||||
|
Total Research Publishing & Platforms Revenue
|
233,556
|
227,037
|
3
|
%
|
3
|
%
|
||||||||||
|
Cost of Sales
|
62,515
|
62,973
|
1
|
%
|
1
|
%
|
||||||||||
|
Operating Expenses
|
99,911
|
96,311
|
(4
|
)%
|
(4
|
)%
|
||||||||||
|
Amortization of Intangibles
|
7,229
|
6,941
|
(4
|
)%
|
(4
|
)%
|
||||||||||
|
Restructuring Charges (Credits) (see Note 9)
|
40
|
(51
|
)
|
#
|
#
|
|||||||||||
|
Contribution to Profit
|
63,861
|
60,863
|
5
|
%
|
5
|
%
|
||||||||||
|
Restructuring Charges (Credits) (see Note 9)
|
40
|
(51
|
)
|
|||||||||||||
|
Adjusted Contribution to Profit
|
63,901
|
60,812
|
5
|
%
|
5
|
%
|
||||||||||
|
Depreciation and amortization
|
17,056
|
14,651
|
||||||||||||||
|
Adjusted EBITDA
|
$
|
80,957
|
$
|
75,463
|
7
|
%
|
8
|
%
|
||||||||
|
Adjusted EBITDA Margin
|
34.7
|
%
|
33.2
|
%
|
||||||||||||
# Not meaningful
Revenue:
Research Publishing & Platforms revenue for the three months ended January 31, 2020 increased $6.5 million, or 3% as compared with the prior year on a reported and on a constant currency basis. This increase was primarily due to continued growth in Open Access article volume in Research Publishing.
Adjusted EBITDA:
On a constant currency basis, Adjusted EBITDA increased 8% as compared with the prior year. This increase was due to higher revenues and inventory cost savings. These factors were partially offset by higher operating costs, reflecting investments in additional resources in editorial to support increased article publishing and an increase in advertising and marketing costs to support higher revenue.
Society Partnerships:
For the three months ended January 31, 2020:
| ● |
1 new society contract was signed with annual revenue of approximately $0.1 million,
|
| ● |
47 society contracts were renewed with a combined annual revenue of approximately $18.2 million,
|
| ● |
6 society contracts were not renewed with a combined annual revenue of approximately $0.4 million.
|
|
|
Three Months Ended
January 31,
|
Constant Currency
|
||||||||||||||
|
ACADEMIC & PROFESSIONAL LEARNING:
|
2020
|
2019
|
% Change Favorable (Unfavorable)
|
% Change Favorable (Unfavorable)
|
||||||||||||
|
Revenue:
|
||||||||||||||||
|
Education Publishing
|
$
|
100,982
|
$
|
95,562
|
6
|
%
|
6
|
%
|
||||||||
|
Professional Learning
|
77,296
|
80,561
|
(4
|
)%
|
(4
|
)%
|
||||||||||
|
Total Academic & Professional Learning
|
178,278
|
176,123
|
1
|
%
|
2
|
%
|
||||||||||
|
Cost of Sales
|
51,352
|
47,586
|
(8
|
)%
|
(8
|
)%
|
||||||||||
|
Operating Expenses
|
92,240
|
87,078
|
(6
|
)%
|
(6
|
)%
|
||||||||||
|
Amortization of Intangibles
|
4,352
|
4,125
|
(6
|
)%
|
(6
|
)%
|
||||||||||
|
Restructuring Charges (Credits) (see Note 9)
|
1,541
|
(202
|
)
|
#
|
#
|
|||||||||||
|
Contribution to Profit
|
28,793
|
37,536
|
(23
|
)%
|
(23
|
)%
|
||||||||||
|
Restructuring Charges (Credits) (see Note 9)
|
1,541
|
(202
|
)
|
|||||||||||||
|
Adjusted Contribution to Profit
|
30,334
|
37,334
|
(19
|
)%
|
(18
|
)%
|
||||||||||
|
Depreciation and amortization
|
17,806
|
16,026
|
||||||||||||||
|
Adjusted EBITDA
|
$
|
48,140
|
$
|
53,360
|
(10
|
)%
|
(9
|
)%
|
||||||||
|
Adjusted EBITDA Margin
|
27.0
|
%
|
30.3
|
%
|
||||||||||||
# Not meaningful
Revenue:
Academic & Professional Learning revenue increased 1% to $178.3 million on a reported basis and increased 2% on a constant currency basis as compared with the prior year. Excluding revenue from our zyBooks and Knewton acquisitions, organic revenue declined 2% on a constant currency basis. This decrease was mainly driven by continued decline in book publishing revenue reflecting market conditions, partially offset by modest organic growth in Higher Education publishing products.
Given the continued market-driven decline in book publishing, we expect Academic & Professional Learning revenue, inclusive of acquisitions to decline at a low single-digit rate.
Adjusted EBITDA:
On a constant currency basis, Adjusted EBITDA decreased 9% as compared with the prior year. This decrease was primarily due higher operating and administrative related costs, including costs associated with the acquisition of zyBooks and Knewton and increased investment in growth initiatives.
|
|
Three Months Ended
January 31,
|
Constant Currency
|
||||||||||||||
|
EDUCATION SERVICES:
|
2020
|
2019
|
% Change Favorable (Unfavorable)
|
% Change Favorable (Unfavorable)
|
||||||||||||
|
Revenue:
|
||||||||||||||||
|
Education Services
|
$
|
50,776
|
$
|
46,207
|
10
|
%
|
10
|
%
|
||||||||
|
mthree
|
4,521
|
—
|
100
|
%
|
100
|
%
|
||||||||||
|
Total Education Services Revenue
|
55,297
|
46,207
|
20
|
%
|
19
|
%
|
||||||||||
|
Cost of Sales
|
40,057
|
33,321
|
(20
|
)%
|
(20
|
)%
|
||||||||||
|
Operating Expenses
|
16,250
|
16,495
|
1
|
%
|
2
|
%
|
||||||||||
|
Amortization of Intangibles
|
4,152
|
3,708
|
(12
|
)%
|
(12
|
)%
|
||||||||||
|
Restructuring Charges (see Note 9)
|
4
|
272
|
99
|
%
|
99
|
%
|
||||||||||
|
Contribution to Profit
|
(5,166
|
)
|
(7,589
|
)
|
32
|
%
|
32
|
%
|
||||||||
|
Restructuring Charges (see Note 9)
|
4
|
272
|
||||||||||||||
|
Adjusted Contribution to Profit
|
(5,162
|
)
|
(7,317
|
)
|
29
|
%
|
30
|
%
|
||||||||
|
Depreciation and amortization
|
5,987
|
5,725
|
||||||||||||||
|
Adjusted EBITDA
|
$
|
825
|
$
|
(1,592
|
)
|
#
|
#
|
|||||||||
|
Adjusted EBITDA Margins
|
1.5
|
%
|
(3.4
|
)%
|
||||||||||||
# Not meaningful
Revenue:
Education Services revenue increased 20% to $55.3 million, on a reported basis and increased 19% on a constant currency basis as compared with the prior year. The increase was mainly driven by
an increase in online program management revenue of $5.0 million, mostly due to an increase in fee for service revenue supporting new and legacy partners, and
the impact of
the acquisition of mthree which contributed $4.5 million.
Adjusted EBITDA:
On a constant currency basis, Adjusted EBITDA was favorable by $2.4 million as compared with the prior year. This was due to higher revenue, partially offset by higher costs of sales, including
higher employment related costs, partially offset by lower marketing costs. Adjusted EBITDA margin was 1.5% as compared with negative 3.4% in the prior year. For the full year 2020, excluding the impact of mthree, we anticipate Adjusted EBITDA margin to be in the mid- to high single digit range.
Education Services Partners:
As of
January 31, 2020
, Wiley had 66 university partners under contract. As of
January 31, 2019
, Wiley had 36 university partners under contract, which excludes the impact of the acquisition of Learning House.
CORPORATE EXPENSES:
Corporate expenses for the
three months ended
January 31, 2020
decreased 4% to $39.0 million as compared with the prior year. On a constant currency basis and excluding restructuring charges (credits), these expenses decreased 9%. This decrease was primarily due to cost savings, lower employee benefit costs due to timing, partially offset by
an increase in costs associated with strategic planning and business optimization efforts.
RESULTS OF OPERATIONS – NINE MONTHS ENDED JANUARY 31, 2020
CONSOLIDATED OPERATING RESULTS
Revenue:
Revenue for the nine months ended January 31, 2020 increased $48.0 million, or 4%, as compared with the prior year. On a constant currency basis, revenue increased 5% mainly driven by the following factors:
| ● |
an increase of $53.2 million in the Education Services business, including contributions from Learning House, which was acquired in November 2018, and mthree, which was acquired in January 2020, and
|
| ● |
an increase of $23.4 million in the Research Publishing & Platforms business.
|
These increases were partially offset by a decline of $16.0 million in the Academic & Professional Learning business.
Excluding the impact of acquisitions, revenues on a constant currency basis were consistent with the prior year.
See the “Segment Operating Results” below for additional details on each segment’s revenue and Adjusted EBITDA performance
.
Cost of Sales:
Cost of sales for the nine months ended January 31, 2020 increased $36.2 million, or 9%, as compared with the prior year. On a constant currency basis, cost of sales increased 10%. This increase was primarily due to higher employment related costs in the Education Services business, and to a lesser extent, an increase in marketing and royalty costs, partially offset by lower inventory costs.
Operating and Administrative Expenses:
Operating and administrative expenses for the nine months ended January 31, 2020 increased $18.9 million, or 3%, as compared with the prior year. On a constant currency basis, operating and administrative expenses increased 4%. The increase was primarily due to higher technology costs, investments in additional resources in editorial and content support, as well as higher advertising, marketing, sales and other administrative costs. These factors were partially offset by a life insurance recovery of $2 million.
Restructuring and Related Charges:
Business Optimization Program
For the nine months ended January 31, 2020, we recorded pre-tax restructuring charges of $17.8 million, related to this program. These charges are reflected in Restructuring and Related Charges (Credits) in the Unaudited Condensed Consolidated Statements of Income. See Note 9, “Restructuring and Related Charges” for more details on these charges.
Restructuring and Reinvestment Program
For the nine months ended January 31, 2020 and 2019, we recorded pre-tax restructuring charges of $0.2 million and $3.6 million, respectively, related to this program. These charges are reflected in Restructuring and Related Charges (Credits) in the Unaudited Condensed Consolidated Statements of Income. See Note 9, “Restructuring and Related Charges” for more details on these charges.
For the impact of both of our restructuring programs on diluted earnings per share, see the section below, “Diluted Earnings per Share (“EPS”).”
Amortization of Intangibles:
Amortization of intangibles was $45.7 million for the nine months ended January 31, 2020, an increase of $5.9 million, or 15%, as compared with the prior year. On a constant currency basis, amortization of intangibles increased 16% as compared with the prior year. The increase in amortization was due to the intangibles acquired as part of the acquisition of Learning House in fiscal year 2019 and, to a lesser extent, intangibles acquired as part of the acquisitions completed in fiscal year 2020. See Note 3, “Acquisitions” for more details on these transactions.
Operating Income:
Operating income was $116.4 million for the nine months ended January 31, 2020, a decrease of $27.5 million, or 19%, as compared with the prior year. The decrease was primarily due to increased amortization of intangibles and lower EBITDA. On a constant currency basis and excluding restructuring charges, Adjusted EBITDA decreased 1% primarily due to higher costs of sales and operating and administrative expenses, partially offset by higher revenue.
Interest Expense:
Interest expense for the nine months ended January 31, 2020 was $19.2 million compared with the prior year of $11.8 million. This increase was due to higher average debt balances outstanding, which included borrowings for the funding of acquisitions and a higher weighted average effective borrowing rate.
Foreign Exchange Transaction Losses:
Foreign exchange transaction losses were $1.8 million for the nine months ended January 31, 2020 and were primarily due to the net impact of the change in average foreign exchange rates as compared to the U.S. dollar on our intercompany accounts receivable and payable balances. For the nine months ended January 31, 2019, foreign exchange transaction losses were $4.3 million primarily due to the net impact of the change in average foreign exchange rates as compared to the U.S. dollar on our intercompany accounts receivable and payable balances.
Provision for Income Taxes:
The effective tax rate for the nine months ended January 31, 2020 was 20.3%, compared with 22.6% for the prior year. The rate for the nine months ended January 31, 2020 was lower than the rate for the prior year due to certain discrete items,
including the release of certain reserves in connection with the expiration of the statute of limitations and a tax-free life insurance recovery,
as well as a more favorable earnings mix.
Diluted Earnings per Share (“EPS”):
EPS for the nine months ended January 31, 2020 was $1.48 per share compared with $1.81 per share for the nine months ended January 31, 2019.
|
|
Nine Months Ended January 31,
|
|||||||
|
2020
|
2019
|
|||||||
|
U.S. GAAP EPS
|
$
|
1.48
|
$
|
1.81
|
||||
|
Adjustments:
|
||||||||
|
Restructuring and related charges
|
0.24
|
0.05
|
||||||
|
Foreign exchange losses on intercompany transactions
|
0.02
|
0.06
|
||||||
|
Non-GAAP Adjusted EPS
|
$
|
1.74
|
$
|
1.92
|
||||
Excluding the impact of the items included in the table above, Adjusted EPS for the nine months ended January 31, 2020 decreased 9% to $1.74 per share compared with $1.92 per share for the nine months ended January 31, 2019. On a constant currency basis, Adjusted EPS decreased 9% due to lower Adjusted EBITDA and higher interest expense.
SEGMENT OPERATING RESULTS
|
|
Nine Months Ended
January 31,
|
Constant Currency
|
||||||||||||||
|
RESEARCH PUBLISHING & PLATFORMS:
|
2020
|
2019
|
% Change Favorable
(Unfavorable)
|
% Change Favorable
(Unfavorable)
|
||||||||||||
|
Revenue:
|
||||||||||||||||
|
Research Publishing
|
$
|
668,405
|
$
|
654,397
|
2
|
%
|
3
|
%
|
||||||||
|
Research Platforms
|
29,235
|
27,032
|
8
|
%
|
8
|
%
|
||||||||||
|
Total Research Publishing & Platforms Revenue
|
697,640
|
681,429
|
2
|
%
|
3
|
%
|
||||||||||
|
Cost of Sales
|
190,721
|
187,568
|
(2
|
)%
|
(3
|
)%
|
||||||||||
|
Operating Expenses
|
299,001
|
294,218
|
(2
|
)%
|
(3
|
)%
|
||||||||||
|
Amortization of Intangibles
|
21,734
|
21,002
|
(3
|
)%
|
(5
|
)%
|
||||||||||
|
Restructuring Charges (see Note 9)
|
3,386
|
1,251
|
#
|
#
|
||||||||||||
|
Contribution to Profit
|
182,798
|
177,390
|
3
|
%
|
3
|
%
|
||||||||||
|
Restructuring Charges (see Note 9)
|
3,386
|
1,251
|
||||||||||||||
|
Adjusted Contribution to Profit
|
186,184
|
178,641
|
4
|
%
|
4
|
%
|
||||||||||
|
Depreciation and amortization
|
51,246
|
45,438
|
||||||||||||||
|
Adjusted EBITDA
|
$
|
237,430
|
$
|
224,079
|
6
|
%
|
6
|
%
|
||||||||
|
Adjusted EBITDA Margin
|
34.0
|
%
|
32.9
|
%
|
||||||||||||
# Not meaningful
Revenue:
Research Publishing & Platforms revenue for the nine months ended January 31, 2020 increased 2% to $697.6 million on a reported basis and increased 3% on a constant currency basis as compared with the prior year. The increase was primarily due to continued growth in Open Access article volume in Research Publishing.
Adjusted EBITDA:
On a constant currency basis, Adjusted EBITDA increased 6% as compared with the prior year. This increase was due to higher revenues, partially offset by an increase in royalty costs, and higher operating costs, which reflected investments in additional resources in editorial to support increased article publishing.
Society Partnerships:
For the nine months ended January 31, 2020:
| ● |
10 new society contracts were signed with a combined annual revenue of approximately $9.4 million,
|
| ● |
73 society contracts were renewed with a combined annual revenue of approximately $34.6 million,
|
| ● |
13 society contracts were not renewed with a combined annual revenue of approximately $1.8 million.
|
|
|
Nine Months Ended
January 31,
|
Constant Currency
|
||||||||||||||
|
ACADEMIC & PROFESSIONAL LEARNING:
|
2020
|
2019
|
% Change Favorable
(Unfavorable)
|
% Change Favorable
(Unfavorable)
|
||||||||||||
|
Revenue:
|
||||||||||||||||
|
Education Publishing
|
$
|
268,246
|
$
|
277,070
|
(3
|
)%
|
(2
|
)%
|
||||||||
|
Professional Learning
|
232,615
|
245,147
|
(5
|
)%
|
(4
|
)%
|
||||||||||
|
Total Academic & Professional Learning
|
500,861
|
522,217
|
(4
|
)%
|
(3
|
)%
|
||||||||||
|
Cost of Sales
|
139,027
|
142,297
|
2
|
%
|
1
|
%
|
||||||||||
|
Operating Expenses
|
275,514
|
259,582
|
(6
|
)%
|
(7
|
)%
|
||||||||||
|
Amortization of Intangibles
|
12,420
|
12,682
|
2
|
%
|
1
|
%
|
||||||||||
|
Restructuring Charges (see Note 9)
|
5,146
|
1,275
|
#
|
#
|
||||||||||||
|
Contribution to Profit
|
68,754
|
106,381
|
(35
|
)%
|
(35
|
)%
|
||||||||||
|
Restructuring Charges (see Note 9)
|
5,146
|
1,275
|
||||||||||||||
|
Adjusted Contribution to Profit
|
73,900
|
107,656
|
(31
|
)%
|
(31
|
)%
|
||||||||||
|
Depreciation and amortization
|
51,679
|
51,076
|
||||||||||||||
|
Adjusted EBITDA
|
$
|
125,579
|
$
|
158,732
|
(21
|
)%
|
(20
|
)%
|
||||||||
|
Adjusted EBITDA Margin
|
25.1
|
%
|
30.4
|
%
|
||||||||||||
# Not meaningful
Revenue:
Academic & Professional Learning revenue decreased 4% to $500.9 million on a reported basis and decreased 3% on a constant currency basis as compared with the prior year. Excluding revenue from acquisitions, organic revenue declined 6% on a constant currency basis. This decrease was primarily due to the continued decline in book publishing reflecting market conditions.
Adjusted EBITDA:
On a constant currency basis, Adjusted EBITDA decreased 20% as compared with the prior year. This decrease was primarily due to the decline in revenue; and to a lesser extent, increased investment in growth initiatives including costs associated with the acquisition of zyBooks and Knewton.
|
|
Nine Months Ended
January 31,
|
Constant Currency
|
||||||||||||||
|
EDUCATION SERVICES:
|
2020
|
2019
|
% Change Favorable
(Unfavorable)
|
% Change Favorable
(Unfavorable)
|
||||||||||||
|
Revenue:
|
||||||||||||||||
|
Education Services
|
$
|
153,844
|
$
|
105,244
|
46
|
%
|
46
|
%
|
||||||||
|
mthree
|
4,521
|
—
|
100
|
%
|
100
|
%
|
||||||||||
|
Total Education Services Revenue
|
158,365
|
105,244
|
50
|
%
|
51
|
%
|
||||||||||
|
Cost of Sales
|
110,685
|
74,331
|
(49
|
)%
|
(49
|
)%
|
||||||||||
|
Operating Expenses
|
44,276
|
37,876
|
(17
|
)%
|
(17
|
)%
|
||||||||||
|
Amortization of Intangibles
|
11,568
|
6,138
|
(88
|
)%
|
(88
|
)%
|
||||||||||
|
Restructuring Charges (see Note 9)
|
1,618
|
374
|
#
|
#
|
||||||||||||
|
Contribution to Profit
|
(9,782
|
)
|
(13,475
|
)
|
27
|
%
|
28
|
%
|
||||||||
|
Restructuring Charges (see Note 9)
|
1,618
|
374
|
||||||||||||||
|
Adjusted Contribution to Profit
|
(8,164
|
)
|
(13,101
|
)
|
38
|
%
|
38
|
%
|
||||||||
|
Depreciation and amortization
|
17,007
|
12,237
|
||||||||||||||
|
Adjusted EBITDA
|
$
|
8,843
|
$
|
(864
|
)
|
#
|
#
|
|||||||||
|
Adjusted EBITDA Margin
|
5.6
|
%
|
(0.8
|
)%
|
||||||||||||
# Not meaningful
Revenue:
Education Services revenue increased 50% to $158.4 million, on a reported basis and 51% on a constant currency basis as compared with the prior year. The increase was mainly driven by an increase in online program management revenue of $40.0 million, which includes the impact of
the acquisition of Learning House, and to a lesser extent, a contribution of $4.5 million from the acquisition of mthree.
Adjusted EBITDA:
On a constant currency basis, Adjusted EBITDA increased by $9.7 million as compared with the prior year. This was due to higher revenue partially offset by higher costs of sales primarily
due to higher employment related costs, and to a lesser extent, higher marketing costs.
CORPORATE EXPENSES:
Corporate expenses for the
nine months ended
January 31, 2020
decreased 1% to $125.3 million as compared with the prior year. On a constant currency basis and excluding restructuring charges, these expenses decreased 6%. This was primarily due to a decrease in employment and technology related costs and a
life insurance recovery of $2.0 million. These factors were partially offset by an increase in costs associated with strategic planning and business optimization efforts.
FISCAL YEAR 2020 OUTLOOK:
We are raising our Adjusted EPS outlook and reaffirming for Revenue, Adjusted EBITDA, and Free Cash Flow.
Amounts in millions, except Adjusted EPS
|
Item
|
Fiscal Year 2019 Actual
|
Fiscal Year 2020 Outlook
|
FX Impact
|
mthree Impact
(1)
|
Q3 Update
(2)
(Includes FX and mthree)
|
||||||||||||
|
Revenue
|
$
|
1,800
|
$
|
1,855-1,885
|
$
|
(17
|
)
|
$
|
20
|
Reaffirmed
|
|||||||
|
Adjusted EBITDA
|
$
|
388
|
$
|
357-372
|
$
|
(5
|
)
|
$
|
(2
|
)
|
Reaffirmed
|
||||||
|
Adjusted EPS
|
$
|
2.96
|
$
|
2.35-2.45
|
$
|
(0.06
|
)
|
$
|
(0.07
|
)
|
Raised, $2.45- $2.55
|
||||||
|
Free Cash Flow
|
$
|
149
|
$
|
210-230
|
$
|
(5
|
)
|
$
|
(2
|
)
|
Reaffirmed
|
||||||
|
(1)
|
In fiscal year 2021, we expect mthree to achieve double-digit revenue growth and to be modestly positive for Adjusted EBITDA, but dilutive to Adjusted EPS.
|
|
(2)
|
Updated outlook reflects actual currency impact to date, current foreign exchange rates sustained through the fourth quarter of fiscal year 2020 (Euro at $1.09 and Pound Sterling at $1.30) and the impact of acquisitions closed through the nine months ended January 31, 2020.
|
Adjusted EBITDA
:
Below is a reconciliation of our consolidated U.S. GAAP net income to Non-GAAP EBITDA and Adjusted EBITDA:
|
|
Three Months Ended
January 31,
|
Nine Months Ended
January 31,
|
||||||||||||||
|
2020
|
2019
|
2020
|
2019
|
|||||||||||||
|
Net Income
|
$
|
35,443
|
$
|
34,942
|
$
|
83,757
|
$
|
105,021
|
||||||||
|
Interest expense
|
6,309
|
5,346
|
19,173
|
11,750
|
||||||||||||
|
Provision for income taxes
|
9,229
|
10,275
|
21,355
|
30,599
|
||||||||||||
|
Depreciation and amortization
|
43,681
|
39,833
|
128,538
|
119,656
|
||||||||||||
|
Non-GAAP EBITDA
|
$
|
94,662
|
$
|
90,396
|
$
|
252,823
|
$
|
267,026
|
||||||||
|
Restructuring and related charges (credits)
|
3,298
|
(348
|
)
|
18,034
|
3,562
|
|||||||||||
|
Foreign exchange transaction losses
|
1,745
|
2,525
|
1,761
|
4,308
|
||||||||||||
|
Interest and other income
|
(4,232
|
)
|
(2,742
|
)
|
(9,602
|
)
|
(7,717
|
)
|
||||||||
|
Non-GAAP Adjusted EBITDA
|
$
|
95,473
|
$
|
89,831
|
$
|
263,016
|
$
|
267,179
|
||||||||
LIQUIDITY AND CAPITAL RESOURCES
Principal Sources of Liquidity
We believe that our operating cash flow, together with our revolving credit facilities and other available debt financing, will be adequate to meet our operating, investing and financing needs in the foreseeable future, although there can be no assurance that continued or increased volatility in the global capital and credit markets will not impair our ability to access these markets on terms commercially acceptable. We do not have any off-balance-sheet debt.
As of January 31, 2020, we had cash and cash equivalents of $117.4 million, of which approximately $94.4 million, or 80%, was located outside the U.S. Maintenance of these cash and cash equivalent balances outside the U.S. does not have a material impact on the liquidity or capital resources of our operations. Notwithstanding the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), which generally eliminated federal income tax on future cash repatriation to the U.S., cash repatriation may be subject to state and local taxes or withholding or similar taxes. Since April 30, 2018, we no longer intend to permanently reinvest earnings outside the U.S. We have a $2.0 million liability related to the estimated taxes that would be incurred upon repatriating certain non-U.S. earnings.
On May 30, 2019, we entered into a credit agreement that amended and restated our existing revolving credit agreement (“Amended and Restated RCA”). The Amended and Restated RCA provides for senior unsecured credit facilities comprised of a (i) five-year revolving credit facility in an aggregate principal amount up to $1.25 billion, and (ii) a five-year term loan A facility consisting of $250 million.
As of January 31, 2020, we had approximately $797.4 million of debt outstanding, net of unamortized issuance costs of $0.7 million, and approximately $701.4 million of unused borrowing capacity under our Amended and Restated RCA and other facilities. Our Amended and Restated RCA contains certain restrictive covenants related to our consolidated leverage ratio and interest coverage ratio, which we were in compliance with as of January 31, 2020.
Analysis of Historical Cash Flow
The following table shows the changes in our Unaudited Condensed Consolidated Statement of Cash Flows for the nine months ended January 31, 2020 and 2019.
|
|
Nine Months Ended January 31,
|
|||||||
|
2020
|
2019
|
|||||||
|
Net Cash Provided By Operating Activities
|
$
|
88,887
|
$
|
52,144
|
||||
|
Net Cash Used In Investing Activities
|
(285,884
|
)
|
(263,628
|
)
|
||||
|
Net Cash Provided by Financing Activities
|
220,882
|
180,976
|
||||||
|
Effect of Foreign Currency Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
|
530
|
(6,359
|
)
|
|||||
Free Cash Flow less Product Development Spending helps assess our ability, over the long term, to create value for our shareholders, as it represents cash available to repay debt, pay common dividends, and fund share repurchases and new acquisitions. Below are the details of Free Cash Flow less Product Development Spending for the nine months ended January 31, 2020 and 2019.
Cash flow from operations is seasonally a use of cash in the first half of Wiley’s fiscal year principally due to the timing of collections for annual journal subscriptions, which occurs in the beginning of the second half of our fiscal year.
Free Cash Flow less Product Development Spending:
|
|
Nine Months Ended January 31,
|
|||||||
|
2020
|
2019
|
|||||||
|
Net Cash Provided By Operating Activities
|
$
|
88,887
|
$
|
52,144
|
||||
|
Less: Additions to Technology, Property and Equipment
|
(65,924
|
)
|
(49,988
|
)
|
||||
|
Less: Product Development Spending
|
(17,770
|
)
|
(18,787
|
)
|
||||
|
Free Cash Flow less Product Development Spending
|
$
|
5,193
|
$
|
(16,631
|
)
|
|||
Net Cash Used In Operating Activities
The following is a summary of the $36.8 million change in Net Cash Provided By Operating Activities for the nine months ended January 31, 2020 as compared with the nine months ended January 31, 2019 (amounts in millions).
|
Net Cash Provided By Operating Activities – Nine Months Ended January 31, 2019
|
$
|
52.1
|
||
|
Working Capital Changes:
|
||||
|
Accounts receivable, net and contract liabilities - due to the timing of collections, including collections from the delayed calendar year 2019 journal subscription billing into fiscal year 2020
|
66.5
|
|||
|
Accrued income taxes primarily due to the timing of certain international tax payments
|
(19.5
|
)
|
||
|
Lower contributions to the employment retirement plans due to a prior year $10.0 million discretionary contribution to the U.S. Employees' Retirement Plan of John Wiley & Sons, Inc.
|
10.9
|
|||
|
Other working capital items, including the timing of payments of accounts payable
|
(15.1
|
)
|
||
|
Lower net income adjusted for items to reconcile net income to net cash provided by operating activities
|
(6.0
|
)
|
||
|
Net Cash Provided By Operating Activities – Nine Months Ended January 31, 2020
|
$
|
88.9
|
Our negative working capital was $281.4 million and $379.8 million as of January 31, 2020 and April 30, 2019, respectively, due to the seasonality of our businesses. The primary driver of the negative working capital is unearned contract liabilities related to subscriptions for which cash has been collected in advance. Cash received in advance for subscriptions is used by us for a number of purposes including funding: acquisitions, debt repayments, operations and dividend payments and purchasing treasury shares.
The $98.4 million change in negative working capital was primarily due to the net decrease in accounts receivable and contract liabilities primarily representing deferred revenue on calendar year 2019 subscriptions primarily in the nine months ended January 31, 2020, and the timing of certain working capital items including the payment of certain payables. These factors were partially offset by, an increase in current liabilities of $19.0 million due to the recognition of the short-term portion of operating lease liabilities due to the adoption of ASU 2016-02, "Leases (Topic 842),” on May 1, 2019. See Note 2, “Recent Accounting Standards”, for further details.
The revenue from contract liabilities will be recognized when the products are shipped or made available online to the customers over the term of the subscription. Current liabilities as of January 31, 2020 and as of April 30, 2019 includes $413.1 million and $519.1 million, respectively, primarily related to deferred subscription revenue for which cash was collected in advance.
N
et Cash Used In Investing Activities
Net Cash Used in Investing Activities for the nine months ended January 31, 2020 was $285.9 million compared to $263.6 million in the prior year. The increase was due to additions for technology, property and equipment of $15.9 million for investments in products and platforms, and to a lesser extent, $10.2 million of additional net cash used in the nine months ended January 31, 2020 to acquire businesses including mthree, zyBooks, Knewton and other acquisitions.
Net Cash Provided By Financing Activities
Net Cash Provided by Financing Activities was $220.9 million for the nine months ended January 31, 2020 compared to $181.0 million for the nine months ended January 31, 2019. This increase in cash provided by financing activities was due to an increase in net borrowings of $46.1 million for the nine months ended January 31, 2020 compared to the nine months ended January 31, 2019, which was primarily due to the acquisitions described above, and to a lesser extent, an increase in book overdrafts of $6.4 million. This was partially offset by $7.9 million of lower cash proceeds from the exercise of stock options and other activities, and $4.0 million of cash used for costs incurred related to our Amended and Restated RCA in the nine months ended January 31, 2020.
During the nine months ended January 31, 2020, we repurchased 757,217 shares of Class A Common stock at an average price of $46.22 compared to 633,831 shares of Class A Common stock at an average price of $55.21 in the prior year.
In the nine months ended January 31, 2020, we increased our quarterly dividend to shareholders by 3% to $1.36 per share annualized versus $1.32 per share annualized in the prior year.
Market Risk
We are exposed to market risk primarily related to interest rates, foreign exchange, and credit risk. It is our policy to monitor these exposures and to use derivative financial investments and/or insurance contracts from time to time to reduce fluctuations in earnings and cash flows when it is deemed appropriate to do so. We do not use derivative financial instruments for trading or speculative purposes.
Interest Rates
From time to time, we may use interest rate swaps, collars, or options to manage our exposure to fluctuations in interest rates. 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.
The information set forth in Note 16, "Derivatives Instruments and Hedging Activities," of the Notes to Unaudited Condensed Consolidated Financial Statements under the caption "Interest Rate Contracts," is incorporated herein by reference.
On an annual basis, a hypothetical one percent change in interest rates for the $598.2 million of unhedged variable rate debt as of January 31, 2020 would affect net income and cash flow by approximately $4.5 million.
Foreign Exchange Rates
Fluctuations in the currencies of countries where we operate outside the U.S. may have a significant impact on financial results. We are primarily exposed to movements in British pound sterling, euros, Canadian and Australian dollars, and certain currencies in Asia. The Statements of Financial Position of non-U.S. business units are translated into U.S. dollars using period-end exchange rates for assets and liabilities and the Statements of Income are translated into U.S. dollars using weighted-average exchange rates for revenues and expenses.
Our significant investments in non-U.S. businesses are exposed to foreign currency risk. Adjustments resulting from translating assets and liabilities are reported as a separate component of Accumulated Other Comprehensive Loss within Shareholders’ Equity under the caption Foreign Currency Translation Adjustment. During the three and nine months ended January 31, 2020, we recorded foreign currency translation gains in Other Comprehensive Income of approximately $7.9 million and $10.7 million respectively, primarily as a result of the fluctuations of the U.S. dollar relative to the British pound sterling. During the three and nine months ended January 31, 2019, we recorded foreign currency translation gains (losses) in Other Comprehensive Income of approximately $17.5 million and $(43.2) million, respectively, primarily as a result of the fluctuations of the U.S. dollar relative to the British pound sterling and, to a lesser extent, the euro.
Exchange rate gains or losses related to foreign currency transactions are recognized as transaction gains or losses in the Unaudited Condensed Consolidated Statements of Income as incurred. Under certain circumstances, we may enter into derivative financial instruments in the form of foreign currency forward contracts to hedge against specific transactions, including intercompany purchases and loans.
The information set forth in Note 16, "Derivatives Instruments and Hedging Activities," of the Notes to Unaudited Condensed Consolidated Financial Statements under the caption "Foreign Currency Contracts," is incorporated herein by reference.
Sales Return Reserves
The estimated allowance for print book sales returns is based upon historical return patterns, as well as current market trends in the businesses in which we operate. In connection with the estimated sales return reserves, we also include a related increase to inventory and a reduction to accrued royalties as a result of the expected returns.
The reserves are reflected in the following accounts of the Unaudited Condensed Consolidated Statements of Financial Position:
|
|
January 31, 2020
|
April 30, 2019
|
||||||
|
Increase in Inventories, net
|
$
|
9,929
|
$
|
3,739
|
||||
|
Decrease in Accrued royalties
|
$
|
(5,607
|
)
|
$
|
(3,653
|
)
|
||
|
Increase in Contract liabilities
|
$
|
40,477
|
$
|
25,934
|
||||
|
Print book sales return reserve net liability balance
|
$
|
(24,941
|
)
|
$
|
(18,542
|
)
|
||
A one percent change in the estimated sales return rate could affect net income by approximately $1.0 million. A change in the pattern or trends in returns could affect the estimated allowance.
Customer Credit Risk
In the journal publishing business, subscriptions are primarily sourced through journal subscription agents who, acting as agents for library customers, facilitate ordering by consolidating the subscription orders/billings of each subscriber with various publishers. Cash is generally collected in advance from subscribers by the subscription agents and is principally remitted to us between the months of December and April. Although currently we have minimal credit risk exposure to these agents, future calendar-year subscription receipts from these agents are highly dependent on their financial condition and liquidity. Subscription agents account for approximately 20% of total annual consolidated revenue and one affiliated group of subscription agents accounts for approximately 10% of total annual consolidated revenue.
Our book business is not dependent upon a single customer; however, the industry is concentrated in national, regional, and online bookstore chains. Although no one book customer accounts for more than 9% of total annual consolidated revenue and 16% of accounts receivable at January 31, 2020, the top 10 book customers account for approximately 15% of total annual consolidated revenue and approximately 29% of accounts receivable at January 31, 2020.
We maintain approximately $25 million of trade credit insurance, covering balances due from certain named customers, subject to certain limitations and annual renewal.
Disclosure of Certain Activities Relating to Iran
The European Union, Canada and United States have imposed sanctions on business relationships with Iran, including restrictions on financial transactions and prohibitions on direct and indirect trading with listed “designated persons.” In the three and nine months ended January 31, 2020, we recorded an immaterial amount of revenue and net earnings related to the sale of scientific and medical content to certain publicly funded universities, hospitals and institutions that meet the definition of the “Government of Iran” as defined under section 560.304 of title 31, Code of Federal Regulations. We assessed our business relationship and transactions with Iran and believe we are in compliance with the regulations governing the sanctions. We intend to continue in these or similar sales as long as they continue to be consistent with all applicable sanction-related regulations.
The Company's Chief Executive Officer and Chief Financial Officer, together with the Chief Accounting Officer and other members of the Company's management, have conducted an evaluation of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission's rules and forms and (ii) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting:
During the three months ended July 31, 2019, we closed on the acquisition of Zyante. We excluded Zyante from the scope of management’s report on internal control over financial reporting for the nine months ended January 31, 2020. We are in the process of integrating Zyante to our overall internal control over financial reporting and will include them in scope for the year ending April 30, 2020. This process may result in additions or changes to our internal control over financial reporting.
During the three months ended January 31, 2020, we closed on the acquisition of mthree. We excluded mthree from the scope of management’s report on internal control over financial reporting for the nine months ended January 31, 2020. We are in the process of integrating mthree to our overall internal control over financial reporting and will include them in scope for the year ending April 30, 2021. This process may result in additions or changes to our internal control over financial reporting.
We are in the process of implementing a new global ERP that will enhance our business and financial processes and standardize our information systems. As previously disclosed, we have completed the implementation of record-to-report, purchase-to-pay and several other business processes within all locations through fiscal year 2017. We completed the implementation of order-to-cash for certain businesses in May 2018 and may continue to roll out additional processes and functionality of the ERP in phases in the foreseeable future.
As with any new information system we implement, this application, along with the internal controls over financial reporting included in this process, will require testing for effectiveness. In connection with this ERP implementation, we are updating our internal controls over financial reporting, as necessary, to accommodate modifications to our business processes and accounting procedures. We do not believe that the ERP implementation will have an adverse effect on our internal control over financial reporting.
Except as described above, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the quarter ended January 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
There have been no significant developments related to legal proceedings during the three months ended January 31, 2020. For information regarding legal proceedings, see our Annual Report on Form 10-K for the fiscal year ended April 30, 2019 Note 18, “Commitment and Contingencies”.
Our business, results of operations and financial condition may be adversely affected by global public health epidemics, including the strain of coronavirus known as COVID-19.
Our business, consolidated results of operations and financial condition may be adversely affected if a global public health epidemic, including COVID-19, interferes with the ability of our employees, contractors, customers and other business partners to perform our and their respective responsibilities and obligations relative to the conduct of our business. A global public health epidemic, including COVID-19, poses the risk that we or our employees, contractors, customers and other business partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities, or restrictions on shipping products into certain jurisdictions where they are sold. The extent to which the COVID-19 outbreak will impact our business in the future remains uncertain.
See Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended April 30, 2019. Except as required by the federal securities law, we undertake no obligation to update or revise any risk factor, whether as a result of new information, future events or otherwise.
During the three months ended January 31, 2020, we made the following purchases of Class A Common Stock under our stock repurchase program:
|
|
Total Number
of Shares
Purchased
|
Average
Price Paid
Per Share
|
Total Number
of Shares Purchased
as part of a Publicly
Announced Program
|
Maximum Number
of Shares that May
be Purchased
Under the Program
|
||||||||||||
|
November 2019
|
—
|
$
|
—
|
—
|
1,337,128
|
|||||||||||
|
December 2019
|
165,000
|
48.81
|
165,000
|
1,172,128
|
||||||||||||
|
January 2020
|
40,370
|
48.22
|
40,370
|
1,131,758
|
||||||||||||
|
Total
|
205,370
|
$
|
48.69
|
205,370
|
1,131,758
|
|||||||||||
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
18 U.S.C. Section 1350 Certificate by the President and Chief Executive Officer.
|
|
|
18 U.S.C. Section 1350 Certificate by the Executive Vice President and Chief Financial Officer.
|
|
|
101.INS
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
|
|
101.SCH
|
Inline XBRL Taxonomy Extension Schema Document.
|
|
101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document.
|
|
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document.
|
|
101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
104
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
JOHN WILEY & SONS, INC.
|
||
|
Registrant
|
||
|
By
|
/s/ Brian A. Napack
|
|
|
Brian A. Napack
|
||
|
President and Chief Executive Officer
|
||
|
By
|
/s/ John A. Kritzmacher
|
|
|
John A. Kritzmacher
|
||
|
Executive Vice President and Chief Financial Officer
|
||
|
By
|
/s/ Christopher F. Caridi
|
|
|
Christopher F. Caridi
|
||
|
Senior Vice President, Corporate Controller and Chief Accounting Officer
|
||
|
Dated: March 6, 2020
|
45
TABLE OF CONTENTS
Part I - Financial InformationNote 1 Basis Of PresentationNote 2 Recent Accounting StandardsNote 3 AcquisitionsNote 4 Revenue Recognition, Contracts with CustomersNote 5 Operating LeasesNote 6 Stock-based CompensationNote 7 Accumulated Other Comprehensive LossNote 8 Reconciliation Of Weighted Average Shares OutstandingNote 9 Restructuring and Related ChargesNote 10 Segment InformationNote 11 InventoriesNote 12 Goodwill and Intangible AssetsNote 13 Income TaxesNote 14 Retirement PlansNote 15 Debt and Available Credit FacilitiesNote 16 Derivative Instruments and Hedging ActivitiesNote 17 Capital Stock and Changes in Capital AccountsNote 18 Commitments and ContingenciesItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem Fiscal Year 2019 Actual Fiscal Year 2020 Outlook Fx Impact Mthree Impact (1) Q3 Update (2)(includes Fx and Mthree)Item 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II - Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits