John Wiley & Sons, Inc. and Subsidiaries
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, 2018.
We are in the process of implementing a new global enterprise resource planning system ("ERP") that will enhance our business and financial processes and standardize our information systems. We have completed the implementation of record-to-report, purchase-to-pay and several other business processes within all locations and will continue to roll out the ERP in phases over the next year.
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 2018.
The effectiveness of our internal control over financial reporting as of April 30, 2018 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.
John Wiley & Sons, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 – Description of Business
The Company, founded in 1807, was incorporated in the state of New York on January 15, 1904. Throughout this report, when we refer to "Wiley," the "Company," "we," "our," or "us," we are referring to John Wiley & Sons, Inc. and all of our subsidiaries, except where the context indicates otherwise.
We are a global research and learning company. Through our
Research
segment, we provide scientific, technical, medical, and scholarly journals, as well as related content and services, to academic, corporate, and government libraries, learned societies, and individual researchers and other professionals. The
Publishing
segment provides scientific, professional, and education books and related content in print and digital formats, as well as test preparation services and course workflow tools, to libraries, corporations, students, professionals, and researchers. The
Solutions
segment provides online program management services for higher education institutions and learning, development, and assessment services for businesses and professionals. We have operations primarily located in the United States, Canada, United Kingdom, Germany, Singapore, and Australia.
Note 2 – Summary of Significant Accounting Policies, Recently Issued, and Recently Adopted Accounting Standards
Summary of Significant Accounting Policies
Basis of Presentation:
Our Consolidated Financial Statements include all of the accounts of the Company and our subsidiaries. We have eliminated all significant intercompany transactions and balances in consolidation. All amounts are in thousands, except per share amounts, and approximate due to rounding.
Reclassifications:
Certain prior year amounts have been reclassified to conform to the current year's presentation.
Use of Estimates:
The preparation of our Consolidated Financial Statements and related disclosures in conformity with U.S. 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, assessing the collectability of receivables, the use and recoverability of inventory, assumptions used in the calculation of income taxes, useful lives and recoverability of tangible assets and goodwill and other intangible assets, assumptions used in our defined benefit pension plans and other post-employment benefit plans, costs for incentive compensation, and accruals for commitments and contingencies. 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.
Book Overdrafts:
Under our cash management system, a book overdraft balance exists for our primary disbursement accounts. This overdraft represents uncleared checks in excess of cash balances in individual bank accounts. Our funds are transferred from other existing bank account balances or from lines of credit as needed to fund checks presented for payment. As of April 30, 2018 and 2017, book overdrafts of $13.1 million and $17.6 million, respectively, were included in Accounts Payable on the Consolidated Statements of Financial Position.
Revenue Recognition:
We
recognize revenue when the following criteria are met: persuasive evidence that an arrangement exists, delivery has occurred, or services have been rendered; the price to the customer is fixed or determinable; and collectability is reasonably assured. If all of the above criteria have been met, revenue is recognized upon shipment of products or when services have been rendered. Revenue related to journal subscriptions and other products and services that is generally collected in advance is deferred and recognized as earned over the term of the subscription, when the related issue is shipped or made available online, or the service is rendered, in accordance with contractual terms. Collectability is evaluated based on the amount involved, the credit history of the customer, and the status of the customer's account with us.
We transitioned from issue-based to time-based digital journal subscription agreements starting in calendar year 2016. Under this new model, we provide access to all journal content published within a calendar year and recognize revenue on a straight-line basis over the calendar year. Under our previous licensing model, a customer subscribed to a discrete number of online journal issues and revenue was recognized as each issue was made available online. We made these changes to simplify the contracting and administration of our digital journal subscriptions.
When a product is sold with multiple deliverables, we account for each deliverable within the arrangement as a separate unit of accounting due to the fact that each deliverable is also sold on a stand-alone basis. The total consideration of a multiple-element arrangement is allocated to each unit of accounting based on the price charged by us when it is sold separately. Our multiple deliverable arrangements principally include
WileyPLUS
, an online course management tool that includes a complete print or digital textbook for the course, negotiated licenses for bundles of digital content available on
Wiley Online Library
, the online publishing platform for our Research business, and test preparation, assessment, certification and training services which can include bundles of print and digital content and online workflow solutions. In March 2018, we migrated our
Wiley Online Library
platform to Atypon's
Literatum
platform, which we acquired in fiscal year 2017.
We enter into contracts for the resale of our content through third parties where we are not the primary obligor of the arrangement because we are not responsible for fulfilling the customer's order, handling customer requests or claims, and/or maintaining credit risk. We recognize revenue for the sale of our content, net of any commission owed to the third-party seller, or taxes, which are remitted to government authorities.
In May 2014, the Financial Accounting Standards Board (the "FASB") issued ASU 2014-09 "Revenue from Contracts with Customers" (Topic 606) ("ASU 2014-09"), which supersedes most existing revenue recognition guidance. We adopted ASU 2014-09 on May 1, 2018. See the caption below, "Recently Adopted Accounting Standards" for details of our adoption of ASU 2014-09.
Cash Equivalents:
Cash equivalents consist of highly liquid investments with an original maturity of three months or less at the time of purchase and are stated at cost, which approximates market value, because of the short-term maturity of the instruments.
Allowance for Doubtful Accounts:
The estimated allowance for doubtful accounts is based on a review of the aging of the accounts receivable balances, historical write-off experience, credit evaluations of customers, and current market conditions. A change in the evaluation of a customer's credit could affect the estimated allowance. The allowance for doubtful accounts is shown as a reduction of Accounts Receivable on the Consolidated Statements of Financial Position and amounted to $10.1 million and $7.2 million as of April 30, 2018 and 2017, respectively.
Sales Return Reserves:
The process that we use to determine our sales returns and the related reserve provision charged against revenue is based on applying an estimated return rate to current year returnable print book sales. This rate is based upon an analysis of actual historical return experience in the various markets and geographic regions in which we do business. We collect, maintain and analyze significant amounts of sales returns data for large volumes of homogeneous transactions. This allows us to make reasonable estimates of the amount of future returns. All available data is utilized to identify the returns by market and to which fiscal year the sales returns apply. This enables management to track the returns in detail and identify and react to trends occurring in the marketplace, with the objective of being able to make the most informed judgments possible in setting reserve rates. Associated with the estimated sales return reserves, we also include a related reduction in inventory and royalty costs as a result of the expected returns. Net print book sales return reserves amounted to $18.6 million and $24.3 million as of April 30, 2018 and 2017, respectively.
The reserves are reflected in the following accounts of the Consolidated Statements of Financial Position – (decrease) increase as of April 30:
|
|
2018
|
|
|
2017
|
|
Accounts Receivable
|
|
$
|
(28,302
|
)
|
|
$
|
(34,769
|
)
|
Inventories
|
|
$
|
4,626
|
|
|
$
|
4,727
|
|
Royalties Payable
|
|
$
|
(5,048
|
)
|
|
$
|
(5,741
|
)
|
Decrease in Net Assets
|
|
$
|
(18,628
|
)
|
|
$
|
(24,300
|
)
|
Inventories:
Inventories are carried at the lower of cost or market. U.S. book inventories aggregating $24.0 million and $31.5 million at April 30, 2018 and 2017, respectively, are valued using the last-in, first-out (LIFO) method. All other inventories are valued using the first-in, first-out (FIFO) method.
Reserve for Inventory Obsolescence
:
A reserve for inventory obsolescence is estimated based on a review of damaged, obsolete, or otherwise unsalable inventory. The review encompasses historical unit sales trends by title, current market conditions, including estimates of customer demand compared to the number of units currently on hand, and publication revision cycles. The inventory obsolescence reserve is reported as a reduction of the Inventories balance on the Consolidated Statements of Financial Position and amounted to $18.2 million and $21.1 million as of April 30, 2018 and 2017, respectively.
Product Development Assets:
Product development assets consist of book composition costs and other product development costs. Costs associated with developing a book publication are expensed until the product is determined to be commercially viable. Book composition costs represent the costs incurred to bring an edited commercial manuscript to publication, which include typesetting, proofreading, design, illustration costs, and digital formatting. Book composition costs are capitalized and are generally amortized on a double-declining basis over their estimated useful lives, ranging from 1 to 3 years. Other product development costs represent the costs incurred in developing software, platforms, and digital content to be sold and licensed to third parties. Other product development costs are capitalized and generally amortized on a straight-line basis over their estimated useful lives. As of April 30, 2018, the weighted average estimated useful life of other product development costs was approximately 6 years.
Royalty Advances:
Royalty advances are capitalized and, upon publication, are expensed as royalties earned based on sales of the published works. Royalty advances are reviewed for recoverability and a reserve for loss is maintained, if appropriate.
Shipping and Handling Costs:
Costs incurred for third party shipping and handling are reflected in Operating and Administrative Expenses on the Consolidated Statements of Income. We incurred $33.7 million, $39.1 million, and $40.5 million in shipping and handling costs in fiscal years 2018, 2017, and 2016, respectively.
Advertising Expense:
Advertising costs are expensed as incurred. We incurred $68.3 million, $61.4 million and $54.1 million in advertising costs in fiscal years 2018, 2017, and 2016, respectively, and these costs are included in Operating and Administrative Expenses on the Consolidated Statements of Income.
Technology, Property, and Equipment:
Technology, property, and equipment is recorded at cost. Major renewals and improvements are capitalized, while maintenance and repairs are expensed as incurred.
Technology, property and equipment is depreciated using the straight-line method based upon the following estimated useful lives: Computer Software – 3 to 10 years, Computer Hardware – 3 to 5 years; Buildings and Leasehold Improvements – the lesser of the estimated useful life of the asset up to 40 years or the duration of the lease; Furniture, Fixtures, and Warehouse Equipment – 3 to 10 years.
Costs incurred for computer software developed or obtained for internal use are capitalized during the application development stage and expensed as incurred during the preliminary project and post-implementation stages. Costs incurred during the application development stage include costs of materials and services and payroll and payroll-related costs for employees who are directly associated with the software project. Such costs are amortized over the expected useful life of the related software, which is generally 3 to 6 years. Costs related to the investment in our Enterprise Resource Planning and related systems are amortized over an expected useful life of 10 years. Maintenance, training, and upgrade costs that do not result in additional functionality are expensed as incurred.
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 and technology acquired. Such estimates include discounted estimated cash flows to be generated by those assets and the expected useful lives based on historical experience, current market trends, and synergies to be achieved from the acquisition and the expected tax basis of assets acquired. We may use a third-party valuation consultant to assist in the determination of such estimates.
Goodwill and Indefinite-lived Intangible Assets:
Goodwill represents the excess of the aggregate of the following: (1) consideration transferred, (2) the fair value of any noncontrolling interest in the acquiree, and (3) if the business combination is achieved in stages, the acquisition-date fair value of our previously held equity interest in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.
Indefinite-lived intangible assets primarily consist of brands, trademarks, content, and publishing rights and are typically characterized by intellectual property with a long and well-established revenue stream resulting from strong and well-established imprint/brand recognition in the market.
We use the acquisition method of accounting for all business combinations and do not amortize goodwill or intangible assets with indefinite useful lives. Goodwill and intangible assets with indefinite useful lives are tested for possible impairment annually during the fourth quarter of each fiscal year, or more frequently if events or changes in circumstances indicate that the asset might be impaired.
Intangible Assets with Finite Lives and Other Long-Lived Assets:
Finite-lived intangible assets principally consist of brands, trademarks, content and publication rights, customer relationships, and non-compete agreements and are amortized over their estimated useful lives. The most significant factors in determining the estimated lives of these intangibles are the history and longevity of the brands, trademarks, and content and publication rights acquired combined with the strength of cash flows. Content and publication rights, trademarks, customer relationships, and brands with finite lives are amortized on a straight-line basis over periods ranging from 2 to 40 years. Non-compete agreements are amortized over the terms of the individual agreement, generally up to 5 years.
Intangible assets with finite lives as of April 30, 2018, are amortized on a straight line basis over the following weighted average estimated useful lives: content and publishing rights – 30 years, customer relationships – 20 years, brands and trademarks – 15 years, non-compete agreements – 5 years.
Assets with finite lives are evaluated for impairment upon a significant change in the operating or macroeconomic environment. In these circumstances, if an evaluation of the projected undiscounted cash flows indicates impairment, the asset is written down to its estimated fair value based on the discounted future cash flows.
Derivative Financial Instruments:
From time to time, we enter into foreign exchange forward and interest rate swap contracts as a hedge against foreign currency asset and liability commitments, changes in interest rates, and anticipated transaction exposures, including intercompany purchases. All derivatives are recognized as assets or liabilities and measured at fair value. Derivatives that are not determined to be effective hedges are adjusted to fair value with a corresponding adjustment to earnings. We do not use financial instruments for trading or speculative purposes.
Foreign Currency Gains/Losses:
We maintain operations in many non-U.S. locations. Assets and liabilities are translated into U.S. dollars using end-of-period exchange rates and revenues and expenses are translated into U.S. dollars using weighted average rates. Our significant investments in non-U.S. businesses are exposed to foreign currency risk. Foreign currency translation adjustments are reported as a separate component of Accumulated Other Comprehensive Loss within Shareholders' Equity. During fiscal year 2018, we recorded $67.6 million of foreign currency translation gains primarily due to the strengthening of the British pound sterling relative to the U.S. dollar
and, to a lesser extent, the strengthening of the euro relative to the U.S. dollar
. Foreign currency transaction gains or losses are recognized on the Consolidated Statements of Income as incurred.
Stock-Based Compensation:
We recognize stock-based compensation expense based on the fair value of the stock-based awards on the grant date, reduced by an estimate for future forfeited awards. As such, stock-based compensation expense is only recognized for those awards that are expected to ultimately vest. The fair value of stock-based awards is recognized in net income on a straight-line basis over the requisite service period. The grant date fair value for stock options is estimated using the Black-Scholes option-pricing model. The determination of the assumptions used in the Black-Scholes model required us to make significant judgments and estimates, which include the expected life of an option, the expected volatility of our Common Stock over the estimated life of the option, a risk-free interest rate, and the expected dividend yield. Judgment was also required in estimating the amount of stock-based awards that may be forfeited. Stock-based compensation expense associated with performance-based stock awards is based on actual financial results for targets established three years in advance. The cumulative effect on current and prior periods of a change in the estimated number of performance share awards, or estimated forfeiture rate, is recognized as an adjustment to earnings in the period of the revision. If actual results differ significantly from estimates, our stock-based compensation expense and consolidated results of operations could be impacted.
Recently Adopted Accounting Standards
In May 2017, the FASB issued ASU 2017-09, "Compensation— Stock Compensation (Topic 718): Scope of Modification Accounting," which clarifies when changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Under the new guidance, modification accounting is only required if the fair value, vesting conditions or classification (equity or liability) of the new award are different from the original award immediately before the original award is modified. We adopted ASU 2017-09 on May 1, 2018. The new guidance must be applied prospectively to awards modified on or after the adoption date. The future impact of ASU 2017-09 will be dependent on the nature of future stock award modifications.
In March 2017, the FASB issued ASU 2017-07, "Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." The guidance requires that the service cost component of net pension and postretirement benefit costs be reported in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period, while the other components of net benefit costs must be reported separately from the service cost component and below operating income. The guidance also allows only the service cost component to be eligible for capitalization when applicable. We adopted ASU 2017-07 on May 1, 2018. The new guidance must be applied retrospectively for the presentation of net benefit costs in the income statement and prospectively for the capitalization of the service cost component of net benefit costs. Our net pension and postretirement costs for the fiscal year ended April 30, 2018, includes approximately $8.1 million of net benefits that, upon adoption will be reclassified from operating income to a line item below operating income. Our net pension and retirement costs for the fiscal year ended April 30, 2017, includes $5.3 million of net charges that will be reclassified from operating income to a line item below operating income upon adoption.
In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business", which clarifies the definition of a business in order to allow for the evaluation of whether transactions should be accounted for as acquisitions or disposals of assets or business. We adopted ASU 2017-01 on May 1, 2018. The future impact of ASU 2017-01 will be dependent upon the nature of future acquisitions or dispositions made by us.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. ASU 2016-18 requires that entities include restricted cash and restricted cash equivalents with cash and cash equivalents in the beginning-of-period and end-of-period total amounts shown on the Statement of Cash Flows. We adopted ASU 2016-18 on May 1, 2018. Retrospective transition method is to be applied to each period presented. The adoption of ASU 2016-18 did not have a material impact to our consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory", which simplifies the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Current U.S. GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. The new guidance states that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the amendments in this Standard eliminate the exception for an intra-entity transfer of an asset other than inventory. We adopted ASU 2016-16 on May 1, 2018. The adoption of ASU 2016-16 did not have a material impact to our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," which provides clarification on classifying a variety of activities within the Statement of Cash Flows. We adopted ASU 2016-15 on May 1, 2018. The adoption of ASU 2016-15 did not have a material impact to our consolidated statements of cash flows.
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." Subsequently, the FASB issued ASU 2018-03, "Technical Corrections and Improvements to Financial Instruments-Overall." ASU 2016-01 requires equity investments except those under the equity method of accounting to be measured at fair value with the changes in fair value recognized in net income. The amendment simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. In addition, it also requires enhanced disclosures about investments. We adopted ASU 2016-01 on May 1, 2018. The adoption of ASU 2016- 01 did not have a material impact to our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers" (Topic 606) which superseded most existing revenue recognition guidance. We adopted ASU 2014-09 on May 1, 2018. The standard allows for either "full retrospective" adoption, meaning the standard is applied to all periods presented, or "modified retrospective" adoption, meaning the standard is applied only to the most current period presented in the financial statements. Subsequently, the FASB issued ASU 2016-08, "Revenue from Contracts with Customers (Topic 606) – Principal versus Agent Considerations", ASU 2016-10, "Revenue from Contracts with Customers (Topic 606) – Identifying Performance Obligations and Licensing", ASU 2016-12, "Revenue from Contracts with Customers (Topic 606) – Narrow Scope Improvements and Practical Expedients", and ASU 2016-20, "Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers," which provide clarification and additional guidance related to ASU 2014-09. We also adopted ASU 2016-08, ASU 2016-10, ASU 2016-12, and ASU 2016-20 with ASU 2014-09 on May 1, 2018.
We utilized a comprehensive approach to assess the impact of the standard on our contract portfolio by reviewing our current accounting policies and practices to identify differences that would result from applying the new standard to our revenue contracts.
We adopted the new revenue standard as of May 1, 2018, using the modified retrospective method. The adoption of the standard did not have a material impact to our consolidated revenues, financial position, or results of operations. Accordingly, we will record an immaterial net increase to opening retained earnings upon adoption resulting from the acceleration of revenue recognized under the standard.
Although the adoption of the new revenue standard is not material to our consolidated financial position, or results of operations, there are certain components of our revenue where the standard changes the timing of when revenue is recognized compared to our historical policies due to: (i) perpetual licenses granted in connection with other deliverables, previously recognized over the life of the associated subscription for future content, which we will now recognize the revenue at a point in time, which is when access is granted, (ii) customers' unexercised rights, which was previously recognized at the end of a pre-determined period for situations where we have received a nonrefundable payment for a customer to receive a good or service and the customer has not exercised such right, which we will now recognize such breakage amounts as revenue in proportion to the pattern of rights exercised by the customer, (iii) recognition of royalties in the period of usage, and (iv) recognition of certain arrangements with minimum guarantees on a time-based (straight-line) basis due to a stand-ready obligation to provide additional rights to content.
In addition, the adoption of the standard results in the discontinuance of the historical practice of presenting accounts receivable and deferred revenue balances on a net basis for some of our subscription licensing agreements where we have invoiced a customer in advance of the related revenue being recognized and payment has not yet been received. As of April 30, 2018, the amounts that were netted down from accounts receivable and deferred revenue were $59.5 million.
Effective April 30, 2017, we adopted ASU 2015-17 "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes." ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. We elected to adopt this standard prospectively and thus prior period balances were not adjusted. As of April 30, 2017, there were $0.8 million of current deferred tax assets reported within Prepaid and Other Current Assets on the Consolidated Statements of Financial Position.
In March 2016, the FASB issued ASU 2016-09, "Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," which simplifies the accounting for share-based payment transactions, including income taxes, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new guidance also allows an entity to make an accounting policy election to account for forfeitures when they occur or to estimate the number of awards that are expected to vest with a subsequent true up to actual forfeitures (current U.S. GAAP). We adopted ASU 2016-09 on a prospective basis on May 1, 2017. As a result of the adoption:
|
·
|
Excess income tax benefits and deficiencies from stock-based compensation are now recognized as a discrete item within the Provision for Income Taxes in the Consolidated Statements of Income, rather than Additional Paid-In-Capital on the Consolidated Statements of Financial Position, and amounted to $1.6 million for fiscal year 2018.
|
|
·
|
Excess income tax benefits and deficiencies are no longer considered when applying the treasury stock method for computing diluted shares outstanding, which resulted in an increase in diluted shares outstanding of less than 0.1 million.
|
|
·
|
Excess income tax benefits and deficiencies are now classified as an Operating Activity on the Consolidated Statements of Cash Flows. There were no excess tax benefits recorded in operating activities for fiscal year 2018, while $0.4 million were recorded in Financing Activities for fiscal year 2017.
|
|
·
|
We have elected to continue estimating expected forfeitures in determining stock compensation expense each period.
|
Recently Issued Accounting Standards
In February 2018, the FASB issued ASU 2018-02 "Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The standard is effective for us on May 1, 2019, and interim periods within that fiscal year, with early adoption permitted. We are currently assessing the impact the new guidance will have on our consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities," to simplify and improve the application and financial reporting of hedge accounting. The guidance eases the requirements for measuring and reporting hedge ineffectiveness, and clarifies that changes in the fair value of hedging instruments for cash flow, net investment, and fair value hedges should be reflected in the same income statement line item as the earnings effect of the hedged item. The guidance also permits entities to designate specific components in cash flow and interest rate hedges as the hedged risk, instead of using total cash flows. The standard is effective for us on May 1, 2019, with early adoption permitted. We are currently assessing the impact the new guidance will have on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, "Intangibles–Goodwill and Other (Topic 350): "Simplifying the Test for Goodwill Impairment", which simplifies the measurement of a potential goodwill impairment charge by eliminating the requirement to calculate an implied fair value of the goodwill based on the fair value of a reporting unit's other assets and liabilities. The new guidance eliminates the implied fair value method and instead measures a potential impairment charge based on the excess of a reporting unit's carrying value compared to its fair value. The impairment charge cannot exceed the total amount of goodwill allocated to that reporting unit. The standard is effective for us on May 1, 2020, with early adoption permitted. Based on our most recent annual goodwill impairment test completed in fiscal year 2018, we expect no initial impact on adoption.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments." ASU 2016-13 requires entities to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model which includes historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. ASU 2016-13 also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity's portfolio. ASU 2016-13 is effective for us on May 1, 2020, including interim periods within those fiscal periods, with early adoption permitted. We are currently assessing the impact the new guidance will have on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)". ASU 2016-02 requires
an entity to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement, and presentation of expenses will depend on classification as a finance or operating lease. Similar modifications have been made to lessor accounting in-line with revenue recognition guidance.
The standard is effective for us on May 1, 2019, with early adoption permitted. Adoption requires application of the new guidance to the beginning of the earliest period presented using a modified retrospective approach. We are currently assessing the impact the new guidance will have on our consolidated financial statements.
Note 3 – Reconciliation of Weighted Average Shares Outstanding
A reconciliation of the shares used in the computation of earnings per share for the years ended April 30 follows:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Weighted Average Shares Outstanding
|
|
|
57,181
|
|
|
|
57,531
|
|
|
|
58,253
|
|
Less: Unvested Restricted Shares
|
|
|
(138
|
)
|
|
|
(194
|
)
|
|
|
(255
|
)
|
Shares Used for Basic Earnings Per Share
|
|
|
57,043
|
|
|
|
57,337
|
|
|
|
57,998
|
|
Dilutive Effect of Stock Options and Other Stock Awards
|
|
|
845
|
|
|
|
862
|
|
|
|
736
|
|
Shares Used for Diluted Earnings Per Share
|
|
|
57,888
|
|
|
|
58,199
|
|
|
|
58,734
|
|
Since their inclusion in the calculation of diluted earnings per share would have been anti-dilutive, options to purchase 244,590, 301,527 and 336,803 shares of Class A Common Stock have been excluded for fiscal years 2018, 2017 and 2016, respectively. In addition, for fiscal years 2018, 2017 and 2016 unvested restricted shares of 26,740, none and 15,200 respectively, have been excluded as their inclusion would have been anti-dilutive.
Note 4 – Accumulated Other Comprehensive Loss
Changes in Accumulated Other Comprehensive Loss by component, net of tax, for the fiscal years ended April 30, 2018 and 2017, were as follows:
|
|
Foreign Currency
Translation Adjustment
|
|
|
Unamortized
Retirement Costs
|
|
|
Interest
Rate Swaps
|
|
|
Total
|
|
Balance at April 30, 2016
|
|
$
|
(267,920
|
)
|
|
$
|
(179,405
|
)
|
|
$
|
(361
|
)
|
|
$
|
(447,686
|
)
|
Other comprehensive (loss) income before reclassifications
|
|
|
(51,292
|
)
|
|
|
(18,458
|
)
|
|
|
2,735
|
|
|
|
(67,015
|
)
|
Amounts reclassified from Accumulated Other Comprehensive Loss
|
|
|
—
|
|
|
|
7,361
|
|
|
|
53
|
|
|
|
7,414
|
|
Total other comprehensive (loss) income
|
|
|
(51,292
|
)
|
|
|
(11,097
|
)
|
|
|
2,788
|
|
|
|
(59,601
|
)
|
Balance at April 30, 2017
|
|
$
|
(319,212
|
)
|
|
$
|
(190,502
|
)
|
|
$
|
2,427
|
|
|
$
|
(507,287
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
67,639
|
|
|
|
(4,979
|
)
|
|
|
1,739
|
|
|
|
64,399
|
|
Amounts reclassified from Accumulated Other Comprehensive Loss
|
|
|
—
|
|
|
|
4,455
|
|
|
|
(1,147
|
)
|
|
|
3,308
|
|
Total other comprehensive income (loss)
|
|
|
67,639
|
|
|
|
(524
|
)
|
|
|
592
|
|
|
|
67,707
|
|
Balance at April 30, 2018
|
|
$
|
(251,573
|
)
|
|
$
|
(191,026
|
)
|
|
$
|
3,019
|
|
|
$
|
(439,580
|
)
|
For the fiscal years ended April 30, 2018 and 2017, pre-tax actuarial losses included in Unamortized Retirement Costs of approximately $5.9 million and $11.1 million, respectively, were amortized from Accumulated Other Comprehensive Loss and recognized as pension expense in Operating and Administrative Expenses on the Consolidated Statements of Income.
Atypon:
On September 30, 2016, we acquired the net assets of Atypon Systems, Inc. ("Atypon"), a Silicon Valley-based publishing-software company, for approximately $121 million in cash, net of cash acquired. We finalized our purchase accounting for Atypon on July 31, 2017, and there were no material changes in the purchase accounting allocation compared to April 30, 2017. We recorded the fair value of the assets acquired and liabilities assumed on the acquisition date, which included $48 million of intangible assets. Goodwill of $70 million was recorded, which is deductible for tax purposes.
Atypon's revenue and operating loss included in our results for fiscal year 2018 were $32.9 million and $2.7 million, respectively. Atypon's revenue and operating loss included in our results for fiscal year 2017 were $19.1 million and $3.5 million, respectively.
Note 6 – Restructuring and Related Charges
In fiscal years 2018, 2017 and 2016, we recorded pre-tax restructuring and related charges of $28.6 million, $13.4 million, and $28.6 million, respectively, which are reflected in the Restructuring and Related Charges line item on the Consolidated Statements of Income and described in more detail below:
Restructuring and Reinvestment Program:
Beginning in fiscal year 2013, we initiated a global program (the "Restructuring and Reinvestment Program") to restructure and realign our cost base with current and anticipated future market conditions. We are targeting a majority of the expected cost savings achieved to improve margins and earnings, while the remainder will be reinvested in high-growth digital business opportunities.
The following tables summarize the pre-tax restructuring charges related to this program:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
Total Charges
Incurred to Date
|
|
Charges by Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
|
|
$
|
5,257
|
|
|
$
|
1,949
|
|
|
$
|
2,982
|
|
|
$
|
25,413
|
|
Publishing
|
|
|
6,443
|
|
|
|
1,596
|
|
|
|
4,507
|
|
|
|
38,931
|
|
Solutions
|
|
|
3,695
|
|
|
|
1,787
|
|
|
|
1,042
|
|
|
|
6,247
|
|
Corporate Expenses
|
|
|
13,171
|
|
|
|
8,023
|
|
|
|
20,080
|
|
|
|
95,919
|
|
Total Restructuring and Related Charges
|
|
$
|
28,566
|
|
|
$
|
13,355
|
|
|
$
|
28,611
|
|
|
$
|
166,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges (Credits) by Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
27,213
|
|
|
$
|
8,386
|
|
|
$
|
16,443
|
|
|
$
|
114,803
|
|
Process Reengineering Consulting
|
|
|
1,815
|
|
|
|
148
|
|
|
|
7,191
|
|
|
|
20,629
|
|
Other Activities
|
|
|
(462
|
)
|
|
|
4,821
|
|
|
|
4,977
|
|
|
|
31,078
|
|
Total Restructuring and Related Charges
|
|
$
|
28,566
|
|
|
$
|
13,355
|
|
|
$
|
28,611
|
|
|
$
|
166,510
|
|
Other Activities in 2017 and 2016 reflects leased facility consolidations, contract termination costs, and the curtailment of certain defined benefit pension plans.
The following table summarizes the activity for the Restructuring and Reinvestment Program liability for fiscal year 2018:
|
|
April 30, 2017
|
|
|
Charges
|
|
|
Payments
|
|
|
Foreign Translation
and Reclassification
|
|
|
April 30, 2018
|
|
Severance
|
|
$
|
10,082
|
|
|
$
|
27,213
|
|
|
$
|
(21,197
|
)
|
|
$
|
1,181
|
|
|
$
|
17,279
|
|
Process Reengineering Consulting
|
|
|
—
|
|
|
|
1,815
|
|
|
|
(1,815
|
)
|
|
|
—
|
|
|
|
—
|
|
Other Activities
|
|
|
12,708
|
|
|
|
(462
|
)
|
|
|
(7,583
|
)
|
|
|
(1,891
|
)
|
|
|
2,772
|
|
Total
|
|
$
|
22,790
|
|
|
$
|
28,566
|
|
|
$
|
(30,595
|
)
|
|
$
|
(710
|
)
|
|
$
|
20,051
|
|
The restructuring liability for accrued severance costs of $17.3 million is reflected in Accrued Employment Costs on the Consolidated Statements of Financial Position. Approximately $0.9 million and $1.9 million of the Other Activities are included in Other Accrued Liabilities and Other Long-Term Liabilities, respectively on the Consolidated Statements of Financial Position.
The amount included in Other Long-Term Liabilities that relates to Other Activities is expected to be paid starting in 2020 until 2022.
Inventories at April 30 were as follows:
|
|
2018
|
|
|
2017
|
|
Finished Goods
|
|
$
|
36,503
|
|
|
$
|
38,329
|
|
Work-in-Process
|
|
|
2,139
|
|
|
|
7,078
|
|
Paper and Other Materials
|
|
|
550
|
|
|
|
650
|
|
|
|
|
39,192
|
|
|
|
46,057
|
|
Inventory Value of Estimated Sales Returns
|
|
|
4,626
|
|
|
|
4,727
|
|
LIFO Reserve
|
|
|
(4,329
|
)
|
|
|
(2,932
|
)
|
Total Inventories
|
|
$
|
39,489
|
|
|
$
|
47,852
|
|
See Note 2, "Summary of Significant Accounting Policies, Recently Issued and Recently Adopted Accounting Standards," under the caption "Sales Return Reserves," for a discussion of the Inventory Value of Estimated Sales Returns. Finished Goods are net of a reserve for inventory obsolescence of $18.2 million and $21.1 million as of April 30, 2018 and 2017, respectively.
Note 8 – Product Development Assets
Product development assets consisted of the following at April 30:
|
|
2018
|
|
|
2017
|
|
Book Composition Costs
|
|
$
|
24,887
|
|
|
$
|
28,884
|
|
Other Product Development Costs
|
|
|
53,927
|
|
|
|
51,501
|
|
Total
|
|
$
|
78,814
|
|
|
$
|
80,385
|
|
Book composition costs are net of accumulated amortization of $188.7 million and $172.6 million as of April 30, 2018 and 2017, respectively. Other Product Development Costs are net of accumulated amortization of $49.4 million and $33.5 million as of April 30, 2018 and 2017, respectively.
Note 9 – Technology, Property, and Equipment
Technology, property and equipment consisted of the following at April 30:
|
|
2018
|
|
|
2017
|
|
Capitalized Software
|
|
$
|
390,774
|
|
|
$
|
356,907
|
|
Computer Hardware
|
|
|
57,493
|
|
|
|
60,467
|
|
Buildings and Leasehold Improvements
|
|
|
121,381
|
|
|
|
103,774
|
|
Furniture, Fixtures, and Warehouse Equipment
|
|
|
60,869
|
|
|
|
55,106
|
|
Land and Land Improvements
|
|
|
3,678
|
|
|
|
3,354
|
|
|
|
|
634,195
|
|
|
|
579,608
|
|
Accumulated Depreciation and Amortization
|
|
|
(344,261
|
)
|
|
|
(336,550
|
)
|
Total
|
|
$
|
289,934
|
|
|
$
|
243,058
|
|
The following table details our depreciation and amortization expense for technology, property and equipment for the fiscal years ended April 30:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Capitalized Software Amortization Expense
|
|
$
|
45,449
|
|
|
$
|
48,343
|
|
|
$
|
49,642
|
|
Depreciation and Amortization Expense, Excluding Capitalized Software
|
|
|
18,878
|
|
|
|
18,340
|
|
|
|
16,785
|
|
Total Depreciation and Amortization Expense for Technology, Property, and Equipment
|
|
$
|
64,327
|
|
|
$
|
66,683
|
|
|
$
|
66,427
|
|
The net book value of capitalized software costs was $198.0 million and $192.7 million as of April 30, 2018 and 2017, respectively.
In fiscal year 2018, we wrote off approximately $51.8 million of fully depreciated capitalized software and computer hardware that were no longer in use.
Note 10 – Goodwill and Intangible Assets
Goodwill
The following table summarizes the activity in goodwill by segment as of April 30:
|
|
2017
|
|
|
Foreign
Translation
Adjustment
|
|
|
2018
|
|
Research
|
|
$
|
437,928
|
|
|
$
|
25,491
|
|
|
$
|
463,419
|
|
Publishing
|
|
|
283,192
|
|
|
|
12,209
|
|
|
|
295,401
|
|
Solutions
|
|
|
260,981
|
|
|
|
—
|
|
|
|
260,981
|
|
Total
|
|
$
|
982,101
|
|
|
$
|
37,700
|
|
|
$
|
1,019,801
|
|
We review goodwill for impairment on a reporting unit basis annually during the third quarter of each year, using a measurement date of January 31, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. While we are permitted to conduct a qualitative assessment to determine whether it is necessary to perform a two-step quantitative goodwill impairment test, for our annual goodwill impairment test in the third quarter of 2018, 2017, and 2016, we performed a quantitative test for all of our reporting units.
The goodwill impairment test involves a two-step process. In step one, we compare the fair value of each of our reporting units to its carrying value, including the goodwill allocated to the reporting unit. If the fair value of the reporting unit exceeds its carrying value, there is no indication of impairment and no further testing is required. If the fair value of the reporting unit is less than the carrying value, we must perform step two of the impairment test to measure the amount of impairment loss, if any. In step two, the reporting unit's fair value is allocated to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination. If the implied fair value of the reporting unit's goodwill is less than the carrying value, the difference is recorded as an impairment loss.
2018 Annual Impairment Test as of January 31, 2018
During the third quarter of 2018, we completed step one of our annual goodwill impairment test for our reporting units. We concluded that the fair values of these reporting units were above their carrying values and, therefore, there was no indication of impairment.
We estimated the fair value of these reporting units using a weighting of fair values derived from an income and a market approach. Under the income approach, we determined the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on management's estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the business and the projected cash flows. The market approach estimates fair value based on market multiples of current and forward 12-month operating performance results, as applicable, derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit.
As noted above, the fair value determined under step one of the goodwill impairment test completed in the third quarter of 2018 exceeded the carrying value for each reporting unit. Therefore, there was no impairment of goodwill. However, if the fair value decreases in future periods, we may fail step one of the goodwill impairment test and be required to perform step two. In performing step two, the fair value would have to be allocated to all of the assets and liabilities of the reporting unit. Therefore, any potential goodwill impairment charge would be dependent upon the estimated fair value of the reporting unit at that time and the outcome of step two of the impairment test. The fair values of the assets and liabilities of the reporting unit, including the intangible assets, could vary depending on various factors.
The future occurrence of a potential indicator of impairment, such as a decrease in expected net earnings, adverse equity market conditions, a decline in current market multiples, a decline in our common stock price, a significant adverse change in legal factors or business climates, an adverse action or assessment by a regulator, unanticipated 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, could require an interim assessment for some or all of the reporting units before the next required annual assessment. In the event of significant adverse changes of the nature described above, we might have to recognize a non-cash impairment of goodwill, which could have a material adverse effect on our consolidated financial condition.
We also review our indefinite-lived intangible assets for impairment annually, which consists of brands and trademarks and certain acquired publishing rights. During the third quarter of 2018, 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.
Change in Annual Impairment Assessment Date
During the fourth quarter of 2018, we voluntarily changed our annual impairment assessment date from January 31 to February 1 for all of our reporting units and our indefinite-lived intangible assets. This change was made to improve alignment of impairment testing procedures with year-end financial reporting, our annual business planning and budgeting process and the multi-year strategic forecast, which begins in the fourth quarter of each year. As a result, the goodwill and indefinite-lived intangible asset impairment testing will reflect the result of inputs from each of the businesses in the development of the budget and forecast process, including the impact of seasonality of our financial results. Accordingly, management considers this accounting change preferable. This change does not accelerate, delay, avoid, or cause an impairment charge, nor does this change result in adjustments to previously issued financial statements.
In connection with the change in the date of the annual goodwill impairment test, we completed a qualitative assessment of the goodwill by reporting unit as of February 1, 2018, and concluded that it was more likely than not that the fair value of each of the reporting units exceeded its carrying amount. In addition, we also completed a qualitative assessment of our indefinite-lived intangible assets as of February 1, 2018, and concluded that it was more likely than not that the fair value of each of the indefinite-lived intangible assets exceeded its carrying amount.
Intangibles
Intangible assets as of April 30 were as follows:
|
|
2018
|
|
|
2017
|
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Accumulated
Impairment
|
|
|
Net
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Intangible Assets with Determinable Lives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Content and Publishing Rights
|
|
$
|
824,146
|
|
|
$
|
(387,386
|
)
|
|
$
|
—
|
|
|
$
|
436,760
|
|
|
$
|
775,520
|
|
|
$
|
(353,923
|
)
|
|
$
|
421,597
|
|
Customer Relationships
|
|
|
212,020
|
|
|
|
(50,291
|
)
|
|
|
—
|
|
|
|
161,729
|
|
|
|
233,872
|
|
|
|
(64,756
|
)
|
|
|
169,116
|
|
Brands and Trademarks
|
|
|
32,111
|
|
|
|
(16,011
|
)
|
|
|
—
|
|
|
|
16,100
|
|
|
|
35,554
|
|
|
|
(18,359
|
)
|
|
|
17,195
|
|
Covenants not to Compete
|
|
|
1,499
|
|
|
|
(844
|
)
|
|
|
—
|
|
|
|
655
|
|
|
|
2,377
|
|
|
|
(1,420
|
)
|
|
|
957
|
|
|
|
|
1,069,776
|
|
|
|
(454,532
|
)
|
|
|
—
|
|
|
|
615,244
|
|
|
|
1,047,323
|
|
|
|
(438,458
|
)
|
|
|
608,865
|
|
Intangible Assets with Indefinite Lives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands and Trademarks
|
|
|
142,189
|
|
|
|
—
|
|
|
|
(3,600
|
)
|
|
|
138,589
|
|
|
|
135,061
|
|
|
|
—
|
|
|
|
135,061
|
|
Content and Publishing Rights
|
|
|
94,238
|
|
|
|
—
|
|
|
|
—
|
|
|
|
94,238
|
|
|
|
84,173
|
|
|
|
—
|
|
|
|
84,173
|
|
|
|
$
|
1,306,203
|
|
|
$
|
(454,532
|
)
|
|
$
|
(3,600
|
)
|
|
$
|
848,071
|
|
|
$
|
1,266,557
|
|
|
$
|
(438,458
|
)
|
|
$
|
828,099
|
|
Based on the current amount of intangible assets subject to amortization and assuming current foreign exchange rates, the estimated amortization expense for each of the succeeding five fiscal years are as follows: 2019 – $48.2 million, 2020 – $43.6 million, 2021 – $41.4 million, 2022 – $36.4 million, and 2023 – $32.7 million.
In conjunction with a business review performed in the Publishing segment associated with the restructuring activities in the first quarter of fiscal year 2018, we identified an indefinite-lived brand with forecasted cash flows that did not exceed its carrying value. As a result, an impairment charge of $3.6 million was recorded in the first quarter of fiscal year 2018 to reduce the carrying value of the brand to its fair value of $1.2 million, which will now be amortized over an estimated useful life of 5 years. This impairment charge was included in Operating and Administrative Expenses on the Consolidated Statements of Income.
The provisions for income taxes for the years ended April 30 were as follows:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Current Provision
|
|
|
|
|
|
|
|
|
|
U.S. – Federal
|
|
$
|
(2,216
|
)
|
|
$
|
912
|
|
|
$
|
(5,365
|
)
|
International
|
|
|
46,112
|
|
|
|
105,228
|
|
|
|
31,958
|
|
State and Local
|
|
|
961
|
|
|
|
100
|
|
|
|
1,657
|
|
Total Current Provision
|
|
$
|
44,857
|
|
|
$
|
106,240
|
|
|
$
|
28,250
|
|
Deferred Provision (Benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. – Federal
|
|
$
|
(26,062
|
)
|
|
$
|
(13,852
|
)
|
|
$
|
6,625
|
|
International
|
|
|
2,420
|
|
|
|
(15,330
|
)
|
|
|
(6,459
|
)
|
State and Local
|
|
|
530
|
|
|
|
415
|
|
|
|
595
|
|
Total Deferred (Benefit) Provision
|
|
$
|
(23,112
|
)
|
|
$
|
(28,767
|
)
|
|
$
|
761
|
|
Total Provision
|
|
$
|
21,745
|
|
|
$
|
77,473
|
|
|
$
|
29,011
|
|
International and United States pretax income for the years ended April 30 were as follows:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
International
|
|
$
|
219,178
|
|
|
$
|
192,910
|
|
|
$
|
159,152
|
|
United States
|
|
|
(5,247
|
)
|
|
|
(1,794
|
)
|
|
|
15,641
|
|
Total
|
|
$
|
213,931
|
|
|
$
|
191,116
|
|
|
$
|
174,793
|
|
Our effective income tax rate as a percentage of pretax income differed from the U.S. federal statutory rate as shown below:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
U.S. Federal Statutory Rate
|
|
|
30.4
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
German Tax Litigation Expense
|
|
|
—
|
|
|
|
25.7
|
|
|
|
—
|
|
Benefit from Lower Taxes on Non-U.S. Income
|
|
|
(8.4
|
)
|
|
|
(12.7
|
)
|
|
|
(14.6
|
)
|
State Income Taxes, Net of U.S. Federal Tax Benefit
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
0.8
|
|
U.S. Tax Reform
|
|
|
(11.7
|
)
|
|
|
—
|
|
|
|
—
|
|
Deferred Tax Benefit From U.K. Statutory Tax Rate Change
|
|
|
—
|
|
|
|
(1.3
|
)
|
|
|
(3.4
|
)
|
Tax Credits and Related Benefits
|
|
|
(1.7
|
)
|
|
|
(6.2
|
)
|
|
|
(1.6
|
)
|
Tax Adjustments and Other
|
|
|
1.2
|
|
|
|
(0.1
|
)
|
|
|
0.4
|
|
Effective Income Tax Rate
|
|
|
10.2
|
%
|
|
|
40.5
|
%
|
|
|
16.6
|
%
|
Note: A substantial portion of our income is earned outside the U.S. in jurisdictions with lower statutory income tax rates than our U.S. statutory rate in 2018 including: U.K. (63%), Germany (25%), and Australia (7%).
On December 22, 2017, the U.S. government enacted comprehensive Federal tax legislation originally known as the Tax Cuts and Jobs Act of 2017 (the "Tax Act"). In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act ("SAB 118"), which allows us to record provisional amounts related to the effect of the Tax Act during a measurement period not to extend beyond one year of the enactment date. As the Tax Act was passed late in December 2017, and ongoing guidance and accounting interpretation are expected over the 12 months following enactment, we consider the accounting of the transition tax, deferred tax re-measurements and other items to be provisional due to the forthcoming guidance and our ongoing analysis of final data and tax positions. We expect to complete our analysis within the measurement period in accordance with SAB 118.
The effective tax rate for fiscal year 2018 was lower than fiscal 2017 due to the estimated net tax benefit from non-recurring items in the Tax Act and the effect of the German Tax litigation in fiscal year 2017 as described below. Estimated non-recurring items in the Tax Act reduced our income tax expense by $25.1 million ($0.43/share) or a reduction in our effective tax rate of 11.7 percentage points for fiscal year 2018. Excluding the effect of the Tax Act, the rate was 21.9% for fiscal year 2018.
The rate excluding the benefit from the non-recurring items in the Tax Act was lower than the U.S. statutory rate for the year ended April 30, 2018, primarily due to lower rates applicable to non-U.S. earnings.
German Tax Litigation Expense:
In fiscal 2017, the German Federal Fiscal Court affirmed a lower court decision disallowing deductions related to a stepped-up basis in certain assets. As a result, we incurred an income tax charge of approximately $49 million ($0.85 per share).
Deferred Tax Benefit from U.K. Statutory Tax Rate Change:
In fiscal year 2016, the U.K. reduced its statutory rate to 19% beginning April 1, 2017, and 18% beginning April 1, 2020, and in fiscal year 2017, the U.K. further reduced its statutory rate beginning on April 1, 2020, from 18% to 17%. This resulted in a non-cash deferred tax benefit from the re-measurement of our applicable U.K. deferred tax balances of $5.9 million ($0.10 per share) in fiscal year 2016 and $2.6 million ($0.04 per share) in fiscal year 2017.
Tax Adjustments and Other:
In fiscal year 2018, we recorded a tax benefit of $0.6 million related to the expiration of the statute of limitations or favorable resolutions of federal, state, and foreign tax matters with tax authorities. No benefit was recorded in fiscal year 2017 and a benefit of $1.3 million was recorded in fiscal year 2016 related to such matters.
The Tax Act
On December 22, 2017, the U.S. government enacted comprehensive tax legislation. The Tax Act significantly revises the future ongoing U.S. corporate income tax system by, among other changes, the following:
|
·
|
lowering the U.S. federal corporate income tax rate to 21% with a potentially lower rate for certain foreign derived income;
|
|
·
|
accelerating deductions for certain business assets;
|
|
·
|
changing the U.S. system from a worldwide tax system;
|
|
·
|
requiring companies to pay a one-time transition tax on post-1986 unrepatriated cumulative non-U.S. earnings and profits ("E&P") of foreign subsidiaries;
|
|
·
|
eliminating certain deductions such as the domestic production deduction;
|
|
·
|
establishing limitations on the deductibility of certain expenses including interest and executive compensation; and
|
|
·
|
creating new taxes on certain foreign earnings.
|
The key impacts for the period were the re-measurement of U.S. deferred tax balances to the new U.S. corporate tax rate and the accrual for the one-time transition tax liability. While we have not yet completed our assessment of the effects of the Tax Act, we are able to determine reasonable estimates for the impacts of these key items and reported provisional amounts for these items. In accordance with SAB 118, we are providing additional disclosures related to these provisional amounts.
Deferred tax balances – We remeasured our U.S. deferred tax assets and liabilities based on the federal rate at which they are expected to reverse in the future, generally 21% for reversals anticipated to occur after April 30, 2018. We are still analyzing certain aspects of the Tax Act and refining our calculations, including our estimates of expected reversals, which could affect the measurement of these balances and give rise to new deferred tax amounts. The provisional amount recorded related to the re-measurement of our net deferred tax liability was an estimated benefit of $47 million.
Foreign tax effects – In connection with the transition from a global tax system, the Tax Act establishes a mandatory deemed repatriation tax. The tax is computed using our post-1986 E&P that was previously deferred from U.S. income taxes. The tax is based on the amount of foreign earnings held in cash equivalents and certain net assets, which are taxed at 15.5%, and those held in other assets, which are taxed at 8%. We recorded a provisional amount of $14.2 million. We also established an estimated valuation allowance of $6.5 million. This resulted in a corresponding decrease in deferred tax assets due to the utilization of foreign tax credit carryforwards. The determination of the transition tax requires further guidance as to its applicability to non-calendar year end taxpayers and analysis regarding the amount and composition of our historical foreign earnings. We no longer assert that we intend to permanently reinvest earnings outside the U.S. and accrued a provisional $2.0 million related to our estimated taxes from repatriating earnings with available cash. In addition, we accrued a $0.1 million provisional state tax liability, pending further guidance and legislative action from various states regarding conformity with the Tax Act.
The Tax Act reduces the Federal statutory tax rate from 35% to 21% effective January 1, 2018. As a result, our U.S. federal statutory tax rate for our fiscal year ended April 30, 2018, is a blended rate of 30.4%. Other than the benefit from remeasuring our U.S. deferred tax assets and liabilities, the reduced rate did not have a significant impact on our effective tax rate for fiscal year 2018
We have not determined a reasonable estimate of the tax liability, if any, under the Tax Act for our remaining outside basis difference. We will continue to evaluate our position for this matter as we finalize our Tax Act calculations.
The Tax Act creates new taxes, effective for us on May 1, 2018, including a provision designed to tax global low taxed income ("GILTI") and a provision establishing new minimum taxes, such as the base erosion anti-abuse tax ("BEAT"). We continue to evaluate the Tax Act, but due to the complexity and incomplete guidance of various provisions, we have not completed our accounting for the income tax effects of certain elements of the Tax Act, including the new GILTI and BEAT taxes. We have not yet determined whether such taxes should be recorded as a current-period expense when incurred or factored into the measurement of our deferred taxes. As a result, we have not included an estimate of any tax expense or benefit related to these items for the year ended April 30, 2018.
Accounting for Uncertainty in Income Taxes:
As of April 30, 2018 and April 30, 2017, the total amount of unrecognized tax benefits were $6.8 million and $6.1 million, respectively, of which $0.6 million and $0.4 million represented accruals for interest and penalties recorded as additional tax expense in accordance with our accounting policy. Within the income tax provision for both fiscal years 2018 and 2017, we recorded net interest expense on reserves for unrecognized and recognized tax benefits of $0.2 million and $0.3 million respectively. As of April 30, 2018, and April 30, 2017, the total amount of unrecognized tax benefits that would reduce our income tax provision, if recognized, were approximately $6.8 million and $6.1 million, respectively. During the year ended April 30, 2017, our tax position with respect to certain assets in Germany was finally rejected by the German Federal Fiscal Court. Substantially, all of the reduction for prior year tax positions in the table below relates to the resolution of that matter. We do not expect any significant changes to the unrecognized tax benefits within the next twelve months.
A reconciliation of the unrecognized tax benefits included within the Other Long-Term Liabilities line item on the Consolidated Statements of Financial Position follows:
|
|
2018
|
|
|
2017
|
|
Balance at May 1st
|
|
$
|
6,124
|
|
|
$
|
19,863
|
|
Additions for Current Year Tax Positions
|
|
|
1,372
|
|
|
|
2,566
|
|
Additions for Prior Year Tax Positions
|
|
|
69
|
|
|
|
31,802
|
|
Reductions for Prior Year Tax Positions
|
|
|
(38
|
)
|
|
|
—
|
|
Foreign Translation Adjustment
|
|
|
45
|
|
|
|
(419
|
)
|
Payments and Settlements
|
|
|
(124
|
)
|
|
|
(47,688
|
)
|
Reductions for Lapse of Statute of Limitations
|
|
|
(615
|
)
|
|
|
—
|
|
Balance at April 30th
|
|
$
|
6,833
|
|
|
$
|
6,124
|
|
Tax Audits:
We file income tax returns in the U.S. and various states and non-U.S. tax jurisdictions. Our major taxing jurisdictions include the United States, the United Kingdom, and Germany. Except for one immaterial item, we are no longer subject to income tax examinations for years prior to fiscal year (2013) in the major jurisdictions in which we are subject to tax. Our last completed U.S. federal tax audit was for fiscal years 2011 through 2013, which resulted in minimal adjustments related to temporary differences.
Deferred Taxes:
Deferred taxes result from temporary differences in the recognition of revenue and expense for tax and financial reporting purposes.
It is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets. The significant components of deferred tax assets and liabilities at April 30 were as follows:
|
|
2018
|
|
|
2017
|
|
Net Operating Losses
|
|
$
|
8,976
|
|
|
$
|
5,453
|
|
Reserve for Sales Returns and Doubtful Accounts
|
|
|
2,506
|
|
|
|
8,331
|
|
Accrued Employee Compensation
|
|
|
20,096
|
|
|
|
34,305
|
|
Foreign and Federal Credits
|
|
|
31,109
|
|
|
|
15,472
|
|
Other Accrued Expenses
|
|
|
4,632
|
|
|
|
14,303
|
|
Retirement and Post-Employment Benefits
|
|
|
39,160
|
|
|
|
56,633
|
|
Total Gross Deferred Tax Assets
|
|
$
|
106,479
|
|
|
$
|
134,497
|
|
Less Valuation Allowance
|
|
|
(8,811
|
)
|
|
|
(1,300
|
)
|
Total Deferred Tax Assets
|
|
$
|
97,668
|
|
|
$
|
133,197
|
|
|
|
|
|
|
|
|
|
|
Prepaid Expenses and Other Current Assets
|
|
$
|
(3,203
|
)
|
|
$
|
(16,385
|
)
|
Unremitted Foreign Earnings
|
|
|
(1,985
|
)
|
|
|
—
|
|
Intangible and Fixed Assets
|
|
|
(231,869
|
)
|
|
|
(272,008
|
)
|
Total Deferred Tax Liabilities
|
|
$
|
(237,057
|
)
|
|
$
|
(288,393
|
)
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Liabilities
|
|
$
|
(139,389
|
)
|
|
$
|
(155,196
|
)
|
|
|
|
|
|
|
|
|
|
Reported As
|
|
|
|
|
|
|
|
|
Non-current Deferred Tax Assets
|
|
$
|
4,129
|
|
|
$
|
5,295
|
|
Non-current Deferred Tax Liabilities
|
|
|
(143,518
|
)
|
|
|
(160,491
|
)
|
Net Deferred Tax Liabilities
|
|
$
|
(139,389
|
)
|
|
$
|
(155,196
|
)
|
The decrease in net deferred tax liabilities is primarily attributable to the re-measurement of our U.S. deferred tax liabilities related to the Tax Act as well as foreign and federal credit carryforwards, net of an estimated $6.5 million valuation allowance related to the Tax Act, for fiscal year ended April 30, 2018. We have concluded that after valuation allowances, it is more likely than not that we will realize substantially all of the net deferred tax assets at April 30, 2018. In assessing the need for a valuation allowance, we take into account related deferred tax liabilities and estimated future reversals of existing temporary differences, future taxable earnings and tax planning strategies to determine which deferred tax assets are more likely than not to be realized in the future. Changes to tax laws, statutory tax rates and future taxable earnings can have an impact on our valuation allowances.
A $2.3 million valuation allowance has also been provided based on the uncertainty of utilizing the tax benefits related to our deferred tax assets for state and, to a small extent, Federal net operating loss carry forwards. As of April 30, 2018, we have apportioned state net operating loss carryforwards totaling $81 million, with a tax effected value of $4.8 million net of federal benefits, expiring in various amounts over one to 20 years.
We no longer intend to permanently reinvest earnings outside the U.S., As such, we established a $2.0 million permanent reinvestment assertion related to the estimated taxes that would be incurred upon repatriating our non-U.S. earnings.
Note 12 – Debt and Available Credit Facilities
As of April 30, 2018 and 2017, our debt of approximately $360.0 million and $365.0 million, respectively, consisted of amounts due under our revolving credit facilities.
We have a revolving credit agreement ("RCA") with a syndicated bank group led by Bank of America. The RCA consists of a $1.1 billion five-year senior revolving credit facility payable March 1, 2021. Under the RCA, which can be drawn in multiple currencies, we have the option of borrowing at the following floating interest rates: (i) at a rate based on the London Interbank Offered Rate ("LIBOR") plus an applicable margin ranging from 0.98% to 1.50%, depending on our consolidated leverage ratio, as defined, or (ii) for U.S. dollar-denominated loans only, at the lender's base rate plus an applicable margin ranging from zero to 0.45%, depending on our consolidated leverage ratio. The lender's base rate is defined as the highest of (i) the U.S. federal funds effective rate plus a 0.50% margin, (ii) the Eurocurrency rate, as defined, plus a 1.00% margin, or (iii) the Bank of America prime lending rate. In addition, we pay a facility fee ranging from 0.15% to 0.25% depending on our consolidated leverage ratio. We also have the option to request an additional credit limit increase of up to $350 million in minimum increments of $50 million, subject to the approval of the lenders. The 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, 2018 and 2017. Due to the fact that there are no principal payments due until the end of the agreement in fiscal year 2021, we have classified our entire debt obligation as long-term as of April 30, 2018 and 2017.
We have other lines of credit aggregating $2.8 million at various interest rates. There were no outstanding borrowings under these credit lines at April 30, 2018 and 2017.
Our total available lines of credit as of April 30, 2018, were approximately $1.1 billion, of which approximately $0.7 billion was unused. The weighted average interest rates on total debt outstanding during fiscal years 2018 and 2017 were 2.44% and 2.19%, respectively. As of April 30, 2018 and 2017, the weighted average interest rates for total debt were 2.58% and 2.74%, respectively. Based on estimates of interest rates currently available to us for loans with similar terms and maturities, the fair value of our debt approximates its carrying value.
Note 13 – Derivative Instruments and Activities
From time-to-time, we enter into forward exchange and interest rate swap contracts as a hedge against foreign currency asset and liability commitments, changes in interest rates, and anticipated transaction exposures, including intercompany purchases. All derivatives are recognized as assets or liabilities and measured at fair value. Derivatives that are not determined to be effective hedges are adjusted to fair value with a corresponding adjustment to earnings. We do not use financial instruments for trading or speculative purposes.
Interest Rate Contracts:
We had $360.0 million of variable rate loans outstanding at April 30, 2018, which approximated fair value. As of April 30, 2018 and 2017, the interest rate swap agreements we maintained were designated as fully effective cash flow hedges as defined under Accounting Standards Codification 815 "Derivatives and Hedging" ("ASC 815"). As a result, there was no impact on our Consolidated Statements of Income from changes in the fair value of the interest rate swaps, as they were fully offset by changes in the interest expense on the underlying variable rate debt instruments. Under ASC 815, derivative instruments that are designated as cash flow hedges have changes in their fair value recorded initially within Accumulated Other Comprehensive Loss on the Consolidated Statements of Financial Position. As interest expense is recognized based on the variable rate loan agreements, the corresponding deferred gain or loss on the interest rate swaps is reclassified from Accumulated Other Comprehensive Loss to Interest Expense on the Consolidated Statements of Income. It is management's intention that the notional amount of interest rate swaps be less than the variable rate loans outstanding during the life of the derivatives.
On April 4, 2016, we entered into a forward starting interest rate swap agreement, which fixed a portion of the variable interest due on a variable rate debt renewal on May 16, 2016. Under the terms of the agreement, we will pay a fixed rate of 0.92% and receives a variable rate of interest based on one-month LIBOR (as defined) from the counterparty which is reset every month for a three-year period starting May 16, 2016, ending May 15, 2019. As of April 30, 2018, the notional amount of the interest rate swap was $350.0 million.
On August 15, 2014, we entered into an interest rate swap agreement, which fixed a portion of the variable interest due on our variable rate loans outstanding. Under the terms of the agreement, which expired on August 15, 2016, we paid a fixed rate of 0.65% and received a variable rate of interest based on one-month LIBOR (as defined) from the counterparty which was reset every month for a two-year period ending August 15, 2016. Prior to expiration the notional amount of the interest rate swap was $150.0 million.
We record the fair value of our interest rate swaps on a recurring basis using Level 2 inputs of quoted prices for similar assets or liabilities in active markets. The fair value of the interest rate swaps as of April 30, 2018 and 2017, was a deferred gain of $5.1 million and $3.9 million, respectively. Based on the maturity dates of the contracts, the entire deferred gain as of April 30, 2018 and 2017, was recorded within Other Non-Current Assets. The pre-tax (gains) losses that were reclassified from Accumulated Other Comprehensive Loss to Interest Expense for fiscal years 2018, 2017, and 2016 were $(1.5) million, $1.1 million, and $0.9 million, respectively. Based on the amount in Accumulated Other Comprehensive Loss at April 30, 2018, approximately $3.7 million, net of tax, of unrecognized gains would be reclassified into net income in the next twelve months.
Foreign Currency Contracts:
We may enter into forward exchange contracts to manage our exposure on certain foreign currency denominated assets and liabilities. The forward exchange contracts are marked to market through Foreign Exchange Transaction (Losses) Gains on the Consolidated Statements of Income, and carried at their fair value on the Consolidated Statements of Financial Position. Foreign currency denominated assets and liabilities are remeasured at spot rates in effect on the balance sheet date, with the effects of changes in spot rates reported in Foreign Exchange Transaction (Losses) Gains on the Consolidated Statements of Income.
As of April 30, 2018 and 2017, we did not maintain any open forward contracts. As of April 30, 2016, there were two open forward exchange contracts with notional amounts of 31 million euros and 274 million pounds sterling to manage foreign currency exposures on intercompany loans. These contracts matured in May 2016 and February 2017, respectively. As of April 30, 2016, the fair value of the open forward exchange contracts was a gain of approximately $1.3 million and recorded within Prepaid and other current assets. The fair value of the open forward exchange contracts was measured on a recurring basis using Level 2 inputs. For fiscal years 2017 and 2016, the gains recognized on forward contracts were $59.0 million and $1.3 million, respectively.
Note 14 – Commitment and Contingencies
The following schedule shows the composition of net rent expense for operating leases:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Minimum Rental
|
|
$
|
31,451
|
|
|
$
|
35,464
|
|
|
$
|
37,206
|
|
Less: Sublease Rentals
|
|
|
(708
|
)
|
|
|
(626
|
)
|
|
|
(597
|
)
|
Total
|
|
$
|
30,743
|
|
|
$
|
34,838
|
|
|
$
|
36,609
|
|
At April 30, 2018, estimated future minimum annual rental commitments under non-cancelable real and personal property leases, were as follows:
Fiscal Year
|
|
Amount
(in millions)
|
|
2019
|
|
$
|
31.2
|
|
2020
|
|
|
28.9
|
|
2021
|
|
|
25.5
|
|
2022
|
|
|
21.0
|
|
2023
|
|
|
16.2
|
|
Thereafter
|
|
|
136.5
|
|
Total
|
|
$
|
259.3
|
|
Rent expense associated with operating leases that include scheduled rent increases and tenant incentives, such as rent holidays or leasehold improvement allowances, are recorded on a straight-line basis over the term of the lease.
We are involved in routine litigation in the ordinary course of our business. A provision for litigation is accrued when information available to us indicates that it is probable a liability has been incurred and the amount of loss can be reasonably estimated. Significant judgment may be required to determine both the probability and estimates of loss. When the amount of the loss can only be estimated within a range, the most likely outcome within that range is accrued. If no amount within the range is a better estimate than any other amount, the minimum amount within the range is accrued. When uncertainties exist related to the probable outcome of litigation and/or the amount or range of loss, we do not record a liability, but disclose facts related to the nature of the contingency and possible losses if management considers the information to be material. Reserves for legal defense costs are recognized when incurred. The accruals for loss contingencies and legal costs are reviewed regularly and may be adjusted to reflect updated information on the status of litigation and advice of legal counsel. In the opinion of management, the ultimate resolution of all pending litigation as of April 30, 2018, will not have a material effect upon our consolidated financial condition or results of operations.
Note 15 – Retirement Plans
We have retirement plans that cover substantially all employees. The plans generally provide for employee retirement between the ages 60 and 65, and benefits based on length of service and compensation, as defined.
Our Board of Directors approved plan amendments that froze the following retirement plans:
|
·
|
Retirement Plan for the Employees of John Wiley & Sons, Canada was frozen effective December 31, 2015;
|
|
·
|
Retirement Plan for the Employees of John Wiley & Sons, Ltd., a U.K. plan was frozen effective April 30, 2015 and;
|
|
·
|
U.S. Employees' Retirement Plan, Supplemental Benefit Plan, and Supplemental Executive Retirement Plan, were frozen effective June 30, 2013.
|
We maintain the Supplemental Executive Retirement Plan for certain officers and senior management which provides for the payment of supplemental retirement benefits after the termination of employment for 10 years or in a lifetime annuity. Under certain circumstances, including a change of control as defined, the payment of such amounts could be accelerated on a present value basis. Future accrued benefits to the Plan have been discontinued as noted above.
The components of net pension expense (income) for the defined benefit plans and the weighted average assumptions were as follows:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
Service Cost
|
|
$
|
—
|
|
|
$
|
960
|
|
|
$
|
—
|
|
|
$
|
967
|
|
|
$
|
—
|
|
|
$
|
1,455
|
|
Interest Cost
|
|
|
11,666
|
|
|
|
13,876
|
|
|
|
12,398
|
|
|
|
14,449
|
|
|
|
13,612
|
|
|
|
16,446
|
|
Expected Return on Plan Assets
|
|
|
(13,154
|
)
|
|
|
(26,385
|
)
|
|
|
(14,053
|
)
|
|
|
(21,173
|
)
|
|
|
(14,756
|
)
|
|
|
(25,088
|
)
|
Net Amortization of Prior Service Cost
|
|
|
(154
|
)
|
|
|
57
|
|
|
|
(154
|
)
|
|
|
54
|
|
|
|
(154
|
)
|
|
|
55
|
|
Recognized Net Actuarial Loss
|
|
|
2,289
|
|
|
|
3,832
|
|
|
|
2,622
|
|
|
|
2,553
|
|
|
|
2,240
|
|
|
|
2,475
|
|
Curtailment/Settlement Loss
|
|
|
-
|
|
|
|
19
|
|
|
|
8,842
|
|
|
|
—
|
|
|
|
1,857
|
|
|
|
—
|
|
Net Pension Expense (Income)
|
|
$
|
647
|
|
|
$
|
(7,641
|
)
|
|
$
|
9,655
|
|
|
$
|
(3,150
|
)
|
|
$
|
2,799
|
|
|
$
|
(4,657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
|
4.1
|
%
|
|
|
2.6
|
%
|
|
|
4.0
|
%
|
|
|
3.5
|
%
|
|
|
4.2
|
%
|
|
|
3.5
|
%
|
Rate of Compensation Increase
|
|
|
N/A
|
|
|
|
3.0
|
%
|
|
|
N/A
|
|
|
|
3.0
|
%
|
|
|
N/A
|
|
|
|
3.0
|
%
|
Expected Return on Plan Assets
|
|
|
6.8
|
%
|
|
|
6.5
|
%
|
|
|
6.8
|
%
|
|
|
6.7
|
%
|
|
|
6.8
|
%
|
|
|
6.7
|
%
|
We announced a voluntary, limited-time opportunity for terminated vested employees who are participants in the U.S. Employees' Retirement Plan of John Wiley & Sons, Inc. (the "Pension Plan") to request early payment of their entire Pension Plan benefit in the form of a single lump sum payment. Eligible participants who wished to receive the lump sum payment were required to make an election by August 29, 2016. Approximately 780 eligible participants made the election to receive the lump sum totaling $28.3 million which was paid from pension plan assets in October 2016. Settlement accounting rules were applied, which resulted in a plan remeasurement and recognition of a pro-rata portion of unamortized net actuarial loss of $8.8 million which was recorded in Operating and Administrative Expenses on the Consolidated Statements of Income in fiscal year 2017. The curtailment/settlement loss in fiscal year 2016 of $1.9 million, noted above, related to a disability payment made subject to terms of the our Supplemental Executive Retirement Plan.
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the retirement plans with accumulated benefit obligations in excess of plan assets were $820.4 million, $787.6 million and $624.4 million, respectively, as of April 30, 2018, and $800.1 million, $753.3 million, and $579.7 million, respectively, as of April 30, 2017.
The Recognized Net Actuarial Loss for each fiscal year is calculated using the "corridor method," which reflects the amortization of the net loss at the beginning of the fiscal year in excess of 10% of the greater of the market value of plan assets or the projected benefit obligation. The amortization period is based on the average expected life of plan participants.
We recognize the overfunded or underfunded status of defined benefit postretirement plans, measured as the difference between the fair value of plan assets and the projected benefit obligation, on the Consolidated Statements of Financial Position. The change in the funded status of the plan is recognized in Accumulated Other Comprehensive Loss on the Consolidated Statements of Financial Position. Plan assets and obligations are measured at fair value as of our balance sheet date.
The amounts in Accumulated Other Comprehensive Loss that are expected to be recognized as components of net periodic benefit cost during the next fiscal year are as follows:
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
Total
|
|
Actuarial Loss
|
|
$
|
1,905
|
|
|
$
|
3,998
|
|
|
$
|
5,903
|
|
Prior Service Cost
|
|
|
(154
|
)
|
|
|
61
|
|
|
|
(93
|
)
|
Total
|
|
$
|
1,751
|
|
|
$
|
4,059
|
|
|
$
|
5,810
|
|
The following table sets forth the changes in and the status of our defined benefit plans' assets and benefit obligations:
|
|
2018
|
|
|
2017
|
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
CHANGE IN PLAN ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Plan Assets, Beginning of Year
|
|
$
|
200,001
|
|
|
$
|
390,133
|
|
|
$
|
215,923
|
|
|
$
|
352,484
|
|
Actual Return on Plan Assets
|
|
|
15,352
|
|
|
|
2,780
|
|
|
|
17,345
|
|
|
|
75,432
|
|
Employer Contributions
|
|
|
5,020
|
|
|
|
8,385
|
|
|
|
10,463
|
|
|
|
14,041
|
|
Employee Contributions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Settlements
|
|
|
—
|
|
|
|
(239
|
)
|
|
|
(28,258
|
)
|
|
|
—
|
|
Benefits Paid
|
|
|
(15,390
|
)
|
|
|
(15,909
|
)
|
|
|
(15,472
|
)
|
|
|
(9,487
|
)
|
Foreign Currency Rate Changes
|
|
|
—
|
|
|
|
34,298
|
|
|
|
—
|
|
|
|
(42,337
|
)
|
Fair Value, End of Year
|
|
$
|
204,983
|
|
|
$
|
419,448
|
|
|
$
|
200,001
|
|
|
$
|
390,133
|
|
CHANGE IN PROJECTED BENEFIT OBLIGATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Obligation, Beginning of Year
|
|
$
|
(290,785
|
)
|
|
$
|
(519,588
|
)
|
|
$
|
(336,908
|
)
|
|
$
|
(461,161
|
)
|
Service Cost
|
|
|
—
|
|
|
|
(960
|
)
|
|
|
—
|
|
|
|
(967
|
)
|
Interest Cost
|
|
|
(11,666
|
)
|
|
|
(13,876
|
)
|
|
|
(12,398
|
)
|
|
|
(14,449
|
)
|
Actuarial Gains (Losses)
|
|
|
7,417
|
|
|
|
23,528
|
|
|
|
14,791
|
|
|
|
(105,151
|
)
|
Benefits Paid
|
|
|
15,390
|
|
|
|
15,909
|
|
|
|
15,472
|
|
|
|
9,487
|
|
Foreign Currency Rate Changes
|
|
|
—
|
|
|
|
(45,938
|
)
|
|
|
—
|
|
|
|
52,653
|
|
Settlements and Other
|
|
|
—
|
|
|
|
239
|
|
|
|
28,258
|
|
|
|
—
|
|
Benefit Obligation, End of Year
|
|
$
|
(279,644
|
)
|
|
$
|
(540,686
|
)
|
|
$
|
(290,785
|
)
|
|
$
|
(519,588
|
)
|
Underfunded Status, End of Year
|
|
$
|
(74,661
|
)
|
|
$
|
(121,238
|
)
|
|
$
|
(90,784
|
)
|
|
$
|
(129,455
|
)
|
AMOUNTS RECOGNIZED ON THE STATEMENT OF FINANCIAL POSITION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Noncurrent Assets
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
134
|
|
Current Pension Liability
|
|
|
(4,818
|
)
|
|
|
(780
|
)
|
|
|
(4,977
|
)
|
|
|
(799
|
)
|
Noncurrent Pension Liability
|
|
|
(69,843
|
)
|
|
|
(120,458
|
)
|
|
|
(85,807
|
)
|
|
|
(128,790
|
)
|
Net Amount Recognized in Statement of Financial Position
|
|
$
|
(74,661
|
)
|
|
$
|
(121,238
|
)
|
|
$
|
(90,784
|
)
|
|
$
|
(129,455
|
)
|
AMOUNTS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE LOSS (BEFORE TAX) CONSIST OF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Actuarial (Losses)
|
|
$
|
(82,636
|
)
|
|
$
|
(183,316
|
)
|
|
$
|
(94,539
|
)
|
|
$
|
(171,601
|
)
|
Prior Service Cost Gains (Losses)
|
|
|
2,562
|
|
|
|
(441
|
)
|
|
|
2,716
|
|
|
|
(448
|
)
|
Total Accumulated Other Comprehensive Loss
|
|
$
|
(80,074
|
)
|
|
$
|
(183,757
|
)
|
|
$
|
(91,823
|
)
|
|
$
|
(172,049
|
)
|
Change in Accumulated Other Comprehensive Loss
|
|
$
|
11,749
|
|
|
$
|
(11,708
|
)
|
|
$
|
29,394
|
|
|
$
|
(32,221
|
)
|
WEIGHTED AVERAGE ASSUMPTIONS USED IN DETERMINING ASSETS AND LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
|
4.3
|
%
|
|
|
2.6
|
%
|
|
|
4.1
|
%
|
|
|
2.6
|
%
|
Rate of Compensation Increase
|
|
|
N/A
|
|
|
|
3.0
|
%
|
|
|
N/A
|
|
|
|
3.0
|
%
|
Accumulated Benefit Obligations
|
|
$
|
(279,644
|
)
|
|
$
|
(507,932
|
)
|
|
$
|
(290,785
|
)
|
|
$
|
(472,841
|
)
|
Pension plan assets/investments:
The investment guidelines for the defined benefit pension plans are established based upon an evaluation of market conditions, plan liabilities, cash requirements for benefit payments, and tolerance for risk. Investment guidelines include the use of actively and passively managed securities. The investment objective is to ensure that funds are available to meet the plans benefit obligations when they are due. The investment strategy is to invest in high quality and diversified equity and debt securities to achieve our long-term expectation. The plans' risk management practices provide guidance to the investment managers, including guidelines for asset concentration, credit rating and liquidity. Asset allocation favors a balanced portfolio, with a global aggregated target allocation of approximately 49% equity securities, 50% fixed income securities and cash, and 1% real estate. Due to volatility in the market, the target allocation is not always desirable and asset allocations will fluctuate between acceptable ranges of plus or minus 5%. We regularly review the investment allocations and periodically rebalance investments to the target allocations. We categorize our pension assets into three levels based upon the assumptions (inputs) used to price the assets. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
|
|
Level 1: Unadjusted quoted prices in active markets for identical assets.
|
|
|
Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets in active markets or quoted prices for identical assets in inactive markets.
|
|
|
Level 3: Unobservable inputs reflecting assumptions about the inputs used in pricing the asset.
|
We did not maintain any level 3 assets during fiscal years 2018 and 2017. In accordance with ASU 2015-07, "Fair Value Measurement ("Topic 820"), certain investments that are measured at fair value using the net asset value ("NAV") per share (or its equivalent) practical expedient do not have to be classified in the fair value hierarchy. We adopted ASU 2015-07 in fiscal year 2018 and it was applied retrospectively to all periods presented. The fair value amounts presented in the following tables are intended to permit reconciliation of the fair value hierarchy to the amounts presented for the total pension benefit plan assets. The following tables set forth, by level within the fair value hierarchy, pension plan assets at their fair value as of April 30:
|
|
2018
|
|
|
2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
U.S. Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments measured at NAV:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Equity Securities: Limited Partnership
|
|
|
|
|
|
|
|
$
|
95,933
|
|
|
|
|
|
|
|
|
$
|
91,397
|
|
Fixed Income Securities: Commingled Trust Funds
|
|
|
|
|
|
|
|
|
100,295
|
|
|
|
|
|
|
|
|
|
95,922
|
|
Other: Real Estate Commingled Trust Fund
|
|
|
|
|
|
|
|
|
8,755
|
|
|
|
|
|
|
|
|
|
12,682
|
|
Total Assets at NAV
|
|
|
|
|
|
|
|
$
|
204,983
|
|
|
|
|
|
|
|
|
$
|
200,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Equities
|
|
$
|
—
|
|
|
$
|
31,203
|
|
|
$
|
31,203
|
|
|
$
|
—
|
|
|
$
|
28,598
|
|
|
$
|
28,598
|
|
Non-U.S. Equities
|
|
|
—
|
|
|
|
96,387
|
|
|
|
96,387
|
|
|
|
—
|
|
|
|
85,961
|
|
|
|
85,961
|
|
Balanced Managed Funds
|
|
|
—
|
|
|
|
91,743
|
|
|
|
91,743
|
|
|
|
10,196
|
|
|
|
69,453
|
|
|
|
79,649
|
|
Fixed Income Securities: Commingled Funds
|
|
|
—
|
|
|
|
197,804
|
|
|
|
197,804
|
|
|
|
—
|
|
|
|
187,797
|
|
|
|
187,797
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate/Other
|
|
|
—
|
|
|
|
549
|
|
|
|
549
|
|
|
|
—
|
|
|
|
489
|
|
|
|
489
|
|
Cash and Cash Equivalents
|
|
|
1,762
|
|
|
|
—
|
|
|
|
1,762
|
|
|
|
7,639
|
|
|
|
—
|
|
|
|
7,639
|
|
Total Non-U.S. Plan Assets
|
|
$
|
1,762
|
|
|
$
|
417,686
|
|
|
$
|
419,448
|
|
|
$
|
17,835
|
|
|
$
|
372,298
|
|
|
$
|
390,133
|
|
Total Plan Assets
|
|
$
|
1,762
|
|
|
$
|
417,686
|
|
|
$
|
624,431
|
|
|
$
|
17,835
|
|
|
$
|
372,298
|
|
|
$
|
590,134
|
|
Expected employer contributions to the defined benefit pension plans in fiscal year 2019 will be approximately $15.6 million, including $10.7 million of minimum amounts required for our non-U.S. plans. From time to time, we may elect to make voluntary contributions to our defined benefit plans to improve their funded status.
Benefit payments to retirees from all defined benefit plans are expected to be the following in the year indicated:
Fiscal Year
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
Total
|
|
2019
|
|
$
|
15,435
|
|
|
$
|
8,489
|
|
|
$
|
23,924
|
|
2020
|
|
|
15,589
|
|
|
|
9,657
|
|
|
|
25,246
|
|
2021
|
|
|
14,322
|
|
|
|
10,535
|
|
|
|
24,857
|
|
2022
|
|
|
14,550
|
|
|
|
12,109
|
|
|
|
26,659
|
|
2023
|
|
|
14,947
|
|
|
|
12,619
|
|
|
|
27,566
|
|
2024-2028
|
|
|
75,428
|
|
|
|
75,332
|
|
|
|
150,760
|
|
Total
|
|
$
|
150,271
|
|
|
$
|
128,741
|
|
|
$
|
279,012
|
|
We provide contributory life insurance and health care benefits, subject to certain dollar limitations, for substantially all of our eligible retired U.S. employees. The retiree health benefit is no longer available for any employee who retires after December 31, 2017. This resulted in a curtailment gain of $2.5 million which was recognized in the Operating and Administrative Expenses line item in our Consolidated Statement of Income in fiscal year 2017. The cost of such benefits is expensed over the years the employee renders service and is not funded in advance. The accumulated post-retirement benefit obligation recognized on the Consolidated Statements of Financial Position as of April 30, 2018 and 2017, was $1.8 million and $1.7 million, respectively. Annual (credits) expenses for these plans for fiscal years 2018, 2017, and 2016 were $(0.1) million, $(0.2) million and $0.2 million, respectively.
We have defined contribution savings plans. Our contribution is based on employee contributions and the level of our match. We may make discretionary contributions to all employees as a group. The expense recorded for these plans was approximately $14.4 million, $15.5 million, and $16.2 million in fiscal years 2018, 2017, and 2016 respectively.
Note 16 – Stock-Based Compensation
All equity compensation plans have been approved by shareholders. Under the 2014 Key Employee Stock Plan, ("the Plan"), qualified employees are eligible to receive awards that may include stock options, performance-based stock awards, and other restricted stock awards. Under the Plan, a maximum number of 6.5 million shares of our Class A stock may be issued. As of April 30, 2018, there were approximately 4,791,733 securities remaining available for future issuance under the Plan. We issue treasury shares to fund awards issued under the Plan.
Stock Option Activity:
Under the terms of our stock option plan, the exercise price of stock options granted may not be less than 100% of the fair market value of the stock at the date of grant. Options are exercisable over a maximum period of 10 years from the date of grant. For fiscal years 2015 and prior, options generally vest 50% on the fourth and fifth anniversary date after the award is granted. For fiscal year 2016, options vest 25% per year on April 30. We did not grant any stock option awards in fiscal year 2018 and 2017. Under certain circumstances relating to a change of control, as defined, the right to exercise options outstanding may be accelerated.
The following table provides the estimated weighted average fair value for options granted in fiscal year 2016 using the Black-Scholes option-pricing model and the significant weighted average assumptions used in their determination. The expected life represents an estimate of the period of time stock options will be outstanding based on the historical exercise behavior of option recipients. The risk-free interest rate is based on the corresponding U.S. Treasury yield curve in effect at the time of the grant. The expected volatility is based on the historical volatility of our Common Stock price over the estimated life of the option, while the dividend yield is based on the expected dividend payments to be made by us.
|
|
2016
|
|
Fair Value of Options on Grant Date
|
|
$
|
14.77
|
|
|
|
|
|
|
Weighted Average assumptions:
|
|
|
|
|
Expected Life of Options (years)
|
|
|
7.2
|
|
Risk-Free Interest Rate
|
|
|
2.1
|
%
|
Expected Volatility
|
|
|
29.7
|
%
|
Expected Dividend Yield
|
|
|
2.1
|
%
|
Fair Value of Common Stock on Grant Date
|
|
$
|
55.99
|
|
A summary of the activity and status of our stock option plans follows:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
Number
of Options
(in 000's)
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted Average
Remaining Term
(in years)
|
|
|
Aggregate
Intrinsic Value
(in millions)
|
|
|
Number
of Options
(in 000's)
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number
of Options
(in 000's)
|
|
|
Weighted
Average
Exercise Price
|
|
Outstanding at Beginning of Year
|
|
|
1,429
|
|
|
$
|
47.39
|
|
|
|
|
|
|
|
|
|
1,966
|
|
|
$
|
46.62
|
|
|
|
1,921
|
|
|
$
|
45.50
|
|
Granted
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
166
|
|
|
$
|
55.99
|
|
Exercised
|
|
|
(788
|
)
|
|
$
|
45.97
|
|
|
|
|
|
|
|
|
|
(469
|
)
|
|
$
|
43.74
|
|
|
|
(103
|
)
|
|
$
|
40.22
|
|
Expired or Forfeited
|
|
|
(30
|
)
|
|
$
|
54.24
|
|
|
|
|
|
|
|
|
|
(68
|
)
|
|
$
|
49.91
|
|
|
|
(18
|
)
|
|
$
|
51.02
|
|
Outstanding at End of Year
|
|
|
611
|
|
|
$
|
48.88
|
|
|
|
3.3
|
|
|
$
|
10.4
|
|
|
|
1,429
|
|
|
$
|
47.39
|
|
|
|
1,966
|
|
|
$
|
46.62
|
|
Exercisable at End of Year
|
|
|
530
|
|
|
$
|
47.43
|
|
|
|
4.2
|
|
|
$
|
9.8
|
|
|
|
1,064
|
|
|
$
|
46.04
|
|
|
|
1,140
|
|
|
$
|
45.22
|
|
Vested and Expected to Vest in the Future at April 30
|
|
|
599
|
|
|
$
|
48.90
|
|
|
|
3.3
|
|
|
$
|
10.2
|
|
|
|
1,249
|
|
|
$
|
45.88
|
|
|
|
1,925
|
|
|
$
|
46.61
|
|
The intrinsic value is the difference between our common stock price and the option grant price. The total intrinsic value of options exercised during fiscal years 2018, 2017, and 2016 was $10.4 million, $20.5 million, and $1.5 million, respectively. The total grant date fair value of stock options vested during fiscal year 2018 and 2017 was $13.4 and $19.3 million, respectively.
As of April 30, 2018, there was $0.5 million of unrecognized share-based compensation expense related to stock options, which is expected to be recognized over a period up to 1 year and on a weighted average basis.
The following table summarizes information about stock options outstanding and exercisable at April 30, 2018:
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
|
Number
of Options
(in 000's)
|
|
|
Weighted Average
Remaining Term
(in years)
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number
of Options
(in 000's)
|
|
|
Weighted
Average
Exercise Price
|
|
$
|
35.04
|
|
|
|
11
|
|
|
|
1.2
|
|
|
$
|
35.04
|
|
|
|
11
|
|
|
$
|
35.04
|
|
$
|
39.53 to $40.02
|
|
|
|
226
|
|
|
|
3.1
|
|
|
$
|
39.62
|
|
|
|
226
|
|
|
$
|
39.62
|
|
$
|
47.55 to $49.55
|
|
|
|
130
|
|
|
|
3.0
|
|
|
$
|
48.71
|
|
|
|
130
|
|
|
$
|
48.71
|
|
$
|
55.99 to $59.70
|
|
|
|
244
|
|
|
|
3.8
|
|
|
$
|
58.12
|
|
|
|
163
|
|
|
$
|
58.05
|
|
Total/Average
|
|
|
|
611
|
|
|
|
3.3
|
|
|
$
|
48.88
|
|
|
|
530
|
|
|
$
|
47.43
|
|
Performance-Based and Other Restricted Stock Activity:
Under the terms of our long-term incentive plans, performance-based restricted unit awards are payable in restricted shares of our Class A Common Stock upon the achievement of certain three-year financial performance-based targets. During each three-year period, we adjust compensation expense based upon our best estimate of expected performance. For fiscal years 2015 and prior, restricted performance shares vest 50% on the first and second anniversary date after the award is earned. For fiscal years 2016 and 2017, restricted performance shares vest 50% on June 30 following the end of the three-year performance cycle and 50% on April 30 of the following year. Beginning in fiscal year 2018, restricted performance share units vest 100% on June 30 following the end of the three-year performance cycle.
We may also grant individual restricted unit awards payable in restricted shares of our Class A Common Stock to key employees in connection with their employment. For fiscal years 2015 and prior, the restricted shares generally vest 50% at the end of the fourth and fifth years following the date of the grant. Starting with fiscal year 2016 grants, restricted shares vest ratably 25% per year.
Under certain circumstances relating to a change of control or termination, as defined, the restrictions would lapse and shares would vest earlier.
Activity for performance-based and other restricted stock awards during fiscal years 2018, 2017, and 2016 was as follows (shares in thousands):
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
Restricted
Shares
|
|
|
Weighted Average
Grant Date Value
|
|
|
Restricted
Shares
|
|
|
Restricted
Shares
|
|
Nonvested Shares at Beginning of Year
|
|
|
913
|
|
|
$
|
51.85
|
|
|
|
915
|
|
|
|
752
|
|
Granted
|
|
|
525
|
|
|
$
|
53.59
|
|
|
|
509
|
|
|
|
289
|
|
Change in Shares Due to Performance
|
|
|
(107
|
)
|
|
$
|
55.70
|
|
|
|
(67
|
)
|
|
|
86
|
|
Vested and Issued
|
|
|
(318
|
)
|
|
$
|
49.47
|
|
|
|
(267
|
)
|
|
|
(154
|
)
|
Forfeited
|
|
|
(152
|
)
|
|
$
|
52.40
|
|
|
|
(177
|
)
|
|
|
(58
|
)
|
Nonvested Shares at End of Year
|
|
|
861
|
|
|
$
|
53.22
|
|
|
|
913
|
|
|
|
915
|
|
As of April 30, 2018, there was $31.1 million of unrecognized share-based compensation cost related to performance-based and other restricted stock awards, which is expected to be recognized over a period up to 4 years, or 2.2 years on a weighted average basis.
Compensation expense for restricted stock awards is measured using the closing market price of our Class A Common Stock at the date of grant. The total grant date value of shares vested during fiscal years 2018, 2017, and 2016 was $15.7 million, $12.1 million, and $7.2 million, respectively.
President and CEO New Hire Equity Awards
On October 17, 2017, we announced Brian A. Napack as the new President and Chief Executive Officer of Wiley effective December 4, 2017 (the "Commencement Date"). Upon the Commencement Date, Mr. Napack also became a member of our Board of Directors (the "Board"). In connection with his appointment, Wiley and Mr. Napack entered into an employment offer letter (the "Employment Agreement").
The Employment Agreement provides that beginning with the fiscal year 2018–2020 performance cycle, eligibility to participate in annual grants under our Executive Long-Term Incentive Program (ELTIP). Targeted long-term incentive for this cycle is equal to 300% of base salary, or $2.7 million. Sixty percent of the ELTIP value will be delivered in the form of target performance share units and forty percent in restricted share units. The grant date fair value for restricted share units was $59.15 per share and included 20,611 restricted share units, which vest 25% each year starting on April 30, 2018 to April 30, 2021. In addition, there was a performance share unit award with a target of 30,916 units and a grant date fair value of $59.15. The performance metrics are based on cumulative EBITDA for fiscal year 2018-2020 and cumulative normalized free cash flow for fiscal year 2018–2020.
The awards are described in further detail in Mr. Napack's Employment Agreement filed with the SEC as Exhibit 10.1 to our Current Report on Form 8-K filed on October 17, 2017.
In addition, the Employment Agreement provides for a sign-on grant of restricted share units, with a grant value of $4.0 million, converted to shares using our Class A closing stock price as of the Commencement Date, and vesting in two equal installments on the first and second anniversaries of the employment date. The grant date fair value for this award was $59.15 per share and included 67,625 units at the date of grant. Grants are subject to forfeiture in the case of voluntary termination prior to vesting and accelerated vesting in the case of earlier termination of employment without Cause, due to death or Disability or Constructive Discharge, or upon a Change in Control (as such terms are defined in the Employment Agreement).
The awards are described in further detail in Mr. Napack's Employment Agreement filed with the SEC as Exhibit 10.1 to our Current Report on Form 8-K filed on October 17, 2017.
Director Stock Awards:
Under the terms of our 2014 Director Stock Plan (the "Director Plan"), each non-employee director receives an annual award of Class A Common Stock equal in value to 100% of the annual director retainer fee (excluding additional retainer fees paid to committee chairpersons and Chairman of the Board), based on the stock price at the close of the New York Stock Exchange on the date of grant. The granted shares may not be sold or transferred during the time the non-employee director remains a director. There were 19,900, 20,243, and 19,559 shares awarded under the Director Plan for fiscal years 2018, 2017, and 2016, respectively.
Note 17 – Capital Stock and Changes in Capital Accounts
Each share of our Class B Common Stock is convertible into one share of Class A Common Stock. The holders of Class A stock are entitled to elect 30% of the entire Board of Directors and the holders of Class B stock are entitled to elect the remainder. On all other matters, each share of Class A stock is entitled to one tenth of one vote and each share of Class B stock is entitled to one vote.
During fiscal year 2017, our Board of Directors approved an additional share repurchase program of four million shares of Class A or B Common Stock. We repurchased in fiscal year 2018 713,177 Class A shares at an average price of $55.65 per share. In fiscal year 2017 we repurchased 953,188 shares, which included 952,667 Class A shares and 521 Class B shares at an average price of $52.80 per share. As of April 30, 2018, we had authorization from our Board of Directors to purchase up to 3,080,471 additional shares.
Note 18 – Segment Information
Our segment reporting structure consists of three reportable segments, which are listed below and a Corporate category as follows:
Segment information is as follows:
|
|
For the Years Ended April 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Research
|
|
$
|
934,395
|
|
|
$
|
853,489
|
|
|
$
|
826,778
|
|
Publishing
|
|
|
617,648
|
|
|
|
633,449
|
|
|
|
695,728
|
|
Solutions
|
|
|
244,060
|
|
|
|
231,592
|
|
|
|
204,531
|
|
Total Revenue
|
|
$
|
1,796,103
|
|
|
$
|
1,718,530
|
|
|
$
|
1,727,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
|
|
$
|
275,480
|
|
|
$
|
252,228
|
|
|
$
|
252,110
|
|
Publishing
|
|
|
123,917
|
|
|
|
125,703
|
|
|
|
126,058
|
|
Solutions
|
|
|
22,099
|
|
|
|
14,822
|
|
|
|
3,992
|
|
Total Contribution to Profit
|
|
$
|
421,496
|
|
|
$
|
392,753
|
|
|
$
|
382,160
|
|
Corporate Expenses
|
|
|
(181,961
|
)
|
|
|
(186,600
|
)
|
|
|
(194,047
|
)
|
Operating Income
|
|
$
|
239,535
|
|
|
$
|
206,153
|
|
|
$
|
188,113
|
|
|
|
For the Years Ended April 30,
|
|
Total Revenue by Product/Service
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Journals Subscriptions
|
|
$
|
677,685
|
|
|
$
|
639,720
|
|
|
$
|
622,305
|
|
Open Access
|
|
|
41,997
|
|
|
|
30,633
|
|
|
|
25,671
|
|
Licensing, Reprints, Backfiles, and Other (Research segment)
|
|
|
181,806
|
|
|
|
164,070
|
|
|
|
178,802
|
|
Publishing Technology Services (Atypon)
|
|
|
32,907
|
|
|
|
19,066
|
|
|
|
—
|
|
STM and Professional Publishing
|
|
|
287,315
|
|
|
|
291,255
|
|
|
|
330,984
|
|
Education Publishing
|
|
|
187,178
|
|
|
|
196,343
|
|
|
|
229,989
|
|
Course Workflow (WileyPLUS)
|
|
|
59,475
|
|
|
|
62,348
|
|
|
|
58,519
|
|
Test Preparation and Certification
|
|
|
35,534
|
|
|
|
35,609
|
|
|
|
28,115
|
|
Licensing, Distribution, Advertising, and Other (Publishing segment)
|
|
|
48,146
|
|
|
|
47,894
|
|
|
|
48,121
|
|
Education Services (OPM)
|
|
|
119,131
|
|
|
|
111,638
|
|
|
|
96,469
|
|
Professional Assessment
|
|
|
61,094
|
|
|
|
59,868
|
|
|
|
57,370
|
|
Corporate Learning
|
|
|
63,835
|
|
|
|
60,086
|
|
|
|
50,692
|
|
Total
|
|
$
|
1,796,103
|
|
|
$
|
1,718,530
|
|
|
$
|
1,727,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
|
|
$
|
1,238,178
|
|
|
$
|
1,133,846
|
|
|
$
|
1,235,609
|
|
Publishing
|
|
|
575,033
|
|
|
|
582,339
|
|
|
|
672,987
|
|
Solutions
|
|
|
563,489
|
|
|
|
575,068
|
|
|
|
439,554
|
|
Corporate
|
|
|
462,751
|
|
|
|
314,964
|
|
|
|
572,946
|
|
Total
|
|
$
|
2,839,451
|
|
|
$
|
2,606,217
|
|
|
$
|
2,921,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for Long Lived Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
|
|
$
|
(7,538
|
)
|
|
$
|
(154,189
|
)
|
|
$
|
(20,418
|
)
|
Publishing
|
|
|
(23,666
|
)
|
|
|
(29,420
|
)
|
|
|
(35,966
|
)
|
Solutions
|
|
|
(16,786
|
)
|
|
|
(21,210
|
)
|
|
|
(23,344
|
)
|
Corporate
|
|
|
(102,738
|
)
|
|
|
(98,608
|
)
|
|
|
(71,667
|
)
|
Total
|
|
$
|
(150,728
|
)
|
|
$
|
(303,427
|
)
|
|
$
|
(151,395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
|
|
$
|
33,655
|
|
|
$
|
29,330
|
|
|
$
|
26,410
|
|
Publishing
|
|
|
39,495
|
|
|
|
43,831
|
|
|
|
47,108
|
|
Solutions
|
|
|
27,703
|
|
|
|
26,792
|
|
|
|
22,927
|
|
Corporate
|
|
|
53,136
|
|
|
|
56,608
|
|
|
|
59,404
|
|
Total
|
|
$
|
153,989
|
|
|
$
|
156,561
|
|
|
$
|
155,849
|
|
Revenue from external customers based on the location of the customer and long-lived assets by geographic area were as follows:
|
|
Revenue
|
|
|
Long-Lived Assets
(Technology, Property and Equipment)
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
United States
|
|
$
|
913,852
|
|
|
$
|
786,574
|
|
|
$
|
884,185
|
|
|
$
|
249,542
|
|
|
$
|
208,572
|
|
|
$
|
166,878
|
|
United Kingdom
|
|
|
147,406
|
|
|
|
189,479
|
|
|
|
153,442
|
|
|
|
20,955
|
|
|
|
21,368
|
|
|
|
23,246
|
|
Germany
|
|
|
98,404
|
|
|
|
75,090
|
|
|
|
69,676
|
|
|
|
9,259
|
|
|
|
8,770
|
|
|
|
9,629
|
|
Japan
|
|
|
81,572
|
|
|
|
62,674
|
|
|
|
76,930
|
|
|
|
72
|
|
|
|
75
|
|
|
|
35
|
|
Australia
|
|
|
78,270
|
|
|
|
66,309
|
|
|
|
78,786
|
|
|
|
1,454
|
|
|
|
591
|
|
|
|
1,041
|
|
China
|
|
|
53,076
|
|
|
|
39,653
|
|
|
|
52,815
|
|
|
|
229
|
|
|
|
270
|
|
|
|
244
|
|
Canada
|
|
|
55,568
|
|
|
|
50,740
|
|
|
|
50,243
|
|
|
|
3,635
|
|
|
|
1,232
|
|
|
|
1,617
|
|
France
|
|
|
51,826
|
|
|
|
44,760
|
|
|
|
49,970
|
|
|
|
635
|
|
|
|
335
|
|
|
|
2,211
|
|
India
|
|
|
41,637
|
|
|
|
34,306
|
|
|
|
38,208
|
|
|
|
1,437
|
|
|
|
245
|
|
|
|
234
|
|
Other Countries
|
|
|
274,492
|
|
|
|
368,945
|
|
|
|
272,782
|
|
|
|
2,716
|
|
|
|
1,600
|
|
|
|
2,329
|
|
Total
|
|
$
|
1,796,103
|
|
|
$
|
1,718,530
|
|
|
$
|
1,727,037
|
|
|
$
|
289,934
|
|
|
$
|
243,058
|
|
|
$
|
207,464
|
|
Note 19 – Supplementary Quarterly Financial Information - Results By Quarter (Unaudited)
Amounts in millions, except per share data
|
|
2018
|
|
|
2017
|
|
Revenue
|
|
|
|
|
|
|
First Quarter
|
|
$
|
411.4
|
|
|
$
|
404.3
|
|
Second Quarter
|
|
|
451.7
|
|
|
|
425.6
|
|
Third Quarter
|
|
|
455.7
|
|
|
|
436.4
|
|
Fourth Quarter
|
|
|
477.3
|
|
|
|
452.2
|
|
Fiscal Year
|
|
$
|
1,796.1
|
|
|
$
|
1,718.5
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
296.7
|
|
|
$
|
290.8
|
|
Second Quarter
|
|
|
331.9
|
|
|
|
314.0
|
|
Third Quarter
|
|
|
330.5
|
|
|
|
320.1
|
|
Fourth Quarter
|
|
|
351.8
|
|
|
|
332.9
|
|
Fiscal Year
|
|
$
|
1,310.9
|
|
|
$
|
1,257.8
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
14.5
|
|
|
$
|
43.8
|
|
Second Quarter
|
|
|
82.8
|
|
|
|
47.7
|
|
Third Quarter
|
|
|
67.4
|
|
|
|
51.2
|
|
Fourth Quarter
|
|
|
74.8
|
|
|
|
63.5
|
|
Fiscal Year
|
|
$
|
239.5
|
|
|
$
|
206.2
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
9.2
|
|
|
$
|
31.0
|
|
Second Quarter
|
|
|
60.0
|
|
|
|
(11.5
|
)
|
Third Quarter
|
|
|
68.8
|
|
|
|
47.4
|
|
Fourth Quarter
|
|
|
54.2
|
|
|
|
46.7
|
|
Fiscal Year
|
|
$
|
192.2
|
|
|
$
|
113.6
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
Earnings Per Share
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
|
$
|
0.54
|
|
|
$
|
0.53
|
|
Second Quarter
|
|
|
1.06
|
|
|
|
1.04
|
|
|
|
(0.20
|
)
|
|
|
(0.20
|
)
|
Third Quarter
|
|
|
1.21
|
|
|
|
1.19
|
|
|
|
0.83
|
|
|
|
0.82
|
|
Fourth Quarter
|
|
|
0.95
|
|
|
|
0.93
|
|
|
|
0.82
|
|
|
|
0.81
|
|
Fiscal Year
|
|
$
|
3.37
|
|
|
$
|
3.32
|
|
|
$
|
1.98
|
|
|
$
|
1.95
|
|
(1)
|
The sum of the quarterly earnings per share amounts may not agree to the respective annual amounts due to rounding.
|