NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Basis of Presentation
Throughout this report, when we refer to “Wiley,” the “Company,” “we,” “our,” or “us,” we are referring to John Wiley & Sons, Inc. and all our subsidiaries, except where the context indicates otherwise.
Our Unaudited Condensed Consolidated Financial Statements include all the accounts of the Company and our subsidiaries. We have eliminated all intercompany transactions and balances in consolidation. In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Unaudited Condensed Consolidated Financial Condition, Results of Operations, Comprehensive Income and Cash Flows for the periods presented. Operating results for the interim period are not necessarily indicative of the results expected for the full year. All amounts are in thousands, except per share amounts, and approximate due to rounding. These financial statements should be read in conjunction with the most recent audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2022 as filed with the SEC on June 24, 2022 (2022 Form 10-K).
Our Unaudited Condensed Consolidated Financial Statements were prepared in accordance with the interim reporting requirements of the SEC. As permitted under those rules, annual footnotes or other financial information that are normally required by US GAAP have been condensed or omitted. The preparation of our Unaudited Condensed Consolidated Financial Statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to the current year’s presentation.
Note 2 — Recent Accounting Standards
Recently Adopted Accounting Standards
Convertible Debt Instruments, Derivatives and EPS
In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)”. This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock, as well as amend the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. In addition, this ASU improves and amends the related earnings-per-share (EPS) guidance. We adopted ASU 2020-06 on May 1, 2022. The adoption did not have an impact on our consolidated financial statements at the time of adoption.
Recently Issued Accounting Standards
Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. This ASU requires that an acquirer recognize, and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606 “Revenue from Contracts with Customers” (Topic 606) as if it had originated the contracts. Generally, this would result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements if the acquiree prepared financial statements in accordance with US GAAP. This standard is effective for us on May 1, 2023, including interim periods within the fiscal year. Early adoption is permitted. The standard is applied prospectively to business combinations occurring on or after the effective date of the amendments. The impact will be based on future business combinations after we adopt the standard.
Note 3 — Acquisitions
Pro forma financial information related to these acquisitions has not been provided as it is not material to our consolidated results of operations.
Fiscal Year 2022
XYZ Media
On December 29, 2021, we completed the acquisition of certain assets of XYZ Media Inc. (XYZ Media). XYZ Media is a company that generates leads for higher education institutions. The results of XYZ Media are included in our Education Services segment results. The fair value of consideration transferred at the date of acquisition was $45.4 million which included $38.0 million of cash, and approximately 129 thousand shares of Wiley Class A common stock, or approximately $7.4 million. We financed the payment of the cash consideration with a combination of cash on hand and borrowings under our Amended and Restated RCA (as defined below in Note 15, “Debt and Available Credit Facilities”).
XYZ Media’s revenue and operating loss included in our Education Services segment results for the three months ended October 31, 2022 was $2.9 million and $(0.8) million, respectively. XYZ Media’s revenue and operating loss included in our Education Services segment results for the six months ended October 31, 2022 was $5.4 million and $(2.3) million, respectively.
During the six months ended October 31, 2022, no revisions were made to the allocation of the consideration transferred to the assets acquired and liabilities assumed. We recorded the preliminary fair value of the assets acquired and liabilities assumed on the acquisition date, which included a preliminary allocation of $22.2 million of goodwill allocated to the Education Services segment and $22.7 million of intangible assets subject to amortization.
The allocation of the total consideration transferred to the assets acquired, including intangible assets and goodwill, and the liabilities assumed is preliminary, and could be revised as a result of additional information obtained due to the finalization of the third-party valuation report, leases and related commitments, tax related matters and contingencies and certain assets and liabilities, including receivables and payables, but such amounts will be finalized within the measurement period, which will not exceed one year from the acquisition date.
Other Acquisitions in Fiscal Year 2022
On November 30, 2021, we acquired the assets of the eJournalPress business (EJP) from Precision Computer Works, Inc. EJP is a technology platform company with an established journal submission and peer review management system. The results of EJP are included in our Research segment results.
On October 1, 2021, we completed the acquisition of certain assets of J&J Editorial Services, LLC. (J&J). J&J is a publishing services company providing expert offerings in editorial operations, production, copyediting, system support and consulting. The results of J&J are included in our Research segment results.
We also completed the acquisition of two immaterial business included in our Research segment and the acquisition of one immaterial business in our Education Services segment.
The aggregate preliminary fair value of consideration transferred for these other acquisitions was approximately $41.2 million which included $36.2 million of cash paid at the acquisition dates and $5.0 million of additional cash to be paid after the acquisition dates. The fair value of the cash consideration transferred, net of $1.2 million of cash acquired was approximately $34.9 million.
The incremental revenue and operating income included in the Research segment for the three months ended October 31, 2022 related to these other acquisitions was approximately $4.5 million and $0.2 million, respectively. The incremental revenue and operating loss included in the Research segment for the six months ended October 31, 2022 related to these other acquisitions was approximately $9.1 million and $(2.1) million, respectively.
During the six months ended October 31, 2022, no revisions were made to the allocation of the consideration transferred to the assets acquired and liabilities assumed. Associated with these other acquisitions, we recorded the preliminary aggregate excess purchase price over identifiable net tangible and intangible assets acquired and liabilities assumed, which included a preliminary allocation of $24.8 million of goodwill allocated to the Research segment and $15.6 million of intangible assets subject to amortization. No goodwill was allocated to the Education Services segment.
The allocation of the consideration transferred for the assets acquired, including intangible assets and goodwill, and liabilities assumed was finalized during the three months ended October 31, 2022 for the J&J acquisition.
The allocations of the total consideration transferred to the assets acquired, including intangible assets and goodwill, and the liabilities assumed for the remaining other acquisitions are preliminary, and could be revised as a result of additional information obtained due to the finalization of the third-party valuation report, leases and related commitments, tax related matters and contingencies and certain assets and liabilities, including receivables and payables, but such amounts will be finalized within the measurement period, which will not exceed one year from the acquisition date.
Note 4 — Revenue Recognition, Contracts with Customers
Disaggregation of Revenue
The following table presents our revenue from contracts with customers disaggregated by segment and product type.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended October 31, | | Six Months Ended October 31, |
| 2022 | | 2021 | | 2022 | | 2021 |
Research (1): | | | | | | | |
Research Publishing (2) | $ | 232,641 | | | $ | 238,853 | | | $ | 472,164 | | | $ | 482,137 | |
Research Solutions (2) | 38,718 | | | 36,301 | | | 74,108 | | | 67,773 | |
Total Research | 271,359 | | | 275,154 | | | 546,272 | | | 549,910 | |
| | | | | | | |
Academic & Professional Learning: | | | | | | | |
Education Publishing | 86,200 | | | 98,581 | | | 149,256 | | | 164,961 | |
Professional Learning | 66,441 | | | 77,948 | | | 136,344 | | | 150,832 | |
Total Academic & Professional Learning | 152,641 | | | 176,529 | | | 285,600 | | | 315,793 | |
| | | | | | | |
Education Services: | | | | | | | |
University Services (3) | 57,759 | | | 58,630 | | | 105,570 | | | 113,598 | |
Talent Development Services (3) | 33,077 | | | 22,690 | | | 64,963 | | | 42,090 | |
Total Education Services | 90,836 | | | 81,320 | | | 170,533 | | | 155,688 | |
| | | | | | | |
Total Revenue | $ | 514,836 | | | $ | 533,003 | | | $ | 1,002,405 | | | $ | 1,021,391 | |
| | | | | |
(1) | The Research segment was previously referred to as Research Publishing & Platforms. |
| | | | | |
(2) | As previously announced, in May 2022 our revenue by product type previously referred to as Research Platforms was changed to Research Solutions. Research Solutions includes infrastructure and publishing services that help societies and corporations thrive in a complex knowledge ecosystem. In addition to Platforms (Atypon), certain product offerings such as corporate sales which included the recent acquisitions of Madgex Holdings Limited (Madgex), and Bio-Rad Laboratories Inc.’s Informatics products (Informatics) that were previously included in Research Publishing moved to Research Solutions to align with our strategic focus. Research Solutions also includes product offerings related to certain recent acquisitions such as J&J, and EJP. Prior period results have been revised to the new presentation. There were no changes to the total Research segment or our consolidated financial results. The revenue reclassified to Research Solutions was $24.0 million and $44.1 million for the three and six months ended October 31, 2021, respectively. |
| | | | | |
(3) | In May 2022, we moved the WileyNXT product offering from Talent Development Services to University Services and the prior period results have been included in University Services. There were no changes to the total Education Services segment or our total consolidated financial results. The revenue reclassified was $0.5 million and $1.1 million for the three and six months ended October 31, 2021, respectively. |
The following information describes our disaggregation of revenue by segment and product type. Overall, the majority of our revenue is recognized over time.
Research
Research customers include academic, corporate, government, and public libraries, funders of research, researchers, scientists, clinicians, engineers and technologists, scholarly and professional societies, and students and professors. Research products are sold and distributed globally through multiple channels, including research libraries and library consortia, independent subscription agents, direct sales to professional society members, and other customers. Publishing centers include Australia, China, Germany, India, the United Kingdom (UK), and the United States (US). The majority of revenue generated from Research products is recognized over time. Total Research revenue was $271.4 million and $546.3 million in the three and six months ended October 31, 2022, respectively.
We disaggregated revenue by Research Publishing & Research Solutions to reflect the different type of products and services provided.
Research Publishing Products
Research Publishing products 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. Research Publishing revenue was $232.6 million and $472.2 million in the three and six months ended October 31, 2022, respectively, and the majority is recognized over time.
Research Publishing products generate approximately 87% in both the three and six months ended October 31, 2022, respectively, of its revenue from contracts with its customers from Journal Subscriptions (pay to read), Open Access (pay to publish) and Transformational Agreements (read and publish) and the remainder from Licensing, Reprints, Backfiles, and Other.
Research Solutions Products and Services
Research Solutions services include Atypon Systems, Inc (Atypon) a publishing software and service provider that enables scholarly and professional societies and publishers to deliver, host, enhance, market, and manage their content on the web through the Literatum platform. In addition, Research Solutions includes advertising, spectroscopy software and spectral databases, and job board software and career center services, which includes the products and services from the recent acquisitions of Madgex and Informatics. As well as product and service offerings related to recent acquisitions such as J&J and the EJP business. J&J is a publishing services company providing expert offerings in editorial operations, production, copyediting, system support and consulting. EJP is a technology platform company with an established journal submission and peer-review management system. Research Solutions revenue was $38.7 million and $74.1 million in the three and six months ended October 31, 2022, respectively, and the majority is recognized over time.
Academic & Professional Learning
Academic & Professional Learning provides Education Publishing and Professional Learning products and services including scientific, professional, and education print and digital books, digital courseware, and test preparation services to libraries, corporations, students, professionals, and researchers, as well as learning, development, and assessment services for businesses and professionals. Communities served include business, finance, accounting, workplace learning, management, leadership, technology, behavioral health, engineering/architecture, science and medicine, and education. Products are developed for worldwide distribution through multiple channels, including chain and online booksellers, libraries, colleges and universities, corporations, direct to consumer, web sites, distributor networks and other online applications. Publishing centers include Australia, Germany, India, the UK, and the US. Total Academic & Professional Learning revenue was $152.6 million and $285.6 million in the three and six months ended October 31, 2022, respectively.
We disaggregated revenue by type of products provided. Academic & Professional Learning products are Education Publishing and Professional Learning. Academic & Professional Learning revenues are mainly recognized at a point in time.
Education Publishing Products
Education Publishing products revenue was $86.2 million and $149.3 million in the three and six months ended October 31, 2022, respectively. Education Publishing products generate approximately 57% and 64% in the three and six months ended October 31, 2022, respectively, of its revenue from contracts with its customers from Education (print and digital) Publishing, which is recognized at a point in time, and 32% and 22% in the three and six months ended October 31, 2022, respectively, from Digital Courseware which is recognized over time. The remainder of its revenues were from Test Preparation and Certification and Licensing and Other, which has a mix of revenue recognized at a point in time and over time.
Professional Learning Products
Professional Learning products revenue was $66.4 million and $136.3 million in the three and six months ended October 31, 2022, respectively. Professional Learning (print and digital) products generate approximately 54% and 56% in the three and six months ended October 31, 2022, respectively, of revenue from contracts with its customers from Professional Publishing, and Licensing and Other, and both are mainly recognized at a point in time. Approximately 46% and 44% of Professional Learning products revenue in the three and six months ended October 31, 2022, respectively, is from contracts with its customers from Corporate Training and Corporate Learning, which is recognized mainly over time.
Education Services
Education Services revenue was $90.8 million and $170.5 million in the three and six months ended October 31, 2022, respectively, and the majority is recognized over time. We disaggregated revenue by type of services provided, which are University Services and Talent Development Services.
University Services
University Services revenue was $57.8 million and $105.6 million in the three and six months ended October 31, 2022, respectively, and is mainly recognized over time. University Services primarily engages in the comprehensive management of online degree programs for universities and has grown to include a broad array of technology enabled service offerings that address our partner specific pain points. Increasingly, this includes delivering career credentialing education that advances specific careers with in-demand skills.
Talent Development Services
Talent Development Services revenue was $33.1 million and $65.0 million in the three and six months ended October 31, 2022, respectively, and is recognized at the point in time the services are provided to its customers. Talent Development Services is a talent placement provider that finds, trains and places job-ready technology talent in roles with leading corporations worldwide.
Accounts Receivable, net and Contract Liability Balances
When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue when, or as, control of the products or services are transferred to the customer and all revenue recognition criteria have been met.
The following table provides information about accounts receivable, net and contract liabilities from contracts with customers.
| | | | | | | | | | | | | | | | | |
| October 31, 2022 | | April 30, 2022 | | Increase/ (Decrease) |
Balances from contracts with customers: | | | | | |
Accounts receivable, net | $ | 260,026 | | | $ | 331,960 | | | $ | (71,934) | |
Contract liabilities (1) | 263,821 | | | 538,126 | | | (274,305) | |
Contract liabilities (included in Other long-term liabilities) | $ | 20,857 | | | $ | 19,072 | | | $ | 1,785 | |
| | | | | |
(1) | The sales return reserve recorded in Contract liabilities is $28.9 million and $31.1 million, as of October 31, 2022 and April 30, 2022, respectively. |
For the six months ended October 31, 2022, we estimate that we recognized revenue of approximately 73% that was included in the current contract liability balance at April 30, 2022.
The decrease in contract liabilities excluding the sales return reserve, was primarily driven by revenue earned on journal subscription agreements, transformational agreements, and open access, partially offset by renewals of journal subscription agreements, transformational agreements, and open access.
Remaining Performance Obligations included in Contract Liability
As of October 31, 2022, the aggregate amount of the transaction price allocated to the remaining performance obligations is approximately $284.7 million, which included the sales return reserve of $28.9 million. Excluding the sales return reserve, we expect that approximately $234.9 million will be recognized in the next twelve months with the remaining $20.9 million to be recognized thereafter.
Assets Recognized for the Costs to Fulfill a Contract
Costs to fulfill a contract are directly related to a contract that will be used to satisfy a performance obligation in the future and are expected to be recovered. These costs are amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. These types of costs are incurred in the following product types, (1) Research Solutions services, which includes customer specific implementation costs per the terms of the contract and (2) University Services, which includes customer specific costs to develop courses per the terms of the contract.
Our assets associated with incremental costs to fulfill a contract were $10.6 million and $10.9 million at October 31, 2022 and April 30, 2022, respectively, and are included within Other non-current assets on our Unaudited Condensed Consolidated Statements of Financial Position. We recorded amortization expense of $1.1 million and $2.3 million during the three and six months ended October 31, 2022, respectively, related to these assets within Cost of sales on our Unaudited Condensed Consolidated Statements of Net Income. We recorded amortization expense of $1.3 million and $2.8 million during the three and six months ended October 31, 2021, respectively, related to these assets within Cost of sales on our Unaudited Condensed Consolidated Statements of Net Income.
Sales and value-added taxes are excluded from revenues. Shipping and handling costs, which are primarily incurred within the Academic & Professional Learning segment, occur before the transfer of control of the related goods. Therefore, in accordance with the revenue standard, it is not considered a promised service to the customer and would be considered a cost to fulfill our promise to transfer the goods. Costs incurred for third party shipping and handling are primarily reflected in Operating and administrative expenses on our Unaudited Condensed Consolidated Statements of Net Income. We incurred $7.1 million and $13.5 million in shipping and handling costs in the three and six months ended October 31, 2022, respectively. We incurred $7.2 million and $14.0 million in shipping and handling costs in the three and six months ended October 31, 2021, respectively.
Note 5 — Operating Leases
We have contractual obligations as a lessee with respect to offices, warehouses and distribution centers, automobiles, and office equipment.
We determine if an arrangement is a lease at inception of the contract in accordance with guidance detailed in the lease standard and we perform the lease classification test as of the lease commencement date. Right-of-use (ROU) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.
The present value of the lease payments is calculated using an incremental borrowing rate, which was determined based on the rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. We use an unsecured borrowing rate and risk-adjust that rate to approximate a collateralized rate.
Under the leasing standard, leases that are more than one year in duration are capitalized and recorded on our Unaudited Condensed Consolidated Statements of Financial Position. Some of our leases offer an option to extend the term of such leases. We utilize the reasonably certain threshold criteria in determining which options we will exercise. Furthermore, some of our lease payments are based on index rates with minimum annual increases. These represent fixed payments and are captured in the future minimum lease payments calculation.
For operating leases, the ROU assets and liabilities are presented on our Unaudited Condensed Consolidated Statement of Financial Position as follows:
| | | | | | | | | | | |
| October 31, 2022 | | April 30, 2022 |
Operating lease ROU assets | $ | 93,334 | | | $ | 111,719 | |
Short-term portion of operating lease liabilities | 19,043 | | | 20,576 | |
Operating lease liabilities, non-current | $ | 120,559 | | | $ | 132,541 | |
During the six months ended October 31, 2022, we reduced our ROU assets by $(0.5) million and our operating lease liabilities by $(0.5) million due to modifications and remeasurements to our existing operating leases, partially offset by new leases.
As a result of the Fiscal Year 2023 Restructuring Program, which included the exit of certain leased office space beginning in the three months ended July 31, 2022, we recorded restructuring charges. These charges included severance, impairment charges and acceleration of expense associated with certain operating lease ROU assets. See Note 9, “Restructuring and Related Charges (Credits)” for more information on this program and the charges incurred.
Our total net lease costs are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended October 31, | | Six Months Ended October 31, |
| 2022 | | 2021 | | 2022 | | 2021 |
Operating lease cost | $ | 4,528 | | | $ | 6,325 | | | $ | 9,710 | | | $ | 12,242 | |
Variable lease cost | 264 | | | 397 | | | 542 | | | 741 | |
Short-term lease cost | 146 | | | 36 | | | 261 | | | 56 | |
Sublease income | (172) | | | (190) | | | (370) | | | (391) | |
Total net lease cost (1) | $ | 4,766 | | | $ | 6,568 | | | $ | 10,143 | | | $ | 12,648 | |
| | | | | |
(1) | Total net lease cost does not include those costs and sublease income included in Restructuring and related charges (credits) on our Unaudited Condensed Consolidated Statements of Net Income. This includes those operating leases we had identified as part of our restructuring programs that would be subleased. See Note 9, “Restructuring and Related Charges (Credits)” for more information on this program. |
Other supplemental information includes the following:
| | | | | | | | | | | |
| Six Months Ended October 31, |
| 2022 | | 2021 |
Weighted-average remaining contractual lease term (years) | 8 | | 9 |
Weighted-average discount rate | 5.93 | % | | 5.79 | % |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases | $ | 13,756 | | $ | 14,846 |
The table below reconciles the undiscounted cash flows for the first five years and total of the remaining years to the operating lease liabilities recorded in our Unaudited Condensed Consolidated Statement of Financial Position as of October 31, 2022:
| | | | | | | | |
Fiscal Year | | Operating Lease Liabilities |
2023 (remaining 6 months) | | $ | 13,522 | |
2024 | | 25,110 | |
2025 | | 23,691 | |
2026 | | 21,721 | |
2027 | | 17,692 | |
Thereafter | | 77,499 | |
Total future undiscounted minimum lease payments | | 179,235 | |
| | |
Less: Imputed interest | | 39,633 | |
| | |
Present value of minimum lease payments | | 139,602 | |
| | |
Less: Current portion | | 19,043 | |
| | |
Noncurrent portion | | $ | 120,559 | |
Note 6 — Stock-Based Compensation
We have stock-based compensation plans under which employees may be granted performance-based stock awards, other restricted stock awards and options. We recognize the grant date fair value of stock-based compensation in net income on a straight-line basis, net of estimated forfeitures over the requisite service period. The measurement of performance for performance-based stock awards is based on actual financial results for targets established up to three years in advance, or less. For the three and six months ended October 31, 2022, we recognized stock-based compensation expense, on a pretax basis, of $6.9 million and $14.0 million, respectively. For the three and six months ended October 31, 2021, we recognized stock-based compensation expense, on a pretax basis, of $6.7 million and $13.1 million, respectively.
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 or less financial performance-based targets. During each three-year period or less, we adjust compensation expense based upon our best estimate of expected performance.
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.
The following table summarizes awards we granted to employees (shares in thousands):
| | | | | | | | | | | |
| Six Months Ended October 31, |
| 2022 | | 2021 |
Restricted Stock: | | | |
Awards granted (shares) | 539 | | 455 |
Weighted average fair value of grant | $ | 45.35 | | | $ | 57.16 | |
Stock Option Activity
We granted 10,000 and 260,000 stock option awards during the six months ended October 31, 2022 and October 31, 2021, respectively. Options are exercisable over a maximum period of ten years from the date of grant. These options generally vest 10%, 20%, 30%, and 40% on April 30, or on each anniversary date after the award is granted.
The following table provides the estimated weighted average fair value for options granted during the six months ended October 31, 2022 and 2021 using the Black-Scholes option-pricing model, and the significant weighted average assumptions used in their determination.
| | | | | | | | | | | |
| Six Months Ended October 31, |
| 2022 | | 2021 |
Weighted average fair value of options on grant date | $ | 9.42 | | | $ | 11.71 | |
| | | |
Weighted average assumptions: | | | |
Expected life of options (years) | 5.9 | | 6.3 |
Risk-free interest rate | 0.5 | % | | 1.1 | % |
Expected volatility | 31.2 | % | | 30.7 | % |
Expected dividend yield | 3.0 | % | | 2.4 | % |
Fair value of common stock on grant date | $ | 45.99 | | | $ | 56.79 | |
Exercise price of stock option grant | $ | 45.99 | | | $ | 62.36 | |
Note 7 — Accumulated Other Comprehensive Loss
Changes in Accumulated other comprehensive loss by component, net of tax, for the three and six months ended October 31, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation | | Unamortized Retirement Costs | | Interest Rate Swaps | | Total |
| | | | | | | |
Balance at July 31, 2022 | $ | (349,346) | | | $ | (177,145) | | | $ | 3,202 | | | $ | (523,289) | |
Other comprehensive (loss) income before reclassifications | (36,148) | | | 7,089 | | | 5,804 | | | (23,255) | |
Amounts reclassified from accumulated other comprehensive loss | — | | | 1,057 | | | (499) | | | 558 | |
Total other comprehensive (loss) income | (36,148) | | | 8,146 | | | 5,305 | | | (22,697) | |
Balance at October 31, 2022 | $ | (385,494) | | | $ | (168,999) | | | $ | 8,507 | | | $ | (545,986) | |
| | | | | | | |
Balance at April 30, 2022 | $ | (329,566) | | | $ | (182,226) | | | $ | 3,646 | | | $ | (508,146) | |
Other comprehensive (loss) income before reclassifications | (55,928) | | | 11,068 | | | 5,067 | | | (39,793) | |
Amounts reclassified from accumulated other comprehensive loss | — | | | 2,159 | | | (206) | | | 1,953 | |
Total other comprehensive (loss) income | (55,928) | | | 13,227 | | | 4,861 | | | (37,840) | |
Balance at October 31, 2022 | $ | (385,494) | | | $ | (168,999) | | | $ | 8,507 | | | $ | (545,986) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation | | Unamortized Retirement Costs | | Interest Rate Swaps | | Total |
| | | | | | | |
Balance at July 31, 2021 | $ | (263,878) | | | $ | (226,557) | | | $ | (4,165) | | | $ | (494,600) | |
Other comprehensive (loss) income before reclassifications | (9,483) | | | 2,639 | | | 978 | | | (5,866) | |
Amounts reclassified from accumulated other comprehensive loss | — | | | 1,426 | | | 831 | | | 2,257 | |
Total other comprehensive (loss) income | (9,483) | | | 4,065 | | | 1,809 | | | (3,609) | |
Balance at October 31, 2021 | $ | (273,361) | | | $ | (222,492) | | | $ | (2,356) | | | $ | (498,209) | |
| | | | | | | |
Balance at April 30, 2021 | $ | (257,941) | | | $ | (228,146) | | | $ | (4,703) | | | $ | (490,790) | |
Other comprehensive (loss) income before reclassifications | (15,420) | | | 2,781 | | | 685 | | | (11,954) | |
Amounts reclassified from accumulated other comprehensive loss | — | | | 2,873 | | | 1,662 | | | 4,535 | |
Total other comprehensive (loss) income | (15,420) | | | 5,654 | | | 2,347 | | | (7,419) | |
Balance at October 31, 2021 | $ | (273,361) | | | $ | (222,492) | | | $ | (2,356) | | | $ | (498,209) | |
During the three and six months ended October 31, 2022, pretax actuarial losses included in Unamortized Retirement Costs of approximately $1.4 million and $2.9 million, respectively, and in the three and six months ended October 31, 2021, of approximately $1.9 million and $3.7 million, respectively, were amortized from Accumulated other comprehensive loss and recognized as pension and post-retirement benefit expense primarily in Operating and administrative expenses and Other (expense) income, net on our Unaudited Condensed Consolidated Statements of Net Income.
Our policy for releasing the income tax effects from accumulated other comprehensive (loss) income is to release when the corresponding pretax accumulated other comprehensive (loss) income items are reclassified to earnings.
Note 8 — Reconciliation of Weighted Average Shares Outstanding
A reconciliation of the shares used in the computation of earnings per share follows (shares in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended October 31, | | Six Months Ended October 31, |
| 2022 | | 2021 | | 2022 | | 2021 |
Weighted average shares outstanding | 55,622 | | 55,806 | | 55,679 | | 55,833 |
Shares used for basic earnings per share | 55,622 | | 55,806 | | 55,679 | | 55,833 |
Dilutive effect of unvested restricted stock units and other stock awards | 573 | | 582 | | 647 | | 644 |
Shares used for diluted earnings per share | 56,195 | | 56,388 | | 56,326 | | 56,477 |
Antidilutive options to purchase Class A common shares, restricted shares, warrants to purchase Class A common shares, and contingently issuable restricted stock which are excluded from the table above | 523 | | 1,074 | | 491 | | 1,006 |
The shares associated with performance-based stock awards ("PSUs") are considered contingently issuable shares and will be included in the diluted weighted average number of common shares outstanding when they have met the performance conditions, and when their effect is dilutive.
We included contingently issuable shares using the treasury stock method for certain PSUs in the diluted weighted average number of common shares outstanding based on the number of contingently issuable shares that would be issued assuming the end of our reporting period was the end of the relevant PSU contingency period. The calculation of diluted weighted average shares outstanding related to these PSUs was nominal in the three and six months ended October 31, 2022. The calculation of diluted weighted average shares outstanding in the three and six months ended October 31, 2021 did not include contingently issuable shares related to these PSUs as the performance condition was not met.
Note 9 — Restructuring and Related Charges (Credits)
Fiscal Year 2023 Restructuring Program
In May 2022, the Company initiated a global program to restructure and align our cost base with current and anticipated future market conditions (Fiscal Year 2023 Restructuring Program). This program includes the exit of certain leased office space and the reduction of our occupancy at other facilities. We are reducing our real estate square footage occupancy by approximately 22%. In addition, the program includes severance related charges for the elimination of certain positions.
The following tables summarize the pretax restructuring charges related to this program:
| | | | | | | | | | | | | | | | | |
| Three Months Ended October 31, | Six Months Ended October 31, | Total Charges Incurred to Date |
| 2022 | | 2022 | |
Charges by Segment: | | | | | |
Research | $ | 1,179 | | | $ | 1,260 | | | $ | 1,260 | |
Academic & Professional Learning | 3,325 | | | 9,239 | | | 9,239 | |
Education Services | 504 | | | 1,334 | | | 1,334 | |
Corporate Expenses | 8,673 | | | 23,589 | | | 23,589 | |
Total Restructuring and Related Charges | $ | 13,681 | | | $ | 35,422 | | | $ | 35,422 | |
| | | | | |
Charges by Activity: | | | | | |
Severance and termination benefits | $ | 5,467 | | | $ | 17,564 | | | $ | 17,564 | |
Impairment of operating lease ROU assets and property and equipment | 6,590 | | | 12,696 | | | 12,696 | |
Acceleration of expense related to operating lease ROU assets and property and equipment | — | | | 1,840 | | | 1,840 | |
Facility related charges, net | 999 | | | 2,697 | | | 2,697 | |
Consulting costs | 430 | | | 430 | | | 430 | |
Other activities | 195 | | | 195 | | | 195 | |
Total Restructuring and Related Charges | $ | 13,681 | | | $ | 35,422 | | | $ | 35,422 | |
We recorded an initial pretax restructuring charge of $20.0 million in the three months ended July 31, 2022 related to this program, plus additional impairment and severance charges in the three months ended October 31, 2022 of $12.1 million, for a total of $32.1 million in the six months ended October 31, 2022. These restructuring charges primarily reflect the following charges:
•Severance charges of $17.6 million for the elimination of certain positions,
•Impairment charges of $12.7 million recorded in our corporate category, which included the impairment of operating lease ROU assets of $7.6 million related to certain leases that will be subleased, and the related property and equipment of $5.1 million described further below, and
•Acceleration of expense of $1.8 million, which included the acceleration of rent expense associated with operating lease ROU assets of $0.9 million related to certain leases that will be abandoned or terminated and the related depreciation and amortization of property and equipment of $0.9 million.
Due to the actions taken above, we tested the operating lease ROU assets and the related property and equipment for those being subleased for recoverability by comparing the carrying value of the asset group to an estimate of the future undiscounted cash flows expected to result from the use and eventual disposition of the asset group. Based on the results of the recoverability test, we determined that the undiscounted cash flows of the asset groups were below the carrying values. Therefore, there was an indication of impairment. We then determined the fair value of the asset groups by utilizing the present value of the estimated future cash flows attributable to the assets. The fair value of these operating lease ROU assets and the property and equipment immediately subsequent to the impairment was $12.1 million and was categorized as Level 3 within the FASB ASC Topic 820, “Fair Value Measurements” fair value hierarchy.
In addition, we also incurred ongoing facility-related costs associated with certain properties that resulted in additional restructuring charges of $1.0 million and $2.7 million in the three and six months ended October 31, 2022, respectively. We also incurred consulting costs of $0.4 million in both the three and six months ended October 31, 2022, and other activities of $0.2 million in both the three and six months ended October 31, 2022.
The following table summarizes the activity for the Fiscal Year 2023 Restructuring Program liability for the six months ended October 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| April 30, 2022 | | Charges | | Payments | | Foreign Translation & Other Adjustments | | October 31, 2022 |
Severance and termination benefits | $ | — | | | $ | 17,564 | | | $ | (7,871) | | | $ | (113) | | | $ | 9,580 | |
Consulting costs | — | | | 430 | | | (430) | | | — | | | — | |
Other activities | — | | | 195 | | | (29) | | | — | | | 166 | |
Total | $ | — | | | $ | 18,189 | | | $ | (8,330) | | | $ | (113) | | | $ | 9,746 | |
The restructuring liability for accrued severance and termination benefits is reflected in Accrued employment costs on our Unaudited Condensed Consolidated Statement of Financial Position. The liability for Other activities is reflected in Other accrued liabilities.
Business Optimization Program
Beginning in fiscal year 2020, we initiated a multiyear Business Optimization Program (the Business Optimization Program) to drive efficiency improvement and operating savings.
The following tables summarize the pretax restructuring charges (credits) related to this program:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended October 31, | | Six Months Ended October 31, | | Total Charges Incurred to Date |
| 2022 | | 2021 | | 2022 | | 2021 | |
Charges (Credits) by Segment: | | | | | | | | | |
Research | $ | — | | | $ | 22 | | | $ | — | | | $ | 238 | | | $ | 3,882 | |
Academic & Professional Learning | 114 | | | (465) | | | (10) | | | (294) | | | 13,240 | |
Education Services | 2 | | | 6 | | | 5 | | | (28) | | | 4,318 | |
Corporate Expenses | 159 | | | (896) | | | 980 | | | (1,525) | | | 44,370 | |
Total Restructuring and Related Charges (Credits) | $ | 275 | | | $ | (1,333) | | | $ | 975 | | | $ | (1,609) | | | $ | 65,810 | |
| | | | | | | | | |
Charges (Credits) by Activity: | | | | | | | | | |
Severance and termination benefits | $ | 127 | | | $ | (1,956) | | | $ | 13 | | | $ | (2,570) | | | $ | 35,132 | |
Impairment of operating lease ROU assets and property and equipment | — | | | — | | | — | | | — | | | 15,079 | |
Acceleration of expense related to operating lease ROU assets and property and equipment | — | | | — | | | — | | | — | | | 3,378 | |
Facility related charges, net | 148 | | | 623 | | | 962 | | | 961 | | | 10,481 | |
Other activities | — | | | — | | | — | | | — | | | 1,740 | |
Total Restructuring and Related Charges (Credits) | $ | 275 | | | $ | (1,333) | | | $ | 975 | | | $ | (1,609) | | | $ | 65,810 | |
The credits in severance and termination benefits activities for the three and six months ended October 31, 2021, primarily reflects changes in the number of headcount reductions and estimates for previously accrued costs.
Facilities related charges, net include sublease income related to those operating leases we had identified in the year ended April 30, 2021 as part of our Business Optimization program that would be subleased.
The following table summarizes the activity for the Business Optimization Program liability for the six months ended October 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| April 30, 2022 | | Charges | | Payments | | Foreign Translation & Other Adjustments | | October 31, 2022 |
Severance and termination benefits | $ | 2,079 | | | $ | 13 | | | $ | (173) | | | $ | (65) | | | $ | 1,854 | |
Total | $ | 2,079 | | | $ | 13 | | | $ | (173) | | | $ | (65) | | | $ | 1,854 | |
The restructuring liability for accrued severance and termination benefits is reflected in Accrued employment costs on our Unaudited Condensed Consolidated Statement of Financial Position as of October 31, 2022.
Note 10 — Segment Information
We report our segment information in accordance with the provisions of FASB Accounting Standards Codification (ASC) Topic 280, “Segment Reporting”. These segments reflect the way our chief operating decision maker evaluates our business performance and manages the operations. The performance metric used by our chief operating decision maker to evaluate performance of our reportable segments is Adjusted Contribution to Profit. Our segment reporting structure consists of three reportable segments, which are listed below, as well as a Corporate category, which includes certain costs that are not allocated to the reportable segments:
•Research
•Academic & Professional Learning
•Education Services
Segment information is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended October 31, | | Six Months Ended October 31, |
| 2022 | | 2021 | | 2022 | | 2021 |
Revenue: | | | | | | | |
Research (1) | $ | 271,359 | | | $ | 275,154 | | | $ | 546,272 | | | $ | 549,910 | |
Academic & Professional Learning | 152,641 | | | 176,529 | | | 285,600 | | | 315,793 | |
Education Services | 90,836 | | | 81,320 | | | 170,533 | | | 155,688 | |
Total revenue | $ | 514,836 | | | $ | 533,003 | | | $ | 1,002,405 | | | $ | 1,021,391 | |
| | | | | | | |
Adjusted Contribution to Profit: | | | | | | | |
Research (1) | $ | 74,458 | | | $ | 77,053 | | | $ | 143,562 | | | $ | 156,077 | |
Academic & Professional Learning | 33,850 | | | 40,606 | | | 35,225 | | | 48,929 | |
Education Services (2) | 6,588 | | | 727 | | | (5,154) | | | (1,134) | |
Total adjusted contribution to profit | 114,896 | | | 118,386 | | | 173,633 | | | 203,872 | |
Adjusted corporate contribution to profit | (43,501) | | | (45,831) | | | (92,168) | | | (90,625) | |
Total adjusted operating income | $ | 71,395 | | | $ | 72,555 | | | $ | 81,465 | | | $ | 113,247 | |
| | | | | | | |
Depreciation and Amortization: | | | | | | | |
Research (1) | $ | 23,384 | | | $ | 23,464 | | | $ | 47,185 | | | $ | 47,226 | |
Academic & Professional Learning | 16,152 | | | 18,148 | | | 32,684 | | | 36,512 | |
Education Services (2) | 8,975 | | | 8,813 | | | 22,765 | | | 17,116 | |
Total depreciation and amortization | 48,511 | | | 50,425 | | | 102,634 | | | 100,854 | |
Corporate depreciation and amortization | 3,910 | | | 4,130 | | | 8,066 | | | 8,267 | |
Total depreciation and amortization | $ | 52,421 | | | $ | 54,555 | | | $ | 110,700 | | | $ | 109,121 | |
| | | | | |
(1) | The Research segment was previously referred to as Research Publishing & Platforms. |
(2) | On January 1, 2020, Wiley acquired mthree, a talent placement provider that addresses the IT skills gap by finding, training, and placing job-ready technology talent in roles with leading corporations worldwide. Its results of operations are included in our Education Services segment. In late May 2022, Wiley renamed the mthree talent development solution to Wiley Edge and discontinued use of the mthree trademark during the three months ended July 31, 2022. As a result of these actions, we determined that a revision of the useful life was warranted and the intangible asset was fully amortized over its remaining useful life resulting in accelerated amortization expense of $4.6 million in the three months ended July 31, 2022. This amortization expense was an adjustment to the Education Services Adjusted contribution to profit. In addition, it was included in Depreciation and amortization in the table above for segment reporting. |
The following table shows a reconciliation of our consolidated US GAAP Operating Income to Non-GAAP Adjusted Operating Income:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended October 31, | | Six Months Ended October 31, |
| 2022 | | 2021 | | 2022 | | 2021 |
US GAAP Operating Income | $ | 57,439 | | | $ | 73,888 | | | $ | 40,474 | | | $ | 114,856 | |
Adjustments: | | | | | | | |
Restructuring and related charges (credits) (1) | 13,956 | | | (1,333) | | | 36,397 | | | (1,609) | |
Accelerated amortization of an intangible asset (2) | — | | | — | | | 4,594 | | | — | |
Non-GAAP Adjusted Operating Income | $ | 71,395 | | | $ | 72,555 | | | $ | 81,465 | | | $ | 113,247 | |
| | | | | |
(1) | See Note 9, “Restructuring and Related Charges (Credits)” for these charges by segment. |
(2) | As described above, this accelerated amortization relates to the mthree trademark. |
See Note 4, “Revenue Recognition, Contracts with Customers,” for revenue from contracts with customers disaggregated by segment and product type for the three and six months ended October 31, 2022 and 2021.
Note 11 — Inventories
Inventories, net consisted of the following:
| | | | | | | | | | | |
| October 31, 2022 | | April 30, 2022 |
Finished goods | $ | 30,245 | | | $ | 31,270 | |
Work-in-process | 1,182 | | | 1,729 | |
Paper and other materials | 182 | | | 275 | |
Total inventories before estimated sales returns and LIFO reserve | $ | 31,609 | | | $ | 33,274 | |
Inventory value of estimated sales returns | 7,347 | | | 7,820 | |
LIFO reserve | (4,509) | | | (4,509) | |
Inventories, net | $ | 34,447 | | | $ | 36,585 | |
Note 12 — Goodwill and Intangible Assets
Goodwill
The following table summarizes the activity in goodwill by segment as of October 31, 2022:
| | | | | | | | | | | | | | | | | |
| April 30, 2022 | | Foreign Translation Adjustment | | October 31, 2022 |
Research (1) | $ | 610,416 | | | $ | (26,417) | | | $ | 583,999 | |
Academic & Professional Learning | 498,136 | | | (6,322) | | | 491,814 | |
Education Services (2) | 193,590 | | | (1,091) | | | 192,499 | |
Total | $ | 1,302,142 | | | $ | (33,830) | | | $ | 1,268,312 | |
| | | | | |
(1) | The Research segment was previously referred to as Research Publishing & Platforms. |
(2) | The Education Services goodwill balance as of April 30, 2022 includes a cumulative pretax noncash goodwill impairment of $110.0 million. |
Intangible Assets
Intangible assets, net were as follows:
| | | | | | | | | | | |
| October 31, 2022 | | April 30, 2022 ⁽¹⁾ |
Intangible assets with definite lives, net: | | | |
Content and publishing rights | $ | 462,238 | | | $ | 499,937 | |
Customer relationships | 226,841 | | | 242,058 | |
Developed technology | 47,991 | | | 54,721 | |
Brands and trademarks (2) | 9,731 | | | 16,021 | |
Covenants not to compete | 346 | | | 393 | |
Total intangible assets with definite lives, net | 747,147 | | | 813,130 | |
Intangible assets with indefinite lives: | | | |
Brands and trademarks | 37,000 | | | 37,000 | |
Publishing rights | 76,429 | | | 81,299 | |
Total intangible assets with indefinite lives | 113,429 | | | 118,299 | |
Total intangible assets, net | $ | 860,576 | | | $ | 931,429 | |
| | | | | |
(1) | The developed technology balance as of April 30, 2022 is presented net of accumulated impairments and write-offs of $2.8 million. The indefinite-lived brands and trademarks as of April 30, 2022 is net of accumulated impairments of $93.1 million. |
(2) | On January 1, 2020, Wiley acquired mthree, a talent placement provider that addresses the IT skills gap by finding, training, and placing job-ready technology talent in roles with leading corporations worldwide. Its results of operations are included in our Education Services segment. In late May 2022, Wiley renamed the mthree talent development solution to Wiley Edge and discontinued use of the mthree trademark during the three months ended July 31, 2022. As a result of these actions, we determined that a revision of the useful life was warranted and the intangible asset was fully amortized over its remaining useful life resulting in accelerated amortization expense of $4.6 million in the three months ended July 31, 2022. |
Note 13 — Income Taxes
Our effective tax rate fluctuates based on, among other factors, where income is earned and the level of income relative to tax attributes. The effective tax rate for the three and six months ended October 31, 2022, was 21.0% and 18.4%, respectively, compared with 20.7% and 39.1% for the three and six months ended October 31, 2021, respectively.
The rate for the three months ended October 31, 2022, was equal to the US statutory rate after taking into account the geographic mix of earnings, the impact of US state taxes, and a discrete item relating to restricted stock compensation. The rate for the six months ended October 31, 2022 was lower than the US statutory rate due to the same factors described above.
The rate for the six months ended October 31, 2022, was lower than the rate for the six months ended October 31, 2021, primarily due to an increase in the UK statutory rate announced during the first three months of fiscal 2022 and reflected in the effective tax rate for the six months ended October 31, 2021. The UK enacted legislation on June 10, 2021, that increased its statutory rate from 19% to 25% effective April 1, 2023, resulting in a $20.7 million non-cash deferred tax expense.
Each year we file many tax returns given the number of national, state, and local tax jurisdictions in which we operate. These tax returns are subject to examination and possible challenge by the tax authorities, and positions challenged by the tax authorities may be settled or appealed by us. As a result, there is an uncertainty in income taxes recognized in our financial statements in accordance with accounting for income taxes and accounting for uncertainty in income taxes. The ultimate resolution of such uncertainties, however, is not expected to have a material impact on the results of our operations.
Note 14 — Retirement Plans
The components of net pension income for our defined benefit plans were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended October 31, | | Six Months Ended October 31, |
| 2022 | | 2021 | | 2022 | | 2021 |
Service cost | $ | 192 | | | $ | 300 | | | $ | 392 | | | $ | 607 | |
Interest cost | 5,994 | | | 5,178 | | | 12,183 | | | 10,401 | |
Expected return on plan assets | (8,038) | | | (10,142) | | | (16,422) | | | (20,401) | |
Amortization of prior service cost | (24) | | | (22) | | | (47) | | | (44) | |
Amortization of net actuarial loss | 1,467 | | | 1,877 | | | 2,991 | | | 3,774 | |
Net pension income | $ | (409) | | | $ | (2,809) | | | $ | (903) | | | $ | (5,663) | |
The service cost component of net pension income is reflected in Operating and administrative expenses on our Unaudited Condensed Consolidated Statements of Net Income. The other components of net pension income are reported separately from the service cost component and below Operating income. Such amounts are reflected in Other (expense) income, net on our Unaudited Condensed Consolidated Statements of Net Income.
Employer defined benefit pension plan contributions were $3.5 million and $7.4 million for the three and six months ended October 31, 2022, respectively, and $4.0 million and $8.5 million for the three and six months ended October 31, 2021, respectively.
Defined Contribution Savings Plans
The expense for employer defined contribution savings plans was $6.8 million and $15.6 million for the three and six months ended October 31, 2022, respectively, and $6.5 million and $15.6 million for the three and six months ended October 31, 2021, respectively.
Note 15 — Debt and Available Credit Facilities
Our total debt outstanding consisted of the amounts set forth in the following table:
| | | | | | | | | | | |
| October 31, 2022 | | April 30, 2022 |
Short-term portion of long-term debt (1) | $ | 25,000 | | | $ | 18,750 | |
| | | |
Term loan A - Amended and Restated RCA (2) | 191,925 | | | 204,343 | |
Revolving credit facility - Amended and Restated RCA | 786,758 | | | 563,934 | |
Total long-term debt, less current portion | 978,683 | | | 768,277 | |
| | | |
Total debt | $ | 1,003,683 | | | $ | 787,027 | |
| | | | | |
(1) | Relates to our term loan A under the Amended and Restated RCA. |
(2) | Amounts are shown net of unamortized issuance costs of $0.3 million as of October 31, 2022 and $0.3 million as of April 30, 2022. |
Amended and Restated RCA
On May 30, 2019, we entered into a credit agreement that amended and restated our existing revolving credit agreement, which was then amended on December 22, 2021 as described below (collectively, the Amended and Restated RCA). The Amended and Restated RCA provides for senior unsecured credit facilities comprised of a (i) five-year revolving credit facility in an aggregate principal amount up to $1.25 billion, and (ii) a five-year term loan A facility consisting of $250 million.
Under the terms of the Amended and Restated RCA, which can be drawn in multiple currencies, we have the option of borrowing at the following floating interest rates: (i) at a rate based on the London Interbank Offered Rate (LIBOR) plus an applicable margin ranging from 0.98% to 1.50%, depending on our consolidated net leverage ratio, as defined, or (ii) at the lender’s base rate plus an applicable margin ranging from zero to 0.50%, depending on our consolidated net leverage ratio. The lender’s base rate is defined as the highest of (i) the US federal funds effective rate plus a 0.50% margin, (ii) the Eurocurrency rate, as defined, plus a 1.00% margin, or (iii) the Bank of America prime lending rate. In addition, we pay a facility fee for the revolving credit facility ranging from 0.15% to 0.25% depending on our consolidated net leverage ratio. We also have the option to request an increase in the revolving credit facility by an amount not to exceed $500 million, in minimum increments of $50 million, subject to the approval of the lenders.
On December 22, 2021, we entered into the first amendment (the “First Amendment”) to the Amended and Restated RCA. The First Amendment, among other things, (i) changes the rate under the Amended and Restated RCA for borrowings denominated in Sterling from a LIBOR-based rate to a daily simple Sterling Overnight Index Average (SONIA) subject to certain adjustments specified in the Amended and Restated RCA, (ii) changes the rate under the Amended and Restated RCA for borrowings denominated in Euro from a LIBOR-based rate to a EURIBOR-based rate or a Euro Short Term Rate subject to certain adjustments specified in the Amended and Restated RCA, and (iii) updates certain other provisions regarding successor interest rates to LIBOR.
The Amended and Restated RCA contains certain customary affirmative and negative covenants, including a financial covenant in the form of a consolidated net leverage ratio and consolidated interest coverage ratio, which we were in compliance with as of October 31, 2022.
The amortization expense of the costs incurred related to the Amended and Restated RCA related to the lender and non-lender fees is recognized over the five-year term of the Amended and Restated RCA. Total amortization expense was $0.3 million and $0.5 million for the three and six months ended October 31, 2022, respectively and is included in Interest expense on our Unaudited Condensed Consolidated Statements of Net Income. Total amortization expense was $0.3 million and $0.5 million for the three and six months ended October 31, 2021, respectively and is included in Interest expense on our Unaudited Condensed Consolidated Statements of Net Income.
As of October 31, 2022, we had approximately $464.2 million of unused borrowing capacity under our Amended and Restated RCA and other facilities.
The weighted average interest rates on total debt outstanding during the three and six months ended October 31, 2022 were 3.70% and 3.31%, respectively. The weighted average interest rates on total debt outstanding during the three and six months ended October 31, 2021 were 1.92% and 1.97%, respectively. As of October 31, 2022 and April 30, 2022, the weighted average interest rates for total debt were 3.99% and 2.55%, respectively.
Note 16 — Derivative Instruments and Hedging Activities
From time-to-time, we enter into forward exchange and interest rate swap contracts as a hedge against foreign currency asset and liability commitments, changes in interest rates and anticipated transaction exposures, including intercompany sales and 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
As of October 31, 2022, we had total debt outstanding of $1,003.7 million, net of unamortized issuance costs of $0.3 million of which $1,004.0 million are variable rate loans outstanding under the Amended and Restated RCA, which approximated fair value.
We had outstanding interest rate swap agreements with combined notional amounts of $400.0 million and $500.0 million as of October 31, 2022 and April 30, 2022, respectively. These agreements were accounted for as cash flow hedges which fixed a portion of the variable interest due on our Amended and Restated RCA.
On June 24, 2019, we entered into a forward starting interest rate swap agreement which fixed a portion of the variable interest due on our Amended and Restated RCA. Under the terms of the agreement, which expired on July 15, 2022, we paid a fixed rate of 1.650% and received a variable rate of interest based on one-month LIBOR from the counterparty which was reset every month for a three-year period ending July 15, 2022. Prior to expiration, the notional amount of the interest rate swap was $100.0 million.
On August 7, 2019, we entered into a forward starting interest rate swap agreement which fixed a portion of the variable interest due on our Amended and Restated RCA. Under the terms of the agreement, which expired on August 15, 2022, we paid a fixed rate of 1.400% and received a variable rate of interest based on one-month LIBOR from the counterparty which was reset every month for a three-year period ending August 15, 2022. Prior to expiration, the notional amount of the interest rate swap was $100.0 million.
On June 16, 2022 we entered into a forward starting interest rate swap agreement, which fixed a portion of the variable interest due on our Amended and Restated RCA. Under the terms of the agreement, we pay a fixed rate of 3.500% and receive a variable rate of interest based on one-month LIBOR from the counterparty which is reset every month for a three-year period ending May 15, 2024. As of October 31, 2022, the notional amount of the interest rate swap was $100.0 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 October 31, 2022 was a deferred gain of $12.6 million. Based on the maturity dates of the contracts, $1.3 million of the deferred gain as of October 31, 2022 was recorded within Prepaid expenses and other current assets and $11.3 million of the deferred gain was recorded within Other non-current assets.
The fair value of the interest rate swaps as of April 30, 2022 was a deferred loss of $(0.2) million and a deferred gain of $5.8 million. Based on the maturity dates of the contracts, the entire deferred loss as of April 30, 2022 was recorded within Other accrued liabilities, $0.9 million of the deferred gain was recorded within Prepaid expenses and other current assets, and $4.9 million was recorded within Other non-current assets.
The pretax gains that were reclassified from Accumulated other comprehensive loss into Interest expense for the three and six months ended October 31, 2022 were $0.7 million and $0.3 million, respectively. The pretax (losses) that were reclassified from Accumulated other comprehensive loss into Interest expense for the three and six months ended October 31, 2021 were $(1.1) million and $(2.2) million, respectively.
Foreign Currency Contracts
We may enter into forward exchange contracts to manage our exposure on certain foreign currency denominated assets and liabilities. The forward exchange contracts are marked to market through Foreign exchange transaction gains (losses) on our Unaudited Condensed Consolidated Statements of Net Income and carried at fair value on our Unaudited Condensed Consolidated Statements of Financial Position. Foreign currency denominated assets and liabilities are remeasured at spot rates in effect on the balance sheet date, with the effects of changes in spot rates reported in Foreign exchange transaction gains (losses) on our Unaudited Condensed Consolidated Statements of Net Income.
As of October 31, 2022, and April 30, 2022, we did not maintain any open forward exchange contracts. In addition, we did not maintain any open forward contracts during the six months ended October 31, 2022 and 2021.
Note 17 — Capital Stock and Changes in Capital Accounts
Share Repurchases
The following table summarizes the share repurchases of Class A and Class B Common Stock (shares in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended October 31, | | Six Months Ended October 31, |
| 2022 | | 2021 | | 2022 | | 2021 |
Shares repurchased - Class A | 170 | | | 183 | | | 382 | | | 312 | |
Shares repurchased - Class B | — | | | — | | | — | | | 1 | |
Average Price - Class A and Class B | $ | 44.24 | | | $ | 54.54 | | | $ | 45.84 | | | $ | 55.51 | |
Dividends
The following table summarizes the cash dividends paid during the six months ended October 31, 2022:
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Date of Declaration by Board of Directors | | Quarterly Cash Dividend | | Total Dividend | | Class of Common Stock | | Dividend Paid Date | | Shareholders of Record as of Date |
June 22, 2022 | | $0.3475 per common share | | $19.4 million | | Class A and Class B | | July 20, 2022 | | July 6, 2022 |
September 29, 2022 | | $0.3475 per common share | | $19.3 million | | Class A and Class B | | October 26, 2022 | | October 11, 2022 |
Changes in Common Stock
The following is a summary of changes during the six months ended October 31, in shares of our common stock and common stock in treasury (shares in thousands):
| | | | | | | | | | | |
Changes in Common Stock A: | 2022 | | 2021 |
Number of shares, beginning of year | 70,226 | | 70,208 |
Common stock class conversions | 2 | | 3 |
Number of shares issued, end of period | 70,228 | | 70,211 |
| | | |
Changes in Common Stock A in treasury: | | | |
Number of shares held, beginning of year | 23,515 | | 23,419 |
Purchases of treasury shares | 382 | | 312 |
Restricted shares issued under stock-based compensation plans – non-PSU Awards | (125) | | (129) |
Restricted shares issued under stock-based compensation plans – PSU Awards | (150) | | (108) |
Shares issued under the Director Plan to Directors | (3) | | (2) |
Restricted shares issued from exercise of stock options | — | | (24) |
Shares withheld for taxes | 100 | | 93 |
Number of shares held, end of period | 23,719 | | 23,561 |
Number of Common Stock A outstanding, end of period | 46,509 | | 46,650 |
| | | | | | | | | | | |
Changes in Common Stock B: | 2022 | | 2021 |
Number of shares, beginning of year | 12,956 | | 12,974 |
Common stock class conversions | (2) | | (3) |
Number of shares issued, end of period | 12,954 | | 12,971 |
| | | |
Changes in Common Stock B in treasury: | | | |
Number of shares held, beginning of year | 3,924 | | 3,922 |
Purchase of treasury shares | — | | 1 |
Number of shares held, end of period | 3,924 | | 3,923 |
Number of Common Stock B outstanding, end of period | 9,030 | | 9,048 |
Note 18 — Commitments and Contingencies
We are involved in routine litigation in the ordinary course of our business. A provision for litigation is accrued when information available to us indicates that it is probable a liability has been incurred and the amount of loss can be reasonably estimated. Significant judgment may be required to determine both the probability and estimates of loss. When the amount of the loss can only be estimated within a range, the most likely outcome within that range is accrued. If no amount within the range is a better estimate than any other amount, the minimum amount within the range is accrued. When uncertainties exist related to the probable outcome of litigation and/or the amount or range of loss, we do not record a liability, but disclose facts related to the nature of the contingency and possible losses if management considers the information to be material. Reserves for legal defense costs are recognized when incurred. The accruals for loss contingencies and legal costs are reviewed regularly and may be adjusted to reflect updated information on the status of litigation and advice of legal counsel. In the opinion of management, the ultimate resolution of all pending litigation as of October 31, 2022, will not have a material effect on our consolidated financial condition or results of operations.
Note 19 — Subsequent Events
Segment Realignment:
In the third quarter of fiscal year 2023, we are realigning our segments around our customers to drive impact and improve efficiency. Our new segment reporting structure will consist of three reportable segments which includes Research (no changes), Academic, and Talent, as well as a Corporate category.
The Academic segment will consist of Academic Publishing (which includes Education Publishing and Professional Publishing), and University Services (previously included in the Education Services segment).
The Talent segment will consist of Talent Development, as well as Corporate Training and Corporate Learning, which were both previously included in the Academic & Professional Learning segment.
Amended and Restated Credit Agreement:
On November 30, 2022, Wiley entered into an amendment to its Amended and Restated RCA that provides for senior unsecured credit facilities comprised of (i) five-year credit commitments with the principal amount of $1.315 billion, extended to a maturity date in November 2027, and (ii) $185 million in existing credit commitments to remain through the existing maturity date in May 2024. The agreement contains certain customary affirmative and negative covenants, including a financial covenant in the form of a consolidated net leverage ratio and consolidated interest coverage ratio. We incurred approximately $5 million of costs related to this agreement.