Company Quick10K Filing
Quick10K
Wiley John & Sons
10-Q 2019-01-31 Quarter: 2019-01-31
10-Q 2018-10-31 Quarter: 2018-10-31
10-Q 2018-07-31 Quarter: 2018-07-31
10-K 2018-04-30 Annual: 2018-04-30
10-Q 2018-03-07 Quarter: 2018-03-07
10-Q 2017-12-06 Quarter: 2017-12-06
10-Q 2017-08-31 Quarter: 2017-08-31
10-K 2017-06-29 Annual: 2017-06-29
10-Q 2017-03-10 Quarter: 2017-03-10
10-Q 2016-12-09 Quarter: 2016-12-09
10-Q 2016-08-29 Quarter: 2016-08-29
10-K 2016-06-29 Annual: 2016-06-29
10-Q 2016-02-29 Quarter: 2016-02-29
10-Q 2015-12-02 Quarter: 2015-12-02
10-Q 2015-09-08 Quarter: 2015-09-08
10-K 2015-04-30 Annual: 2015-04-30
10-Q 2015-03-11 Quarter: 2015-03-11
10-Q 2014-10-31 Quarter: 2014-10-31
10-Q 2014-07-31 Quarter: 2014-07-31
10-K 2014-06-27 Annual: 2014-06-27
10-Q 2014-01-31 Quarter: 2014-01-31
8-K 2019-02-07 Officers, Regulation FD, Exhibits
8-K 2019-01-18 Regulation FD, Exhibits
8-K 2018-12-06 Earnings, Exhibits
8-K 2018-11-01 Regulation FD, Exhibits
8-K 2018-10-09 Regulation FD, Exhibits
8-K 2018-10-01 Officers, Exhibits
8-K 2018-09-28 Shareholder Vote
8-K 2018-09-05 Earnings, Exhibits
8-K 2018-09-05 Earnings, Exhibits
8-K 2018-06-21 Other Events, Exhibits
8-K 2018-06-12 Earnings, Exhibits
8-K 2018-03-06 Earnings, Exhibits
ALGN Align Technology 23,070
COG Cabot Oil & Gas 11,610
AVA Avista 2,750
SSYS Stratasys 1,320
ICHR Ichor Holdings 554
GOGO Gogo 411
HOTH Hoth Therapeutics 46
ZZHJC Atel Capital Equipment Fund Ix 0
DDE Dover Downs Gaming & Entertainment 0
SKKY Skkynet Cloud Systems 0
JWA 2019-01-31
Note 1 - Basis of Presentation
Note 2 - Recent Accounting Standards
Note 3 - Acquisition
Note 4 - Revenue Recognition, Contracts with Customers
Note 5 - Stock-Based Compensation
Note 6 - Accumulated Other Comprehensive Loss
Note 7 - Reconciliation of Weighted Average Shares Outstanding and Share Repurchases
Note 8 - Restructuring and Related Charges
Note 9 - Segment Information
Note 10 - Inventories
Note 11 - Goodwill and Intangible Assets
Note 12 - Income Taxes
Note 13 - Retirement Plans
Note 14 - Derivative Instruments and Hedging Activities
Note 15 - Commitments and Contingencies
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-18.1 exhibit18_1.htm
EX-31.1 ex31_1.htm
EX-31.2 ex31_2.htm
EX-32.1 ex32_1.htm
EX-32.2 ex32_2.htm

Wiley John & Sons Earnings 2019-01-31

JWA 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 form10q.htm FORM 10Q FY19 Q3  


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 January 31, 2019

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, NJ
 
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

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 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 February 28, 2019 were:

Class A, par value $1.00 – 47,932,973
Class B, par value $1.00 – 9,139,133

JOHN WILEY & SONS, INC. AND SUBSIDIARIES
INDEX


PART I - FINANCIAL INFORMATION
   
         
Item 1.
 
Financial Statements
   
         
     
5
         
     
6
         
     
7
         
     
8
         
     
9
         
   
Notes to Unaudited Condensed Consolidated Financial Statements
   
     
11
     
11
     
16
     
16
     
22
     
23
     
23
     
24
     
25
     
26
     
26
     
27
     
27
     
28
     
29
         
Item 2.
   
30
         
Item 3.
   
43
         
Item 4.
   
44
         
PART II - OTHER INFORMATION
   
         
Item 1.
   
45
         
Item 1a.
   
45
         
Item 2.
   
45
         
Item 6.
   
46
         
SIGNATURES
 
47


2

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 2019 outlook, 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 online 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) achievement of targeted run rate savings through restructuring activities; 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 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 Operating Income and margin;
Adjusted Contribution to Profit and margin; 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 its outlook, to evaluate our performance and to evaluate and calculate incentive compensation. We present these non-GAAP performance measures in addition to U.S. GAAP financial results because we believe that these non-GAAP performance measures provide useful information to certain investors and financial analysts for operational trends and comparisons across accounting periods. The use of these non-GAAP performance measures provides 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

For example:

Adjusted EPS, Adjusted Operating Profit, and Adjusted Contribution to Profit 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 new 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 before the impact of foreign currency (or at “constant currency”), which means that we apply the same foreign currency exchange rates for the current and equivalent prior period.

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 2019 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


JOHN WILEY & SONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Dollars in thousands

   
January 31, 2019
   
April 30, 2018
 
   
(Unaudited)
       
Assets:
           
Current Assets
           
Cash and cash equivalents
 
$
132,758
   
$
169,773
 
Accounts receivable, net
   
194,764
     
212,377
 
Inventories, net
   
35,264
     
39,489
 
Prepaid expenses and other current assets
   
68,657
     
58,332
 
Total Current Assets
   
431,443
     
479,971
 
                 
Product Development Assets
   
62,004
     
78,814
 
Royalty Advances, net
   
42,903
     
37,058
 
Technology, Property and Equipment, net
   
286,172
     
289,934
 
Intangible Assets, net
   
892,603
     
848,071
 
Goodwill
   
1,103,222
     
1,019,801
 
Other Non-Current Assets
   
93,279
     
85,802
 
Total Assets
 
$
2,911,626
   
$
2,839,451
 
                 
Liabilities and Shareholders' Equity:
               
Current Liabilities
               
Accounts payable
 
$
85,111
   
$
90,097
 
Accrued royalties
   
135,863
     
73,007
 
Contract liability (Deferred revenue)
   
271,541
     
486,353
 
Accrued employment costs
   
81,571
     
116,179
 
Accrued income taxes
   
20,781
     
13,927
 
Other accrued liabilities
   
83,398
     
94,748
 
Total Current Liabilities
   
678,265
     
874,311
 
                 
Long-Term Debt
   
633,523
     
360,000
 
Accrued Pension Liability
   
150,131
     
190,301
 
Deferred Income Tax Liabilities
   
157,786
     
143,518
 
Other Long-Term Liabilities
   
96,492
     
80,764
 
Total Liabilities
   
1,716,197
     
1,648,894
 
                 
Shareholders’ Equity
               
Preferred Stock, $1 par value: Authorized – 2 million, Issued 0
   
     
 
Class A Common Stock, $1 par value: Authorized-180 million Issued 70,124,963 and 70,110,603 as of January 31, 2019 and April 30, 2018, respectively
   
70,125
     
70,111
 
Class B Common Stock, $1 par value: Authorized-72 million Issued 13,056,707 and 13,071,067 as of January 31, 2019 and April 30, 2018, respectively
   
13,057
     
13,071
 
Additional paid-in-capital
   
423,466
     
407,120
 
Retained earnings
   
1,886,620
     
1,834,057
 
Accumulated other comprehensive loss
   
(474,266
)
   
(439,580
)
Treasury stock (Class A 22,190,282 and 21,853,257 as of January 31, 2019 and April 30, 2018, respectively; Class B 3,917,574 and 3,917,574 as of January 31, 2019 and April 30, 2018, respectively)
   
(723,573
)
   
(694,222
)
Total Shareholders’ Equity
   
1,195,429
     
1,190,557
 
Total Liabilities and Shareholders' Equity
 
$
2,911,626
   
$
2,839,451
 

See accompanying notes to the unaudited condensed consolidated financial statements.

5


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

   
Three Months Ended
January 31,
   
Nine Months Ended
January 31,
 
   
2019
   
2018 (1)(2)
   
2019
   
2018 (1)(2)
 
Revenue, net
 
$
449,367
   
$
455,675
   
$
1,308,890
   
$
1,318,850
 
                                 
Costs and Expenses
                               
Cost of sales (2)
   
143,879
     
136,362
     
404,194
     
394,444
 
Operating and administrative expenses (1)(2)
   
240,715
     
239,548
     
717,348
     
703,158
 
Restructuring and related (credits) charges
   
(348
)
   
2,208
     
3,562
     
26,531
 
Amortization of intangibles
   
14,775
     
12,163
     
39,825
     
35,965
 
Total Costs and Expenses
   
399,021
     
390,281
     
1,164,929
     
1,160,098
 
                                 
Operating Income
   
50,346
     
65,394
     
143,961
     
158,752
 
                                 
Interest Expense
   
(5,346
)
   
(3,295
)
   
(11,750
)
   
(10,023
)
Foreign Exchange Transaction Losses
   
(2,525
)
   
(6,032
)
   
(4,308
)
   
(11,584
)
Interest and Other Income (1)
   
2,742
     
2,200
     
7,717
     
6,694
 
                                 
                                 
Income Before Taxes
   
45,217
     
58,267
     
135,620
     
143,839
 
Provision (Benefit) for Income Taxes
   
10,275
     
(10,575
)
   
30,599
     
5,713
 
                                 
Net Income
 
$
34,942
   
$
68,842
   
$
105,021
   
$
138,126
 
                                 
Earnings Per Share
                               
Basic
 
$
0.61
   
$
1.21
   
$
1.83
   
$
2.42
 
Diluted
 
$
0.61
   
$
1.19
   
$
1.81
   
$
2.39
 
                                 
Weighted Average Number of Common Shares Outstanding
                               
Basic
   
57,158
     
57,035
     
57,330
     
56,979
 
Diluted
   
57,626
     
57,871
     
57,882
     
57,736
 

See accompanying notes to the unaudited condensed consolidated financial statements.
____________________________________________

(1)
 Due to the retrospective adoption of Accounting Standards Update (“ASU”) 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,”, total net benefits of $2.0 million and $6.0 million related to the non-service components of defined benefit and other post-employment benefit plans were reclassified from Operating and Administrative Expenses to Interest and Other Income for the three and nine months ended January 31, 2018, respectively. Total net benefits related to the non-service components of defined benefit and other post-employment benefit plans were $2.1 million and $6.6 million for the three and nine months ended January 31, 2019, respectively. Refer to Note 2, "Recent Accounting Standards," in the Notes to Unaudited Condensed Consolidated Financial Statements for more information.

(2)
 In connection with the acquisition of The Learning House, Inc. (“Learning House”), we changed our accounting policy for certain advertising and marketing costs incurred by our Education Services business to fulfill performance obligations from contracts with educational institutions. Under the new accounting policy, these costs are included in Cost of Sales whereas they were previously included in Operating and Administrative Expenses on the Unaudited Condensed Consolidated Statements of Income. Including these expenses in Cost of Sales will better align these costs with the related revenue and conform with the presentation of such costs for Learning House. This change in accounting policy was applied retrospectively.

The Condensed Consolidated Statements of Income for the three and nine months ended January 31, 2018 have been reclassified to reflect this change in accounting policy. The impact of this reclassification was an increase to Cost of Sales and a corresponding decrease to Operating and Administrative Expenses of $11.2 million and $34.7 million for the three and nine months ended January 31, 2018, respectively. This reclassification had no impact on Revenue, net, Operating Income, Net Income, or Earnings per Share. Refer to “Change in Accounting Policy” in Note 1, “Basis of Presentation,” for more information on the accounting policy change and Note 3, “Acquisition,” in the Notes to Unaudited Condensed Consolidated Financial Statements for more information related to the acquisition of Learning House.

6

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

   
Three Months Ended
January 31,
   
Nine Months Ended
January 31,
 
   
2019
   
2018
   
2019
   
2018
 
Net Income
 
$
34,942
   
$
68,842
   
$
105,021
   
$
138,126
 
                                 
Other Comprehensive Income (Loss):
                               
Foreign currency translation adjustment
   
17,515
     
51,401
     
(43,234
)
   
84,442
 
Unamortized retirement costs, tax (benefit) provision of $(596), $(2,377), $3,121, and $(3,085), respectively
   
(2,081
)
   
(8,587
)
   
11,117
     
(11,113
)
Unrealized (loss) gain on interest rate swaps, tax (benefit) provision of $(1,263), $450, $(814) and $478, respectively
   
(1,136
)
   
734
     
(2,569
)
   
780
 
Total Other Comprehensive Income (Loss)
   
14,298
     
43,548
     
(34,686
)
   
74,109
 
                                 
Comprehensive Income
 
$
49,240
   
$
112,390
   
$
70,335
   
$
212,235
 

See accompanying notes to the unaudited condensed consolidated financial statements.

7


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

   
Nine Months Ended
January 31,
 
   
2019
   
2018
 
Operating Activities
           
Net income
 
$
105,021
   
$
138,126
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Amortization of intangibles
   
39,825
     
35,965
 
Amortization of product development spending
   
29,301
     
30,314
 
Depreciation and amortization of technology, property and equipment
   
52,414
     
48,471
 
Restructuring charges
   
3,562
     
26,531
 
Stock-based compensation expense
   
14,974
     
6,510
 
Royalty advances
   
(100,454
)
   
(89,366
)
Earned royalty advances
   
94,240
     
81,976
 
Impairment of publishing brand
   
     
3,600
 
Other non-cash charges (credits)
   
10,898
     
(4,976
)
Net change in operating assets and liabilities
   
(202,173
)
   
(86,484
)
Net Cash Provided by Operating Activities
   
47,608
     
190,667
 
Investing Activities
               
Product development spending
   
(14,251
)
   
(30,426
)
Additions to technology, property and equipment
   
(49,988
)
   
(78,958
)
Business acquired in purchase transaction, net of cash acquired
   
(190,467
)
   
 
Acquisitions of publication rights and other
   
(4,386
)
   
(25,227
)
Net Cash Used in Investing Activities
   
(259,092
)
   
(134,611
)
Financing Activities
               
Repayment of long-term debt
   
(217,200
)
   
(238,951
)
Borrowing of long-term debt
   
490,512
     
305,754
 
Purchase of treasury shares
   
(34,994
)
   
(29,257
)
Change in book overdrafts
   
(6,657
)
   
(8,884
)
Cash dividends
   
(56,963
)
   
(55,093
)
Net proceeds from exercise of stock options and other
   
6,278
     
30,606
 
Net Cash Provided by Financing Activities
   
180,976
     
4,175
 
Effects of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash (1)
   
(6,359
)
   
10,015
 
Cash, Cash Equivalents and Restricted Cash (1)
               
(Decrease)/Increase for the Period
   
(36,867
)
   
70,246
 
Balance at Beginning of Period
   
170,257
     
58,516
 
Balance at End of Period
 
$
133,390
   
$
128,762
 
Cash Paid During the Period for:
               
Interest
 
$
10,781
   
$
10,766
 
Income taxes, net of refunds
 
$
29,604
   
$
39,655
 
                 
Non-cash items:
               
Non-cash items associated with the acquisition of Learning House
               
Warrants to purchase 0.4 million shares of Wiley Class A Common Stock issued in connection with the Learning House acquisition
 
$
565
   
$
 
                 

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

(1)
Due to the retrospective adoption of ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” we are now required to include restricted cash as part of the change in cash, cash equivalents, and restricted cash. As a result, amounts which were previously classified as cash flows from operating activities have been reclassified as they are recognized in the total change in cash, cash equivalents and restricted cash. Refer to Note 2, "Recent Accounting Standards," in the Notes to Unaudited Condensed Consolidated Financial Statements for more information.
8


JOHN WILEY & SONS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY – UNAUDITED
Dollars in thousands

   
Common Stock
Class A
   
Common Stock
Class B
   
Additional
Paid-in Capital
   
Retained
Earnings
   
Treasury
Stock
   
Accumulated Other
Comprehensive Loss
   
Total
Shareholder’s Equity
 
Balance at October 31, 2018
 
$
70,125
   
$
13,057
   
$
417,718
   
$
1,870,609
   
$
(713,553
)
 
$
(488,564
)
 
$
1,169,392
 
                                                         
Restricted Shares Issued under Stock-based Compensation Plans
   
     
     
(927
)
   
     
1,004
     
     
77
 
Net (Payments)/Proceeds from Exercise of Stock Options and Other
   
     
     
18
     
     
(1,024
)
   
     
(1,006
)
Excess Tax Benefits from Stock-based Compensation
   
     
     
     
     
     
     
 
Stock-based Compensation Expense
   
     
     
6,092
     
     
     
     
6,092
 
Purchase of Treasury Shares
   
     
     
     
     
(10,000
)
   
     
(10,000
)
Class A Common Stock Dividends ($0.33 per share)
   
     
     
     
(15,915
)
   
     
     
(15,915
)
Class B Common Stock Dividends ($0.33 per share)
   
     
     
     
(3,016
)
   
     
     
(3,016
)
Common Stock Class Conversions
   
     
     
     
     
     
     
 
Issuance of Warrants Related to Acquisition of a Business
   
     
     
565
     
     
     
     
565
 
Comprehensive Income (Loss)
   
     
     
     
34,942
     
     
14,298
     
49,240
 
Balance at January 31, 2019
 
$
70,125
   
$
13,057
   
$
423,466
   
$
1,886,620
   
$
(723,573
)
 
$
(474,266
)
 
$
1,195,429
 


   
Common Stock
Class A
   
Common Stock
Class B
   
Additional
Paid-in Capital
   
Retained
Earnings
   
Treasury
Stock
   
Accumulated Other
Comprehensive Loss
   
Total
Shareholder’s Equity
 
Balance at October 31, 2017
 
$
70,097
   
$
13,085
   
$
392,493
   
$
1,747,998
   
$
(699,898
)
 
$
(476,725
)
 
$
1,047,050
 
                                                         
Restricted Shares Issued under Stock-based Compensation Plans
   
     
     
(441
)
   
     
489
     
     
48
 
Net Proceeds from Exercise of Stock Options and Other
   
     
     
10,001
     
     
13,258
     
     
23,259
 
Excess Tax Benefits from Stock-based Compensation
   
     
     
     
     
     
     
 
Stock-based Compensation Expense
   
     
     
3,914
     
     
60
     
     
3,974
 
Purchase of Treasury Shares
   
     
     
     
     
     
     
 
Class A Common Stock Dividends ($0.32 per share)
   
     
     
     
(15,463
)
   
     
     
(15,463
)
Class B Common Stock Dividends ($0.32 per share)
   
     
     
     
(2,931
)
   
     
     
(2,931
)
Common Stock Class Conversions
   
10
     
(10
)
   
     
     
     
     
 
Comprehensive Income (Loss)
   
     
     
     
68,842
     
     
43,547
     
112,389
 
Balance at January 31, 2018
 
$
70,107
   
$
13,075
   
$
405,967
   
$
1,798,446
   
$
(686,091
)
 
$
(433,178
)
 
$
1,168,326
 

See accompanying notes to the audited consolidated financial statements.
9


JOHN WILEY & SONS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY – UNAUDITED
Dollars in thousands

   
Common Stock
Class A
   
Common Stock
Class B
   
Additional
Paid-in Capital
   
Retained
Earnings
   
Treasury
Stock
   
Accumulated Other
Comprehensive Loss
   
Total
Shareholder’s Equity
 
Balance at April 30, 2018
 
$
70,111
   
$
13,071
   
$
407,120
   
$
1,834,057
   
$
(694,222
)
 
$
(439,580
)
 
$
1,190,557
 
                                                         
Restricted Shares Issued under Stock-based Compensation Plans
   
     
     
(3,911
)
   
2
     
4,083
     
     
174
 
Net Proceeds from Exercise of Stock Options and Other
   
     
     
4,718
     
     
1,560
     
     
6,278
 
Excess Tax Benefits from Stock-based Compensation
   
     
     
     
     
     
     
 
Stock-based Compensation Expense
   
     
     
14,974
     
     
     
     
14,974
 
Purchase of Treasury Shares
   
     
     
     
     
(34,994
)
   
     
(34,994
)
Class A Common Stock Dividends ($0.99 per share)
   
     
     
     
(47,911
)
   
     
     
(47,911
)
Class B Common Stock Dividends ($0.99 per share)
   
     
     
     
(9,052
)
   
     
     
(9,052
)
Common Stock Class Conversions
   
14
     
(14
)
   
     
     
     
     
 
Issuance of Warrants Related to Acquisition of a Business
   
     
     
565
     
     
     
     
565
 
Adjustment due to adoption of new revenue standard
   
     
     
     
4,503
     
     
     
4,503
 
Comprehensive Income (Loss)
   
     
     
     
105,021
     
     
(34,686
)
   
70,335
 
Balance at January 31, 2019
 
$
70,125
   
$
13,057
   
$
423,466
   
$
1,886,620
   
$
(723,573
)
 
$
(474,266
)
 
$
1,195,429
 


   
Common Stock
Class A
   
Common Stock
Class B
   
Additional
Paid-in Capital
   
Retained
Earnings
   
Treasury
Stock
   
Accumulated Other
Comprehensive Loss
   
Total
Shareholder’s Equity
 
Balance at April 30, 2017
 
$
70,086
   
$
13,096
   
$
387,896
   
$
1,715,423
   
$
(676,077
)
 
$
(507,287
)
 
$
1,003,137
 
                                                         
Restricted Shares Issued under Stock-based Compensation Plans
   
     
     
(2,706
)
   
(10
)
   
2,904
     
     
188
 
Net Proceeds from Exercise of Stock Options and Other
   
     
     
14,327
     
     
16,279
     
     
30,606
 
Excess Tax Benefits from Stock-based Compensation
   
     
     
     
     
     
     
 
Stock-based Compensation Expense
   
     
     
6,450
     
     
60
     
     
6,510
 
Purchase of Treasury Shares
   
     
     
     
     
(29,257
)
   
     
(29,257
)
Class A Common Stock Dividends ($0.96 per share)
   
     
     
     
(46,294
)
   
     
     
(46,294
)
Class B Common Stock Dividends ($0.96 per share)
   
     
     
     
(8,799
)
   
     
     
(8,799
)
Common Stock Class Conversions
   
21
     
(21
)
   
     
     
     
     
 
Comprehensive Income (Loss)
   
     
     
     
138,126
     
     
74,109
     
212,235
 
Balance at January 31, 2018
 
$
70,107
   
$
13,075
   
$
405,967
   
$
1,798,446
   
$
(686,091
)
 
$
(433,178
)
 
$
1,168,326
 

See accompanying notes to the audited consolidated financial statements.

10


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 significant 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 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, 2018 as filed with the SEC on June 29, 2018 (“2018 Form 10-K”).

Our 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 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.

Change in Accounting Policy

In connection with the acquisition of Learning House (See Note 3, “Acquisition”), we changed our accounting policy for certain advertising and marketing costs incurred by our Education Services business to fulfill performance obligations from contracts with educational institutions. Under the new accounting policy, these costs are included in Cost of Sales whereas they were previously included in Operating and Administrative Expenses on the Unaudited Condensed Consolidated Statements of Income. Including these expenses in Cost of Sales will better align these costs with the related revenue and conform with the presentation of such costs for Learning House. This change in accounting policy was applied retrospectively.

The Unaudited Condensed Consolidated Statements of Income for the three and nine months ended January 31, 2018 have been reclassified to reflect this change in accounting policy. The impact of this reclassification was an increase to Cost of Sales and a corresponding decrease to Operating and Administrative Expenses of $11.2 million and $34.7 million for the three and nine months ended January 31, 2018, respectively. This reclassification had no impact on Revenue, net, Operating Income, Net Income, or Earnings per Share on the Unaudited Condensed Consolidated Statements of Income.

Note 2 Recent Accounting Standards

Recently Adopted Accounting Standards

Stock Compensation – Scope of Modification Accounting

In May 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,” which clarifies when changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Under the new guidance, modification accounting is only required if the fair value, vesting conditions or classification (equity or liability) of the new award are different from the original award immediately before the original award is modified. We adopted ASU 2017-09 on May 1, 2018 and there was no impact to our condensed consolidated financial statements. The new guidance must be applied prospectively to awards modified on or after the adoption date. The future impact of ASU 2017-09 will be dependent on the nature of future stock award modifications.

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

In March 2017, the FASB issued ASU 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The guidance requires that the service cost component of net pension and postretirement benefit costs be reported in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period, while the other components of net benefit costs must be reported separately from the service cost component and below operating income. The guidance also allows only the service cost component to be eligible for capitalization when applicable. We adopted ASU 2017-07 on May 1, 2018. The new guidance must be applied retrospectively for the presentation of net benefit costs in the income statement and prospectively for the capitalization of the service cost component of net benefit costs.

11

The effect of retrospectively adopting this guidance resulted in a reclassification of net benefits of $2.0 million and $6.0 million from Operating and Administrative Expenses to Interest and Other Income on the Unaudited Condensed Consolidated Statement of Operations for the three and nine months ended January 31, 2018, respectively. The amount included in Interest and Other Income on the Unaudited Condensed Consolidated Statement of Operations for the three and nine months ended January 31, 2019 was a net benefit of $2.1 million and $6.6 million, respectively. We do not capitalize any service costs.

Business Combinations: Clarifying the Definition of a Business

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”, which clarifies the definition of a business in order to allow for the evaluation of whether transactions should be accounted for as acquisitions or disposals of assets or business. We adopted ASU 2017-01 on May 1, 2018. The future impact of ASU 2017-01 will be dependent upon the nature of future acquisitions or dispositions made by us.

Statement of Cash Flows: Restricted Cash

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” ASU 2016-18 requires that entities include restricted cash and restricted cash equivalents with cash and cash equivalents in the beginning-of-period and end-of-period total amounts shown on the Statement of Cash Flows. We adopted ASU 2016-18 on May 1, 2018. Retrospective transition method is to be applied to each period presented. As a result of this retrospective adoption, the reclassification of restricted cash into a change in total cash resulted in a reduction in Cash Used in Operating Activities of $0.5 million for the nine months ended January 31, 2018.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Unaudited Condensed Consolidated Statement of Financial Position that sum to the total of the same such amounts shown in the Unaudited Condensed Consolidated Statement of Cash Flows.

Balance at the Beginning of Period
 
April 30, 2018
   
April 30, 2017
 
Cash and cash equivalents
 
$
169,773
   
$
58,516
 
Restricted cash included in Prepaid expenses and other current assets
   
484
     
 
Total cash, cash equivalents, and restricted cash shown in the Unaudited Condensed Consolidated Statement of Cash Flows
 
$
170,257
   
$
58,516
 


Balance at the End of Period
 
January 31, 2019
   
January 31, 2018
 
Cash and cash equivalents
 
$
132,758
   
$
128,217
 
Restricted cash included in Prepaid expenses and other current assets
   
632
     
545
 
Total cash, cash equivalents, and restricted cash shown in the Unaudited Condensed Consolidated Statement of Cash Flows
 
$
133,390
   
$
128,762
 

Income taxes: Intra-Entity Transfers of Assets Other than Inventory

In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”, which simplifies the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Current U.S. GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. The new guidance states that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the amendments in this Standard eliminate the exception for an intra-entity transfer of an asset other than inventory. We adopted ASU 2016-16 on May 1, 2018. The adoption of ASU 2016-16 did not have a material impact to our condensed consolidated financial statements.

Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which provides clarification on classifying a variety of activities within the Statement of Cash Flows. We adopted ASU 2016-15 on May 1, 2018. The adoption of ASU 2016-15 did not have a material impact to our condensed consolidated statements of cash flows.

12

Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” Subsequently, the FASB issued ASU 2018-03, “Technical Corrections and Improvements to Financial Instruments-Overall.”  ASU 2016-01 requires equity investments except those under the equity method of accounting to be measured at fair value with the changes in fair value recognized in net income. The amendment simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. In addition, it also requires enhanced disclosures about investments. We adopted ASU 2016-01 on May 1, 2018. The adoption of ASU 2016- 01 did not have a material impact to our condensed consolidated financial statements.

Revenue from Contracts with Customers

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers," (Topic 606) which superseded most existing revenue recognition guidance. We adopted ASU 2014-09 on May 1, 2018. The standard allows for either "full retrospective" adoption, meaning the standard is applied to all periods presented, or "modified retrospective" adoption, meaning the standard is applied only to the most current period presented in the financial statements. Subsequently, the FASB issued ASU 2016-08, "Revenue from Contracts with Customers (Topic 606) – Principal versus Agent Considerations", ASU 2016-10, "Revenue from Contracts with Customers (Topic 606) – Identifying Performance Obligations and Licensing", ASU 2016-12, "Revenue from Contracts with Customers (Topic 606) – Narrow Scope Improvements and Practical Expedients", and ASU 2016-20, "Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers," which provide clarification and additional guidance related to ASU 2014-09. We also adopted ASU 2016-08, ASU 2016-10, ASU 2016-12, and ASU 2016-20 with ASU 2014-09 (collectively, the “new revenue standard”) on May 1, 2018.

We utilized a comprehensive approach to assess the impact of the new revenue standard on our contract portfolio by reviewing our current accounting policies and practices to identify differences that would result from applying the new revenue standard to our revenue contracts. Additionally, we reviewed customer agreements representative of our business models and assessed whether changes in revenue recognition were appropriate under the new revenue standard.

We adopted the new revenue standard as of May 1, 2018, using the modified retrospective method. The adoption of the new revenue standard did not have a material impact to our consolidated revenues, financial position, or results of operations. Upon adoption, we recorded an immaterial net increase to opening retained earnings resulting from the change in timing of when certain components of our revenue are recognized as required under the new revenue standard as compared to historical policies. Such changes include:

(i)
perpetual licenses granted in connection with other deliverables; revenue that was previously recognized over the life of the associated subscription for future content is now recognized at a point in time, which is when access to content is initially granted,
(ii)
customers’ unexercised rights; revenue which was previously recognized at the end of a pre-determined period for situations where we have received a nonrefundable payment for a customer to receive a good or service and the customer has not exercised such right is now recognized as revenue in proportion to the pattern of rights exercised by the customer,
(iii)
recognition of estimated revenue from royalty agreements in the period of usage, and
(iv)
recognition of revenue for certain arrangements with minimum guarantees on a time-based (straight-line) basis due to a stand-ready obligation to provide additional rights to content.

The adoption of the new revenue standard resulted in the discontinuance of the historical practice of presenting accounts receivable and deferred revenue balances on a net basis for some of our subscription licensing agreements where we have invoiced a customer in advance of the related revenue being recognized and payment has not yet been received. As of April 30, 2018, the amounts that were previously netted down from accounts receivable and deferred revenue were $59.5 million. The current policy for our subscription licensing agreements is to record accounts receivable when performance occurs and recognize contract liabilities once the invoice is due, or cash payment is received from the customer.

In addition, the adoption of the new revenue standard resulted in the reclassification of the sales return reserve provision to Contract Liability (Deferred Revenue) from Accounts Receivable, Net on the Unaudited Condensed Consolidated Statement of Financial Position. As of April 30, 2018, the amount was $28.3 million.

13

The cumulative effect of the changes made to our consolidated balance sheet at May 1, 2018 as a result of adoption of the new revenue standard using the modified retrospective method were as follows:

   
April 30, 2018
   
Adjustments due to Adoption
   
May 1, 2018
 
Assets
                 
Accounts receivable, net
 
$
212,377
   
$
93,349
   
$
305,726
 
Product development assets
   
78,814
     
(3,725
)
   
75,089
 
Technology, property and equipment, net
   
289,934
     
(361
)
   
289,573
 
Other non-current assets
   
85,802
     
5,274
     
91,076
 
Liabilities
                       
Accrued royalties
   
73,007
     
(731
)
   
72,276
 
Contract liability (Deferred revenue)
   
486,353
     
89,364
     
575,717
 
Deferred income tax liabilities
   
143,518
     
1,400
     
144,918
 
Retained earnings
 
$
1,834,057
   
$
4,503
   
$
1,838,560
 

The impact of the adoption of the new revenue standard on the Unaudited Condensed Consolidated Statements of Income was $0.4 million and $11.1 million in revenue, net, for the three months and nine months ended January 31, 2019, respectively, and was a credit of $(0.7) million in cost of sales for the three months ended January 31, 2019 and expense of $1.7 million for the nine months ended January 31, 2019. The impact to the Unaudited Condensed Consolidated Statement of Financial Position was not material by line item, except for the reclassification of the sales return reserve provision to contract liability from accounts receivable, net.

The sales return reserve provision amount that is included in Contract Liability (Deferred Revenue) on the Unaudited Condensed Consolidated Statement of Financial Position as of January 31, 2019 was $36.7 million.

Recently Issued 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. The standard is effective for us on May 1, 2020, and interim periods within that fiscal year, with early adoption permitted. We are currently assessing the impact the new guidance will have on our consolidated financial statements.

Changes to the Disclosure Requirements for Defined Benefit Plans

In August 2018, the FASB issued ASU 2018-14, “Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans.” ASU 2018-14 removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and added additional disclosures. The standard is effective for us on May 1, 2021, with early adoption permitted. The amendments in ASU 2018-14 would need to be applied on a retrospective basis.  We are currently assessing the impact the new guidance will have on our disclosures.

Changes to the Disclosure Requirements for Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 removes certain disclosures, modifies certain disclosures and added additional disclosures. The standard is effective for us on May 1, 2020, with early adoption permitted. Certain disclosures in ASU 2018-13 would need to be applied on a retrospective basis and others on a prospective basis. We are currently assessing the impact the new guidance will have on our disclosures.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In February 2018, the FASB issued ASU 2018-02 “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The standard is effective for us on May 1, 2019, and interim periods within that fiscal year, with early adoption permitted. We are currently assessing the impact the new guidance will have on our consolidated financial statements.

14

Targeted Improvements to Accounting for Hedging Activities

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” to simplify and improve the application and financial reporting of hedge accounting. Subsequently, in November 2018, the FASB issued ASU 2018-16, “Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes”.  ASU 2017-12 eases the requirements for measuring and reporting hedge ineffectiveness and clarifies that changes in the fair value of hedging instruments for cash flow, net investment, and fair value hedges should be reflected in the same income statement line item as the earnings effect of the hedged item. The guidance also permits entities to designate specific components in cash flow and interest rate hedges as the hedged risk, instead of using total cash flows. ASU 2018-16 allows the use of the OIS rate based on the SOFR as a U.S. benchmark interest rate for hedge accounting purposes. These ASUs are effective for us on May 1, 2019, with early adoption permitted. We are currently assessing the impact the new guidance will have on our consolidated financial statements.

Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04, “Intangibles–Goodwill and Other (Topic 350): “Simplifying the Test for Goodwill Impairment”, which simplifies the measurement of a potential goodwill impairment charge by eliminating the requirement to calculate an implied fair value of the goodwill based on the fair value of a reporting unit’s other assets and liabilities. The new guidance eliminates the implied fair value method and instead measures a potential impairment charge based on the excess of a reporting unit’s carrying value compared to its fair value. The impairment charge cannot exceed the total amount of goodwill allocated to that reporting unit. The standard is effective for us on May 1, 2020, with early adoption permitted. Based on our most recent annual goodwill impairment test completed in fiscal year 2018, we expect no initial impact on adoption.

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.” Subsequently, in November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”.  ASU 2016-13 requires entities to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model which includes historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. ASU 2016-13 also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. ASU 2016-13 and ASU 2018-19 are effective for us on May 1, 2020, including interim periods within those fiscal periods, with early adoption permitted. We are currently assessing the impact the new guidance will have on our consolidated financial statements.

Leases

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)”. Subsequently, the FASB issued in March 2019, ASU 2019-01, “Leases (Topic 842): Codification Improvements”, in December 2018 ASU 2018-20, “Leases (Topic 842): Narrow Scope Improvements for Lessors”, and in July 2018 the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements” and ASU 2018-10, “Codification Improvements to Topic 842, Leases”.  ASU 2016-02 requires an entity to recognize a right-of-use asset (“ROU”) and lease liability for all leases with terms of more than 12 months and provide enhanced disclosures. Recognition, measurement, and presentation of expenses will depend on classification as a finance or operating lease. Similar modifications have been made to lessor accounting in-line with revenue recognition guidance.

The new standard provides a number of optional practical expedients in transition. We expect to elect the practical expedients to forgo a reassessment of (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) initial direct costs.  We do not expect to elect the practical expedient allowing the use-of-hindsight which would require us to reassess the lease term of our leases based on all facts and circumstances through the effective date.  In addition, we do not expect to elect the practical expedient pertaining to land easements.

In addition, the new standard provides as a practical expedient, certain policy elections for ongoing lease accounting to (i) not separate nonlease components from the associated lease component if certain conditions are met, and (ii) not recognize ROU assets and lease liabilities for leases that qualify as short-term. If the short-term recognition exemption is elected, we will not recognize ROU assets or lease liabilities for existing short-term leases in transition. We are currently assessing the impact these policy elections will have on our consolidated financial statements.

15

The standard is effective for us on May 1, 2019, with early adoption permitted. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. A company may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as of its date of initial application. We will adopt the new standard on May 1, 2019 and expect to use the effective date as the date of initial application. Accordingly, previously reported financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods before May 1, 2019.  We are currently assessing the impact the new guidance will have on our consolidated financial statements. Additionally, we are assessing the implementation of a lease accounting system for our leases, including the conversion of our existing lease data to a new system and implementing relevant internal controls and procedures.

Note 3 – Acquisition

On November 1, 2018, we completed the acquisition of 100% of the outstanding stock of The Learning House, Inc. (“Learning House”) a diversified education services provider. Headquartered in Louisville, KY, Learning House provides online program management services including graduate and undergraduate programs; short courses, boot camps, and other skills training and credentialing for students and professionals; pathway services for international students; professional development services for teachers; and learning solutions for corporate clients. The combination of Learning House and Wiley Education Services creates a leading provider of tech-enabled education services for colleges and universities. The results of operations of Learning House are included in our Solutions segment.

The preliminary fair value of the consideration transferred was approximately $201.3 million which included $200.8 million of cash and $0.5 million of warrants. We financed the payment of the cash consideration through borrowings under our revolving credit agreement ("RCA").  The warrants were classified as equity and allow the holder to purchase 400,000 shares of our Class A Common Stock at an exercise price of $90.00, subject to adjustments. The fair value of the warrants was determined using the Black-Scholes option pricing model. The preliminary fair value of the cash consideration transferred, net of $10.3 million of cash acquired was approximately $190.5 million.

The transaction was accounted for using the acquisition method of accounting. We recorded the preliminary fair value of the assets acquired and liabilities assumed on the acquisition date, which included $109.5 million of intangible assets, goodwill of $109.1 million and net liabilities assumed of $17.3 million, all of which are included in the Solutions segment. None of the goodwill will be deductible for tax purposes. The final allocation of the consideration transferred to the assets acquired and the liabilities assumed will be finalized within the measurement period, which will not exceed one year from the acquisition date. The following table summarizes the identifiable intangible assets acquired and their weighted-average useful life.

   
Estimated
Fair Value
   
Weighted-Average
Useful Life
(in Years)
 
Customer Relationships
 
$
103.8
     
15
 
Course Content
   
5.7
     
4
 
Total
 
$
109.5
         

Learning House’s revenue and operating (loss) included in our Solutions segment results for three and nine months ended January 31, 2019 was $13.4 million and $(5.2) million, respectively.

Pro forma financial information related to this acquisition has not been provided as it is not material to our consolidated results of operations.

Note 4 Revenue Recognition, Contracts with Customers

Revenue from contracts with customers is recognized using a five-step model consisting of the following: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) we satisfy a performance obligation. Performance obligations are satisfied when we transfer control of a good or service to a customer, which can occur over time or at a point in time. The amount of revenue recognized is based on the consideration to which we expect to be entitled in exchange for those goods or services, including the expected value of variable consideration. The customer’s ability and intent to pay the transaction price is assessed in determining whether a contract exists with the customer. If collectability of substantially all the consideration in a contract is not probable, consideration received is not recognized as revenue unless the consideration is nonrefundable, and we no longer have an obligation to transfer additional goods or services to the customer or collectability becomes probable.

16

Disaggregation of Revenue

The following tables present our revenue from contracts with customers disaggregated by segment and product type for the three and nine months ended January 31, 2019 and 2018:

   
Three Months Ended January 31,
 
   
2019
   
2018
 
   
Research
   
Publishing
   
Solutions
   
Total
   
Research
   
Publishing
   
Solutions
   
Total
 
Research:
                                               
Journals Subscriptions
 
$
152,291
   
$
   
$
   
$
152,291
   
$
160,287
   
$
   
$
   
$
160,287
 
Open Access
   
14,194
     
     
     
14,194
     
9,905
     
     
     
9,905
 
Licensing, Reprints, Backfiles and Other
   
50,804
     
     
     
50,804
     
45,035
     
     
     
45,035
 
Publishing Technology Services (Atypon)
   
9,064
     
     
     
9,064
     
8,262
     
     
     
8,262
 
Publishing:
                                                               
STM and Professional Publishing
   
     
64,599
     
     
64,599
     
     
80,775
     
     
80,775
 
Education Publishing
   
     
37,437
     
     
37,437
     
     
48,446
     
     
48,446
 
Course Workflow (WileyPLUS)
   
     
22,935
     
     
22,935
     
     
21,406
     
     
21,406
 
Test Preparation and Certification
   
     
9,560
     
     
9,560
     
     
7,758
     
     
7,758
 
Licensing, Distribution, Advertising and Other
   
     
11,104
     
     
11,104
     
     
11,859
     
     
11,859
 
Solutions:
                                                               
Education Services
   
     
     
46,207
     
46,207
     
     
     
32,242
     
32,242
 
Professional Assessment
   
     
     
14,600
     
14,600
     
     
     
13,228
     
13,228
 
Corporate Learning
   
     
     
16,572
     
16,572
     
     
     
16,472
     
16,472
 
Total
 
$
226,353
   
$
145,635
   
$
77,379
   
$
449,367
   
$
223,489
   
$
170,244
   
$
61,942
   
$
455,675
 

   
Nine Months Ended January 31,
 
   
2019
   
2018
 
   
Research
   
Publishing
   
Solutions
   
Total
   
Research
   
Publishing
   
Solutions
   
Total
 
Research:
                                               
Journals Subscriptions
 
$
482,000
   
$
   
$
   
$
482,000
   
$
498,775
   
$
   
$
   
$
498,775
 
Open Access
   
38,917
     
     
     
38,917
     
28,058
     
     
     
28,058
 
Licensing, Reprints, Backfiles and Other
   
132,041
     
     
     
132,041
     
124,594
     
     
     
124,594
 
Publishing Technology Services (Atypon)
   
27,032
     
     
     
27,032
     
24,559
     
     
     
24,559
 
Publishing:
                                                               
STM and Professional Publishing
   
     
197,565
     
     
197,565
     
     
215,835
     
     
215,835
 
Education Publishing
   
     
127,736
     
     
127,736
     
     
151,893
     
     
151,893
 
Course Workflow (WileyPLUS)
   
     
42,142
     
     
42,142
     
     
38,926
     
     
38,926
 
Test Preparation and Certification
   
     
29,343
     
     
29,343
     
     
27,167
     
     
27,167
 
Licensing, Distribution, Advertising and Other
   
     
31,269
     
     
31,269
     
     
32,686
     
     
32,686
 
Solutions:
                                                               
Education Services
   
     
     
105,244
     
105,244
     
     
     
88,316
     
88,316
 
Professional Assessment
   
     
     
47,667
     
47,667
     
     
     
43,936
     
43,936
 
Corporate Learning
   
     
     
47,934
     
47,934
     
     
     
44,105
     
44,105
 
Total
 
$
679,990
   
$
428,055
   
$
200,845
   
$
1,308,890
   
$
675,986
   
$
466,507
   
$
176,357
   
$
1,318,850
 

Description of Revenue Generating Activities

We generate our revenues from sales from our three reportable segments. We report our segment information in accordance with the provisions of FASB ASC Topic 280, “Segment Reporting” (“FASB ASC Topic 280”). Our segment reporting structure consists of three reportable segments, which are listed below, and a Corporate category:
Research,
Publishing, and
Solutions.

17

Research Segment

Included within the Research segment are the following revenue streams:
Journal Subscriptions,
Open Access,
Licensing, Reprints, Backfiles and Other, and
Publishing Technology Services (Atypon).

Journal Subscriptions

We publish approximately 1,700 academic research journals. We sell journal subscriptions directly through our sales representatives, indirectly through independent subscription agents, through promotional campaigns, and through memberships in professional societies for those journals that are sponsored by societies. Journal subscriptions are primarily licensed through contracts for digital content available online through Wiley Online Library. In March 2018, we migrated our Wiley Online Library platform to our Literatum platform, which we acquired as part of our purchase of Atypon Systems, Inc. (Atypon) in fiscal year 2017. Contracts are negotiated by us directly with customers or their subscription agents. Subscription periods typically cover calendar years. Print journals are generally mailed to subscribers directly from independent printers. We do not own or manage printing facilities. Subscription revenue is generally collected in advance.

In a typical journal subscription sale, there is a written agreement between us and our customer that cover multiple years.  However, we typically account for these agreements as one-year contracts because our enforceable rights under the agreements are subject to an annual confirmation and negotiation process with the customer.

In journal subscriptions, multiple performance obligations exist, which include a stand-ready promise to provide access to new content for one year and a perpetual license for access to historical journal content. The transaction price consists of fixed consideration.

We allocate revenue to the stand-ready promise to provide access to new content for one year based on its standalone selling price and the revenue for new content is recognized over time as we have a continuous stand-ready obligation to provide the right of access to additional intellectual property. The allocation of revenue to the perpetual licenses for access to historical journal content is done using the expected cost plus a margin approach as permitted by the new revenue standard. Revenue is recognized at the point in time when access to historical content is initially granted.

Open Access

Under the Author-Funded Access business model, accepted research articles are published subject to payment of Article Publication Charges (“APC”). All Author-Funded Access articles are immediately free to access online. Contributors of Author-Funded Access articles retain many rights and typically license their work under terms that permit re-use. Author-Funded Access offers authors choices in how to share and disseminate their work, and it serves the needs of researchers who may be required by their research funder to make articles freely accessible without embargo. APCs are typically paid by the individual author or by the author’s funder, and payments are often mediated by the author’s institution. We provide specific workflows and infrastructure to authors, funders and institutions to support the requirements of the Author-Funded Access model.

Customers in open access are typically individual educational institutions or a consortium of universities. Under the Author-Funded Access model, we have a signed contract with the customer that contains enforceable rights.

The Author-Funded Access model in a typical model includes an over-time single performance obligation that combines a promise to host the customer’s content on our open access platform, and a promise to provide a discount on APCs of eligible users (as defined in the contract) in exchange for an upfront payment. Enforceable right to payment occurs over time as we fulfill our obligation to provide a discount to eligible users, as defined, on future APCs. Therefore, the upfront payment is deferred and recognized over time.

Licensing, Reprints, Backfiles and Other

Licensing, Reprints, Backfiles, and Other includes advertising, backfile sales, the licensing of publishing rights, journal and article reprints, and individual article sales. A backfile license provides access to a historical collection of Wiley journals, generally for a one-time fee. 

Within Licensing, the revenue derived from these contracts is primarily comprised of advance payments, including minimum guarantees and sales- or usage-based royalty agreements. For our sales-or usage-based royalty agreements, we recognize revenue in the period of usage based on the amounts earned. We record revenue under these arrangements for the amounts due and not yet reported to us based on estimates of the sales or usage of these customers and pursuant to the terms of the contracts. We also have certain licenses whereby we receive a non-refundable minimum guarantee against a volume-based royalty throughout the term of the agreement. We recognize revenue for the minimum guarantee on a straight-line basis over the term of the agreement because of the stand-ready promise to provide updates during the subscription period. We recognize volume-based royalty income only when cumulative consideration exceeds the minimum guarantee.

18

Reprints contracts generally contain a single performance obligation which is the delivery of printed articles. Revenue is recognized at the time of delivery of the printed articles.

For Backfiles, the performance obligation is the granting of a functional intellectual property license. Revenue is recognized at the time the functional intellectual property license is granted.

Other includes our Article Select offering, whereby we have a single performance obligation to our customers to give access to an article through the purchase of a token. The customer redeems the token for access to the article for a 24-hour period. The customer purchases the tokens with an upfront cash payment. Revenue is recognized when access to the article is provided.

Publishing Technology Services (Atypon)

Atypon is a publishing software and service provider that enables scholarly and professional societies and publishers to deliver, host, enhance, market, and manage their content on the web through the Literatum platform. The duration of these contracts is generally multi-year ranging from 2-5 years. Atypon contracts typically include a single performance obligation for the implementation and hosting subscription services. The transaction price is fixed which may include price escalators that are fixed increases per year, and therefore, revenue is recognized upon the initiation of the subscription period and straight-lined over the contract period.

Publishing Segment

Included within the Publishing segment are the following revenue streams:
STM (Scientific, Technical and Medical) and Professional Publishing,
Education Publishing,
Course Workflow (WileyPLUS),
Test Preparation and Certification, and
Licensing, Distribution, Advertising and Other.

STM (Scientific, Technical and Medical) and Professional Publishing and Education Publishing

STM books are sold and distributed globally in digital and print formats through multiple channels, including research libraries and library consortia, independent subscription agents, direct sales to professional society members, bookstores, online booksellers, and other customers.

Professional books, which include business and finance, technology, and other professional categories, as well as the For Dummies brand, are sold to bookstores and online booksellers serving the general public, wholesalers who supply such bookstores, warehouse clubs, college bookstores, individual practitioners, industrial organizations and government agencies. We employ sales representatives who call upon independent bookstores, national and regional chain bookstores, and wholesalers. Sales of professional books also result from direct mail campaigns, telemarketing, online access, advertising, and reviews in periodicals.

Education textbooks and related supplementary material and digital products are sold primarily to bookstores and online booksellers serving both for-profit and nonprofit educational institutions (primarily colleges and universities), and direct-to-students. We employ sales representatives who call on faculty responsible for selecting books to be used in courses, and on the bookstores that serve such institutions and their students. The textbook business is seasonal, with the majority of textbook sales occurring during the July-through-October and December-through-January periods. Book sales for STM, Professional and Education Publishing are generally made on a returnable basis with certain restrictions.

Our performance obligations as it relates to STM, Professional and Education Publishing are primarily book products delivered in both print and digital form which could include a single or multiple performance obligations based on the number of International Standard Book Number (“ISBN’s”) purchased.

This revenue stream also includes variable consideration as it relates to discounts and returns for both print and digital books.  Discounts are identifiable by performance obligation and therefore are applied at the point of sale by performance obligation. The process that we use to determine our sales returns and the related reserve provision charged against revenue is based on applying an estimated return rate to current year returnable print book sales. This rate is based upon an analysis of actual historical return experience in the various markets and geographic regions in which we do business. We collect, maintain and analyze significant amounts of sales returns data for large volumes of homogeneous transactions. This allows us to make reasonable estimates of the amount of future returns. All available data is utilized to identify the returns by market and to which fiscal year the sales returns apply. This enables management to track the returns in detail and identify and react to trends occurring in the marketplace, with the objective of being able to make the most informed judgments possible in setting reserve rates. Associated with the estimated sales return reserves, we also include a related reduction in inventory and royalty costs as a result of the expected returns.

19

As it relates to print and digital books within the STM, Professional and Education Publishing, revenue is recognized at the point when control of product transfers, which for print is upon shipment or for digital when fulfillment of the products has been rendered.

Course Workflow (WileyPLUS)

We offer high-quality online learning solutions, including WileyPLUS, a research-based, online environment for effective teaching and learning that is integrated with a complete digital textbook. Course Workflow customers purchase access codes to utilize the product.  This could include a single or multiple performance obligations based on the number of course ISBN’s purchased. Revenue is recognized from the point in time when the access codes are activated and then over the applicable semester term such product relates to.

Test Preparation and Certification

The Test Preparation and Certification business represents learning solutions and training activities that are delivered to customers directly through online digital delivery platforms. Products include CPAExcel, a modular, digital platform comprised of online self-study, videos, mobile apps, and sophisticated planning tools to help professionals prepare for the CPA exam, and test preparation products for the CFA®, CMA, CIA®, CMT®, FRN®, FINRA, Banking, and PMP® exams.

Test Preparation and Certification contracts are generally three-year agreements. This revenue stream includes multiple performance obligations as it relates to the on-line and printed course materials, including such items as text books, e-books, video lectures, flashcards, study guides and test banks. The transaction price is fixed; however, discounts are offered and returns of certain products are allowed. We allocate revenue to each performance obligation based on its standalone selling price.  Depending on the performance obligation, revenue is recognized at the time the product is delivered and control has passed to the customer or over time due to our stand-ready obligation to provide updates to the customer.

Licensing, Distribution, Advertising and Other

Licensing and distribution services are made available to other publishers under agency arrangements. We also engage in co-publishing titles with international publishers and receive licensing revenue from photocopies, reproductions, translations, and digital uses of our content. Wiley also realizes advertising revenue from branded Web sites (e.g., Dummies.com, etc.) and online applications. Licensing, Distribution, Advertising and Other contracts are generally multi-year agreements.

Revenue derived from our licensing contracts is primarily comprised of advance payments and sales- or usage-based royalties. Revenue for advance payments is recognized at the point in time that the functional intellectual property license is granted. For sales- or usage- based royalties, we record revenue under these arrangements for the amounts due and not yet reported to us based on estimates of the sales or usage of these customers and pursuant to the terms of the contracts.

Solutions Segment

Included within the Solutions segment are the following revenue streams:
Education Services,
Professional Assessment, and
Corporate Learning.

Education Services

As student demand for online degree and certificate programs continues to increase, traditional institutions are partnering with online program management providers to develop and support these programs. Education Services include market research, marketing, student recruitment, enrollment support, proactive retention support, academic services to design courses, faculty support, and access to the Engage Learning Management System, which facilitates the online education experience. Revenue is derived from pre-negotiated contracts with institutions that provide for a share of tuition generated from students who enroll in a program. The duration of Education Services contracts are generally multi-year agreements ranging from a period of 7-10 years, with some having optional renewal periods.

20

Education Services includes a single performance obligation for the services provided because of the integrated technology and services our institutional clients need to attract, enroll, educate and support students. Consideration is variable since it is based on the number of students enrolled in a program. We begin to recognize revenue at the start of the delivery of the class within a semester, which is also the point at which the variable consideration contingency is resolved.

Professional Assessment

Our Professional Assessment services include pre-hire screening and post-hire personality assessments, which are delivered to business customers through online digital delivery platforms, either directly or through an authorized distributor network of independent consultants, trainers, and coaches. Professional Assessment services contracts are generally one year.

Professional Assessment includes a performance obligation to stand ready to provide assessments to our distributor’s customers or to provide assessments direct to a customer. Revenue for Professional Assessments is recognized at the time the product or service is provided or delivered. Consideration is allocated to assessments based on standalone selling prices. In addition, as it relates to Professional Assessments customers' unexercised rights for situations where we have received a nonrefundable payment for a customer to receive a good or service and the customer is not expected to exercise such right, we will recognize such “breakage” amounts as revenue in proportion to the pattern of rights exercised by the customer.

Corporate Learning

The Corporate Learning business offers online learning and training solutions for global corporations, universities, and small and medium-sized enterprises, which are sold on a subscription or fee basis. Learning formats and modules on topics such as leadership development, value creation, client orientation, change management and corporate strategy are delivered on a cloud-based Learning Management System (“LMS”) platform that hosts over 20,000 content assets (videos, digital learning modules, written files, etc.) in 17 languages. Its Mohive offering also provides a collaborative e-learning publishing and program creation system. Revenue growth is derived from legacy markets, such as France, England, and other European markets, and newer markets, such as the U.S. and Brazil. In addition, content and LMS offerings are continuously refreshed and expanded to serve a wider variety of customer needs. These digital learning solutions are sold directly to corporate customers either direct or through our partners. Corporate Learning contracts are generally multi-year agreements.

The transaction price consists of fixed consideration that is determined at the beginning of each year and received at the same time. Within Corporate Learning there are multiple performance obligations which includes the licenses to learning content and the learning application. Revenue is recognized over time as we have a continuous obligation to provide the right of access to the intellectual property which includes the licenses and learning applications.

Accounts Receivable, net and Contract Liability (Deferred Revenue) 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.

   
January 31, 2019
   
April 30, 2018 (1)
   
Increase/
(Decrease)
 
Balances from contracts with customers:
                 
Accounts receivable, net (2)
 
$
194,764
   
$
212,377
   
$
(17,613
)
Contract liability (Deferred revenue) (2)
   
271,541