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