UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

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

For the quarterly period ended October 31, 2020

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

For the transition period from_____ to _____

Commission File No. 001-11507

JOHN WILEY & SONS, INC.
(Exact name of Registrant as specified in its charter)

New York
 
13-5593032
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
111 River Street, Hoboken, New Jersey
 
07030
(Address of principal executive offices)
 
Zip Code

 
(201) 748-6000
 
 
Registrant’s telephone number, including area code
 

 
Not Applicable
 
Former name, former address and former fiscal year, if changed since last report

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Class A Common Stock, par value $1.00 per share
 
JW.A
 
New York Stock Exchange
Class B Common Stock, par value $1.00 per share
 
JW.B
 
New York Stock Exchange

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.
Large accelerated filer 
Accelerated filer 
Non-accelerated filer 
Smaller reporting company 
 
Emerging growth company 

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 November 30, 2020 were:

Class A, par value $1.00 – 46,938,043
Class B, par value $1.00 – 9,072,148



JOHN WILEY & SONS, INC. AND SUBSIDIARIES
INDEX

PART I - FINANCIAL INFORMATION

Item 1.
 
Financial Statements
   
         
   
Condensed Consolidated Statements of Financial Position – Unaudited as of October 31, 2020 and as of April 30, 2020
 
5
         
   
Condensed Consolidated Statements of Income – Unaudited for the three and six months ended October 31, 2020 and 2019
 
6
         
   
Condensed Consolidated Statements of Comprehensive Income – Unaudited for the three and six months ended October 31, 2020 and 2019
 
7
         
   
Condensed Consolidated Statements of Cash Flows – Unaudited for the six months ended October 31, 2020 and 2019
 
8
         
   
Condensed Consolidated Statements of Shareholders' Equity – Unaudited for the three and six months ended October 31, 2020 and 2019
 
9
         
   
Notes to Unaudited Condensed Consolidated Financial Statements
   
   
Note 1.    Basis of Presentation
 
11
   
Note 2.    Recent Accounting Standards
 
11
   
Note 3.    Acquisitions
 
13
   
Note 4.    Revenue Recognition, Contracts with Customers
 
15
   
Note 5.    Operating Leases
 
16
   
Note 6.    Stock-Based Compensation
 
18
   
Note 7.    Accumulated Other Comprehensive Loss
 
19
   
Note 8.    Reconciliation of Weighted Average Shares Outstanding
 
20
   
Note 9.    Restructuring and Related Charges
 
20
   
Note 10.  Segment Information
 
23
   
Note 11.  Inventories
 
24
   
Note 12.  Goodwill and Intangible Assets
 
24
   
Note 13.  Income Taxes
 
25
   
Note 14.  Retirement Plans
 
25
   
Note 15.  Debt and Available Credit Facilities
 
26
   
Note 16.  Derivative Instruments and Hedging Activities
 
27
   
Note 17.  Capital Stock and Changes in Capital Accounts
 
27
   
Note 18.  Commitments and Contingencies
 
28
         
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
29
         
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
 
43
         
Item 4.
 
Controls and Procedures
 
44
         
PART II - OTHER INFORMATION
   
         
Item 1.
 
Legal Proceedings
 
45
         
Item 1a.
 
Risk Factors
 
45
         
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
45
         
Item 6.
 
Exhibits
 
45
         
SIGNATURES
 
46
2
Index



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 2021 outlook, the anticipated impact on 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 due to the current coronavirus (COVID-19) outbreak, 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 2021 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”);
Free Cash Flow less Product Development Spending;
Adjusted Revenue;
Adjusted Operating Income and margin;
Adjusted Contribution to Profit and margin;
EBITDA, Adjusted EBITDA and margin;
Organic revenue; and
Results on a constant currency basis.

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 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 items that we do not consider to be controllable activities for this purpose.
3
Index

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.
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.
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 excluding 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.

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 2021 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.

4
Index



ITEM 1. FINANCIAL STATEMENTS
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION – UNAUDITED
In thousands

 
October 31, 2020
   
April 30, 2020
 
             
Assets:
           
Current Assets
           
Cash and cash equivalents
 
$
86,063
   
$
202,464
 
Accounts receivable, net
   
273,264
     
309,384
 
Inventories, net
   
42,169
     
43,614
 
Prepaid expenses and other current assets
   
75,801
     
59,465
 
Total Current Assets
   
477,297
     
614,927
 
                 
Product Development Assets, net
   
48,944
     
53,643
 
Royalty Advances, net
   
18,276
     
36,710
 
Technology, Property and Equipment, net
   
290,071
     
298,005
 
Intangible Assets, net
   
819,834
     
807,405
 
Goodwill
   
1,126,904
     
1,116,790
 
Operating Lease Right-of-Use Assets
   
137,095
     
142,716
 
Other Non-Current Assets
   
101,984
     
98,598
 
Total Assets
 
$
3,020,405
   
$
3,168,794
 
                 
Liabilities and Shareholders' Equity:
               
Current Liabilities
               
Accounts payable
 
$
54,911
   
$
93,691
 
Accrued royalties
   
94,390
     
87,408
 
Short-term portion of long-term debt
   
12,500
     
9,375
 
Contract liabilities
   
285,176
     
520,214
 
Accrued employment costs
   
88,761
     
108,448
 
Accrued income taxes
   
1,901
     
13,728
 
Short-term portion of operating lease liabilities
   
20,071
     
21,810
 
Other accrued liabilities
   
77,026
     
72,595
 
Total Current Liabilities
   
634,736
     
927,269
 
                 
Long-Term Debt
   
825,243
     
765,650
 
Accrued Pension Liability
   
173,084
     
187,969
 
Deferred Income Tax Liabilities
   
131,026
     
119,127
 
Operating Lease Liabilities
   
153,355
     
159,782
 
Other Long-Term Liabilities
   
82,748
     
75,373
 
Total Liabilities
   
2,000,192
     
2,235,170
 
                 
Shareholders’ Equity
               
Preferred Stock, $1 par value: Authorized – 2 million, Issued - 0
   
     
 
Class A Common Stock, $1 par value: Authorized - 180 million, Issued 70,179 and 70,166 as of October 31, 2020 and April 30, 2020, respectively
   
70,179
     
70,166
 
Class B Common Stock, $1 par value: Authorized - 72 million, Issued 13,003 and 13,016 as of October 31, 2020 and April 30, 2020, respectively
   
13,003
     
13,016
 
Additional paid-in-capital
   
435,851
     
431,680
 
Retained earnings
   
1,825,025
     
1,780,129
 
Accumulated other comprehensive loss, net of tax
   
(541,642
)
   
(575,497
)
Less Treasury Shares At Cost (Class A – 23,253 and 23,405 as of October 31, 2020 and April 30, 2020, respectively; Class B – 3,920 and 3,920 as of October 31, 2020 and April 30, 2020, respectively)
   
(782,203
)
   
(785,870
)
Total Shareholders’ Equity
   
1,020,213
     
933,624
 
Total Liabilities and Shareholders' Equity
 
$
3,020,405
   
$
3,168,794
 

See accompanying notes to the unaudited condensed consolidated financial statements.
5
Index


JOHN WILEY & SONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME – UNAUDITED
Dollars in thousands except per share information

 
Three Months Ended
October 31,
   
Six Months Ended
October 31,
 
   
2020
   
2019
   
2020
   
2019
 
Revenue, net
 
$
491,011
   
$
466,205
   
$
922,337
   
$
889,735
 
                                 
Costs and Expenses
                               
Cost of sales
   
154,853
     
143,413
     
299,662
     
286,509
 
Operating and administrative expenses
   
247,167
     
240,380
     
484,536
     
490,550
 
Restructuring and related charges
   
1,920
     
4,001
     
4,138
     
14,736
 
Amortization of intangibles
   
17,166
     
15,020
     
34,057
     
29,990
 
Total Costs and Expenses
   
421,106
     
402,814
     
822,393
     
821,785
 
                                 
Operating Income
   
69,905
     
63,391
     
99,944
     
67,950
 
                                 
Interest Expense
   
(4,461
)
   
(6,787
)
   
(9,075
)
   
(12,864
)
Foreign Exchange Transaction Losses
   
(697
)
   
(2,668
)
   
(779
)
   
(16
)
Other Income
   
3,766
     
2,537
     
8,157
     
5,370
 
                                 
                                 
Income Before Taxes
   
68,513
     
56,473
     
98,247
     
60,440
 
Provision for Income Taxes
   
81
     
11,783
     
13,481
     
12,126
 
                                 
Net Income
 
$
68,432
   
$
44,690
   
$
84,766
   
$
48,314
 
                                 
Earnings Per Share
                               
Basic
 
$
1.22
   
$
0.79
   
$
1.51
   
$
0.86
 
Diluted
 
$
1.22
   
$
0.79
   
$
1.51
   
$
0.85
 
                                 
Weighted Average Number of Common Shares Outstanding
                               
Basic
   
56,005
     
56,326
     
55,959
     
56,431
 
Diluted
   
56,165
     
56,664
     
56,182
     
56,791
 

See accompanying notes to the unaudited condensed consolidated financial statements.

6
Index


JOHN WILEY & SONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – UNAUDITED
Dollars in thousands

 
Three Months Ended
October 31,
   
Six Months Ended
October 31,
 
   
2020
   
2019
   
2020
   
2019
 
Net Income
 
$
68,432
   
$
44,690
   
$
84,766
   
$
48,314
 
                                 
Other Comprehensive (Loss) Income:
                               
Foreign currency translation adjustment
   
(11,626
)
   
38,319
     
35,227
     
2,780
 
Unamortized retirement credits (costs), net of tax (expense) benefit of $(996), $1,822, $709, and $(358), respectively
   
3,403
     
(6,576
)
   
(2,262
)
   
1,592
 
Unrealized gain (loss) on interest rate swaps, net of tax (expense) benefit of $(222), $236, $(252) and $280, respectively
   
699
     
(745
)
   
890
     
(660
)
Total Other Comprehensive (Loss) Income
   
(7,524
)
   
30,998
     
33,855
     
3,712
 
                                 
Comprehensive Income
 
$
60,908
   
$
75,688
   
$
118,621
   
$
52,026
 

See accompanying notes to the unaudited condensed consolidated financial statements.

7
Index


JOHN WILEY & SONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
Dollars in thousands

 
Six Months Ended
October 31,
 
   
2020
   
2019
 
Operating Activities
           
Net income
 
$
84,766
   
$
48,314
 
Adjustments to reconcile net income to net cash used in operating activities:
               
Amortization of intangibles
   
34,057
     
29,990
 
Amortization of product development assets
   
17,448
     
17,616
 
Depreciation and amortization of technology, property and equipment
   
46,432
     
37,251
 
Restructuring and related charges
   
4,138
     
14,736
 
Stock-based compensation expense
   
9,066
     
10,289
 
Employee retirement plan expense
   
6,498
     
4,054
 
Royalty advances
   
(55,436
)
   
(48,250
)
Earned royalty advances
   
76,333
     
67,814
 
Foreign exchange transaction losses
   
779
     
16
 
Other non-cash charges
   
31,143
     
10,643
 
    Net change in operating assets and liabilities
   
(331,846
)
   
(291,994
)
Net Cash Used In Operating Activities
   
(76,622
)
   
(99,521
)
Investing Activities
               
Product development spending
   
(10,999
)
   
(11,686
)
Additions to technology, property and equipment
   
(36,430
)
   
(44,531
)
Businesses acquired in purchase transactions, net of cash acquired
   
(229
)
   
(74,169
)
Acquisitions of publication rights and other
   
(14,021
)
   
(4,045
)
Net Cash Used In Investing Activities
   
(61,679
)
   
(134,431
)
Financing Activities
               
Repayment of long-term debt
   
(249,902
)
   
(65,680
)
Borrowing of long-term debt
   
309,492
     
383,151
 
Payment of debt issuance costs
   
     
(4,006
)
Purchase of treasury shares
   
     
(25,000
)
Change in book overdrafts
   
(1,165
)
   
681
 
Cash dividends
   
(38,480
)
   
(38,486
)
Impact of tax withholding on stock-based compensation and other
   
(1,346
)
   
(1,393
)
Net Cash Provided By Financing Activities
   
18,599
     
249,267
 
Effects of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash
   
3,301
     
(461
)
Cash Reconciliation:
               
Cash and Cash Equivalents
   
202,464
     
92,890
 
Restricted cash included in Prepaid expenses and other current assets
   
583
     
658
 
Balance at Beginning of Period
   
203,047
     
93,548
 
    (Decrease)/Increase for the Period
   
(116,401
)
   
14,854
 
Cash and cash equivalents
   
86,063
     
107,744
 
Restricted cash included in Prepaid expenses and other current assets
   
583
     
658
 
Balance at End of Period
 
$
86,646
   
$
108,402
 
Cash Paid During the Period for:
               
Interest
 
$
8,374
   
$
12,125
 
Income taxes, net of refunds
 
$
37,344
   
$
30,170
 

See accompanying notes to the unaudited condensed consolidated financial statements.
8
Index


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
   
Accumulated Other Comprehensive Loss
   
Treasury Stock
   
Total
Shareholders' Equity
 
Balance at July 31, 2020
 
$
70,177
   
$
13,005
   
$
431,241
   
$
1,775,813
   
$
(534,118
)
 
$
(782,373
)
 
$
973,745
 
Restricted Shares Issued under Stock-based Compensation Plans
   
     
     
(143
)
   
(1
)
   
     
198
     
54
 
Impact of tax withholding on stock-based compensation and other
   
     
     
1
     
     
     
(28
)
   
(27
)
Stock-based Compensation Expense
   
     
     
4,752
     
     
     
     
4,752
 
Class A Common Stock Dividends ($0.3425 per share)
   
     
     
     
(16,108
)
   
     
     
(16,108
)
Class B Common Stock Dividends ($0.3425 per share)
   
     
     
     
(3,111
)
   
     
     
(3,111
)
Common Stock Class Conversions
   
2
     
(2
)
   
     
     
     
     
 
Comprehensive Income, Net of Tax
   
     
     
     
68,432
     
(7,524
)
   
     
60,908
 
Balance at October 31, 2020
 
$
70,179
   
$
13,003
   
$
435,851
   
$
1,825,025
   
$
(541,642
)
 
$
(782,203
)
 
$
1,020,213
 


 
Common Stock
Class A
   
Common Stock
Class B
   
Additional
Paid-in Capital
   
Retained
Earnings
   
Accumulated Other
Comprehensive Loss
   
Treasury Stock
   
Total
Shareholders' Equity
 
Balance at July 31, 2019
 
$
70,139
   
$
13,043
   
$
424,904
   
$
1,915,445
   
$
(536,024
)
 
$
(755,501
)
 
$
1,132,006
 
Restricted Shares Issued under Stock-based Compensation Plans
   
     
     
(681
)
   
1
     
     
787
     
107
 
Impact of tax withholding on stock-based compensation and other
   
     
     
60
     
     
     
(316
)
   
(256
)
Stock-based Compensation Expense
   
     
     
5,685
     
     
     
     
5,685
 
Purchase of Treasury Shares
   
     
     
     
     
     
(15,000
)
   
(15,000
)
Class A Common Stock Dividends ($0.34 per share)
   
     
     
     
(16,130
)
   
     
     
(16,130
)
Class B Common Stock Dividends ($0.34 per share)
   
     
     
     
(3,104
)
   
     
     
(3,104
)
Common Stock Class Conversions
   
10
     
(10
)
   
     
     
     
     
 
Comprehensive Income, Net of Tax
   
     
     
     
44,690
     
30,998
     
     
75,688
 
Balance at October 31, 2019
 
$
70,149
   
$
13,033
   
$
429,968
   
$
1,940,902
   
$
(505,026
)
 
$
(770,030
)
 
$
1,178,996
 

See accompanying notes to the unaudited condensed consolidated financial statements.
9
Index


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
   
Accumulated Other Comprehensive Loss
   
Treasury Stock
   
Total
Shareholders' Equity
 
Balance at April 30, 2020
 
$
70,166
   
$
13,016
   
$
431,680
   
$
1,780,129
   
$
(575,497
)
 
$
(785,870
)
 
$
933,624
 
Cumulative Effect of Change in Accounting Principle, Net of Tax
   
     
     
     
(1,390
)
   
     
     
(1,390
)
Restricted Shares Issued under Stock-based Compensation Plans
   
     
     
(5,264
)
   
     
     
5,382
     
118
 
Impact of tax withholding on stock-based compensation and other
   
     
     
369
     
     
     
(1,715
)
   
(1,346
)
Stock-based Compensation Expense
   
     
     
9,066
     
     
     
     
9,066
 
Class A Common Stock Dividends ($0.3425 per share)
   
     
     
     
(32,257
)
   
     
     
(32,257
)
Class B Common Stock Dividends ($0.3425 per share)
   
     
     
     
(6,223
)
   
     
     
(6,223
)
Common Stock Class Conversions
   
13
     
(13
)
   
     
     
     
     
 
Comprehensive Income, Net of Tax
   
     
     
     
84,766
     
33,855
     
     
118,621
 
Balance at October 31, 2020
 
$
70,179
   
$
13,003
   
$
435,851
   
$
1,825,025
   
$
(541,642
)
 
$
(782,203
)
 
$
1,020,213
 

 
Common Stock
Class A
   
Common Stock
Class B
   
Additional
Paid-in Capital
   
Retained
Earnings
   
Accumulated Other Comprehensive Loss
   
Treasury Stock
   
Total
Shareholders' Equity
 
Balance at April 30, 2019
 
$
70,127
   
$
13,055
   
$
422,305
   
$
1,931,074
   
$
(508,738
)
 
$
(746,476
)
 
$
1,181,347
 
Restricted Shares Issued under Stock-based Compensation Plans
   
     
     
(2,793
)
   
     
     
3,006
     
213
 
Impact of tax withholding on stock-based compensation and other
   
     
     
167
     
     
     
(1,560
)
   
(1,393
)
Stock-based Compensation Expense
   
     
     
10,289
     
     
     
     
10,289
 
Purchase of Treasury Shares
   
     
     
     
     
     
(25,000
)
   
(25,000
)
Class A Common Stock Dividends ($0.34 per share)
   
     
     
     
(32,278
)
   
     
     
(32,278
)
Class B Common Stock Dividends ($0.34 per share)
   
     
     
     
(6,208
)
   
     
     
(6,208
)
Common Stock Class Conversions
   
22
     
(22
)
   
     
     
     
     
 
Comprehensive Income, Net of Tax
   
     
     
     
48,314
     
3,712
     
     
52,026
 
Balance at October 31, 2019
 
$
70,149
   
$
13,033
   
$
429,968
   
$
1,940,902
   
$
(505,026
)
 
$
(770,030
)
 
$
1,178,996
 

See accompanying notes to the unaudited condensed consolidated financial statements.

10
Index


JOHN WILEY & SONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 Basis of Presentation

Throughout this report, when we refer to “Wiley,” the “Company,” “we,” “our,” or “us,” we are referring to John Wiley & Sons, Inc. and all our subsidiaries, except where the context indicates otherwise.

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, 2020 as filed with the SEC on June 26, 2020 (“2020 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. Certain prior year amounts have been reclassified to conform to the current year’s presentation.

Note 2 Recent Accounting Standards

Recently Adopted Accounting Standards

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. We adopted ASU 2018-15 on May 1, 2020 on a prospective basis. There was no impact to our consolidated financial statements at the date of adoption.

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. We adopted ASU 2018-13 on May 1, 2020. There was no impact to our consolidated financial statements at the date of adoption.
11
Index


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. ASU 2016-13, ASU 2019-05, ASU 2019-04, ASU 2018-19, ASU 2019-11 and ASU 2020-02 were effective for us on May 1, 2020, including interim periods within those fiscal periods, with early adoption permitted.

We adopted the new standard on May 1, 2020, with a cumulative effect adjustment to retained earnings as of the beginning of the year of adoption. Based on financial instruments currently held by us, the adoption of ASU 2016-13 primarily impacted our trade receivables, specifically our allowance for doubtful accounts. The adoption of the standard did not have an impact on our Unaudited Condensed Consolidated Statements of Income, or our Unaudited Condensed Consolidated Statements of Cash Flows. See the table below for further details on the immaterial impact to our Unaudited Condensed Consolidated Statements of Financial Position and Unaudited Condensed Consolidated Statements of Shareholders’ Equity.

We are exposed to credit losses through our accounts receivable with customers. Accounts Receivable, net is stated at amortized cost net of provision for credit losses. Our methodology to measure the provision for credit losses requires an estimation of loss rates based upon historical loss experience adjusted for factors that are relevant to determining the expected collectability of accounts receivable such as the impact of COVID-19, delinquency trends, aging behavior of receivables, credit and liquidity indicators for industry groups, customer classes or individual customers and reasonable and supportable forecasts of the economic conditions that may exist through the contractual life of the asset.  Our provision for credit losses is reviewed and revised periodically.  Our accounts receivable is evaluated on a pool basis that is based on customer groups with similar risk characteristics.  This includes consideration of the following factors to develop these pools; size of the customer, industry, geographical location, historical risk and types of services or products sold.

Our customer’s ability to pay is assessed through our internal credit review processes. Based on the dollar value of credit extended, we assess our customers' credit by reviewing the total expected receivable exposure, expected timing of payments and the customer’s established credit rating. In determining customer creditworthiness, we assess our customers' credit utilizing different resources including third-party validations and/or our own assessment through analysis of the customers' financial statements and review of trade/bank references. We also consider contract terms and conditions, country and political risk, and the customer's mix of products purchased in our evaluation. A credit limit is established for each customer based on the outcome of this review. Credit limits are periodically reviewed for existing customers and whenever an increase in the credit limit is being considered. When necessary, we utilize collection agencies and legal counsel to pursue recovery of defaulted receivables. We write off receivables only when deemed no longer collectible.

The following table presents the change in provision for credit losses, which is presented net in Accounts Receivable on our Unaudited Condensed Consolidated Statements of Financial Position for the period indicated:

 
Provision for
Credit Losses
 
Balance as of April 30, 2020
 
$
18,335
 
Adjustment due to adoption of new credit losses standard recorded as an adjustment to retained earnings
   
1,776
 
Current period provision
   
5,321
 
Amounts written off, less recoveries
   
(2,259
)
Foreign exchange translation adjustments and other
   
(2,130
)
Balance as of October 31, 2020
 
$
21,043
 

12
Index


Recently Issued Accounting Standards

Convertible Debt Instruments, Derivatives and EPS

In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)”. This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock.  As well as amend the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions.  In addition, this ASU improves and amends the related EPS guidance. This standard is effective for us on May 1, 2022, including interim periods within those fiscal years.  Adoption is either a modified retrospective method or a fully retrospective method of transition. We are currently assessing the impact the new guidance will have on our consolidated financial statements.

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides optional guidance for a limited period of time to ease the burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.  This would apply to companies meeting certain criteria that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.  This standard is effective for us immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We are currently assessing the impact the new guidance will have on our consolidated financial statements.

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.

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.

Note 3 Acquisitions

Fiscal Year 2020

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 $2.2 million of cash acquired was approximately $126.4 million.

mthree’s revenue included in our Education Services segment results for the three and six months ended October 31, 2020 was $12.5 and $24.9 million, respectively.
13
Index


During the six months ended October 31, 2020, no revisions were made to the allocation of the consideration transferred to the assets acquired and liabilities assumed. We recorded the preliminary fair value of the assets acquired and liabilities assumed on the acquisition date, which included a preliminary allocation of $82.6 million of goodwill allocated to the Education Services segment, and $56.8 million of intangible assets.

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 date.

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 after the acquisition date, that was paid during the six months ended October 31, 2020 was $0.2 million.

zyBooks incremental revenue included in our Academic & Professional Learning segment results for the three and six months ended October 31, 2020 was none and $1.3 million, respectively.

The allocation of the consideration transferred to the assets acquired and the liabilities assumed was final as of April 30, 2020. This included goodwill of $36.9 million allocated to the Academic & Professional Learning segment, and $24.5 million of intangible assets.

Other Acquisitions in Fiscal Year 2020

The preliminary fair value of cash consideration transferred during the year ended April 30, 2020 for all other acquisitions was approximately $48.5 million. These other acquisitions were accounted for using the acquisition method of accounting as of their respective acquisition dates.

During the six months ended October 31, 2020, a revision of $11.7 million from goodwill to intangibles assets was made to the allocation of the consideration transferred to the assets acquired and liabilities assumed for the Informatics and Madgex acquisitions, due to additional information obtained related to the third-party valuation. The excess purchase price over identifiable net tangible and intangible assets of $16.9 million has been recorded to Goodwill on our Condensed Consolidated Statements of Financial Position as of October 31, 2020, and $39.4 million of intangible assets subject to amortization have been recorded, including customer relationships, developed technology, content and trademarks that are being amortized over estimated weighted average useful lives of 7810, and 10 years, respectively. The fair value assessed for the majority of the tangible assets acquired and liabilities assumed equaled their carrying value. Goodwill represents synergies and economies of scale expected from the combination of services. Goodwill of $8.5 million has been allocated to the Academic & Professional Learning segment, and $8.4 million has been allocated to the Research Publishing & Platforms segment. The incremental revenue for the three and six months ended October 31, 2020 related to these other acquisitions was approximately $4.1 million and $6.4 million, respectively.

On April 1, 2020, we completed the acquisition of Bio-Rad Laboratories Inc.’s Informatics products including the company’s spectroscopy software and spectral databases (“Informatics”). The results of Informatics are included in our Research Publishing & Platforms segment results.

On March 2, 2020, we completed the acquisition of Madgex Holdings Limited (“Madgex”), a market-leading provider of advanced job board software and career center services. The results of Madgex are included in our Research Publishing & Platforms segment results.

The allocation of the total consideration transferred to the assets acquired and the liabilities assumed for Informatics and Madgex 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.
14
Index


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. The allocation of the consideration transferred to the assets acquired and the liabilities assumed for Knewton was final as of April 30, 2020.

We also completed in fiscal year 2020 the acquisition of two immaterial businesses, which are included in our Research Publishing & Platforms segment, one immaterial business included in our Academic & Professional Learning segment results and one immaterial business in our Education Services business. The allocation of the consideration transferred to the assets acquired and the liabilities assumed for these other acquisitions was final as of October 31, 2020.

Note 4 Revenue Recognition, Contracts with Customers

Disaggregation of Revenue

The following table presents our revenue from contracts with customers disaggregated by segment and product type.

 
Three Months Ended
October 31,
   
Six Months Ended
October 31,
 
   
2020
   
2019
   
2020
   
2019
 
Research Publishing & Platforms:
                       
Research Publishing
 
$
240,691
   
$
225,085
   
$
471,155
   
$
445,012
 
Research Platforms
   
10,643
     
9,624
     
20,989
     
19,072
 
Total Research Publishing & Platforms
   
251,334
     
234,709
     
492,144
     
464,084
 
                                 
Academic & Professional Learning:
                               
Education Publishing
   
103,105
     
101,741
     
167,189
     
167,264
 
Professional Learning
   
67,485
     
75,984
     
130,314
     
155,319
 
Total Academic & Professional Learning
   
170,590
     
177,725
     
297,503
     
322,583
 
                                 
Education Services:
                               
Education Services OPM (1)
   
56,261
     
52,781
     
106,523
     
100,937
 
mthree (1)
   
12,826
     
990
     
26,167
     
2,131
 
Total Education Services
   
69,087
     
53,771
     
132,690
     
103,068
 
Total Revenue
 
$
491,011
   
$
466,205
   
$
922,337
   
$
889,735
 

(1)
In May 2020, we moved the IT bootcamp business acquired as part of The Learning House acquisition from Education Services Online Program Management (“OPM”) to mthree. As a result, the prior period revenue related to the IT bootcamp business has been included in mthree. There were no changes to our total Education Services or our consolidated financial results.

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.

The following table provides information about receivables and contract liabilities from contracts with customers.

 
October 31, 2020
   
April 30, 2020
   
Increase/
(Decrease)
 
Balances from contracts with customers:
                 
Accounts receivable, net
 
$
273,264
   
$
309,384
   
$
(36,120
)
Contract liabilities (1)
   
285,176
     
520,214
     
(235,038
)
Contract liabilities (included in Other Long-Term Liabilities)
 
$
18,458
   
$
14,949
   
$
3,509
 

(1)
The sales return reserve recorded in Contract Liabilities is $43.6 million and $32.8 million, as of October 31, 2020 and April 30, 2020, respectively.
15
Index


For the six months ended October 31, 2020, we estimate that we recognized revenue of approximately 73% that was included in the current contract liability balance at April 30, 2020.
The decrease in contract liabilities as of October 31, 2020 was driven by revenue earned primarily on journal subscriptions, open access and comprehensive agreements, and test preparation and certification offerings, partially offset by renewals of journal subscription agreements, and comprehensive agreements, and to a lesser extent, the impact of foreign exchange.
Remaining Performance Obligations included in Contract Liability

As of October 31, 2020, the aggregate amount of the transaction price allocated to the remaining performance obligations is approximately $303.6 million, which included the sales return reserve of $43.6 million. Excluding the sales return reserve, we expect that approximately $241.5 million will be recognized in the next twelve months with the remaining $18.5 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 costs are amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. 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 $11.7 million and $11.5 million at October 31, 2020 and April 30, 2020, respectively, and are included within Other Non-Current Assets on our Unaudited Condensed Consolidated Statements of Financial Position. We recorded amortization expense of $1.4 million and $2.6 million during the three and six months ended October 31, 2020, respectively, related to these assets within Cost of Sales on the Unaudited Condensed Consolidated Statements of Income. We recorded amortization expense of $1.1 million and $2.1 million during the three and six months ended October 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 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 primarily reflected in Operating and Administrative Expenses on our Unaudited Condensed Consolidated Statements of Income. We incurred $6.5 million and $13.2 million in shipping and handling costs in the three and six months ended October 31, 2020, respectively. We incurred $7.6 million and $15.0 million in shipping and handling costs in the three and six months ended October 31, 2019, respectively.

Note 5 Operating Leases

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 lease standard and we perform the lease classification test as of the lease commencement date. Right-of-use (“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 leasing standard, leases that are more than one year in duration are capitalized and recorded on our 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.
16
Index


For operating leases, the ROU assets and liabilities are presented on our Unaudited Condensed Consolidated Statement of Financial Position as follows:

 
October 31, 2020
   
April 30, 2020
 
Operating lease right-of-use assets
 
$
137,095
   
$
142,716
 
Short-term portion of operating lease liabilities
   
20,071
     
21,810
 
Operating lease liabilities, non-current
 
$
153,355
   
$
159,782
 

During the six months ended October 31, 2020, we added $2.2 million to the ROU assets and 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
October 31,
   
Six Months Ended
October 31,
 
   
2020
   
2019
   
2020
   
2019
 
Operating lease cost
 
$
6,611
   
$
6,199
   
$
13,246
   
$
13,060
 
Variable lease cost
   
730
     
915
     
1,251
     
2,118
 
Short-term lease cost
   
92
     
     
180
     
 
Sublease income
   
(175
)
   
184
     
(345
)
   
(339
)
Total net lease cost (1)
 
$
7,258
   
$
7,298
   
$
14,332
   
$
14,839
 

(1)
Total net lease cost does not include those costs included in Restructuring and Related Charges on our Unaudited Condensed Consolidated Statements of Income. See Note 9, “Restructuring and Related Charges” for more information on these programs.

Other supplemental information includes the following for our operating leases:

   
Six Months Ended
October 31,
 
 
2020
   
2019
 
Weighted-average remaining contractual lease term (years)
   
9
     
10
 
                 
Weighted-average discount rate
   
5.91
%
   
5.91
%
                 
Cash paid for amounts included in the measurement of lease liabilities:
               
Operating cash flows from operating leases
 
$
16,866
   
$
14,716
 

17
Index


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 our Unaudited Condensed Consolidated Statement of Financial Position as of October 31, 2020:

Fiscal Year
 
Operating Lease
Liabilities
 
2021 (remaining 6 months)
 
$
15,751
 
2022
   
28,530
 
2023
   
25,581
 
2024
   
23,609
 
2025
   
22,149
 
Thereafter
   
113,972
 
Total future undiscounted minimum lease payments
   
229,592
 
         
Less: Imputed interest
   
56,166
 
         
Present Value of Minimum Lease Payments
   
173,426
 
         
Less: Current portion
   
20,071
 
         
Noncurrent portion
 
$
153,355
 

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 up to three years in advance. For the three and six months ended October 31, 2020, we recognized stock-based compensation expense, on a pre-tax basis, of $4.8 million and $9.1 million, respectively. For the three and six months ended October 31, 2019, we recognized stock-based compensation expense, on a pre-tax basis, of $5.7 million and $10.3 million, respectively.

The following table summarizes restricted stock awards we granted to employees (shares in thousands):

 
Six Months Ended
October 31,
 
   
2020
   
2019
 
Restricted Stock:
           
Awards granted
   
390
     
716
 
Weighted average fair value of grant
 
$
38.38
   
$
44.75
 


18
Index


Note 7 Accumulated Other Comprehensive Loss

Changes in Accumulated Other Comprehensive Loss by component, net of tax, for the three and six months ended October 31, 2020 and 2019 were as follows:

 
Foreign
Currency
Translation
   
Unamortized
Retirement
Costs
   
Interest
Rate Swaps
   
Total
 
                         
Balance at July 31, 2020
 
$
(293,850
)
 
$
(233,585
)
 
$
(6,683
)
 
$
(534,118
)
Other comprehensive (loss) income before reclassifications
   
(11,626
)
   
1,900
     
(252
)
   
(9,978
)
Amounts reclassified from accumulated other comprehensive loss
   
     
1,503
     
951
     
2,454
 
Total other comprehensive (loss) income
   
(11,626
)
   
3,403
     
699
     
(7,524
)
Balance at October 31, 2020
 
$
(305,476
)
 
$
(230,182
)
 
$
(5,984
)
 
$
(541,642
)
                                 
Balance at April 30, 2020
 
$
(340,703
)
 
$
(227,920
)
 
$
(6,874
)
 
$
(575,497
)
Other comprehensive income (loss) before reclassifications
   
35,227
     
(5,290
)
   
(921
)
   
29,016
 
Amounts reclassified from accumulated other comprehensive loss
   
     
3,028
     
1,811
     
4,839
 
Total other comprehensive income (loss)
   
35,227
     
(2,262
)
   
890
     
33,855
 
Balance at October 31, 2020
 
$
(305,476
)
 
$
(230,182
)
 
$
(5,984
)
 
$
(541,642
)

 
Foreign
Currency
Translation
   
Unamortized
Retirement
Costs
   
Interest
Rate Swaps
   
Total
 
                         
Balance at July 31, 2019
 
$
(347,646
)
 
$
(187,889
)
 
$
(489
)
 
$
(536,024
)
Other comprehensive income (loss) before reclassifications
   
38,319
     
(7,960
)
   
(481
)
   
29,878
 
Amounts reclassified from accumulated other comprehensive loss
   
     
1,384
     
(264
)
   
1,120
 
Total other comprehensive income (loss)
   
38,319
     
(6,576
)
   
(745
)
   
30,998
 
Balance at October 31, 2019
 
$
(309,327
)
 
$
(194,465
)
 
$
(1,234
)
 
$
(505,026
)
                                 
Balance at April 30, 2019
 
$
(312,107
)
 
$
(196,057
)
 
$
(574
)
 
$
(508,738
)
Other comprehensive income (loss) before reclassifications
   
2,780
     
(830
)
   
(153
)
   
1,797
 
Amounts reclassified from accumulated other comprehensive loss
   
     
2,422
     
(507
)
   
1,915
 
Total other comprehensive income (loss)
   
2,780
     
1,592
     
(660
)
   
3,712
 
Balance at October 31, 2019
 
$
(309,327
)
 
$
(194,465
)
 
$
(1,234
)
 
$
(505,026
)

During the three and six months ended October 31, 2020, pre-tax actuarial losses included in Unamortized Retirement Costs of approximately $2.0 million and $3.9 million, respectively, and in the three and six months ended October 31, 2019, approximately $1.7 million and $3.0 million, respectively, were amortized from Accumulated Other Comprehensive Loss and recognized as pension and post-retirement benefit expense primarily in Operating and Administrative Expenses and Other Income in our Unaudited Condensed Consolidated Statements of Income.

19
Index


Note 8 Reconciliation of Weighted Average Shares Outstanding

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

 
Three Months Ended
October 31,
   
Six Months Ended
October 31,
 
   
2020
   
2019
   
2020
   
2019
 
Weighted average shares outstanding
   
56,005
     
56,339
     
55,961
     
56,451
 
Less: Unvested restricted shares
   
     
(13
)
   
(2
)
   
(20
)
Shares used for basic earnings per share
   
56,005
     
56,326
     
55,959
     
56,431
 
Dilutive effect of unvested restricted stock units and other stock awards
   
160
     
338
     
223
     
360
 
Shares used for diluted earnings per share
   
56,165
     
56,664
     
56,182
     
56,791
 

Since their inclusion in the calculation of diluted earnings per share would have been anti-dilutive, options to purchase 184,193 shares of Class A Common Stock have been excluded for both the three and six months ended October 31, 2020, respectively and 212,094 shares of Class A Common Stock have been excluded for both the three and six months ended October 31, 2019, respectively.

There were no restricted shares excluded in the calculation of diluted earnings per share for the three and six months ended October 31, 2020 and 2019.

Warrants to purchase 534,052 shares of Class A Common Stock have been excluded for both the three and six months ended October 31, 2020, respectively as their inclusion would have been anti-dilutive. Warrants to purchase 515,114 shares of Class A Common Stock have been excluded for both the three and six months ended October 31, 2019, respectively as their inclusion would have been anti-dilutive.

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 (credits) charges related to this program:

 
Three Months Ended
October 31,
   
Six Months Ended
October 31,
   
Total Charges
 
   
2020
   
2019
   
2020
   
2019
   
Incurred to Date
 
(Credits) Charges by Segment:
                             
Research Publishing & Platforms
 
$
(103
)
 
$
29
   
$
(300
)
 
$
2,665
   
$
3,246
 
Academic & Professional Learning
   
1,541
     
765
     
1,314
     
3,542
     
11,789
 
Education Services
   
84
     
(475
)
   
223
     
1,717
     
3,997
 
Corporate Expenses
   
584
     
2,835
     
3,054
     
6,100
     
18,072
 
Total Restructuring and Related Charges
 
$
2,106
   
$
3,154
   
$
4,291
   
$
14,024
   
$
37,104
 
                                         
Charges by Activity:
                                       
Severance and termination benefits
 
$
1,683
   
$
578
   
$
2,793
   
$
11,287
   
$
29,657
 
Operating lease right-of-use asset impairment
   
     
     
     
161
     
161
 
Facility related charges
   
423
     
1,240
     
1,498
     
1,240
     
5,484
 
Other activities
   
     
1,336
     
     
1,336
     
1,802
 
Total Restructuring and Related Charges
 
$
2,106
   
$
3,154
   
$
4,291
   
$
14,024
   
$
37,104
 

Other Activities for the three and six months ended October 31, 2019 relate to reserves associated with the cessation of certain offerings and the impairment of certain software licenses.
20
Index


The following table summarizes the activity for the Business Optimization Program liability for the six months ended October 31, 2020:
 
April 30, 2020
   
Charges
   
Payments
   
Foreign
Translation
& Other Adjustments
   
October 31, 2020
 
Severance and termination benefits
 
$
17,632
   
$
2,793
   
$
(13,384
)
 
$
395
   
$
7,436
 
Other activities
   
430
     
     
(208
)
   
(64
)
   
158
 
Total
 
$
18,062
   
$
2,793
   
$
(13,592
)
 
$
331
   
$
7,594
 

Approximately $7.3 million of the restructuring liability for accrued severance and termination benefits is reflected in Accrued Employment Costs, and approximately $0.1 million is reflected in Other Long-Term Liabilities on our Unaudited Condensed Consolidated Statement of Financial Position.

The amount included in Other Long-Term Liabilities that relates to severance and termination benefits is expected to be paid in the year ended April 30, 2022.

The restructuring liability as of October 31, 2020 for other activities is reflected in Other Accrued Liabilities on our Unaudited Condensed Consolidated Statement of Financial Position.

Subsequent Event

In November 2020, in response to the COVID-19 pandemic and the Company’s successful transition to a virtual work environment, we increased use of virtual work arrangements for post-pandemic operations, particularly for colleagues located at small remote facilities. As a result, we expanded the scope of the Business Optimization Program to include the exit of certain leased office space beginning in the third quarter of fiscal year 2021 and reduction of our occupancy at other facilities. We are reducing our real estate square footage occupancy by approximately 12%. These actions are estimated to result in an initial pre-tax restructuring charge of approximately $15 million to $20 million in the third quarter of fiscal 2021. This initial restructuring charge primarily reflects the following non-cash charges:
the impairment of operating lease right-of-use assets and property and equipment, and
the acceleration of rent expense associated with right-of use assets and depreciation and amortization of property and equipment.

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
October 31,
   
Six Months Ended
October 31,
   
Total Charges
 
   
2020
   
2019
   
2020
   
2019
   
Incurred to Date
 
(Credits) Charges by Segment:
                             
Research Publishing & Platforms
 
$
(135
)
 
$
697
   
$
(135
)
 
$
681
   
$
26,749
 
Academic & Professional Learning
   
     
35
     
260
     
63
     
43,094
 
Education Services
   
     
     
     
(103
)
   
3,764
 
Corporate Expenses
   
(51
)
   
115
     
(278
)
   
71
     
95,662
 
Total Restructuring and Related (Credits) Charges
 
$
(186
)
 
$
847
   
$
(153
)
 
$
712
   
$
169,269
 
                                         
(Credits) Charges by Activity:
                                       
Severance and termination benefits
 
$
(186
)
 
$
847
   
$
(153
)
 
$
497
   
$
115,856
 
Consulting and contract termination costs
   
     
     
     
     
20,984
 
Other activities
   
     
     
     
215
     
32,429
 
Total Restructuring and Related (Credits) Charges
 
$
(186
)
 
$
847
   
$
(153
)
 
$
712
   
$
169,269
 
21
Index


Other activities for the six months ended October 31, 2019 include facility related costs.

The following table summarizes the activity for the Restructuring and Reinvestment Program liability for the six months ended October 31, 2020:

 
April 30, 2020
   
(Credits)
   
Payments
   
Foreign
Translation &
Other Adjustments
   
October 31, 2020
 
Severance and termination benefits
 
$
1,360
   
$
(153
)
 
$
(888
)
 
$
54
   
$
373
 
Other activities
   
230
     
     
(94
)
   
223
     
359
 
Total
 
$
1,590
   
$
(153
)
 
$
(982
)
 
$
277
   
$
732
 

The restructuring liability as of October 31, 2020 for accrued severance and termination benefits is reflected in Accrued Employment Costs on our Unaudited Condensed Consolidated Statement of Financial Position.

The restructuring liability as of October 31, 2020 of $0.4 million of other activities are reflected in Other Long-Term Liabilities on our Unaudited Condensed Consolidated Statement of Financial Position and mainly relate to facility related costs. The amount included in Other Long-Term Liabilities is expected to be paid in the year ended April 30, 2022.

We currently do not anticipate any further material charges related to the Restructuring and Reinvestment Program.


22
Index


Note 10 Segment Information

We report our segment information in accordance with the provisions of FASB ASC Topic 280, “Segment Reporting”. 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
October 31,
   
Six Months Ended
October 31,
 
   
2020
   
2019
   
2020
   
2019
 
Revenue:
                       
Research Publishing & Platforms
 
$
251,334
   
$
234,709
   
$
492,144
   
$
464,084
 
Academic & Professional Learning
   
170,590
     
177,725
     
297,503
     
322,583
 
Education Services
   
69,087
     
53,771
     
132,690
     
103,068
 
Total Revenue
 
$
491,011
   
$
466,205
   
$
922,337
   
$
889,735
 
                                 
Contribution to Profit:
                               
Research Publishing & Platforms
 
$
74,088
   
$
63,291
   
$
143,906
   
$
118,937
 
Academic & Professional Learning
   
29,878
     
35,050
     
29,498
     
39,961
 
Education Services
   
7,425
     
2,583
     
7,983
     
(4,616
)
Total Contribution to Profit
 
$
111,391
   
$
100,924
   
$
181,387
   
$
154,282
 
Corporate Expenses
   
(41,486
)
   
(37,533
)
   
(81,443
)
   
(86,332
)
Operating Income
 
$
69,905
   
$
63,391
   
$
99,944
   
$
67,950
 
                                 
Adjusted Contribution to Profit: (1)
                               
Research Publishing & Platforms
 
$
73,850
   
$
64,017
   
$
143,471
   
$
122,283
 
Academic & Professional Learning
   
31,419
     
35,850
     
31,072
     
43,566
 
Education Services
   
7,509
     
2,108
     
8,206
     
(3,002
)
Total Adjusted Contribution to Profit
 
$
112,778
   
$
101,975
   
$
182,749
   
$
162,847
 
Adjusted Corporate Expenses
   
(40,953
)
   
(34,583
)
   
(78,667
)
   
(80,161
)
Total Adjusted Operating Income
 
$
71,825
   
$
67,392
   
$
104,082
   
$
82,686
 
                                 
Depreciation and Amortization:
                               
Research Publishing & Platforms
 
$
19,765
   
$
17,037
   
$
39,466
   
$
34,190
 
Academic & Professional Learning
   
17,720
     
17,349
     
36,524
     
33,873
 
Education Services
   
7,210
     
5,522
     
14,489
     
11,020
 
Total Depreciation and Amortization
 
$
44,695
   
$
39,908
   
$
90,479
   
$
79,083
 
Corporate Depreciation and Amortization
   
3,735
     
2,730
     
7,458
     
5,774
 
Total Depreciation and Amortization
 
$
48,430
   
$
42,638
   
$
97,937
   
$
84,857
 
                                 
Adjusted EBITDA: (2)
                               
Research Publishing & Platforms
 
$
93,615
   
$
81,054
   
$
182,937
   
$
156,473
 
Academic & Professional Learning
   
49,139
     
53,199
     
67,596
     
77,439
 
Education Services
   
14,719
     
7,630
     
22,695
     
8,018
 
Total Segment Adjusted EBITDA
 
$
157,473
   
$
141,883
   
$
273,228
   
$
241,930
 
Corporate Adjusted EBITDA
   
(37,218
)
   
(31,853
)
   
(71,209
)
   
(74,387
)
Total Adjusted EBITDA
 
$
120,255
   
$
110,030
   
$
202,019
   
$
167,543
 

(1)
Adjusted Contribution to Profit is calculated as Contribution to Profit adjusted for restructuring and related charges. See Note 9, “Restructuring and Related Charges” for these charges by segment.
(2)
Adjusted EBITDA is calculated as Adjusted Contribution to Profit with depreciation and amortization added back.
23
Index


The following table shows a reconciliation of our consolidated U.S. GAAP net income to Non-GAAP EBITDA and Adjusted EBITDA:

 
Three Months Ended
October 31,
   
Six Months Ended
October 31,
 
   
2020
   
2019
   
2020
   
2019
 
Net Income
 
$
68,432
   
$
44,690
   
$
84,766
   
$
48,314
 
Interest expense
   
4,461
     
6,787
     
9,075
     
12,864
 
Provision for income taxes
   
81
     
11,783
     
13,481
     
12,126
 
Depreciation and amortization
   
48,430
     
42,638
     
97,937
     
84,857
 
Non-GAAP EBITDA
 
$
121,404
   
$
105,898
   
$
205,259
   
$
158,161
 
Restructuring and related charges
   
1,920
     
4,001
     
4,138
     
14,736
 
Foreign exchange transaction losses
   
697
     
2,668
     
779
     
16
 
Other income
   
(3,766
)
   
(2,537
)
   
(8,157
)
   
(5,370
)
Non-GAAP Adjusted EBITDA
 
$
120,255
   
$
110,030
   
$
202,019
   
$
167,543
 

Note 11 Inventories

Inventories, net consisted of the following:

 
October 31, 2020
   
April 30, 2020
 
Finished Goods
 
$
31,924
   
$
36,014
 
Work-in-Process
   
1,664
     
1,398
 
Paper and Other Materials
   
293
     
331
 
Total Inventories Before Estimated Sales Returns and LIFO Reserve
 
$
33,881
   
$
37,743
 
Inventory Value of Estimated Sales Returns
   
11,252
     
8,686
 
LIFO Reserve
   
(2,964
)
   
(2,815
)
Total Inventories
 
$
42,169
   
$
43,614
 

Note 12 Goodwill and Intangible Assets

Goodwill

The following table summarizes the activity in goodwill by segment as of October 31, 2020:

 
 
April 30, 2020
   
Acquisitions (1)
   
Foreign
Translation
Adjustment
   
October 31, 2020
 
Research Publishing & Platforms
 
$
448,130
   
$
(10,933
)
 
$
11,322
   
$
448,519
 
Academic & Professional Learning
   
501,091
     
     
7,023
     
508,114
 
Education Services
   
167,569
     
     
2,702
     
170,271
 
Total
 
$
1,116,790
   
$
(10,933
)
 
$
21,047
   
$
1,126,904
 

(1)
Refer to Note 3, “Acquisitions,” for more information related to the acquisitions that occurred in fiscal year 2020, and the revisions that were made to the allocation of the consideration transferred to the assets acquired and liabilities assumed during the six months ended October 31, 2020.

24
Index


Intangible Assets

Intangible assets, net were as follows:

 
October 31, 2020
   
April 30, 2020
 
Intangible Assets with Definite Lives, net:
           
Content and Publishing Rights (1)
 
$
368,662
   
$
362,106
 
Customer Relationships (1)
   
276,523
     
290,418
 
Developed Technology (1)
   
27,779
     
13,111
 
Brands and Trademarks (1)
   
19,552
     
20,188
 
Covenants not to Compete
   
148
     
246
 
Total
   
692,664
     
686,069
 
Intangible Assets with Indefinite Lives:
               
Brands and Trademarks
   
37,000
     
37,000
 
Publishing Rights
   
90,170
     
84,336
 
Total
   
127,170
     
121,336
 
Total Intangible Assets, Net
 
$
819,834
   
$
807,405
 

(1)
Refer to Note 3, “Acquisitions,” for more information related to the acquisitions that occurred in fiscal year 2020 and the revisions that were made to the allocation of the consideration transferred to the assets acquired and liabilities assumed during the six months ended October 31, 2020.

Note 13 Income Taxes

The effective tax rate for the three and six months ended October 31, 2020 was 0.1% and 13.7%, respectively, compared with 20.9% and 20.1% for the three and six months ended October 31, 2019, respectively. As a result of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and certain regulations issued in late July 2020, we were able to carry back certain U.S. net operating losses (“NOLs”), changing our estimated tax for the year ended April 30, 2020 and decreasing the rates for both the three and six months ended October 31, 2020.

In connection with the CARES Act and certain regulations, we elected to carry back our April 30, 2020 U.S. NOL to our year ended April 30, 2015 and claim a $20.7 million refund. This refund is reflected in Prepaid Expenses and Other Current Assets on our Unaudited Condensed Consolidated Statements of Financial Position. The NOL was carried back to fiscal year 2015 when the U.S. corporate tax rate was 35%.  The carryback to a year with a higher rate, plus certain additional net permanent deductions included in the carryback resulted in a $14.0 million tax benefit. As described below, the benefit for the six months ended October 31, 2020 was partially offset by an increase in the U.K. statutory rate.

During the three months ended July 31, 2020, the U.K. officially enacted legislation that increased its statutory rate from 17% to 19%. This resulted in a $6.7 million non-cash deferred tax expense from the re-measurement of our applicable U.K. net deferred tax liabilities.

Note 14 Retirement Plans

The components of net pension income for the defined benefit plans were as follows:

 
Three Months Ended
October 31,
   
Six Months Ended
October 31,
 
   
2020
   
2019
   
2020
   
2019
 
Service cost
 
$
347
   
$
1,093
   
$
680
   
$
1,317
 
Interest cost
   
4,610
     
6,350
     
9,131
     
12,184
 
Expected return on plan assets
   
(9,649
)
   
(9,886
)
   
(19,027
)
   
(19,945
)
Amortization of prior service cost
   
(24
)
   
(19
)
   
(49
)
   
(38
)
Amortization of net actuarial loss
   
2,033
     
1,581
     
4,020
     
3,181
 
Net pension income
 
$
(2,683
)
 
$
(881
)
 
$
(5,245
)
 
$
(3,301
)

The service cost component of net pension income is reflected in Operating and Administrative Expenses on our Unaudited Condensed Consolidated Statements of Income. The other components of net pension income are reported separately from the service cost component and below Operating Income. Such amounts are reflected in Other Income on our Unaudited Condensed Consolidated Statements of Income.
25
Index


Employer defined benefit pension plan contributions were $3.8 million and $8.9 million for the three and six months ended October 31, 2020, respectively, and $3.3 million and $8.0 million for the three and six months ended October 31, 2019, respectively.

Defined Contribution Savings Plans

The expense for employer defined contribution savings plans was approximately $5.2 million and $11.8 million for the three and six months ended October 31, 2020, respectively, and $3.1 million and $7.4 million for the three and six months ended October 31, 2019, respectively.

Note 15 Debt and Available Credit Facilities

Our total debt outstanding consisted of the amounts set forth in the following table: 

   
October 31, 2020
   
April 30, 2020
 
Short-term portion of long-term debt (1)
 
$
12,500
   
$
9,375
 
                 
Term loan A - Amended and Restated RCA (2)
   
229,096
     
235,263
 
Revolving credit facility - Amended and Restated RCA
   
596,147
     
530,387
 
Total long-term debt, less current portion
   
825,243
     
765,650
 
                 
Total Debt
 
$
837,743
   
$
775,025
 

(1)
Relates to our term loan A under the Amended and Restated RCA.
(2)
Amounts are shown net of unamortized issuance costs of $0.6 million as of October 31, 2020 and $0.7 million as of April 30, 2020.

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 October 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 revolving credit agreement at that time which is reflected in Other Income on our Unaudited Condensed Consolidated Statements of Income for the three months ended July 31, 2019.

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 on our Unaudited Condensed Consolidated Statement of Financial Position. The amount related to the five-year revolving credit facility was $4.3 million, all of which is included in Other Non-Current Assets on our Unaudited Condensed Consolidated Statement of Financial Position.
26
Index


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 six months ended October 31, 2020 was $0.3 million and $0.5 million, respectively, and is included in Interest Expense on our Unaudited Condensed Consolidated Statement of Income. Total amortization expense in the three and six months ended October 31, 2019 was $0.3 million and $0.5 million, respectively, and is included in Interest Expense on our Unaudited Condensed Consolidated Statement of Income.

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 October 31, 2020, we had total debt outstanding of $837.7 million, net of unamortized issuance costs of $0.6 million of which $838.3 million are variable rate loans outstanding under the Amended and Restated RCA, which approximated fair value.

We had outstanding interest rate swap agreements with combined notional amounts of $300.0 million as of October 31, 2020 and April 30, 2020. These agreements were accounted for as cash flow hedges which fixed a portion of the variable interest due on our Amended and Restated RCA.

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 October 31, 2020 and April 30, 2020 was a deferred loss of $7.2 million and $8.3 million, respectively. Based on the maturity dates of the contracts, the entire deferred loss as of October 31, 2020 and April 30, 2020 was recorded within Other Long-Term Liabilities.

The pre-tax losses that were reclassified from Accumulated Other Comprehensive Loss into Interest Expense for the three and six months ended October 31, 2020 were $0.9 million and $1.8 million, respectively. The pre-tax gains that were reclassified from Accumulated Other Compensation Loss into Interest Expense for the three and six months ended October 31, 2019 were $0.3 million and $0.5 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 on our Unaudited Condensed Consolidated Statements of Income and carried at their fair value on our 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 on our Unaudited Condensed Consolidated Statements of Income.

As of October 31, 2020, and April 30, 2020, we did not maintain any open forward exchange contracts. In addition, we did not maintain any open forward contracts during the six months ended October 31, 2020 and 2019.

Note 17  Capital Stock and Changes in Capital Accounts

Share Repurchases

The following table summarizes the share repurchases of Class A Common Stock for the three and six months ended October 31, 2019. There were no share repurchases during the three and six months ended October 31, 2020.

 
Three Months Ended
October 31,
   
Six Months Ended
October 31,
 
   
2020
   
2019
   
2020
   
2019
 
Shares Repurchased
   
     
334,336
     
     
551,847
 
Average Price
 
$
   
$
44.87
   
$
   
$
45.30
 

27
Index


Dividends

The following table summarizes the cash dividends paid during the six months ended October 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
June 25, 2020
 
$0.3425 per common share
 
$19.2 million
 
Class A and
Class B
 
July 22, 2020
 
July 7, 2020
September 23, 2020
 
$0.3425 per common share
 
$19.2 million
 
Class A and
Class B
 
October 21, 2020
 
October 6, 2020

Changes in Common Stock

The following is a summary of changes during the six months ended October 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
   
70,166
     
70,127
 
Common stock class conversions
   
13
     
22
 
Number of shares issued, end of period
   
70,179
     
70,149
 
                 
Changes in Common Stock A in treasury:
               
Number of shares held, beginning of year
   
23,405
     
22,634
 
Purchase of treasury shares
   
     
552
 
Restricted shares issued under stock-based compensation plans - non-PSU Awards
   
(96
)
   
(63
)
Restricted shares issued under stock-based compensation plans - PSU Awards
   
(88
)
   
(43
)
Shares issued under the Director Plan to Directors
   
(4
)
   
 
Restricted shares issued from exercise of stock options
   
(33
)
   
(17
)
Shares withheld for taxes
   
69
     
44
 
Number of shares held, end of period
   
23,253
     
23,107
 
Number of Common Stock A outstanding, end of period
   
46,926
     
47,042
 

Changes in Common Stock B:
 
2020
   
2019
 
Number of shares, beginning of year
   
13,016
     
13,055
 
Common stock class conversions
   
(13
)
   
(22
)
Number of shares issued, end of period
   
13,003
     
13,033
 
                 
Changes in Common Stock B in treasury:
               
Number of shares held, beginning of year
   
3,920
     
3,918
 
Number of shares held, end of period
   
3,920
     
3,918
 
Number of Common Stock B outstanding, end of period
   
9,083
     
9,115
 

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 October 31, 2020, will not have a material effect upon our Unaudited Condensed Consolidated Statements of Financial Position or Unaudited Condensed Consolidated Statements of Income.
28
Index


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 2020 Form 10-K and our Consolidated Financial Statements and related notes set forth in Item 8 of Part II of our 2020 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 OCTOBER 31, 2020

SECOND QUARTER SUMMARY:

U.S. GAAP Results: Consolidated revenue of $491 million (+5%, compared to prior year) and EPS of $1.22 (+54%, compared to prior year);
Adjusted Results (at constant currency compared to prior year): Revenue +4% to $491 million, EBITDA +7% to $120 million, and EPS +12% to $1.00;
Research Publishing & Platforms (at constant currency compared to prior year): Revenue +5% and Adjusted EBITDA +14% on strong double-digit growth in Open Access;
Academic & Professional Learning: Revenue for Education Publishing marginally ahead of prior year as accelerated growth in digital content and courseware more than offset decline in print books;
Education Services: Second Quarter and First Half Adjusted EBITDA margin of 21% and 17%, trending ahead of FY22 target of 15%.

We continue to generate significant COVID-19 related cost savings due to the cancellation of travel and events and lower facilities expenses, which are discussed in more detail by segment below.  We are taking actions to sustain much of these savings in our post-pandemic operations.   

CONSOLIDATED OPERATING RESULTS

Revenue:

Revenue for the three months ended October 31, 2020 increased $24.8 million, or 5%, as compared with the prior year. On a constant currency basis, revenue increased 4% as compared with the prior year. This increase was mainly driven by the following factors:
an increase of $14.7 million in Education Services, primarily due to the contributions from mthree, which was acquired in January 2020; and
an increase of $11.7 million in Research Publishing & Platforms.

These increases were partially offset by a decline of $9.4 million in Academic & Professional Learning.

Excluding the inorganic impact of acquisitions, revenue on a constant currency basis remained flat.

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 October 31, 2020 increased $11.4 million, or 8%, as compared with the prior year. On a constant currency basis, cost of sales increased 6% as compared with the prior year. This increase was primarily due to employment related costs in Education Services, the incremental impact from the acquisition of mthree; and to a lesser extent, an increase in royalty costs.  These factors were partially offset by lower marketing costs due to timing.

29
Index


Operating and Administrative Expenses:

Operating and administrative expenses for the three months ended October 31, 2020 increased $6.8 million, or 3%, as compared with the prior year. On a constant currency basis, operating and administrative expenses increased 2% as compared with the prior year primarily reflecting the timing of annual incentive costs, technology costs and other administrative related costs, primarily due to the incremental impact of the acquisition of mthree. These factors were partially offset by COVID-19 related expense savings.

Restructuring and Related Charges:

Business Optimization Program

For the three months ended October 31, 2020 and 2019, we recorded pre-tax restructuring charges of $2.1 million and $3.2 million, respectively, related to this program. We anticipate $4 million in run rate savings from actions starting in fiscal 2022. These charges are reflected in Restructuring and Related Charges in our Unaudited Condensed Consolidated Statements of Income. See Note 9, “Restructuring and Related Charges” for more details on these charges.

In November 2020, in response to the COVID-19 pandemic and the Company’s successful transition to a virtual work environment, we increased use of virtual work arrangements for post-pandemic operations, particularly for colleagues located at small remote facilities.  As a result, we expanded the scope of the Business Optimization Program to include the exit of certain leased office space beginning in the third quarter of fiscal year 2021 and reduction of our occupancy at other facilities. We are reducing our real estate square footage occupancy by approximately 12%. These actions are estimated to result in an initial pre-tax restructuring charge of approximately $15 million to $20 million in the third quarter of fiscal 2021. This initial restructuring charge primarily reflects the following non-cash charges:
the impairment of operating lease right-of-use assets and property and equipment, and
the acceleration of rent expense associated with right-of use assets and depreciation and amortization of property and equipment.

These actions are anticipated to yield annualized cost savings estimated to be approximately $7 million to $8 million. We anticipate ongoing facility-related costs associated with certain properties to result in additional restructuring charges in future periods.

Restructuring and Reinvestment Program

For the three months ended October 31, 2020 and 2019, we recorded pre-tax restructuring credits of $0.2 million and restructuring charges of $0.8 million, respectively, related to this program. These credits and charges are reflected in Restructuring and Related Charges in the Unaudited Condensed Consolidated Statements of Income. See Note 9, “Restructuring and Related Charges” for more details on these credits and 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 $17.2 million for the three months ended October 31, 2020, an increase of $2.1 million, or 14%, as compared with the prior year.  On a constant currency basis, amortization of intangibles increased 12% as compared with the prior year 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 for the three months ended October 31, 2020 increased $6.5 million, or 10%, as compared with the prior year.  On a constant currency basis and excluding restructuring charges, Adjusted EBITDA increased 7%. The increase in operating income and Adjusted EBITDA was primarily due to higher revenue as described above, partially offset by an increase in cost of sales and operating and administrative expenses.

30
Index


Interest Expense:

Interest expense for the three months ended October 31, 2020 was $4.5 million compared with the prior year of $6.8 million. This decrease was due to a lower weighted average effective borrowing rate, partially offset by higher average debt balances outstanding, which included borrowings for the funding of acquisitions in fiscal year 2020.

Foreign Exchange Transaction Losses:

Foreign exchange transaction losses were $0.7 million for the three months ended October 31, 2020 and were primarily due to losses on foreign currency denominated third-party and intercompany receivable and payable balances due to the impact of the change in average foreign exchange rates as compared to the U.S. dollar. Foreign exchange transaction losses were $2.7 million for the three months ended October 31, 2019 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 October 31, 2020 was 0.1%, compared with 20.9% for the three months ended October 31, 2019. The decrease in the rate for the three months ended October 31, 2020 was due to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and certain regulations issued in late July 2020. Excluding the effects of these discrete items, as well as a small rate differential on unusual items, the rate for the three months ended October 31, 2020 would have been 20.9%.

In connection with the CARES Act and certain regulations, we elected to carry back our April 30, 2020 U.S. net operating loss (“NOL”) to our year ended April 30, 2015 and claim a $20.7 million refund. The NOL was carried back to fiscal year 2015 when the U.S. corporate tax rate was 35%. The carryback to a year with a higher rate, plus certain additional net permanent deductions included in the carryback, resulted in a $14.0 million net tax benefit.

Diluted Earnings per Share (“EPS”):

EPS for the three months ended October 31, 2020 was $1.22 per share compared with $0.79 per share for the three months ended October 31, 2019.

Below is a reconciliation of our U.S. GAAP EPS to Non-GAAP Adjusted EPS:

 
Three Months Ended
October 31,
 
   
2020
   
2019
 
U.S. GAAP EPS
 
$
1.22
   
$
0.79
 
Adjustments:
               
Restructuring and related charges
   
0.02
     
0.06
 
Foreign exchange losses on intercompany transactions
   
0.01
     
 
Impact of U.S. CARES Act
   
(0.25
)
   
 
Non-GAAP Adjusted EPS
 
$
1.00
   
$
0.85
 

On a constant currency basis, Adjusted EPS increased 12% primarily due to an increase in Adjusted EBITDA.

31
Index


SEGMENT OPERATING RESULTS

 
Three Months Ended
October 31,
         
Constant Currency
 
RESEARCH PUBLISHING & PLATFORMS:
 
2020
   
2019
   
% Change
Favorable
(Unfavorable)
   
% Change
Favorable
(Unfavorable)
 
Revenue:
                       
Research Publishing
 
$
240,691
   
$
225,085
     
7
%
   
5
%
Research Platforms
   
10,643
     
9,624
     
11
%
   
11
%
Total Research Publishing & Platforms Revenue
   
251,334
     
234,709
     
7
%
   
5
%
                                 
Cost of Sales
   
69,015
     
64,109
     
(8
)%
   
(5
)%
Operating Expenses
   
100,445
     
99,542
     
(1
)%
   
1
%
Amortization of Intangibles
   
8,024
     
7,041
     
(14
)%
   
(11
)%
Restructuring (Credits) Charges (see Note 9)
   
(238
)
   
726
     
#
     
#
 
                                 
Contribution to Profit
   
74,088
     
63,291
     
17
%
   
15
%
Restructuring (Credits) Charges (see Note 9)
   
(238
)
   
726
                 
Adjusted Contribution to Profit
   
73,850
     
64,017
     
15
%
   
14
%
Depreciation and amortization
   
19,765
     
17,037
                 
Adjusted EBITDA
 
$
93,615
   
$
81,054
     
15
%
   
14
%
Adjusted EBITDA Margin
   
37.2
%
   
34.5
%
               

# Variance greater than 100%

Revenue:

Research Publishing & Platforms revenue for the three months ended October 31, 2020 increased $16.6 million, or 7% as compared with the prior year on a reported basis. On a constant currency basis, revenue increased 5% as compared with the prior year. This increase was primarily due to continued growth in Open Access in Research Publishing primarily due to growth in comprehensive “read and publish” agreements, and to a lesser extent, the contribution from acquisitions and growth in content platforms.

Adjusted EBITDA:

On a constant currency basis, Adjusted EBITDA increased 14% as compared with the prior year. This increase was due to higher revenues, operational efficiencies and COVID-19 related expense savings.

Society Partnerships:

For the three months ended October 31, 2020:
1 new society contract was signed with a combined annual revenue of approximately $0.3 million,
30 society contracts were renewed with a combined annual revenue of approximately $13.3 million,
4 society contracts were not renewed with a combined annual revenue of approximately $0.3 million.

32
Index


 
Three Months Ended
October 31,
         
Constant Currency
 
ACADEMIC & PROFESSIONAL LEARNING:
 
2020
   
2019
   
% Change
Favorable
(Unfavorable)
   
% Change
Favorable
(Unfavorable)
 
Revenue:
                       
Education Publishing
 
$
103,105
   
$
101,741
     
1
%
   
 
Professional Learning
   
67,485
     
75,984
     
(11
)%
   
(13
)%
Total Academic & Professional Learning
   
170,590
     
177,725
     
(4
)%
   
(5
)%
                                 
Cost of Sales
   
45,545
     
43,860
     
(4
)%
   
(2
)%
Operating Expenses
   
89,514
     
93,745
     
5
%
   
5
%
Amortization of Intangibles
   
4,112
     
4,270
     
4
%
   
5
%
Restructuring Charges (see Note 9)
   
1,541
     
800
     
(93
)%
   
(92
)%
                                 
Contribution to Profit
   
29,878
     
35,050
     
(15
)%
   
(17
)%
Restructuring Charges (see Note 9)
   
1,541
     
800
                 
Adjusted Contribution to Profit
   
31,419
     
35,850
     
(12
)%
   
(15
)%
Depreciation and amortization
   
17,720
     
17,349
                 
Adjusted EBITDA
 
$
49,139
   
$
53,199
     
(8
)%
   
(10
)%
Adjusted EBITDA Margin
   
28.8
%
   
29.9
%
               

# Variance greater than 100%

Revenue:

Academic & Professional Learning revenue decreased $7.1 million, or 4%, as compared with the prior year on a reported basis. On a constant currency basis, revenue decreased 5% as compared with the prior year. This decrease was primarily due to the COVID-19 impact on Professional Learning revenue, particularly the decline in trade print book publishing and the continued adverse impact of COVID-19 related retail closures and retail access and the decline in classroom dependent corporate training due to continued office closures and cancellations of in-person engagements. In Education Publishing, growth in digital content and courseware offerings continued to accelerate due to the COVID-19 driven shift to remote learning. That digital growth fully offset declines in print textbook publishing and lower test prep revenue due to COVID-19 related exam cancellations.

Adjusted EBITDA:

On a constant currency basis, Adjusted EBITDA decreased 10% as compared with the prior year. This decrease reflected revenue performance, partially offset by business optimization gains and COVID-19 related expense savings.
33
Index


 
Three Months Ended
October 31,
         
Constant Currency
 
EDUCATION SERVICES:
 
2020
   
2019
   
% Change
Favorable
(Unfavorable)
   
% Change
Favorable
(Unfavorable)
 
Revenue:
                       
Education Services OPM (1)
 
$
56,261
   
$
52,781
     
7
%
   
6
%
mthree (1)
   
12,826
     
990
     
#
     
#
 
Total Education Services Revenue
   
69,087
     
53,771
     
28
%
   
27
%
                                 
Cost of Sales
   
40,294
     
35,444
     
(14
)%
   
(12
)%
Operating Expenses
   
16,255
     
12,511
     
(30
)%
   
(28
)%
Amortization of Intangibles
   
5,029
     
3,708
     
(36
)%
   
(34
)%
Restructuring Charges (Credits) (see Note 9)
   
84
     
(475
)
   
#
     
#
 
                                 
Contribution to Profit
   
7,425
     
2,583
     
#
     
#
 
Restructuring Charges (Credits) (see Note 9)
   
84
     
(475
)
               
Adjusted Contribution to Profit
   
7,509
     
2,108
     
#
     
#
 
Depreciation and amortization
   
7,210
     
5,522
                 
Adjusted EBITDA
 
$
14,719
   
$
7,630
     
93
%
   
94
%
Adjusted EBITDA Margin
   
21.3
%
   
14.2
%
               

# Variance greater than 100%

(1)
In May 2020, we moved the IT bootcamp business acquired as part of The Learning House acquisition from Education Services OPM to mthree. As a result, the prior period revenue related to the IT bootcamp business has been included in mthree. There were no changes to our total Education Services or our consolidated financial results. The inorganic revenue from mthree in the three months ended October 31, 2020 was $12.5 million.

Revenue:

Education Services revenue increased $15.3 million, or 28% as compared with the prior year on a reported basis. On a constant currency basis, revenue increased 27% as compared with the prior year. Excluding revenue from our mthree acquisition, organic revenue increased 6% on a constant currency basis mainly driven by an increase in enrollments for our online program management services.

Adjusted EBITDA:

On a constant currency basis, Adjusted EBITDA increased $7.1 million as compared with the prior year primarily due to higher revenue; and, to a lesser extent, business optimization initiatives, notably sustained improvement in student acquisition costs.

Education Services Partners:

As of October 31, 2020, Wiley had 67 university partners under contract. As of October 31, 2019, Wiley had 65 university partners under contract.

CORPORATE EXPENSES:

Corporate expenses for the three months ended October 31, 2020 increased $4.0 million, or 11% as compared with the prior year. On a constant currency basis and excluding restructuring charges, these expenses increased 18%. This increase was primarily due to the timing of annual incentive costs.


34
Index


RESULTS OF OPERATIONS – SIX MONTHS ENDED OCTOBER 31, 2020

CONSOLIDATED OPERATING RESULTS

Revenue:

Revenue for the six months ended October 31, 2020 increased $32.6 million, or 4%, as compared with the prior year. On a constant currency basis, revenue increased 3% as compared with the prior year. This increase was mainly driven by the following factors:
an increase of $29.2 million in Education Services, primarily due to the contributions from mthree, which was acquired in January 2020; and
an increase of $24.4 million in Research Publishing & Platforms.

These increases were partially offset by a decline of $26.4 million in Academic & Professional Learning.

Excluding the inorganic impact of acquisitions, revenues on a constant currency basis decreased 1%.

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 six months ended October 31, 2020 increased $13.2 million, or 5%, as compared with the prior year. On a constant currency basis, cost of sales increased 4% as compared with the prior year. This increase was primarily due to employment related costs in Education Services, primarily due to the incremental impact from the acquisition of mthree; and to a lesser extent, an increase in royalty costs, partially offset by lower inventory and marketing costs.

Operating and Administrative Expenses:

Operating and administrative expenses for the six months ended October 31, 2020 decreased $6.0 million, or 1%, as compared with the prior year. On a constant currency basis, operating and administrative expenses decreased 2% as compared with the prior year primarily reflecting COVID-19 related expense savings, and, to a lesser extent, lower professional fees associated with strategic planning. These factors were partially offset by an increase in other administrative related costs, primarily due to the incremental impact of the acquisition of mthree, and to a lesser extent, higher technology related costs.
Restructuring and Related Charges:

Business Optimization Program

For the six months ended October 31, 2020 and 2019, we recorded pre-tax restructuring charges of $4.3 million and $14.0 million, respectively, related to this program. These charges are reflected in Restructuring and Related Charges in our 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 six months ended October 31, 2020 and 2019, we recorded pre-tax restructuring credits of $0.2 million and charges of $0.7 million, respectively, related to this program. These charges and credits are reflected in Restructuring and Related Charges in our Unaudited Condensed Consolidated Statements of Income. See Note 9, “Restructuring and Related Charges” for more details on these credits and 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 $34.1 million for the six months ended October 31, 2020, an increase of $4.1 million, or 14%, as compared with the prior year on a reported basis.  On a constant currency basis, amortization of intangibles increased 13% as compared with the prior year. The increase in amortization was 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.
35
Index


Operating Income:

Operating income for the six months ended October 31, 2020 increased $32.0 million, or 47.1% as compared with the prior year. On a constant currency basis and excluding restructuring charges, Adjusted EBITDA increased 19%. The increase in operating income and Adjusted EBITDA was primarily due to higher revenue and lower operating and administrative expenses, partially offset by higher cost of sales.  In addition, operating income was favorably impacted by lower restructuring related costs.

Interest Expense:

Interest expense for the six months ended October 31, 2020 was $9.1 million compared with the prior year of $12.9 million. This decrease was due to a lower weighted average effective borrowing rate, partially offset by higher average debt balances outstanding, which included borrowings for the funding of acquisitions in fiscal year 2020.

Foreign Exchange Transaction Losses:

Foreign exchange transaction losses were $0.8 million for the six months ended October 31, 2020 and were primarily due to losses on foreign currency third-party receivable and payable balances, partially offset by gains on foreign currency denominated intercompany accounts receivable and payable balances due to the impact of the change in average foreign exchange rates as compared to the U.S. dollar. Foreign exchange transaction losses were less than $0.1 million for the six months ended October 31, 2019 and were primarily due to the net impact of the change in average foreign exchange rates as compared to the U.S. dollar on foreign currency denominated intercompany and third-party accounts receivable and payable balances.

Provision for Income Taxes:

The effective tax rate for the six months ended October 31, 2020 was 13.7%, compared with 20.1% for the six months ended October 31, 2019. The decrease in the rate for the six months ended October 31, 2020 was due to the CARES Act and certain regulations issued in late July 2020, partially offset by an increase in the U.K. statutory rate described below. Excluding the effects of these discrete items, the rate for the six months ended October 31, 2020 would have been 21.4%.

In connection with the CARES Act and certain regulations, we elected to carry back our April 30, 2020 U.S. NOL to our year ended April 30, 2015 and claim a $20.7 million refund. The NOL was carried back to fiscal year 2015 when the U.S. corporate tax rate was 35%.  The carryback to a year with a higher rate, plus certain additional net permanent deductions included in the carryback, resulted in a $14.0 million net tax benefit.

During the three months ended July 31, 2020, the U.K. officially enacted legislation that increased its statutory rate from 17% to 19%. This resulted in a $6.7 million non-cash deferred tax expense from the re-measurement of our applicable U.K. net deferred tax liabilities.

Diluted Earnings per Share (“EPS”):

EPS for the six months ended October 31, 2020 was $1.51 per share compared with $0.85 per share for the six months ended October 31, 2019.

Below is a reconciliation of our U.S. GAAP EPS to Non-GAAP Adjusted EPS:

 
Six Months Ended October 31,
 
   
2020
   
2019
 
U.S. GAAP EPS
 
$
1.51
   
$
0.85
 
Adjustments:
               
Restructuring and related charges
   
0.05
     
0.20
 
Foreign exchange (gains) losses on intercompany transactions
   
(0.02
)
   
0.01
 
Impact of increase in U.K. statutory rate on deferred tax balances
   
0.12
     
 
Impact of U.S. CARES Act
   
(0.25
)
   
 
Non-GAAP Adjusted EPS
 
$
1.41
   
$
1.06
 

On a constant currency basis, Adjusted EPS increased 33% primarily due to the increase in Adjusted EBITDA.
36
Index


SEGMENT OPERATING RESULTS

 
Six Months Ended
October 31,
         
Constant Currency
 
RESEARCH PUBLISHING & PLATFORMS:
 
2020
   
2019
   
% Change
Favorable
(Unfavorable)
   
% Change
Favorable
(Unfavorable)
 
Revenue:
                       
Research Publishing
 
$
471,155
   
$
445,012
     
6
%
   
5
%
Research Platforms
   
20,989
     
19,072
     
10
%
   
10
%
Total Research Publishing & Platforms Revenue
   
492,144
     
464,084
     
6
%
   
5
%
                                 
Cost of Sales
   
134,716
     
128,206
     
(5
)%
   
(4
)%
Operating Expenses
   
198,266
     
199,090
     
     
1
%
Amortization of Intangibles
   
15,691
     
14,505
     
(8
)%
   
(7
)%
Restructuring (Credits) Charges (see Note 9)
   
(435
)
   
3,346
     
#
     
#
 
                                 
Contribution to Profit
   
143,906
     
118,937
     
21
%
   
20
%
Restructuring (Credits) Charges (see Note 9)
   
(435
)
   
3,346
                 
Adjusted Contribution to Profit
   
143,471
     
122,283
     
17
%
   
16
%
Depreciation and amortization
   
39,466
     
34,190
                 
Adjusted EBITDA
 
$
182,937
   
$
156,473
     
17
%
   
16
%
Adjusted EBITDA Margin
   
37.2
%
   
33.7
%
               

# Variance greater than 100%

Revenue:

Research Publishing & Platforms revenue for the six months ended October 31, 2020 increased $28.1 million, or 6% as compared with the prior year on a reported basis. On a constant currency basis, revenue increased 5% as compared with the prior year. This increase was primarily due to continued growth in Open Access in Research Publishing primarily due to growth in comprehensive “read and publish” agreements, and to a lesser extent, contribution from acquisitions and growth in content platforms.

Adjusted EBITDA:

On a constant currency basis, Adjusted EBITDA increased 16% as compared with the prior year. This increase was primarily due to higher revenues, operational efficiencies, COVID-19 related expense savings and, to a lesser extent, lower marketing spend due to timing. These factors were partially offset by an increase in provisions for bad debt reflecting an increase in aged receivable balances due to COVID-19.

Society Partnerships:

For the six months ended October 31, 2020:
4 new society contracts were signed with a combined annual revenue of approximately $13.7 million,
54 society contracts were renewed with a combined annual revenue of approximately $44.6 million,
7 society contracts were not renewed with a combined annual revenue of approximately $0.7 million.


37
Index


 
Six Months Ended
October 31,
         
Constant Currency
 
ACADEMIC & PROFESSIONAL LEARNING:
 
2020
   
2019
   
% Change
Favorable
(Unfavorable)
   
% Change
Favorable
(Unfavorable)
 
Revenue:
                       
Education Publishing
 
$
167,189
   
$
167,264
     
     
 
Professional Learning
   
130,314
     
155,319
     
(16
)%
   
(17
)%
Total Academic & Professional Learning
   
297,503
     
322,583
     
(8
)%
   
(8
)%
                                 
Cost of Sales
   
82,333
     
87,674
     
6
%
   
7
%
Operating Expenses
   
175,848
     
183,275
     
4
%
   
4
%
Amortization of Intangibles
   
8,250
     
8,068
     
(2
)%
   
(1
)%
Restructuring Charges (see Note 9)
   
1,574
     
3,605
     
56
%
   
56
%
                                 
Contribution to Profit
   
29,498
     
39,961
     
(26
)%
   
(28
)%
Restructuring Charges (see Note 9)
   
1,574
     
3,605
                 
Adjusted Contribution to Profit
   
31,072
     
43,566
     
(29
)%
   
(30
)%
Depreciation and amortization
   
36,524
     
33,873
                 
Adjusted EBITDA
 
$
67,596
   
$
77,439
     
(13
)%
   
(14
)%
Adjusted EBITDA Margin
   
22.7
%
   
24.0
%
               

# Variance greater than 100%

Revenue:

Academic & Professional Learning revenue decreased $25.1 million, or 8%, as compared with the prior year on a reported and constant currency basis.  Excluding revenue from our zyBooks and Knewton acquisitions, organic revenue declined 9% on a constant currency basis. This decrease was primarily due to the COVID-19 impact on Professional Learning revenue, particularly the decline in trade print book publishing and the continued adverse impact of COVID-19 on classroom dependent corporate training. In Education Publishing, growth in digital content and courseware offerings continued to accelerate due to the COVID-19 driven shift to remote learning.  That digital growth fully offset declines in print textbook publishing and lower test prep revenue due to COVID-19 related exam cancellations.

Adjusted EBITDA:

On a constant currency basis, Adjusted EBITDA decreased 14% as compared with the prior year. This decrease reflected revenue performance and an increase in technology related costs, partially offset by COVID-19 related expense savings.

38
Index


 
Six Months Ended
October 31,
         
Constant Currency
 
EDUCATION SERVICES:
 
2020
   
2019
   
% Change
Favorable
(Unfavorable)
   
% Change
Favorable
(Unfavorable)
 
Revenue:
                       
Education Services OPM (1)
 
$
106,523
   
$
100,937
     
6
%
   
6
%
mthree (1)
   
26,167
     
2,131
     
#
     
#
 
Total Education Services Revenue
   
132,690
     
103,068
     
29
%
   
28
%
                                 
Cost of Sales
   
82,612
     
70,628
     
(17
)%
   
(17
)%
Operating Expenses
   
31,756
     
28,025
     
(13
)%
   
(13
)%
Amortization of Intangibles
   
10,116
     
7,417
     
(36
)%
   
(36
)%
Restructuring Charges (see Note 9)
   
223
     
1,614
     
86
%
   
86
%
                                 
Contribution to Profit
   
7,983
     
(4,616
)
   
#
     
#
 
Restructuring Charges (see Note 9)
   
223
     
1,614
                 
Adjusted Contribution to Profit
   
8,206
     
(3,002
)
   
#
     
#
 
Depreciation and amortization
   
14,489
     
11,020
                 
Adjusted EBITDA
 
$
22,695
   
$
8,018
     
#
     
#
 
Adjusted EBITDA Margin
   
17.1
%
   
7.8
%
               

# Variance greater than 100%

(1)
In May 2020, we moved the IT bootcamp business acquired as part of The Learning House acquisition from Education Services OPM to mthree. As a result, the prior period revenue related to the IT bootcamp business has been included in mthree. There were no changes to our total Education Services or our consolidated financial results. The inorganic revenue from mthree in the six months ended October 31, 2020 was $24.9 million.

Revenue:

Education Services revenue increased $29.6 million, or 29% as compared with the prior year on a reported basis. On a constant currency basis, revenue increased 28% as compared with the prior year. Excluding revenue from our mthree acquisition, organic revenue increased 6% on a constant currency basis mainly driven by an increase in enrollments for our online program management services.

Adjusted EBITDA:

On a constant currency basis, Adjusted EBITDA was favorable by $14.7 million as compared with the prior year. This was due to higher revenue, and business optimization initiatives, notably sustained improvement in student acquisition costs. These factors were partially offset by higher employment related costs and other administrative costs due to the incremental impact from the acquisition of mthree.

CORPORATE EXPENSES:

Corporate expenses for the six months ended October 31, 2020 decreased $4.9 million, or 6% as compared with the prior year. On a constant currency basis and excluding restructuring charges, these expenses decreased 2%. This decrease was primarily due to lower professional fees related to strategic planning, partially offset by an increase in legal related costs.

39
Index


FISCAL YEAR 2021 OUTLOOK:

Based on performance through the six months and leading indicators for the remainder of the year, Wiley is initiating annual guidance for fiscal year 2021.  For Revenue, the Company anticipates low-single digit growth overall, which includes low-single digit growth in Research and double-digit growth in Education Services (mid-single digit growth on an organic basis). The growth in Research and Education Services will more than offset a mid-single digit decline in Academic & Professional Learning. Revenue growth, business optimization gains, and COVID-related savings will all contribute to improved year-over-year profit performance.

We expect Free Cash Flow to be in the range of $175 million to $200 million, up from $173 million in fiscal 2020. The anticipated cash flow improvement reflects improved earnings, partly offset by unfavorable timing of working capital items. We expect capital expenditures to be approximately $100 million, with investment focused on adding and enhancing tech-enabled products and services in our core focus areas, along with continued investment in process optimization and workflow automation. We expect to receive the refund related to the CARES Act by the end of fiscal 2021.

Projected performance ranges for fiscal year 2021 consolidated Revenue, Adjusted EBITDA, Adjusted EPS and Free Cash Flow are as follows:

Amounts in millions, except Adjusted EPS

METRIC
 
FISCAL YEAR 2020
   
FISCAL YEAR 2021 OUTLOOK(1)
 
Revenue
 
$
1,831
   
$
1,865-$1,885
 
Adjusted EBITDA
 
$
356
   
$
380-$395
 
Adjusted EPS
 
$
2.40
   
$
2.50-$2.70
 
Free Cash Flow
 
$
173
   
$
175-$200
 

(1)
Fiscal Year 2021 Outlook reflects actual currency for results through the six months ended October 31, 2020 and assumes current FX rates prevail for remainder of year.

Adjusted EBITDA:

Below is a reconciliation of our consolidated U.S. GAAP net income to Non-GAAP EBITDA and Adjusted EBITDA:

 
 
Three Months Ended
October 31,
   
Six Months Ended
October 31,
 
   
2020
   
2019
   
2020
   
2019
 
Net Income
 
$
68,432
   
$
44,690
   
$
84,766
   
$
48,314
 
Interest expense
   
4,461
     
6,787
     
9,075
     
12,864
 
Provision for income taxes
   
81
     
11,783
     
13,481
     
12,126
 
Depreciation and amortization
   
48,430
     
42,638
     
97,937
     
84,857
 
Non-GAAP EBITDA
 
$
121,404
   
$
105,898
   
$
205,259
   
$
158,161
 
Restructuring and related charges
   
1,920
     
4,001
     
4,138
     
14,736
 
Foreign exchange transaction losses
   
697
     
2,668
     
779
     
16
 
Other income
   
(3,766
)
   
(2,537
)
   
(8,157
)
   
(5,370
)
Non-GAAP Adjusted EBITDA
 
$
120,255
   
$
110,030
   
$
202,019
   
$
167,543
 

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. 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 in the future. In addition, our liquidity could be adversely impacted by COVID-19 due to the continued impact on our customers, including cash collections. We do not have any off-balance-sheet debt. We will continue to pursue attractive opportunities to add scale and provide enhanced tech-enabled services in research and online education.


40
Index

As of October 31, 2020, we had cash and cash equivalents of $86.1 million, of which approximately $80.0 million, or 93%, 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. The agreement contains customary affirmative and negative covenants, including a financial covenant in the form of a consolidated net leverage ratio and consolidated interest coverage ratio.

As of October 31, 2020, we had approximately $837.7 million of debt outstanding, net of unamortized issuance costs of $0.6 million, and approximately $654.9 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 October 31, 2020.

Analysis of Historical Cash Flow

The following table shows the changes in our Unaudited Condensed Consolidated Statement of Cash Flows for the six months ended October 31, 2020 and 2019.
 
Six Months Ended
October 31,
 
   
2020
   
2019
 
Net Cash Used In Operating Activities
 
$
(76,622
)
 
$
(99,521
)
Net Cash Used In Investing Activities
   
(61,679
)
   
(134,431
)
Net Cash Provided by Financing Activities
   
18,599
     
249,267
 
Effect of Foreign Currency Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
   
3,301
     
(461
)

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 six months ended October 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 typically occurs in the beginning of the second half of our fiscal year.

Free Cash Flow less Product Development Spending:
 
 
Six Months Ended
October 31,
 
   
2020
   
2019
 
Net Cash Used In Operating Activities
 
$
(76,622
)
 
$
(99,521
)
Less: Additions to Technology, Property and Equipment
   
(36,430
)
   
(44,531
)
Less: Product Development Spending
   
(10,999
)
   
(11,686
)
Free Cash Flow less Product Development Spending
 
$
(124,051
)
 
$
(155,738
)


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Index

Net Cash Used In Operating Activities

The following is a summary of the $22.9 million change in Net Cash Used In Operating Activities for the six months ended October 31, 2020 as compared with the six months ended October 31, 2019 (amounts in millions).

Net Cash Used In Operating Activities – Six Months Ended October 31, 2019
 
$
(99.5
)
Higher net income adjusted for items to reconcile net income to net cash used in operating activities, including the non-cash change in deferred taxes primarily related to the CARES Act
   
62.9
 
Working Capital Changes:
   
 
Accounts payable and royalties payable - primarily due to the timing of payments
   
(28.6
)
Income taxes - primarily due to a receivable in connection with the impact of the CARES Act, see Note 13, “Income taxes”, and to a lesser extent, the timing of certain international and U.S. tax payments and refunds
   
(16.7
)
Accounts receivable, net and contract liabilities - due to the timing of customer payments
   
(13.3
)
Other working capital items – favorable activity primarily due to lower employee related  payments, and COVID-19 related expense savings, and, to a lesser extent, lower inventory purchases. Partially offset by an increase in restructuring payments
   
18.6
 
Net Cash Used In Operating Activities – Six Months Ended October 31, 2020
 
$
(76.6
)

Our negative working capital (current assets less current liabilities) was $157.4 million and $312.3 million as of October 31, 2020 and April 30, 2020, respectively, due to the seasonality of our businesses. The primary driver of the negative working capital is the benefit realized from 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: operations, capital expenditures, acquisitions, debt repayments, dividend payments and purchasing treasury shares. Due to the economic downturn, we estimate that approximately $30 million of customer payments were delayed into fiscal year 2021. Our Accounts Receivable collections were in line with our expectations. Although, in certain situations, the timing of collections may be extended, we do not anticipate any material issues with customer collections. Many of our customers have been adversely impacted by COVID-19, and we expect some continued delays in payments due to widespread disruption and pervasive cash conservation behaviors in the face of uncertainty.  We have recorded provisions for bad debt where appropriate.

The $154.9 million change in negative working capital was primarily due to the decrease in contract liabilities, accounts payable and accrued employment costs, partially offset by the decrease in cash and cash equivalents and accounts receivable.

The contract liabilities will be recognized as income when the products are shipped or made available online to the customers over the term of the subscription. Current liabilities as of October 31, 2020 and as of April 30, 2020 includes $285.2 million and $520.2 million, respectively, primarily related to deferred subscription revenue for which cash was collected in advance.

Net Cash Used In Investing Activities

Net Cash Used in Investing Activities for the six months ended October 31, 2020 was $61.7 million compared to $134.4 million in the prior year. The decrease in cash used in investing activities was due to a reduction of $73.9 million in cash used to acquire businesses, and to a lesser extent, a decrease of $8.1 million for additions of technology, property and equipment in the six months ended October 31, 2020, partially offset by an increase in cash used of $10.0 million for the acquisition of publication rights and other.

Net Cash Provided By Financing Activities

Net Cash Provided by Financing Activities was $18.6 million for the six months ended October 31, 2020 compared to $249.3 million for the six months ended October 31, 2019. This decrease in cash provided by financing activities was due to a decrease in net borrowings of $257.9 million, which was primarily due to an increase in repayments for the six months ended October 31, 2020, partially offset by $25.0 million of lower cash used for repurchases of common stock in the six months ended October 31, 2020.

During the six months ended October 31, 2020, we made no repurchases of shares of common stock. During the six months ended October 31, 2019, we repurchased 551,847 shares of Class A Common stock at an average price of $45.30. We expect to resume share repurchases under our existing repurchase authorizations as global economic stability returns.

In the six months ended October 31, 2020, we increased our quarterly dividend to shareholders to $1.37 per share annualized versus $1.36 per share annualized in the prior year.

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Index


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 $538.3 million of unhedged variable rate debt as of October 31, 2020 would affect net income and cash flow by approximately $4.2 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 six months ended October 31, 2020, we recorded foreign currency translation (losses) gains in Accumulated Other Comprehensive Loss of approximately $(11.6) million and $35.2 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. During the three and six months ended October 31, 2019, we recorded foreign currency translation gains in Other Comprehensive Income of approximately $38.3 million and $2.8 million respectively, primarily as a result of the fluctuations of the U.S. dollar relative to the British pound sterling.

Exchange rate gains or losses related to foreign currency transactions are recognized as transaction gains or losses in our 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, including the impact of COVID-19. 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.

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Index


The reserves are reflected in the following accounts of our Unaudited Condensed Consolidated Statements of Financial Position – increase (decrease):
 
October 31, 2020
   
April 30, 2020
 
Increase in Inventories, net
 
$
11,252
   
$
8,686
 
Decrease in Accrued royalties
 
$
(5,891
)
 
$
(4,441
)
Increase in Contract liabilities
 
$
43,616
   
$
32,769
 
Print book sales return reserve net liability balance
 
$
(26,473
)
 
$
(19,642
)

A one percent change in the estimated sales return rate could affect net income by approximately $0.7 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 book customer accounts for more than 10% of total consolidated revenue and 17% of accounts receivable at October 31, 2020, the top 10 book customers account for approximately 14% of total consolidated revenue and approximately 35% of accounts receivable at October 31, 2020.

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 six months ended October 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.

ITEM 4.  CONTROLS AND PROCEDURES

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 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 year-ended April 30, 2020. We are in the process of integrating mthree into 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.
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Index



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 October 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There have been no significant developments related to legal proceedings during the three months ended October 31, 2020. For information regarding legal proceedings, see our Annual Report on Form 10-K for the fiscal year ended April 30, 2020 Note 16, “Commitment and Contingencies”.

ITEM 1a. RISK FACTORS

See Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended April 30, 2020. 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.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended October 31, 2020, there were no share repurchases of our Class A and Class B Common Stock under our publicly announced stock repurchase programs.
   
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
   
Maximum Dollar Value of Shares
that May be Purchased
Under Additional Plans or Programs
(Dollars in millions)
 
August 2020
   
   
$
     
     
806,758
   
$
200
 
September 2020
   
     
     
     
806,758
   
$
200
 
October 2020
   
     
     
     
806,758
   
$
200
 
Total
   
   
$
     
     
806,758
   
$
200
 


ITEM 6. EXHIBITS

31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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)


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Index


SIGNATURES

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
 
       
       
       
   
Dated: December 10, 2020
 


46
Index