Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information in our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read together with our Consolidated Financial Statements and related notes set forth in Part II, Item 8, as well as the discussion included in Part I, Item 1, “Business,” “Cautionary Notice Regarding Forward-Looking Statements “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995” and “Non-GAAP Financial Measures,” along with Part I, Item 1A, “Risk Factors,” of this Annual Report on Form 10-K. All amounts and percentages are approximate due to rounding and all dollars are in thousands, except per share amounts or where otherwise noted. When we cross-reference to a “Note,” we are referring to our “Notes to Consolidated Financial Statements,” in Part II, Item 8, “Financial Statements and Supplementary Data” unless the context indicates otherwise.
Overview
Wiley is a global leader in research and education, unlocking human potential by enabling discovery, powering education, and shaping workforces. For over 200 years, Wiley has fueled the world’s knowledge ecosystem. Today, our high-impact content, platforms, and services help researchers, learners, institutions, and corporations achieve their goals in an ever-changing world. Wiley is a predominantly digital company with approximately 82% of revenue in the year ended April 30, 2021 generated by digital products, and services.
We report financial information for the following segments, as well as a Corporate category, which includes certain costs that are not allocated to the reportable segments:
• Research Publishing & Platforms
• Academic & Professional Learning
• Education Services
Through the Research Publishing & Platforms segment, we provide peer-reviewed STM publishing, content platforms, and related services to academic, corporate, and government customers, academic societies, and individual researchers. The Academic & Professional Learning segment provides Education Publishing and Professional Learning content and courseware, training and learning services, to students, professionals, and corporations. The Education Services segment provides OPM services for academic institutions and talent placement services for professionals and businesses.
Wiley’s business strategies are tightly aligned with accelerating growth trends, including open research, online education, and digital curriculum. Research strategies include driving publishing output to meet the increasing demand for peer-reviewed research and expanding platform and service offerings for corporations and societies. Education strategies include expanding online degree programs and driving online enrollment for university partners, scaling digital content and courseware, and expanding IT talent placement for corporate partners.
Our revenue results continued to be impacted by COVID-19. We also continued to generate significant COVID-19 related cost savings due to the cancellation of travel and events and lower facility related expenses, which are discussed in more detail by segment below. We are taking actions to sustain much of these savings in our post-pandemic operations. See “Fiscal Year 2022 Outlook” below for further details of our fiscal year 2022 Outlook.
Consolidated Results of Operations
FISCAL YEAR 2021 AS COMPARED TO FISCAL YEAR 2020 SUMMARY RESULTS
Revenue:
Revenue for the year ended April 30, 2021 increased $110.0 million, or 6%, as compared with the prior year. This increase was mainly driven by the following factors:
These increases were partially offset by a decline in Academic & Professional Learning.
On a constant currency basis, revenue increased 4% as compared with the prior year. Excluding the inorganic impact of acquisitions, organic revenue on a constant currency basis increased 1%.
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See the “Segment Operating Results” below for additional details on each segment’s revenue and Adjusted EBITDA performance.
Cost of Sales:
Cost of sales for the year ended April 30, 2021 increased $34.3 million, or 6%, as compared with the prior year. Gross margin was consistent with the prior year at approximately 32.2%. On a constant currency basis, cost of sales increased 4% as compared with the prior year. This increase was primarily due to the impact from the acquisition of mthree and, to a lesser extent, higher royalty costs. These factors were partially offset by lower marketing costs for our Education Services business.
Operating and Administrative Expenses:
Operating and administrative expenses for the year ended April 30, 2021 increased $25.3 million, or 3%, as compared with the prior year. On a constant currency basis, operating and administrative expenses increased 1% as compared with the prior year primarily reflecting the impact of the acquisitions of Hindawi and mthree, higher technology related costs and, to a lesser extent, higher annual incentive compensation. These factors were partially offset by lower facilities and occupancy related costs due to the real estate actions taken as part of our Business Optimization program as described below, employee benefit and retirement related expenses, and to a lesser extent, COVID-19 related expense savings and other business optimization gains.
Restructuring and Related Charges:
Business Optimization Program
For the years ended April 30, 2021 and 2020, we recorded pretax restructuring charges of $33.4 million and $32.8 million, respectively related to this program. We anticipate $9.0 million in run rate savings from these actions in fiscal 2022.
In November 2020, in response to the COVID-19 pandemic and the Company’s successful transition to a virtual work environment, we increased use of virtual work arrangements for post-pandemic operations. As a result, we expanded the scope of the Business Optimization Program to include the exit of certain leased office space beginning in the third quarter of fiscal 2021, and the reduction of our occupancy at other facilities. We are reducing our real estate square footage occupancy by approximately 12%. These actions resulted in a pretax restructuring charge of $18.3 million in the three months ended January 31, 2021.
In addition, we also incurred ongoing facility-related costs associated with certain properties that resulted in additional restructuring charges of $3.7 million in the year ended April 30, 2021.
These actions are anticipated to yield annualized cost savings estimated to be approximately $8.0 million. We anticipate ongoing facility-related costs associated with certain properties to result in additional restructuring charges in future periods.
These charges are reflected in Restructuring and related charges in the Consolidated Statements of Income (Loss). See Note 7, “Restructuring and Related Charges” for more details on these charges.
Restructuring and Reinvestment Program
For the years ended April 30, 2021 and 2020, we recorded pretax restructuring credits of $0.1 million and $0.2 million, respectively, related to this program. These credits are reflected in Restructuring and related charges in the Consolidated Statements of Income (Loss). See Note 7, “Restructuring and Related Charges” for more details on these credits.
For the impact of our restructuring programs on diluted earnings per share, see the section below, “Diluted Earnings per Share (EPS).”
Amortization of Intangible Assets:
Amortization of intangible assets was $74.7 million for the year ended April 30, 2021, an increase of $12.2 million, or 20%, as compared with the prior year. On a constant currency basis, amortization of intangible assets increased 18% as compared with the prior year primarily due to the intangibles acquired as part of the Hindawi and mthree acquisitions completed in fiscal year 2021 and 2020, respectively. See Note 4, “Acquisitions” for more details on our acquisitions.
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Operating Income (Loss), Adjusted Contribution to Profit (CTP) and Adjusted EBITDA:
Operating income for the year ended April 30, 2021 was $185.5 million compared with the prior year operating loss of $54.3 million. The increase in operating income was primarily due to the prior year impairment of goodwill and intangibles assets of $202.3 million as described below and, to a lesser extent, an increase in revenue. This was partially offset by an increase in cost of sales, and operating and administrative expenses and, to a lesser extent, an increase in amortization of intangible assets as described above.
Adjusted CTP and Adjusted EBITDA on a constant currency basis and excluding restructuring charges and the impairment of goodwill and intangible assets, increased 20% and 16% respectively, as compared with the prior year. The increase in Adjusted CTP and Adjusted EBITDA was primarily due to revenue performance described above, partially offset by higher cost of sales and, to a lesser extent, an increase in operating and administrative expenses. In addition, the increase in Adjusted CTP was partially offset by higher depreciation and amortization.
Adjusted CTP
Below is a reconciliation of our consolidated US GAAP Operating Income (Loss) to Non-GAAP Adjusted CTP:
Year EndedApril 30,
Adjustments:
Impairment of goodwill — 110,000
Impairment of Blackwell trade name — 89,507
Impairment of developed technology intangible — 2,841
Adjusted EBITDA
Below is a reconciliation of our consolidated US GAAP Net Income (Loss) to Non-GAAP EBITDA and Adjusted EBITDA:
Year EndedApril 30,
Impairment of goodwill and intangible assets — 202,348
Foreign exchange transaction losses (gains) 7,977 (2,773 )
Interest Expense:
Interest expense for the year ended April 30, 2021 was $18.4 million compared with the prior year of $25.0 million. This decrease was due to a lower weighted average effective borrowing rate, partially offset by higher average debt balances outstanding, which included borrowings for the funding of acquisitions in fiscal years 2021 and 2020.
Foreign Exchange Transaction (Losses) Gains:
Foreign exchange transaction losses were $8.0 million for the year ended April 30, 2021 and were due to the unfavorable impact of the changes in exchange rates on US dollar cash balances held in the UK to fund the acquisition of Hindawi, and the net impact of changes in average foreign exchange rates as compared to the US dollar on our third-party accounts receivable and payable balances.
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Foreign exchange transaction gains were $2.8 million for the year ended April 30, 2020 and were primarily due to the net impact of changes in average foreign exchange rates as compared to the US dollar on our third-party accounts receivable and payable balances.
Provision for Income Taxes:
Below is a reconciliation of our US GAAP Income (Loss) Before Taxes to Non-GAAP Adjusted Income Before Taxes:
Year EndedApril 30,
US GAAP Income (Loss) Before Taxes $ 175,912 $ (63,092 )
Pretax Impact of Adjustments:
Foreign exchange (gains) losses on intercompany transactions (1,457 ) 1,256
Impairment of goodwill — 110,000
Impairment of Blackwell trade name — 89,507
Impairment of developed technology intangible — 2,841
Below is a reconciliation of our US GAAP Income Tax Provision to Non-GAAP Adjusted Income Tax Provision, including our US GAAP Effective Tax Rate and our Non-GAAP Adjusted Effective Tax Rate:
Year EndedApril 30,
Income Tax Impact of Adjustments (1):
Restructuring and related charges 8,065 7,949
Foreign exchange (gains) losses on intercompany transactions (363 ) 242
Impairment of Blackwell trade name — 15,216
Impairment of developed technology intangible — 686
Income Tax Adjustments:
Impact of increase in UK statutory rate on deferred tax balances (2) (3,511 ) —
Impact of US CARES Act (3) 13,998 —
Non-GAAP Adjusted Income Tax Provision $ 42,620 $ 37,175
US GAAP Effective Tax Rate 15.7 % (17.7 )%
Non-GAAP Adjusted Effective Tax Rate 20.5 % 21.5 %
The effective tax rate was 15.7% for the year ended April 30, 2021, compared to a tax expense rate of 17.7% on a pretax loss for the year ended April 30, 2020. Our rate for the year ended April 30, 2021 benefitted by $14.0 million from the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) and certain regulations issued in late July 2020, which enabled us to carry back certain US net operating losses (NOLs), reducing our tax for the year ended April 30, 2020 compared to prior estimates. This benefit was partially offset by (a) $3.5 million from an increase in the official UK statutory rate during our three months ended July 31, 2020 resulting in our taxes in non-US income increasing our effective income tax rate and (b) a $3.2 million increase in our state tax expense due to increasing our deferred tax liabilities in connection with our expanded presence in additional states resulting from COVID-19 and employees working in additional locations. The 17.7% tax expense rate on a pretax loss for the year ended April 30, 2020 was primarily due to the $110.0 million non-deductible impairment of goodwill. Excluding the benefit from the CARES Act and expense from the UK rate change, the change in our state tax expense and a lower tax benefit from our restructuring charges and foreign exchange gains, the Non-GAAP Adjusted Effective Tax Rate for the year ended April 30, 2021 was 20.5%. The Non-GAAP Adjusted Effective Tax Rate for the year ended April 30, 2020, excluding the impact of the $110.0 million impairment of goodwill and other items included in the table above was 21.5%. The decrease in the Non-GAAP Adjusted Effective Tax Rate before these items was due to a more favorable mix of earnings for the year ended April 30, 2021.
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In connection with the CARES Act and certain regulations, we carried back our April 30, 2020 US NOL to our year ended April 30, 2015 and claimed a $20.7 million refund. The refund plus interest was received in February 2021. The NOL was carried back to fiscal year 2015 when the US corporate tax rate was 35%. The carryback to a year with a higher rate, plus certain additional net permanent deductions included in the carryback resulted in a $14.0 million tax benefit. The benefit was partially offset by an increase in the UK statutory rate and an increase in our state tax expense. During the three months ended July 31, 2020, the UK officially enacted legislation that increased its statutory rate from 17% to 19%. This resulted in a $3.5 million noncash deferred tax expense from the re-measurement of our applicable UK net deferred tax liabilities. During the year ended April 30, 2021, as a result of COVID-19, we adjusted our policies to permit employees to work from home, resulting in an increased presence in many states. This resulted in a $3.2 million noncash deferred tax expense from the re-measurement of our applicable US net deferred tax liabilities.
As previously disclosed in our Quarterly Report on Form 10-Q filed with the SEC on March 5, 2021, on March 3, 2021, in the UK Budget, the Chancellor of the Exchequer announced a proposed increase in the UK corporate tax rate from 19% to 25%, effective April 2023. On June 10, 2021, the UK officially increased its corporate tax rate from 19% to 25% effective April 2023. We estimate that this statutory tax rate increase will result in a nonrecurring, noncash US GAAP deferred tax expense of approximately $20 million in our three months ended July 31, 2021.
Diluted Earnings (Loss) Per Share (EPS):
Diluted earnings per share for the year ended April 30, 2021 was $2.63 per share compared with loss per share of $1.32 in the prior year. This increase was due to the higher operating income and, to a lesser extent, lower interest expense. These factors were partially offset by higher provision for income taxes and foreign exchange transaction losses for the year ended April 30, 2021 as compared to gains for the year ended April 30, 2020.
Below is a reconciliation of our US GAAP Earnings (Loss) Per Share to Non-GAAP Adjusted EPS. The amount of the pretax, and the related income tax impact for the adjustments included in the table below, are presented in the section above, “Provision for Income Taxes”.
Year EndedApril 30,
US GAAP EARNINGS (LOSS) PER SHARE $ 2.63 $ (1.32 )
Adjustments:
Restructuring and related charges 0.44 0.43
Foreign exchange (gains) losses on intercompany transactions (0.02 ) 0.02
Income tax adjustments (0.13 ) (0.03 )
Impairment of goodwill — 1.94
Impairment of Blackwell trade name — 1.31
Impairment of developed technology intangible — 0.04
Non-GAAP Adjusted EPS $ 2.92 $ 2.40
On a constant currency basis, Adjusted EPS increased 27% primarily due to an increase in Adjusted CTP and, to a lesser extent, a lower Non-GAAP Adjusted Effective Tax Rate and a decrease in interest expense. These factors were partially offset by foreign exchange transaction losses for the year ended April 30, 2021 as compared with gains for the year ended April 30, 2020.
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SEGMENT OPERATING RESULTS:
Year EndedApril 30, % ChangeFavorable Constant Currency% ChangeFavorable
RESEARCH PUBLISHING & PLATFORMS: 2021 2020 (Unfavorable) (Unfavorable)
Revenue:
Impairment of Intangible Assets (see Note 11) — 92,348 100 % 100 %
Restructuring (Credits) Charges (see Note 7) (36 ) 3,886 # #
Impairment of Intangible Assets (see Note 11) — 92,348
Restructuring (Credits) Charges (see Note 7) (36 ) 3,886
Adjusted EBITDA Margin 35.1 % 35.3 %
# Not meaningful
Revenue:
Research Publishing & Platforms revenue for the year ended April 30, 2021 increased $66.5 million, or 7%, as compared with the prior year on a reported basis. On a constant currency basis, revenue increased 5% as compared with the prior year. Excluding revenue from acquisitions, organic revenue increased 3% on a constant currency basis. This increase was primarily due to continued growth in Open Access in Research Publishing due to continued growth in comprehensive “read and publish” agreements. In fiscal year 2021, we experienced a 15% increase in article output, which resulted in a 38% increase in Open Access revenue as compared to prior year. This was partially offset by a decline in subscriptions revenue partially attributable to those “read and publish” agreements and, to a lesser extent, previously anticipated libraries and academic budget challenges as a result of COVID-19.
Adjusted EBITDA:
On a constant currency basis, Adjusted EBITDA increased 6% as compared with the prior year. This increase was primarily due to higher revenue, and COVID-19 related expense savings. These factors were partially offset by higher royalty costs, higher annual incentive compensation and employee related costs, and to a lesser extent, the impact of the acquisition of Hindawi.
Society Partnerships
For the year ended April 30, 2021:
•12 new society contracts were signed with a combined annual revenue of approximately $15.2 million;
•144 society contracts were renewed with a combined annual revenue of approximately $83.7 million;
•12 society contracts were not renewed with a combined annual revenue of approximately $3.0 million.
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Year EndedApril 30, % ChangeFavorable Constant Currency% Change Favorable
ACADEMIC & PROFESSIONAL LEARNING: 2021 2020 (Unfavorable) (Unfavorable)
Revenue:
Adjusted EBITDA Margin 25.4 % 23.7 %
# Not meaningful
Revenue:
Academic & Professional Learning revenue decreased $6.3 million, or 1%, as compared with the prior year on a reported basis. On a constant currency basis, revenue decreased 2% as compared with the prior year. This decrease was primarily due to the COVID-19 impact on Professional Learning revenue due to the continued adverse impact on classroom dependent corporate training due to the continued office closures and cancellations of in-person engagements, and the decline in trade print book publishing, partially offset by growth in digital content. In Education Publishing, growth in digital content and courseware offerings, which continued to benefit due to the COVID-19 driven shift to remote learning, were partially offset by declines in print textbooks and test preparation product offerings. In fiscal year 2021, digital content revenue increased 22% and digital courseware activations increased 23% as compared to prior year.
Adjusted EBITDA:
On a constant currency basis, Adjusted EBITDA increased 4% as compared with the prior year. This increase reflects business optimization gains and COVID-19 related expense savings, partially offset by lower revenues and, to a lesser extent, higher annual incentive compensation.
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Year EndedApril 30, % ChangeFavorable Constant Currency% ChangeFavorable
EDUCATION SERVICES: 2021 2020 (Unfavorable) (Unfavorable)
Revenue:
Impairment of Goodwill (see Note 11) — 110,000
Restructuring Charges (see Note 7) 531 3,671
Adjusted Contribution to Profit (Loss) 21,175 (3,844 ) # #
Adjusted EBITDA Margins 18.0 % 8.7 %
# Not meaningful
Revenue:
Education Services revenue increased $49.8 million, or 21%, as compared with the prior year on a reported and constant currency basis. Excluding revenue from our mthree acquisition, organic revenue increased 7% on a constant currency basis mainly driven by an increase in enrollments and new student starts and, to a lesser extent, new university partnerships and programs in our OPM services. In fiscal year 2021, we experienced a 14% increase in online enrollment and a 20% increase in new student starts as compared to prior year.
Adjusted EBITDA:
On a constant currency basis, Adjusted EBITDA increased $30.6 million as compared with the prior year. This was due to higher revenue, lower marketing costs, and business optimization initiatives, including lower occupancy related costs due to certain actions taken as part of our Business Optimization program. These factors were partially offset by the impact from the acquisition of mthree.
Education Services Partners and Programs:
As of April 30, 2021, Wiley had 66 university partners under contract.
CORPORATE EXPENSES:
Corporate Expenses for the year ended April 30, 2021 increased $16.3 million, or 9%, as compared with the prior year. On a constant currency basis and excluding restructuring charges, these expenses increased 1% as compared with the prior year. This was primarily due to higher annual incentive compensation, partially offset by lower employee benefit and retirement related expenses and professional fees.
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FISCAL YEAR 2020 AS COMPARED TO FISCAL YEAR 2019 SUMMARY RESULTS
Revenue:
Revenue for the year ended April 30, 2020 increased $31.4 million, or 2%, as compared with the prior year. On a constant currency basis, revenue increased 3% mainly driven by the following factors:
• an increase of $21.0 million in the Research Publishing & Platforms business.
These increases were partially offset by a decline of $44.8 million in the Academic & Professional Learning business.
Excluding the impact of acquisitions, revenues on a constant currency basis declined 1% as compared with the prior year.
See the “Segment Operating Results” below for additional details on each segment’s revenue and Adjusted EBITDA performance.
Cost of Sales:
Cost of sales for the year ended April 30, 2020 increased $36.3 million, or 7%, as compared with the prior year. On a constant currency basis, cost of sales increased 8%. This increase was primarily due to higher employment related costs in the Education Services business, and, to a lesser extent, an increase in marketing costs, partially offset by lower inventory and royalty costs in Academic & Professional Learning.
Operating and Administrative Expenses:
Operating and administrative expenses for the year ended April 30, 2020 increased $33.8 million, or 4%, as compared with the prior year. On a constant currency basis, operating and administrative expenses increased 5%. The increase was primarily due to increased investment in growth initiatives, including incremental costs associated with the acquisitions in the year ended April 30, 2020 and, to a lesser extent, investments in additional resources in editorial and content support, and higher technology related costs.
Impairment of Goodwill and Intangible Assets:
Goodwill Impairment
For the year ended April 30, 2020, we recorded a noncash impairment of goodwill of $110.0 million related to our Education Services reporting unit. This charge is reflected in Impairment of goodwill and intangible assets in the Consolidated Statements of Income (Loss). The impairment charge is not deductible for federal or state tax purposes and therefore there is no tax benefit related to the impairment charge.
During our annual goodwill impairment test initiated on February 1, 2020 we identified indicators that the goodwill of the Education Services business was impaired due to underperformance as compared with our acquisition case projections for revenue growth and operating cash flow. Subsequently, during the fourth quarter of fiscal year 2020, we determined that our updated revenue and operating cash flow projections would be further impacted by anticipated near-term headwinds due to COVID-19, including adverse impacts on new student starts and student reenrollment. Therefore, we updated the impairment test as of March 31, 2020 to reflect this change in circumstances. As a result, we concluded that the carrying value was above the fair value, resulting in a noncash goodwill impairment of $110.0 million.
Intangible Asset Impairment
For the year ended April 30, 2020, we recorded a pretax noncash impairment charge of $89.5 million for our Blackwell trademark, which was acquired in 2007 and carried as an indefinite-lived intangible asset primarily related to our Research Publishing & Platforms segment. The impairment reflects our decision to simplify Wiley’s brand portfolio and unify our research journal content under one Wiley brand, which will sharply limit the use of the Blackwell trade name. This impairment resulted in writing off substantially all of the carrying value of the intangible trademark asset. This charge is reflected in Impairment of goodwill and intangible assets in the Consolidated Statements of Income (Loss). The resulting noncash impairment charge is entirely unrelated to COVID-19 or the expected future financial performance of the Research Publishing & Platforms segment.
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In addition, as a result of our decision to discontinue the use of certain technology offerings within the Research Publishing & Platforms segment, we recorded a pretax noncash impairment charge of $2.8 million related to a certain developed technology intangible. This charge is reflected in Impairment of goodwill and intangible assets in the Consolidated Statements of Income (Loss).
See Note 11, “Goodwill and Intangible Assets” for further information related to goodwill and intangible assets.
Restructuring and Related Charges:
Business Optimization Program
For the year ended April 30, 2020, we recorded pretax restructuring charges of $32.8 million. We originally anticipated approximately $15 million to $20 million of restructuring charges, of which approximately $10 million to $15 million was expected to be severance-related costs and the remainder to be other related costs. However, in the fourth quarter of 2020, we recorded $15.0 million of pretax restructuring charges due to additional actions to mitigate the impact of COVID-19. These charges are reflected in Restructuring and related charges in the Consolidated Statements of Income (Loss). See Note 7, “Restructuring and Related Charges” for more details on these charges.
Restructuring and Reinvestment Program
For the years ended April 30, 2020 and 2019, we recorded pretax restructuring credits of $0.2 million and charges of $3.1 million, respectively, related to this program. These credits and charges are reflected in Restructuring and related charges in the Consolidated Statements of Income (Loss). See Note 7, “Restructuring and Related Charges” for more details on these credits and charges.
For the impact of our restructuring programs on diluted earnings per share, see the section below, “Diluted Earnings per Share (EPS).”
Amortization of Intangible Assets:
Amortization of intangible assets was $62.4 million for the year ended April 30, 2020, an increase of $7.8 million, or 14% as compared with the prior year. On a constant currency basis, amortization of intangible assets increased 15% as compared with the prior year. The increase in amortization was due to the intangibles acquired as part of the acquisitions completed in fiscal year 2020 and, to a lesser extent, intangibles acquired as part of the acquisition of Learning House in November 2018, partially offset by a decrease due to the completion of amortization of certain acquired intangible assets. See Note 4, “Acquisitions” for more details on these transactions.
Operating (Loss) Income and Adjusted EBITDA:
Operating loss was $54.3 million for the year ended April 30, 2020 compared with the prior year income of $224.0 million. On a constant currency basis and excluding the impairment of goodwill and intangible assets and restructuring charges, Adjusted EBITDA decreased 8% primarily due to investment in growth initiatives and the impact of COVID-19.
Adjusted Contribution to Profit
Below is a reconciliation of our consolidated US GAAP Operating (Loss) Income to Non-GAAP Adjusted CTP:
Year EndedApril 30,
Adjustments:
Restructuring and related charges 32,607 3,118
Impairment of goodwill 110,000 —
Impairment of Blackwell trade name 89,507 —
Impairment of developed technology intangible 2,841 —
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Adjusted EBITDA
Below is a reconciliation of our consolidated US GAAP Net (Loss) Income to Non-GAAP EBITDA and Adjusted EBITDA:
Year EndedApril 30,
Impairment of goodwill and intangible assets 202,348 —
Restructuring and related charges 32,607 3,118
Foreign exchange transaction (gains) losses (2,773 ) 6,016
Interest Expense:
Interest expense for the year ended April 30, 2020 was $25.0 million compared with the prior year of $16.1 million. This increase was due to higher average debt balances outstanding, which included borrowings for the funding of acquisitions and a higher weighted average effective borrowing rate.
Foreign Exchange Transaction Gains (Losses):
Foreign exchange transaction gains were $2.8 million for the year ended April 30, 2020 and were primarily due to the net impact of the change in average foreign exchange rates as compared to the US dollar on our third-party accounts receivable and payable balances.
Foreign exchange transaction losses were $6.0 million for the year ended April 30, 2019 and were primarily due to the net impact of the change in average foreign exchange rates as compared to the US dollar on our intercompany accounts receivable and payable balances.
Provision for Income Taxes:
The following table summarizes the effective tax rate for the years ended April 30, 2020 and 2019:
Year EndedApril 30,
US GAAP Effective Tax Rate (17.7)% 21.0%
Impairment of goodwill and intangible assets 42.3% —
Tax effect from other unusual items (3.1)% —
State tax adjustment in 2019 — 1.3%
Deferred tax from the Tax Act Rate Change — (0.1)%
Non-GAAP Adjusted Effective Tax Rate 21.5% 22.2%
The effective tax rate for the year ended April 30, 2020 was less than the year ended April 30, 2019 due to the impairment of goodwill and intangible assets, with respect to which we obtained a relatively small tax benefit. Excluding the effect of the impairment charges partially offset by the tax effect on other unusual items, the rate was 21.5% for the year ended April 30, 2020, compared to 22.2% for the year ended April 30, 2019, primarily due to lower taxes on income outside the US as well as increased tax credits and related benefits.
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Diluted (Loss) Earnings Per Share (EPS):
Diluted loss per share for the year ended April 30, 2020 was $1.32 per share compared with earnings per share of $2.91 in the prior year.
Below is a reconciliation of our US GAAP (loss) earnings per share to Non-GAAP Adjusted EPS:
Year EndedApril 30,
US GAAP (LOSS) EARNINGS PER SHARE $ (1.32 ) $ 2.91
Adjustments:
Impairment of goodwill 1.94 —
Impairment of Blackwell trade name 1.31 —
Impairment of developed technology intangible 0.04 —
Restructuring and related charges 0.43 0.04
Foreign exchange losses on intercompany transactions 0.02 0.06
Non-GAAP Adjusted EPS $ 2.40 $ 2.96
Excluding the impact of the items included in the table above, Adjusted EPS for the year ended April 30, 2020 decreased 19% to $2.40 per share compared with $2.96 per share for the year April 30, 2019. On a constant currency basis, Adjusted EPS decreased 21% due to investment in growth initiatives, including acquisitions, the impact of COVID-19, and higher interest expense. The inorganic earnings impact of acquisitions was $0.33 per share of dilution for fiscal year 2020, including interest expense.
SEGMENT OPERATING RESULTS:
Year EndedApril 30, % ChangeFavorable Constant Currency% Change Favorable
RESEARCH PUBLISHING & PLATFORMS: 2020 2019 (Unfavorable) (Unfavorable)
Revenue:
Impairment of Intangible Assets (see Note 11) 92,348 — 100 % 100 %
Restructuring Charges (see Note 7) 3,886 1,131 # #
Impairment of Intangible Assets (see Note 11) 92,348 —
Restructuring Charges (see Note 7) 3,886 1,131
Adjusted EBITDA Margin 35.3 % 34.3 %
# Not meaningful
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Revenue:
Research Publishing & Platforms revenue for the year ended April 30, 2020 increased 1% to $948.8 million on a reported basis and increased 2% on a constant currency basis as compared with the prior year. The increase was primarily due to continued growth in Open Access in Research Publishing primarily due to growth in comprehensive “read and publish” agreements, which was partly offset by lower traditional subscription revenue. Also contributing to the decrease in subscription revenue were delays in renewing subscription agreements due to COVID-19 isolation and university disruption.
Adjusted EBITDA:
On a constant currency basis, Adjusted EBITDA increased 4% as compared with the prior year. This increase was due to higher revenues, and, to a lesser extent, lower inventory related costs. These factors were partially offset by an increase in royalty costs, higher operating costs, which reflected investments in additional resources in editorial to support increased article publishing, and marketing related costs, which was partially offset by lower incentive compensation costs.
Society Partnerships
For the year ended April 30, 2020:
•9 new society contracts were signed with a combined annual revenue of approximately $9.3 million;
•99 society contracts were renewed with a combined annual revenue of approximately $51.6 million;
•16 society contracts were not renewed with a combined annual revenue of approximately $5.7 million.
Year EndedApril 30, % ChangeFavorable Constant Currency% Change Favorable
ACADEMIC & PROFESSIONAL LEARNING: 2020 2019 (Unfavorable) (Unfavorable)
Revenue:
Restructuring Charges (see Note 7) 10,470 1,139 # #
Adjusted EBITDA Margin 23.7 % 30.6 %
# Not meaningful
Revenue:
Academic & Professional Learning revenue decreased 7% to $650.8 million on a reported basis, and 6% on a constant currency basis as compared with the prior year. Excluding revenue from acquisitions, organic revenue declined 9% on a constant currency basis. This decrease was primarily due to the continued decline in book publishing reflecting market conditions and, to a lesser extent, a decrease in test preparation and certification offerings. During the fourth quarter of April 30, 2020, due to the impact of COVID-19, there was a further decrease in revenue for print books due to retail closures, reprioritization of online retailer shipments toward “essential goods” only, test preparation offerings due to cancelled exams, and classroom-dependent corporate training due to office closures.
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Adjusted EBITDA:
On a constant currency basis, Adjusted EBITDA decreased 28% as compared with the prior year. This decrease was primarily due to the decline in revenue. Also contributing to lower Adjusted EBITDA, but to a lesser extent, was increased investment in growth initiatives including the acquisitions of Zyante and Knewton, and an increase in reserves for accounts receivable primarily due to the impact of COVID-19. These factors were partially offset by lower inventory and royalty costs as a result of lower revenue.
Year EndedApril 30, % ChangeFavorable Constant Currency% Change Favorable
EDUCATION SERVICES: 2020 2019 (Unfavorable) (Unfavorable)
Revenue:
Restructuring Charges (see Note 7) 3,671 389 # #
Impairment of Goodwill (see Note 11) 110,000 —
Restructuring Charges (see Note 7) 3,671 389
Adjusted Contribution to (Loss) Profit (3,844 ) (12,883 ) 70 % 70 %
Adjusted EBITDA Margins 8.7 % 3.3 %
# Not meaningful
Revenue:
Education Services revenue increased 47% to $231.9 million on a reported basis and 48% on a constant currency basis as compared with the prior year. Excluding revenue from acquisitions, organic revenue increased 11% on a constant currency basis. The increase was mainly driven by an increase in fee-based online program management revenue.
Adjusted EBITDA:
On a constant currency basis, Adjusted EBITDA increased by $15.1 million as compared with the prior year. This was due to higher revenue, partially offset by higher costs of sales from employment related costs and, to a lesser extent, higher marketing costs.
Education Services Partners and Programs:
As of April 30, 2020, Wiley had 69 university partners under contract.
CORPORATE EXPENSES:
Corporate Expenses for the year ended April 30, 2020 increased 7% to $180.1 million as compared with the prior year. On a constant currency basis and excluding restructuring charges, these expenses decreased 1%. This was primarily due to a decrease in employment and technology related costs, and a life insurance recovery of $2.0 million. These factors were partially offset by additional legal related expense.
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FISCAL YEAR 2022 OUTLOOK
Given positive market trends and Wiley’s favorable momentum, the Company anticipates revenue growth to continue to accelerate in fiscal year 2022, with organic growth anticipated for all segments.
(amounts in millions, except Adjusted EPS)
Metric Fiscal Year 2021Actual Fiscal Year 2022Outlook
LIQUIDITY AND CAPITAL RESOURCES:
Principal Sources of Liquidity
We believe that our operating cash flow, together with our revolving credit facilities and other available debt financing, will be adequate to meet our operating, investing, and financing needs in the foreseeable future. There can be no assurance that continued or increased volatility in the global capital and credit markets will not impair our ability to access these markets on terms commercially acceptable in the future. In addition, our liquidity could be adversely impacted by COVID-19 due to the continued impact on our customers, including cash collections. We do not have any off-balance-sheet debt. We will continue to pursue attractive opportunities to add scale and provide enhanced tech-enabled services in research and online education.
As of April 30, 2021, we had cash and cash equivalents of $93.8 million, of which approximately $90.3 million, or 96% was located outside the US. Maintenance of these cash and cash equivalent balances outside the US does not have a material impact on the liquidity or capital resources of our operations. Notwithstanding the Tax Cuts and Jobs Act of 2017 (the Tax Act), which generally eliminated federal income tax on future cash repatriation to the US, cash repatriation may be subject to state and local taxes or withholding or similar taxes. In addition, as a result of Brexit, certain tax benefits applicable to distributions from subsidiaries of our UK companies were eliminated or reduced effective January 1, 2021. Since April 30, 2018, we no longer intend to permanently reinvest earnings outside the US. We have recorded a $2.5 million liability related to the estimated taxes that would be incurred upon repatriating certain non-US earnings.
On May 30, 2019, we entered into a credit agreement that amended and restated the existing agreement (Amended and Restated RCA). The Amended and Restated RCA provides for senior unsecured credit facilities comprised of a (i) five-year revolving credit facility in an aggregate principal amount up to $1.25 billion, and (ii) a five-year term loan A facility consisting of $250 million. The agreement contains customary affirmative and negative covenants, including a financial covenant in the form of a consolidated net leverage ratio and consolidated interest coverage ratio.
As of April 30, 2021, we had approximately $821.6 million of debt outstanding, net of unamortized issuance costs of $0.5 million, and approximately $664.8 million of unused borrowing capacity under our Amended and Restated RCA and other facilities. Our Amended and Restated RCA contains certain restrictive covenants related to our consolidated leverage ratio and interest coverage ratio, which we were in compliance with as of April 30, 2021.
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Contractual Obligations and Commercial Commitments
A summary of contractual obligations and commercial commitments, excluding unrecognized tax benefits further described in Note 13, “Income Taxes,” of the Notes to Consolidated Financial Statements, as of April 30, 2021 is as follows:
Payments Due by Period
Total WithinYear 1 2–3Years 4–5Years After 5Years
(1) Total debt is exclusive of unamortized issuance costs of $0.5 million.
Analysis of Historical Cash Flow
The following table shows the changes in our Consolidated Statements of Cash Flows.
Years Ended April 30,
Cash flow from operations is seasonally a use of cash in the first half of Wiley’s fiscal year principally due to the timing of collections for annual journal subscriptions, which typically occurs in the second half of our fiscal year.
Free Cash Flow less Product Development Spending helps assess our ability, over the long term, to create value for our shareholders, as it represents cash available to repay debt, pay common dividends, and fund share repurchases, and acquisitions. Below are the details of Free Cash Flow less Product Development Spending.
Free Cash Flow less Product Development Spending:
Years Ended April 30,
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Net Cash Provided By Operating Activities
The following is a summary of the $71.5 million change in Net Cash Provided By Operating Activities for the year ended April 30, 2021 as compared with the year ended April 30, 2020 (amounts in millions).
Net Cash Provided By Operating Activities – Year Ended April 30, 2020 $ 288.4
Working Capital Changes:
Accounts payable and royalties payable (45.7 )
Other accrued liabilities 49.4
Inventories 10.6
Accounts receivable, net and contract liabilities 10.0
Other working capital items (41.7 )
Net Cash Provided By Operating Activities – Year Ended April 30, 2021 $ 359.9
The changes in accounts payable and royalties payable and accounts receivable, net of contract liabilities were primarily due to timing. Change in inventories was primarily due to lower purchases and the lower cost of inventory. The change in other accrued liabilities noted in the table above was primarily due to an increase in annual incentive compensation and, to a lesser extent, an increase in employee related costs, including the deferral of employer tax withholding payments in connection with the CARES Act in the year ended April 30, 2021.
The change in other working capital items noted in the table above was primarily due to an increase in cash used for prepayments, employee benefit and retirement related costs, including retirement plan contributions, certain tax related payments, and restructuring payments in the year ended April 30, 2021.
Our negative working capital (current assets less current liabilities) was $462.7 million and $312.3 million as of April 30, 2021 and April 30, 2020, respectively. The primary driver of the negative working capital is the benefit realized from unearned contract liabilities related to subscriptions for which cash has been collected in advance. The contract liabilities will be recognized as income when the products are shipped or made available online to the customers over the term of the subscription. Current liabilities as of April 30, 2021 and as of April 30, 2020 include contract liabilities of $545.4 million and $520.2 million, respectively, primarily related to deferred subscription revenue for which cash was collected in advance.
Cash collected in advance for subscriptions is used by us for a number of purposes including funding: operations, capital expenditures, acquisitions, debt repayments, dividend payments, and share repurchases. Due to the adverse impact of COVID-19 on the global economy, we estimate that approximately $30 million of customer payments were delayed into fiscal year 2021. Our accounts receivable collections were in line with our expectations. Although, in certain situations, the timing of collections may be extended, we do not anticipate any material issues with customer collections. Many of our customers have been adversely impacted by COVID-19, and we expect some continued delays in payments due to widespread disruption and pervasive cash conservation behaviors in the face of uncertainty. We have recorded provisions for bad debt where appropriate.
2020 compared to 2019
The following is a summary of the $37.6 million change in Net Cash Provided By Operating Activities for the year ended April 30, 2020 as compared with the year ended April 30, 2019 (amounts in millions).
Net Cash Provided By Operating Activities - Year Ended April 30, 2019 $ 250.8
Working Capital Changes:
Net Cash Provided By Operating Activities - Year Ended April 30, 2020 $ 288.4
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Our negative working capital was $312.3 million and $379.8 million as of April 30, 2020 and April 30, 2019, respectively. The primary driver of the negative working capital is unearned contract liabilities related to subscriptions for which cash has been collected in advance. Cash collected in advance for subscriptions is used by us for a number of purposes including funding: operations, capital expenditures, acquisitions, debt repayments, dividend payments, and share repurchases. Due to the economic downturn, we estimate that approximately $30 million of customer payments were delayed into fiscal year 2021.
The $67.5 million change in negative working capital was primarily due to the increase in cash and cash equivalents, partially offset by an increase in current liabilities of $21.8 million due to the recognition of the short-term portion of operating lease liabilities due to the adoption of ASU 2016-02, “Leases (Topic 842),” on May 1, 2019, and an increase in accrued employment costs of $11.2 million, primarily due to an increase in the restructuring liability related to severance related costs. See Note 2, “Summary of Significant Accounting Policies, Recently Issued, and Recently Adopted Accounting Standards”, for further details on the adoption of Topic 842.
The contract liabilities will be recognized as income when the products are shipped or made available online to the customers over the term of the subscription. Current liabilities as of April 30, 2020 and as of April 30, 2019 includes contract liabilities of $520.2 million and $519.1 million, respectively, primarily related to deferred subscription revenue for which cash was collected in advance.
Net Cash Used In Investing Activities
2021 compared to 2020
Net Cash Used In Investing Activities in the year ended April 30, 2021 was $433.2 million compared to $346.7 million in the prior year. The increase in cash used in investing activities was due to an increase of $70.3 million in cash used to acquire businesses and, to a lesser extent, an increase of $28.0 million for the acquisition of publication rights and other activities. This was partially offset by a decrease of $11.2 million for additions of technology, property, and equipment. See Note 4, “Acquisitions,” for further details of the acquisition activity in fiscal year 2021 and 2020.
2020 compared to 2019
Net Cash Used In Investing Activities in the year ended April 30, 2020 was $346.7 million compared to $301.5 million in the prior year. The increase was due to additional net cash used in the year ended April 30, 2020 to acquire businesses and, to a lesser extent, additions for technology, property, and equipment of $11.4 million for investments in products and platforms. See Note 4, “Acquisitions,” for more information related to the acquisitions in fiscal year 2020.
Net Cash (Used In) Provided By Financing Activities
2021 compared to 2020
Net Cash Used In Financing Activities was $47.1 million in the year ended April 30, 2021 compared to Net Cash Provided By Financing Activities of $172.7 million in the year ended April 30, 2020. This change was due to lower net borrowings of $273.1 million, which was primarily due to lower borrowings in the year ended April 30, 2021 and, to a lesser extent, a reduction of $30.8 million for the purchase of treasury shares and an increase in cash provided by book overdrafts of $18.4 million compared to the prior year.
2020 compared to 2019
Net Cash Provided By Financing Activities was $172.7 million in the year ended April 30, 2020 compared to Net Cash Used In Financing Activities of $17.6 million in the year ended April 30, 2019. This increase in cash provided by financing activities was due to an increase in net borrowings of $183.7 million for the year ended April 30, 2020 compared to the prior year, which was primarily due to the funding of acquisitions described above and, to a lesser extent, a decrease in cash used for the purchase of treasury shares in the year ended April 30, 2020 compared to the prior year.
Dividends and Share Repurchases
In the year ended April 30, 2021, we increased our quarterly dividend to shareholders to $1.37 per share annualized versus $1.36 per share annualized in the prior year.
In the year ended April 30, 2020, we increased our quarterly dividend to shareholders to $1.36 per share annualized versus $1.32 per share annualized in the prior year.
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During the year ended April 30, 2020, our Board of Directors approved an additional share repurchase program of $200 million of Class A or B Common Stock. As of April 30, 2021, we had authorization from our Board of Directors to purchase up to $200 million that was remaining under this program. No share repurchases were made under this program during the years ended April 30, 2021 and 2020.
The share repurchase program described above is in addition to the share repurchase program approved by our Board of Directors during the year ended April 30, 2017 of four million shares of Class A or B Common Stock. As of April 30, 2021, we had authorization from our Board of Directors to purchase up to 497,197 additional shares that were remaining under this program.
The following table summarizes the shares repurchased of Class A and B Common Stock (shares in thousands):
Years Ended April 30,
Shares repurchased – Class B 2 2 —
RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS, ACCOUNTING GUIDANCE, AND DISCLOSURE REQUIREMENTS
We are subject to numerous recently issued statements of financial accounting standards, accounting guidance, and disclosure requirements. The information set forth in Part II, Item 8, “Financial Statements and Supplementary Data” in Note 2, “Summary of Significant Accounting Policies, Recently Issued and Recently Adopted Accounting Standards,” of the Notes to Consolidated Financial Statements of this Form 10-K is incorporated by reference and describes these new accounting standards.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
The preparation of our Consolidated Financial Statements and related disclosures in conformity with US GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and revenue and expenses during the reporting period. These estimates include, among other items, sales return reserves, allocation of acquisition purchase price to assets acquired and liabilities assumed, goodwill and indefinite-lived intangible assets, intangible assets with definite lives and other long-lived assets, and retirement plans. We review these estimates and assumptions periodically using historical experience and other factors and reflect the effects of any revisions on the Consolidated Financial Statements in the period we determine any revisions to be necessary. Actual results could differ from those estimates, which could affect the reported results. In Part II, Item 8, “Financial Statements and Supplementary Data” in Note 2, “Summary of Significant Accounting Policies, Recently Issued and Recently Adopted Accounting Standards” of the Notes to Consolidated Financial Statements includes a summary of the significant accounting policies and methods used in preparation of our Consolidated Financial Statements. Set forth below is a discussion of our more critical accounting policies and methods.
Revenue Recognition:
In Part II, Item 8, “Financial Statements and Supplementary Data”, see Note 3, “Revenue Recognition, Contracts with Customers,” of the Notes to Consolidated Financial Statements for details of our revenue recognition policy.
Sales Return Reserves:
In Part II, Item 8, “Financial Statements and Supplementary Data”, see Note 2, “Summary of Significant Accounting Policies, Recently Issued, and Recently Adopted Accounting Standards” in the section “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements for details of our sales return reserves.
A one percent change in the estimated sales return rate could affect net income by approximately $2.0 million. A change in the pattern or trends in returns could also affect the estimated allowance.
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Allocation of Acquisition Purchase Price to Assets Acquired and Liabilities Assumed:
In connection with acquisitions, we allocate the cost of the acquisition to the assets acquired and the liabilities assumed based on the estimates of fair value for such items, including intangible assets. The excess of the purchase consideration over the fair value of assets acquired and liabilities assumed is recorded as goodwill. The determination of the acquisition date fair value of the assets acquired and liabilities assumed requires us to make significant estimates and assumptions, such as, if applicable, forecasted revenue growth rates and operating cash flows, royalty rates, customer attrition rates, obsolescence rates of developed technology, and discount rates. We may use a third-party valuation consultant to assist in the determination of such estimates.
In Part II, Item 8, “Financial Statements and Supplementary Data”, see Note 4, “Acquisitions,” of the Notes to Consolidated Financial Statements for details of our acquisitions.
Goodwill and Indefinite-lived Intangible Assets:
Goodwill is reviewed for possible impairment at least annually on a reporting unit level during the fourth quarter of each year. Our annual impairment assessment date is February 1. A review of goodwill may be initiated before or after conducting the annual analysis if events or changes in circumstances indicate the carrying value of goodwill may no longer be recoverable.
A reporting unit is the operating segment unless, at businesses one level below that operating segment– the “component” level, discrete financial information is prepared and regularly reviewed by management, and the component has economic characteristics that are different from the economic characteristics of the other components of the operating segment, in which case the component is the reporting unit.
As part of the annual impairment test, we may elect to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In a qualitative assessment, we would consider the macroeconomic conditions, including any deterioration of general conditions and industry and market conditions, including any deterioration in the environment where the reporting unit operates, increased competition, changes in the products/services and regulatory and political developments, cost of doing business, overall financial performance, including any declining cash flows and performance in relation to planned revenues and earnings in past periods, other relevant reporting unit specific facts, such as changes in management or key personnel or pending litigation, and events affecting the reporting unit, including changes in the carrying value of net assets.
If the results of our qualitative assessment indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we are required to perform a quantitative assessment to determine the fair value of the reporting unit.
Alternatively, if an optional qualitative goodwill impairment assessment is not performed, we may perform a quantitative assessment. Under the quantitative assessment, we compare the fair value of each reporting unit to its carrying value, including the goodwill allocated to the reporting unit.If the fair value of the reporting unit exceeded its carrying value, there would be no indication of impairment. If the fair value of the reporting unit were less than the carrying value, an impairment charge would be recognized for the difference.
We derive an estimate of fair values for each of our reporting units using a combination of an income approach and a market approach, each based on an applicable weighting. We assess the applicable weighting based on such factors as current market conditions and the quality and reliability of the data. Absent an indication of fair value from a potential buyer or similar specific transactions, we believe that the use of these methods provides a reasonable estimate of a reporting unit’s fair value.
Fair value computed by these methods is arrived at using a number of key assumptions including forecasted revenues and related growth rates, forecasted operating cash flows, the discount rate, and the selection of relevant market multiples of comparable publicly-traded companies with similar characteristics to the reporting unit. There are inherent uncertainties, however, related to these factors and to our judgment in applying them to this analysis. We believe that the combination of these methods provides a reasonable approach to estimate the fair value of our reporting units. Assumptions for sales, net earnings, and cash flows for each reporting unit were consistent among these methods.
2021 Annual Goodwill Impairment Test
As of February 1, 2021, we completed our annual goodwill impairment test for our reporting units. We concluded that the fair values of our reporting units were above their carrying values and, therefore, there was no indication of impairment.
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Income Approach Used to Determine Fair Values
The income approach is based upon the present value of expected cash flows. Expected cash flows are converted to present value using factors that consider the timing and risk of the future cash flows. The estimate of cash flows used is prepared on an unleveraged debt-free basis. We use a discount rate that reflects a market-derived weighted average cost of capital. We believe that this approach is appropriate because it provides a fair value estimate based upon the reporting unit’s expected long-term operating and cash flow performance. The projections are based upon our best estimates of forecasted economic and market conditions over the related period including growth rates, expected changes in forecasted operating cash flows, and cash expenditures. Other estimates and assumptions include terminal value long-term growth rates, provisions for income taxes, future capital expenditures, and changes in future cashless, debt-free working capital.
Changes in any of these assumptions could materially impact the estimated fair value of our reporting units. Our forecasts take into account the near and long-term expected business performance, considering the long-term market conditions and business trends within the reporting units. For example, each reporting unit includes an assumption regarding any continued impact of COVID-19 from both a current and long-term perspective. However, changes in this assumption may impact our ability to recover the allocated goodwill in the future. For further discussion of the factors that could result in a change in our assumptions, see “Risk Factors” in this Annual Report on Form 10-K.
Market Approach Used to Determine Fair Values
The market approach estimates the fair value of the reporting unit by applying multiples of operating performance measures to the reporting unit’s operating performance (the Guideline Public Company Method). These multiples are derived from comparable publicly-traded companies with similar investment characteristics to the reporting unit, and such comparable data are reviewed and updated as needed annually. We believe that this approach is appropriate because it provides a fair value estimate using multiples from entities with operations and economic characteristics comparable to our reporting units and Wiley.
The key estimates and assumptions that are used to determine fair value under this market approach include current and forward 12-month revenue and EBITDA results, as applicable, and the selection of the relevant multiples to be applied. Under the Guideline Public Company Method, a control premium, or an amount that a buyer is usually willing to pay over the current market price of a publicly traded company, is considered and applied, to the calculated equity values to adjust the public trading value upward for a 100% ownership interest, where applicable.
In order to assess the reasonableness of the calculated fair values of our reporting units, we also compare the sum of the reporting units’ fair values to our market capitalization and calculate an implied control premium (the excess of the sum of the reporting units’ fair values over the market capitalization). We evaluate the control premium by comparing it to control premiums of recent comparable market transactions. If the implied control premium is not reasonable in light of these recent transactions, we will reevaluate our fair value estimates of the reporting units by adjusting the discount rates and/or other assumptions.
If our assumptions and related estimates change in the future, or if we change our reporting unit structure or other events and circumstances change (such as a sustained decrease in the price of our common stock, a decline in current market multiples, a significant adverse change in legal factors or business climates, an adverse action or assessment by a regulator, heightened competition, strategic decisions made in response to economic or competitive conditions, or a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or disposed of), we may be required to record impairment charges in future periods. Any impairment charges that we may take in the future could be material to our consolidated results of operations and financial condition.
2020 Annual Goodwill Impairment Test
As of February 1, 2020, we completed our annual goodwill impairment test for our reporting units. We concluded that the fair values of our Research Publishing & Platforms and Academic & Professional Learning reporting units were above their carrying values and, therefore, there was no indication of impairment.
During our annual goodwill impairment test initiated on February 1, 2020, we identified indicators that the goodwill of the Education Services business was impaired due to underperformance as compared with our acquisition case projections for revenue growth and operating cash flow. Subsequently, during the fourth quarter of fiscal year 2020, we determined that our updated revenue and operating cash flow projections would be further impacted by anticipated near-term headwinds due to COVID-19, including adverse impacts on new student starts and student reenrollment. Therefore, we updated the impairment test as of March 31, 2020 to reflect this change in circumstances. As a result, we concluded that the carrying value was above the fair value, resulting in a noncash goodwill impairment of $110.0 million. This charge is reflected in Impairment of goodwill and intangible assets in the Consolidated Statements of Income (Loss).
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The material assumptions underlying the estimate of the fair value of the Education Services reporting unit included the following:
The following hypothetical changes in the valuation of the Education Services reporting unit would have impacted the goodwill impairment as follows:
Prior to performing the goodwill impairment test for Education Services, we also evaluated the recoverability of long-lived assets of the reporting unit. The carrying value of the long-lived assets that were tested for impairment was $434.0 million. When indicators of impairment are present, we test definite lived and long-lived assets for recoverability by comparing the carrying value of an asset group to an estimate of the future undiscounted cash flows expected to result from the use and eventual disposition of the asset group. We considered the lower than expected revenue and operating cashflows over a sustained period of time, and downward revisions to our cash flow forecasts for this reporting unit to be indicators of impairment for their long-lived assets. Based on the results of the recoverability test, we determined that the undiscounted cash flows of the asset group of the Education Services reporting unit exceeded the carrying value. Therefore, there was no impairment.
2021 Annual Indefinite-lived Intangible Impairment Test
We also review our indefinite-lived intangible assets for impairment annually, which consists of brands and trademarks and certain acquired publishing rights. As of February 1, 2021, we completed our annual impairment test related to the indefinite-lived intangible assets. We concluded that the fair values of these indefinite-lived intangible assets were above their carrying values and, therefore, there was no indication of impairment.
We estimate the fair value of these assets using a relief from royalty method under an income approach. The key assumptions for this method are revenue projections, a royalty rate as determined by management in consultation with valuation experts, and a discount rate.
2020 Annual Indefinite-lived Intangible Impairment Test
We recorded a pretax noncash impairment charge of $89.5 million for our Blackwell trademark, which was acquired in 2007 and carried as an indefinite-lived intangible asset primarily related to our Research Publishing & Platforms segment. The impairment reflects our decision to simplify Wiley’s brand portfolio and unify our research journal content under one Wiley brand, which will sharply limit the use of the Blackwell trade name. This impairment resulted in writing off substantially all of the carrying value of the intangible trademark asset. This charge is reflected in Impairment of goodwill and intangible assets in the Consolidated Statements of Income (Loss). The resulting noncash impairment charge is entirely unrelated to COVID-19 or the expected future financial performance of the Research Publishing & Platforms segment.
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See Note 11, “Goodwill and Intangible Assets,” of the Notes to Consolidated Financial Statements for details of our goodwill and indefinite-lived intangible balances and the review performed in the year ended April 30, 2021 and other related information.
Intangible Assets with Definite Lives and Other Long-Lived Assets:
See Note 2, “Summary of Significant Accounting Policies, Recently Issued, and Recently Adopted Accounting Standards” in the section “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements for details of definite lived intangible assets and other long-lived assets.
Retirement Plans:
We provide defined benefit pension plans for certain employees worldwide. Our Board of Directors approved amendments to the US, Canada and UK defined benefit plans that froze the future accumulation of benefits effective June 30, 2013, December 31, 2015, and April 30, 2015, respectively. Under the amendments, no new employees will be permitted to enter these plans and no additional benefits for current participants for future services will be accrued after the effective dates of the amendments.
The accounting for benefit plans is highly dependent on assumptions concerning the outcome of future events and circumstances, including discount rates, long-term return rates on pension plan assets, healthcare cost trends, compensation increases and other factors. In determining such assumptions, we consult with outside actuaries and other advisors.
The discount rates for the US, Canada and UK pension plans are based on the derivation of a single-equivalent discount rate using a standard spot rate curve and the timing of expected benefit payments as of the balance sheet date. The spot rate curves are based upon portfolios of corporate bonds rated at Aa or above by a respected rating agency. The discount rate for Germany is based on the expected benefit payments for the sample mixed population plan. The expected long-term rates of return on pension plan assets are estimated using forecasted returns for equities and bonds applied to each plan’s target asset allocation. The expected long-term rates are then compared to the historic investment performance of the plan assets and established by asset class, including an anticipated inflation rate. The expected long-term rates are then compared to the historic investment performance of the plan assets as well as future expectations and estimated through consultation with investment advisors and actuaries. Salary growth and healthcare cost trend assumptions are based on our historical experience and future outlook. While we believe that the assumptions used in these calculations are reasonable, differences in actual experience or changes in assumptions could materially affect the expense and liabilities related to our defined benefit pension plans. A hypothetical one percent increase in the discount rate would increase net income and decrease the accrued pension liability by approximately $0.6 million and $157.4 million, respectively. A one percent decrease in the discount rate would increase net income and increase the accrued pension liability by approximately $0.7 million and $194.4 million, respectively. A one percent change in the expected long-term rate of return would affect net income by approximately $5.4 million.
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Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk primarily related to interest rates, foreign exchange, and credit risk. It is our policy to monitor these exposures, and to use derivative financial investments and/or insurance contracts from time to time to reduce fluctuations in earnings and cash flows when it is deemed appropriate to do so. We do not use derivative financial instruments for trading or speculative purposes.
Interest Rates:
From time to time, we may use interest rate swaps, collars, or options to manage our exposure to fluctuations in interest rates. It is management’s intention that the notional amount of interest rate swaps be less than the variable rate loans outstanding during the life of the derivatives.
The information set forth in Note 15, “Derivative Instruments and Activities,” of the Notes to Consolidated Financial Statements under the caption “Interest Rate Contracts,” is incorporated herein by reference.
On an annual basis, a hypothetical one percent change in interest rates for the $422.1 million of unhedged variable rate debt as of April 30, 2021 would affect net income and cash flow by approximately $3.4 million.
Foreign Exchange Rates:
Fluctuations in the currencies of countries where we operate outside the US may have a significant impact on financial results. We are primarily exposed to movements in British pound sterling, euros, Canadian and Australian dollars, and certain currencies in Asia. The statements of financial position of non-US. business units are translated into US dollars using period-end exchange rates for assets and liabilities and the Statements of Income are translated into US dollars using weighted-average exchange rates for revenues and expenses. The percentage of consolidated revenue for the year ended April 30, 2021 recognized in the following currencies (on an equivalent US dollar basis) were approximately: 55% US dollar, 27% British pound sterling, 11% euro, and 7% other currencies.
Our significant investments in non-US businesses are exposed to foreign currency risk. Adjustments resulting from translating assets and liabilities are reported as a separate component of Total Accumulated Other Comprehensive Loss, Net of Tax within Shareholders’ Equity under the caption Foreign currency translation adjustment. During the year ended April 30, 2021, we recorded foreign currency translation gains in Total accumulated other comprehensive loss, net of tax of approximately $82.8 million primarily as a result of the fluctuations of the US dollar relative to the British pound sterling and, to a lesser extent the euro. During the year ended April 30, 2020, we recorded foreign currency translation losses in Accumulated other comprehensive loss, net of tax of approximately $28.6 million, primarily as a result of the fluctuations of the US dollar relative to the British pound sterling and, to a lesser extent the euro.
Exchange rate gains or losses related to foreign currency transactions are recognized as transaction gains or losses on the Consolidated Statements of Income (Loss) as incurred. Under certain circumstances, we may enter into derivative financial instruments in the form of foreign currency forward contracts to hedge against specific transactions, including intercompany purchases and loans.
The information set forth in Note 15, “Derivative Instruments and Activities,” of the Notes to Consolidated Financial Statements under the caption “Foreign Currency Contracts,” is incorporated herein by reference.
Customer Credit Risk:
In the journal publishing business, subscriptions are primarily sourced through journal subscription agents who, acting as agents for library customers, facilitate ordering by consolidating the subscription orders/billings of each subscriber with various publishers. Cash is generally collected in advance from subscribers by the subscription agents and is principally remitted to us between the months of December and April. Although at fiscal year-end we had minimal credit risk exposure to these agents, future calendar-year subscription receipts from these agents are highly dependent on their financial condition and liquidity. Subscription agents account for approximately 20% of total annual consolidated revenue, and no one agent accounts for more than 10% of total annual consolidated revenue.
Our book business is not dependent upon a single customer; however, the industry is concentrated in national, regional, and online bookstore chains. Although no book customer accounts for more than 9% of total consolidated revenue and 13% of accounts receivable at April 30, 2021, the top 10 book customers account for approximately 13% of total consolidated revenue and approximately 22% of accounts receivable at April 30, 2021.
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Many of our customers have been adversely impacted by COVID-19, and we expect some continued delays in payments due to widespread disruption and pervasive cash conservation behaviors in the face of uncertainty.
Disclosure of Certain Activities Relating to Iran:
The European Union, Canada and the US have imposed sanctions on business relationships with Iran, including restrictions on financial transactions and prohibitions on direct and indirect trading with listed “designated persons.” In the year ended April 30, 2021, we recorded an immaterial amount of revenue and net earnings related to the sale of scientific and medical content to certain publicly funded universities, hospitals and institutions that meet the definition of the “Government of Iran” as defined under section 560.304 of title 31, Code of Federal Regulations. We assessed our business relationship and transactions with Iran and believe we are in compliance with the regulations governing the sanctions. As of April 30, 2021, we discontinued sales with Iran.
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Item 8. Financial Statements and Supplementary Data
The following Consolidated Financial Statements and Notes are filed as part of this report.
John Wiley & Sons, Inc. and Subsidiaries
Reports of Independent Registered Public Accounting Firm
Financial Statements
Consolidated Statements of Financial Position - April 30, 2021 and 2020 55
Notes to Consolidated Financial Statements
Note 1. Description of Business 60
Note 3. Revenue Recognition, Contracts with Customers 67
Note 4. Acquisitions 72
Note 5. Reconciliation of Weighted Average Shares Outstanding 76
Note 6. Accumulated Other Comprehensive Loss 77
Note 7. Restructuring and Related Charges 78
Note 8. Inventories 80
Note 9. Product Development Assets 80
Note 10. Technology, Property, and Equipment 80
Note 11. Goodwill and Intangible Assets 81
Note 12. Operating Leases 83
Note 13. Income Taxes 85
Note 14. Debt and Available Credit Facilities 88
Note 15. Derivative Instruments and Activities 89
Note 16. Commitment and Contingencies 90
Note 17. Retirement Plans 90
Note 18. Stock-Based Compensation 94
Note 19. Capital Stock and Changes in Capital Accounts 97
Note 20. Segment Information 99
Note 22. Subsequent Events 101
Financial Statement Schedule
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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To our Shareholders
John Wiley & Sons, Inc.:
The management of John Wiley & Sons, Inc. and subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).
Under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the framework in Internal Control – Integrated Framework issued by COSO, our management concluded that our internal control over financial reporting was effective as of April 30, 2021.
Changes in Internal Control over Financial Reporting:
The Company acquired Hindawi Limited (Hindawi) during fiscal year 2021, which represented less than 1% of total assets, excluding goodwill and intangible assets which are included within the scope of the assessment, and less than 1% of total revenue included in the consolidated financial statements of the Company as of and for the year ended April 30, 2021. Hindawi was excluded from the Company’s assessment of the effectiveness of the Company’s internal control over financial reporting as of April 30, 2021.
We continue to implement additional functionality and enhancements to our previously disclosed global ERP implementation. As with any new information system we implement, this application, along with the internal controls over financial reporting included in this process, will require testing for effectiveness. In connection with this ERP implementation, we are updating our internal controls over financial reporting, as necessary, to accommodate modifications to our business processes and accounting procedures. We do not believe that the ERP implementation will have an adverse effect on our internal control over financial reporting.
Except as described above, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during fiscal year 2021.
The effectiveness of our internal control over financial reporting as of April 30, 2021 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein.
The Company’s Corporate Governance Principles, Committee Charters, Business Conduct and Ethics Policy and the Code of Ethics for Senior Financial Officers are published on our web site at www.wiley.com under the “About Wiley—Corporate Governance” captions. Copies are also available free of charge to shareholders on request to the Corporate Secretary, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774.
/s/ Brian A. Napack
Brian A. Napack
President and Chief Executive Officer
/s/ John A. Kritzmacher
John A. Kritzmacher
Executive Vice President and Chief Financial Officer
/s/ Christopher F. Caridi
Christopher F. Caridi
Senior Vice President, Global Corporate Controller, and
Chief Accounting Officer
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Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
John Wiley & Sons, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of John Wiley & Sons, Inc. and subsidiaries (the Company) as of April 30, 2021 and 2020, the related consolidated statements of income (loss), comprehensive income (loss), cash flows, and shareholders’ equity for each of the years in the three-year period ended April 30, 2021, and the related notes and financial statement schedule in Item 15(2) (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended April 30, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of April 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated July 6, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Evaluation of the sufficiency of audit evidence over certain subscriber and publishing revenue
As discussed in Note 3 to the consolidated financial statements, the Company generated revenue of $972.5 million from Research Publishing Products, including Journal Subscriptions, $363.9 million from Education Publishing Products, including Education (print and digital) Publishing, and $280.7 million from Professional Learning Products, including Professional Publishing, for the year ended April 30, 2021. The Company’s uses multiple information technology (IT) systems to record revenue.
We identified the evaluation of the sufficiency of audit evidence over revenue from Journal Subscriptions, Education (print and digital) Publishing, and Professional Publishing as a critical audit matter. Evaluating the sufficiency of audit evidence obtained involved IT professionals with specialized skills and knowledge and required especially subjective auditor judgment because of the multiple revenue recognition processes, IT applications, and data interfaces.
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The following are the primary procedures we performed to address this critical audit matter. We performed risk assessment procedures and applied auditor judgment to determine the nature and extent of procedures to be performed over Journal Subscriptions, Education (print and digital) Publishing, and Professional Publishing revenue, including the determination of the IT systems where those procedures were to be performed based on the nature of the information processed by those systems. We evaluated the design and tested the operating effectiveness of certain internal controls over the related revenue recognition processes. We involved IT professionals with specialized skills and knowledge, who assisted in testing 1) certain general IT controls, and 2) certain application controls within those revenue recognition process, including the interface of relevant revenue data between different IT systems used therein. On a sample basis, we also tested certain Journal Subscriptions, Education (print and digital) Publishing, and Professional Publishing revenue by tracing the recorded amounts for specific transactions back to underlying documentation. We evaluated the sufficiency of audit evidence obtained over revenue by assessing the results of procedures performed.
Assessment of the initial fair value of acquired journals
As discussed in Note 4 to the consolidated financial statements, the Company accounts for acquired businesses using the acquisition method of accounting by recording assets and liabilities acquired at their respective fair values. During the year ended April 30, 2021, the Company completed the acquisition of Hindawi Limited for a total purchase price of $300.1 million (“the acquisition”). The Company recorded intangible assets of $188.5 million during the year related to acquired journals. The determination of the acquisition date fair value of this intangible asset required the Company to develop assumptions, including key assumptions regarding forecasted revenue growth rates and operating cash flows, the royalty rate, and the discount rate.
We identified the assessment of the initial fair value of acquired journals as a critical audit matter. There was a high degree of subjectivity involved in evaluating the key assumptions developed by the Company used to determine the fair value of this intangible asset. The estimated fair value of this intangible asset was also sensitive to changes in these key assumptions.
The following are the primary procedures we performed to address this critical audit matter. We tested the design and operating effectiveness of certain internal controls over the Company’s acquisition-date valuation process, including controls related to the development of the key assumptions for acquired journals. We evaluated the growth rates used by the Company to determine forecasted revenues and operating cash flows by comparing them to 1) current industry, market, and economic trends, and 2) historical results of the acquired entity and the Company. We performed sensitivity analyses to assess the impact of possible changes to the key assumptions on the acquisition-date fair value of acquired journals. We involved a valuation professional with specialized skills and knowledge, who assisted in:
/s/ KPMG LLP
We have served as the Company’s auditor since 2002.
New York, New York
July 6, 2021
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Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
John Wiley & Sons, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited John Wiley & Sons, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of April 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of April 30, 2021 and 2020, and the related consolidated statements of income (loss), comprehensive income (loss), cash flows, and shareholders’ equity for each of the years in the three-year period ended April 30, 2021, and the related notes and financial statement schedule in Item 15(2) (collectively, the consolidated financial statements), and our report dated July 6, 2021 expressed an unqualified opinion on those consolidated financial statements.
The Company acquired Hindawi during the year ended April 30, 2021, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of April 30, 2021, Hindawi’s internal control over financial reporting associated with less than 1% of total assets, excluding goodwill and intangible assets which are included within the scope of the assessment, and less than 1% of total revenue included in the consolidated financial statements of the Company as of and for the year ended April 30, 2021. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Hindawi.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report On Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
New York, New York
July 6, 2021
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John Wiley & Sons, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
In thousands
Assets:
Current assets
Prepaid expenses and other current assets 78,393 59,465
Liabilities and shareholders’ equity:
Current liabilities
Short-term portion of long-term debt 12,500 9,375
Short-term portion of operating lease liabilities 22,440 21,810
Shareholders’ equity
Preferred stock, $1 par value: Authorized – 2 million, Issued – 0 — —
Accumulated other comprehensive loss:
Foreign currency translation adjustment (257,941 ) (340,703 )
Unamortized retirement costs, net of tax (228,146 ) (227,920 )
Unrealized (loss) on interest rate swaps, net of tax (4,703 ) (6,874 )
Total accumulated other comprehensive loss, net of tax (490,790 ) (575,497 )
See accompanying Notes to Consolidated Financial Statements.
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John Wiley & Sons, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Dollars in thousands, except per share information
For the Years Ended April 30,
Costs and expenses
Impairment of goodwill and intangible assets — 202,348 —
Foreign exchange transaction (losses) gains (7,977 ) 2,773 (6,016 )
Earnings (loss) per share:
Weighted average number of common shares outstanding:
See accompanying Notes to Consolidated Financial Statements.
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John Wiley & Sons, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Dollars in thousands
For the Years Ended April 30,
Other comprehensive income (loss):
See accompanying Notes to Consolidated Financial Statements.
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John Wiley & Sons, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
For the Years Ended April 30,
Operating activities
Impairment of goodwill and intangible assets — 202,348 —
Foreign exchange transaction losses (gains) 7,977 (2,773 ) 6,016
Changes in operating assets and liabilities
Investing activities
Additions to technology, property and equipment (77,407 ) (88,593 ) (77,167 )
Acquisitions of publication rights and other (29,851 ) (1,840 ) (9,494 )
Financing activities
Payment of debt issuance costs — (4,006 ) —
Cash reconciliation:
Cash paid during the year for:
Noncash items:
Noncash items associated with the acquisition of Learning House:
See accompanying Notes to Consolidated Financial Statements.
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John Wiley & Sons, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Dollars in thousands
Stock-based compensation expense — — 18,327 — — — 18,327
Purchase of treasury shares — — — — — (59,994 ) (59,994 )
Class A common stock dividends ($1.32 per share) — — — (63,684 ) — — (63,684 )
Class B common stock dividends ($1.32 per share) — — — (12,068 ) — — (12,068 )
Common stock class conversions 16 (16 ) — — — — —
Issuance of warrants related to acquisition of a business — — 565 — — — 565
Adjustment due to adoption of new revenue standard — — — 4,503 — — 4,503
Stock-based compensation expense — — 20,009 — — — 20,009