10-K 1 fy16q4-10k.htm FISCAL YEAR 2016 10-K fy16q4-10k.htm
 




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549

FORM 10-K

[x]           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended:  April 30, 2016

OR

[  ]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

For the transition period from to
Commission file number     001-11507


JOHN WILEY & SONS, INC.
(Exact name of Registrant as specified in its charter)


NEW YORK
 
13-5593032
State or other jurisdiction of incorporation or organization
 
I.R.S. Employer Identification No.
     
     
111 River Street, Hoboken, NJ
 
07030
Address of principal executive offices
 
Zip Code
     
     
 
(201) 748-6000
 
 
Registrant’s telephone number including area code
 
     
     
Securities registered pursuant to Section 12(b) of the Act: Title of each class
 
Name of each exchange on which registered
Class A Common Stock, par value $1.00 per share
 
New York Stock Exchange
Class B Common Stock, par value $1.00 per share
 
New York Stock Exchange
     
 
Securities registered pursuant to Section 12(g) of the Act:
 
 
None
 

 
1

 

 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
 
Yes |X|     No |    |
 
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
 
 
Yes |   |     No |X |
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
 
Yes |X|     No |    |
 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
 
Yes |X|     No |    |
 
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |   |
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” ”accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer   |X|       Accelerated filer   |   |       Non-accelerated filer   |   |      Smaller reporting company   |   |
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
 
Yes |    |      No |X|
 
 
The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing price as of the last business day of the registrant’s most recently completed second fiscal quarter, October 31, 2015, was approximately $2,331.2 million.  The registrant has no non-voting common stock.
 
 
The number of shares outstanding of the registrant’s Class A and Class B Common Stock as of May 31, 2016 was 48,109,204 and 9,475,140 respectively.
 
DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for use in connection with its annual meeting of stockholders scheduled to be held on September 22, 2016, are incorporated by reference into Part III of this Form 10-K.
 

 
 
2

 
 
JOHN WILEY AND SONS, INC. AND SUBSIDIARIES
FORM 10-K
FOR THE FISCAL YEAR ENDED APRIL 30, 2016
INDEX


PART I
 
PAGE
ITEM 1.
Business
4
ITEM 1A.
Risk Factors
4-11
ITEM 1B.
Unresolved Staff Comments
11
ITEM 2.
Properties
12
ITEM 3.
Legal Proceedings
13
ITEM 4
Mine Safety Disclosures – Not Applicable
 
     
PART II
   
ITEM 5.
Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
13
ITEM 6.
Selected Financial Data
14
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
15-55
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk
55-58
ITEM 8.
Financial Statements and Supplementary Data
59-98
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
99
ITEM 9A.
Controls and Procedures
99
ITEM 9B.
Other Information
99
     
PART III
   
ITEM 10.
Directors, Executive Officers and Corporate Governance
99-102
ITEM 11.
Executive Compensation
102
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
102-103
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
103
ITEM 14.
Principal Accounting Fees and Services                                                                                                
103
   
 
PART IV
   
ITEM 15.
Exhibits, Financial Statement Schedules and Reports on Form 8-K
104-106
     
SIGNATURES
 
 
 
 
3

 
 
PART I

Item 1.
Business
 
The Company, founded in 1807, was incorporated in the state of New York on January 15, 1904. As used herein the term “Company” means John Wiley & Sons, Inc., and its subsidiaries and affiliated companies, unless the context indicates otherwise.
 
The Company is a global provider of knowledge and knowledge-enabled services that improve outcomes in areas of research, professional practice and education. Through the Research segment, the Company provides digital and print scientific, technical, medical and scholarly journals, reference works, books, database services and advertising. The Professional Development segment provides digital and print books, corporate learning solutions, employment assessment and training services, and test prep and certification. In Education, the Company provides print and digital content, and education solutions including online program management services for higher education institutions and course management tools for instructors and students. The Company takes full advantage of its content from all three businesses in developing and cross-marketing products to its diverse customer base of researchers, professionals, students, and educators. The use of technology enables the Company to make its content efficiently more accessible to its customers around the world. The Company’s operations are primarily located in the United States, Canada, Europe, Asia, and Australia.
 
Further description of the Company’s business is incorporated herein by reference in the Management’s Discussion and Analysis section of this 10-K.
 
Employees
 
As of April 30, 2016, the Company employed approximately 4,700 persons on a full-time equivalent basis worldwide.
 
Financial Information About Business Segments
 
The note entitled “Segment Information” of the Notes to Consolidated Financial Statements and pages 15 through 55 of the Management’s Discussion and Analysis section of this Form 10-K are incorporated herein by reference.
 
Financial Information About Foreign and Domestic Operations and Export Sales
 
The note entitled “Segment Information” of the Notes to Consolidated Financial Statements and pages 15 and 55 of the Management’s Discussion and Analysis section of this Form 10-K are incorporated herein by reference.
 
 
Item 1A.
Risk Factors
 
You should carefully consider all of the information set forth in this Form 10-K, including the following risk factors, before deciding to invest in any of the Company’s securities. The risks below are not the only ones the Company faces. Additional risks not currently known to the Company or that the Company presently deems immaterial may also impair its business operations. The Company’s business, financial condition, results of operations or prospects could be materially adversely affected by any of these risks.
 
 
4

 
 
Cautionary Statement Under the Private Securities Litigation Reform Act of 1995:
 
This Form 10-K for the year ended April 30, 2016 contains certain forward-looking statements concerning the Company’s operations, performance and financial condition. In addition, the Company provides forward-looking statements in other materials released to the public as well as oral forward-looking information. Statements which contain the words anticipate, expect, believes, estimate, project, forecast, plan, outlook, intend and similar expressions constitute forward-looking statements that involve risk and uncertainties. Reliance should not be placed on forward-looking statements, as actual results may differ materially from those in any forward-looking statements.
 
Any such forward-looking statements are based upon a number of assumptions and estimates that are inherently subject to uncertainties and contingencies, many of which are beyond the control of the Company, and are subject to change based on many important factors. Such factors include, but are not limited to (i) the level of investment in new technologies and products; (ii) subscriber renewal rates for the Company’s journals; (iii) the financial stability and liquidity of journal subscription agents; (iv) the consolidation of book wholesalers and retail accounts; (v) the market position and financial stability of key retailers; (vi) the seasonal nature of the Company’s education business and the impact of the used-book market; (vii) worldwide economic and political conditions; (viii) the Company’s ability to protect its copyrights and other intellectual property worldwide; (ix) the ability of the Company to successfully integrate acquired operations and realize expected opportunities and (x) other factors detailed from time to time in the Company’s filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any such forward-looking statements to reflect subsequent events or circumstances.
 
Operating and Administrative Costs and Expenses
 
In general, any significant increase in the costs of goods and services provided to the Company may adversely affect the Company’s costs of operation. The Company has a significant investment in its employee base around the world. The Company offers competitive salaries and benefits in order to attract and retain the highly skilled workforce needed to sustain and develop new products and services required for growth. Employment and benefit costs are affected by competitive market conditions for qualified individuals, and factors such as healthcare and retirement benefit costs. The Company is a large paper purchaser, and paper prices may fluctuate significantly from time-to-time. To reduce the impact of paper price increases, the Company relies upon multiple suppliers. As of April 30, 2016, the Company’s consolidated paper inventory was approximately $4.9 million and there were no outstanding multi-year supply contracts.

Protection of Intellectual Property Rights
 
A substantial portion of the Company’s publications are protected by copyright, held either in the Company’s name, in the name of the author of the work, or in the name of a sponsoring professional society. Such copyrights protect the Company’s exclusive right to publish the work in many countries abroad for specified periods, in most cases the author’s life plus 70 years, but in any event a minimum of 50 years for works published after 1978. The ability of the Company to continue to achieve its expected results depends, in part, upon the Company’s ability to protect its intellectual property rights. The Company’s results may be adversely affected by lack of legal and/or technological protections for its intellectual property in some jurisdictions and markets.
 
 
5

 
 
Maintaining the Company’s Reputation
 
The Company’s professional customers worldwide rely upon many of the Company’s publications to perform their jobs. It is imperative that the Company consistently demonstrates its ability to maintain the integrity of the information included in its publications. Adverse publicity, whether or not valid, may reduce demand for the Company’s publications.
 
Trade Concentration and Credit Risk
 
In the journal publishing business, subscriptions are primarily sourced through journal subscription agents who, acting as agents for library customers, facilitate ordering by consolidating the subscription orders/billings of each subscriber with various publishers. Cash is generally collected in advance from subscribers by the subscription agents and is principally remitted to the Company between the months of December and April. Although at fiscal year-end the Company had minimal credit risk exposure to these agents, future calendar-year subscription receipts from these agents are highly dependent on their financial condition and liquidity. Subscription agents account for approximately 22% of total annual consolidated revenue and no one agent accounts for more than 11% of total annual consolidated revenue.
 
The Company’s non-journal subscription business is not dependent upon a single customer. Although no one non-journal customer accounts for more than 9% of total consolidated revenue and 12% of accounts receivable at April 30, 2016, the top 10 non-journal customers account for approximately 16% of total consolidated revenue and approximately 26% of accounts receivable at April 30, 2016.  The Company maintains approximately $25 million of trade credit insurance, subject to certain limitations, covering balances due from certain named customers which expires in May, 2017.
 
Changes in Laws and Regulations That Could Adversely Affect the Company’s Business
 
The Company maintains operations in Asia, Australia, Canada, Europe and the United States. The conduct of our business, including the sourcing of content, distribution, sales, marketing and advertising is subject to various laws and regulations administered by governments around the world. Changes in laws, regulations or government policies, including tax regulations and accounting standards, may adversely affect the Company’s future financial results.
 
The scientific research publishing industry generates much of its revenue from paid customer subscriptions to online and print journal content. There is debate within government, academic and library communities whether such journal content should be made available for free, immediately or following a period of embargo after publication, referred to as “open access”. For instance, certain governments have implemented mandates that require journal articles derived from government-funded research to be made available to the public at no cost after an embargo period. Open access can be achieved in two ways: Green, which enables authors to publish articles in subscription based journals and self–archive the author accepted version of the article for free public use after an embargo period, and Gold, which enables authors to publish their articles in journals that provide immediate free access to the article on the publisher’s website following payment of an article publication fee. These mandates have the potential to put pressure on subscription-based publications. If such regulations are widely implemented the Company’s operating results could be adversely affected. To date, the majority of governments that have taken a position on Open access have favored the green model and have generally specified embargo periods of twelve months. The publishing community generally takes the view that this period should be sufficient to protect subscription revenues provided that publishers’ platforms offer sufficient added value to the article. Governments in Europe have been more supportive of the gold model, which thus far is generating incremental revenue for publishers with active open access programs. A number of European administrations are showing interest in a business model which combines the purchasing of subscription content with the purchase of open access publishing for authors in their country. This development removes an element of risk by fixing revenues from that market, provided that the terms and price negotiated are acceptable.
 
 
6

 
 
Business Transformation and Restructuring
 
The Company is transforming portions of its business from a traditional publishing model to being a global provider of content-enabled solutions with a focus on digital products and services. The acquisition of Deltak.edu, LLC (“Deltak”), Inscape Holdings, Inc. (“Inscape”), Efficient Learning Systems, Inc. (“ELS”), Profiles International (“Profiles”) and CrossKnowledge Group Limited (“CrossKnowledge”), along with the divestment of the Company’s consumer publishing programs, are examples of strategic initiatives that were implemented as part of the Company’s business transformation. The Company will continue to explore opportunities to develop new business models and enhance the efficiency of its organizational structure. The rapid pace and scope of change increases the risk that not all of our strategic initiatives will deliver the expected benefits within the anticipated timeframes. In addition, these efforts may somewhat disrupt the Company’s business activities which could adversely affect its operating results.
 
The Company continues to restructure and realign its cost base with current and anticipated future market conditions. Significant risks associated with these actions that may impair the Company’s ability to achieve the anticipated cost reductions or that may disrupt its business include delays in the implementation of anticipated workforce reductions in highly regulated locations outside of the U.S.; decreases in employee morale; the failure to meet operational targets due to the loss of key employees; and disruptions of third parties to whom we have outsourced business functions. In addition, the Company’s ability to achieve the anticipated cost savings and other benefits from these actions within the expected timeframe is subject to many estimates and assumptions. These estimates and assumptions are subject to significant economic, competitive and other uncertainties, some of which are beyond our control. If these estimates and assumptions are incorrect, if we experience delays, or if other unforeseen events occur, our business and results of operations could be adversely affected.
 
Outsourcing of Business Processes
 
The Company has outsourced certain business functions, principally in technology, content management and certain transactional functions, to third-party service providers to achieve cost savings and efficiencies. If these third-party service providers do not perform effectively, the Company may not be able to achieve the expected cost savings and depending on the function involved, may experience business disruption or processing inefficiencies, all with potential adverse effects on the Company’s operating results.

 
7

 
 
Introduction of New Technologies, Products and Services
 
The Company must continue to invest in technology and other innovations to adapt and add value to its products and services to remain competitive. There are uncertainties whenever developing new products and services, and it is often possible that such new products and services may not be launched or if launched, may not be profitable or as profitable as existing products and services.
 
A common trend facing each of the Company’s businesses is the digitization of content and proliferation of distribution channels through the internet and other electronic means, which are replacing traditional print formats. The trend to digital content has also created contraction in the print book retail market which increases the risk of bankruptcy for certain retail customers, potentially leading to the disruption of short-term product supply to consumers as well as potential bad debt write-offs.  New distribution channels, such as digital formats, the internet, online retailers and growing delivery platforms (e.g. tablets and e-readers), combined with the concentration of retailer power, present both threats and opportunities to the Company’s traditional publishing models, potentially impacting both sales volumes and pricing. In addition, there is an enhanced risk associated with the illegal unauthorized replication and distribution of digital products.
 
Student Demand for Lower Cost Textbooks in Higher Education
 
The Company’s Education business publishes educational content for undergraduate, graduate and advanced placement students, lifelong learners and in Australia secondary school students. Due to growing student demand for less expensive textbooks, many college bookstores, online retailers and other entities offer used or rental textbooks to students at lower prices than new textbooks. It is uncertain how such sales of lower priced textbooks will impact the Company’s operating results.
 
Factors that Reduce Enrollment at Colleges and Universities
 
Enrollment in U.S. colleges and universities can be adversely affected by many factors, including changes in government and private student loan and grant programs, uncertainty about current and future economic conditions, general decreases in family income and net worth and a perception of uncertain job prospects for recent graduates. In addition, enrollment levels at colleges and universities outside the United States are influenced by the global and local economic climate, local political conditions and other factors that make predicting foreign enrollment levels difficult. Reductions in expected levels of enrollment at colleges and universities both within and outside the United States could adversely affect demand for our higher education products.
 
Information Technology Risks
 
Information technology is a key part of the Company’s business strategy and operations. As a business strategy, Wiley’s technology enables the Company to provide customers with new and enhanced products and services and is critical to the Company’s success in migrating from print to digital business models. Information technology is also a fundamental component of all our business processes; collecting and reporting business data; and communicating internally and externally with customers, suppliers, employees and others.
 
We are continually improving and upgrading our computer systems and software.  We are in the process of implementing a new Enterprise Resource Planning system as part of a multi-year plan to integrate and upgrade our operational and financial systems and processes. The implementation of this global system will occur in phases over the next several years. Implementation of a new enterprise resource planning system involves risks and uncertainties. Any disruptions, delays, or deficiencies in the design or implementation of a new system, could result in increased costs, disruptions in operations or delays in the collection of cash from our customers, as well as have an adverse effect on our ability to timely report our financial results, all of which could materially adversely affect our business, financial condition, and results of operations.
 
 
8

 
 
Information technology system failures, network disruptions and breaches of data security could significantly disrupt the operations of the Company. Management has designed and implemented policies, processes and controls to mitigate risks of information technology failure and to provide security from unauthorized access to our systems. In addition, the Company has in place disaster recovery plans to maintain business continuity.  The size and complexity of our information technology and information security systems, and those of our third-party vendors with whom we contract, make such systems potentially vulnerable to cyber-attacks common to most industries from inadvertent or intentional actions by employees, vendors, or malicious third-parties. Such attacks are of ever-increasing levels of sophistication and are made by groups and individuals with a wide range of motives. While the Company has taken steps to address these risks, there can be no assurance that a system failure, disruption or data security breach would not adversely affect the Company’s business and operating results.
 
Competition for Market Share and Author and Society Relationships
 
The Company operates in highly competitive markets. Success and continued growth depends greatly on developing new products and the means to deliver them in an environment of rapid technological change. Attracting new authors and professional societies, while retaining our existing business relationships, are critical to our success.
 
Interest Rate and Foreign Exchange Risk
 
Non-U.S. revenues, as well as our substantial non-U.S. net assets, expose the Company’s results to foreign currency exchange rate volatility. The percentage of Consolidated Revenue for fiscal year 2016 recognized in the following currencies (on an equivalent U.S. dollar basis) were: approximately 57% U.S dollar; 28% British pound sterling; 8% euro and 7% other currencies. In addition, our interest-bearing loans and borrowings are subject to risk from changes in interest rates. These risks and the measures we have taken to help contain them are discussed in the Market Risk section of this 10-K. The Company from time-to-time uses derivative instruments to hedge such risks. Notwithstanding our efforts to foresee and mitigate the effects of changes in fiscal circumstances, we cannot predict with certainty changes in currency and interest rates, inflation or other related factors affecting our business.
 
Changes in Tax Legislation
 
The Company is subject to tax laws within the jurisdictions in which it does business. Changes in tax legislation could have a material impact on the Company’s financial results. There have been recent proposals to reform U.S. tax laws that would significantly impact how U.S. multinational corporations are taxed on earnings outside of the U.S. This could have a material impact on the Company’s financial results since a substantial portion of the Company’s income is earned outside the U.S. In addition, the Company is subject to audit by tax authorities. Although we believe our tax estimates are reasonable, the final determination of tax audits could be materially different from our historical income tax provisions and accruals and have a material impact on the Company’s net income, cash flow and financial position. See Note 12 (“Tax Audits”) for further details on the Company’s income tax audit in Germany.
 
 
9

 
 
Business Risk in Developing, Emerging and Other Foreign Markets
 
The Company sells its products to customers in the Middle East (including Iran and Syria), Africa (including Sudan), Cuba, and other developing markets where it does not have operating subsidiaries. The Company does not own any assets or liabilities in these markets except for trade receivables. Challenges and uncertainties associated with operating in developing markets has a higher relative risk due to political instability, economic volatility, crime, terrorism, corruption, social and ethnic unrest, and other factors. In fiscal year 2016, the Company recorded revenue and net profits of $3.7 million and $1.0 million, respectively, related to sales to Cuba, Sudan, Syria and Iran. While sales in these markets are not material to the Company’s business results, adverse developments related to the risks associated with these markets may cause actual results to differ from historical and forecasted future operating results.
 
The Company has certain technology development operations in Russia related to software development and architecture, digital content production and system testing services. Due to the political instability within the region, there is the potential for future government embargos and sanctions which could disrupt the Company’s operations in the area. While the Company has developed business continuity plans to address these issues, further adverse developments in the region could have a material impact on the Company’s business and operating results.
 
Approximately 14% of Research journal articles are sourced from authors in China. Any restrictions on exporting intellectual property could adversely affect the company’s business and operating results.
 
Liquidity and Global Economic Conditions
 
Changes in global financial markets have not had, nor do we anticipate they will have, a significant impact on our liquidity. Due to our significant operating cash flow, financial assets, access to capital markets and available lines of credit and revolving credit agreements, we continue to believe that we have the ability to meet our financing needs for the foreseeable future. As market conditions change, we will continue to monitor our liquidity position. However, there can be no assurance that our liquidity or our results of operations will not be affected by possible future changes in global financial markets and global economic conditions. Unprecedented market conditions including illiquid credit markets, volatile equity markets, dramatic fluctuations in foreign currency rates and economic recession could affect future results.
 
Effects of Increases in Pension Costs and Funding Requirements
 
The Company provides defined benefit pension plans for certain employees worldwide. The Company’s Board of Directors approved amendments to the U.S., Canada and U.K. defined benefit plans that froze the future accumulation of benefits effective June 30, 2013, December 31, 2015 and April 30, 2015, respectively. The funding requirements and costs of these plans are dependent upon various factors, including the actual return on plan assets, discount rates, plan participant population demographics and changes in pension regulations. Changes in these factors affect the Company’s plan funding, cash flow and results of operations.
 
 
10

 
 
Effects of Inflation and Cost Increases
 
The Company, from time to time, experiences cost increases reflecting, in part, general inflationary factors. There is no guarantee that the Company can increase selling prices or reduce costs to fully mitigate the effect of inflation on company costs.
 
Ability to Successfully Integrate Key Acquisitions
 
The Company’s growth strategy includes title, imprint and other business acquisitions, including knowledge-enabled services which complement the Company’s existing businesses. Acquisitions may have a substantial impact on the Company’s revenues, costs, cash flows, and financial position. Acquisitions involve risks and uncertainties, including difficulties in integrating acquired operations and in realizing expected opportunities; diversions of management resources and loss of key employees; challenges with respect to operating new businesses; debt incurred in financing such acquisitions; and other unanticipated problems and liabilities.
 
Valuation of Goodwill and Intangible Assets
 
At April 30, 2016, the Company had $951.7 million of goodwill and $877.0 million of intangible assets on its balance sheet. The intangible assets are principally comprised of content and publishing rights, customer relationships, and brands and trademarks. Failure to achieve business objectives and financial projections could result in an asset impairment charge, which would result in a non-cash charge to operating expenses. Goodwill and intangible assets with indefinite lives are tested for impairment on an annual basis and also when events or changes in circumstances indicate that impairment may have occurred. Intangible assets with determinable lives are tested for impairment only when events or changes in circumstances indicate that an impairment may have occurred. Determining whether an impairment exists can be difficult as a result of increased uncertainty and current market dynamics, and requires significant management estimates and judgment. In addition, the potential for goodwill impairment is increased during periods of economic uncertainty. An asset impairment charge could have a material adverse effect on the Company’s business, operating results and financial condition.
 
Attracting and Retaining Key Employees
 
The Company is highly dependent on the continued services of its Chief Executive Officer, Chief Financial Officer and other senior officers and key employees. The loss of the services of skilled personnel for any reason and the Company’s inability to replace them with suitable candidates quickly or at all, as well as any negative market perception resulting from such loss, could have a material adverse effect on the Company’s business, operating results and financial condition.  In addition, we are dependent upon our ability to continue to attract new employees with key skills to support business growth.
 

Item 1B.
Unresolved Staff Comments
 
None
 
 
11

 
 
 
Item 2.      Properties
 
The Company occupies office, warehouse, and distribution facilities in various parts of the world, as listed below (excluding those locations with less than 10,000 square feet of floor area, none of which is considered material property).  All of the buildings and the equipment owned or leased are believed to be in good operating condition and are suitable for the conduct of its business.
 
Location
Purpose
Owned or Leased
Approx. Sq. Ft.
       
United States:
     
       
New Jersey
Corporate Headquarters
Leased
415,000
 
Office & Warehouse
Leased
185,000
       
Indiana
Office
Leased
108,000
       
California
Office
Leased
19,000
       
Massachusetts
Office
Leased
34,000
       
Illinois
Office
Leased
51,000
       
Florida
Office
Leased
49,000
       
Minnesota
Offices
Leased
36,000
       
Texas
Offices
Leased
29,000
       
Colorado
Office
Leased
15,000
       
International:
     
       
Australia
Offices
Leased
59,000
       
Canada
Office
Leased
12,000
       
England
Warehouses
Leased
297,000
 
Offices
Leased
80,000
 
Offices
Owned
70,000
       
Germany
Office
Owned
59,000
 
Office
Leased
24,000
       
Singapore
Offices
Leased
44,000
       
Russia
Office
Leased
21,000
       
India
Warehouse
Leased
16,000
       
China
Office
Leased
14,000
 
 
12

 

Item 3.
Legal Proceedings
 
The Company is involved in routine litigation in the ordinary course of its business. In the opinion of management, the ultimate resolution of all pending litigation will not have a material effect upon the financial condition or results of operations of the Company.
 
Over the past few years, the Company has from time to time faced claims from photographers or agencies that the Company has used photographs without licenses or beyond licensed permissions.  The Company has insurance coverage for a significant portion of such claims.  The Company does not believe that its exposure to such claims either individually or in the aggregate is material.
 
 
PART II

Item 5.
Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
The Company’s Class A and Class B shares are listed on the New York Stock Exchange under the symbols JWa and JWb, respectively. Dividends per share and the market price range (based on daily closing prices) by fiscal quarter for the past two fiscal years were as follows:
 
 
Class A Common Stock
Class B Common Stock
   
Market Price
 
Market Price
 
Dividends
High
Low
Dividends
High
Low
2016
           
First Quarter
 $0.30
 $58.66
 $51.68
 $0.30
 $58.74
 $52.54
Second Quarter
0.30
53.18
48.16
0.30
52.93
48.25
Third Quarter
0.30
54.29
40.29
0.30
53.80
41.25
Fourth Quarter
0.30
50.74
40.21
0.30
50.85
40.18
2015
           
First Quarter
 $0.29
 $62.05
 $54.52
 $0.29
 $61.80
 $54.35
Second Quarter
0.29
60.42
51.45
0.29
61.08
52.04
Third Quarter
0.29
62.85
56.48
0.29
62.75
56.37
Fourth Quarter
0.29
65.21
56.88
0.29
65.10
56.74
 
On a quarterly basis, the Board of Directors considers the payment of cash dividends based upon its review of earnings, the financial position of the Company, and other relevant factors. As of April 30, 2016, the approximate number of holders of the Company’s Class A and Class B Common Stock were 847 and 74 respectively, based on the holders of record.
 
During the fourth quarter of fiscal year 2016, the Company made the following purchases of Class A Common Stock under its stock repurchase program.
 
 
Total Number
of Shares Purchased
 
Average
Price Paid
Per Share
 
Total Number of Shares Purchased as part of a Publicly Announced Program
 
Maximum Number of Shares that May be Purchased Under the Program
February 2016
-
 
-
 
-
 
963,022
March 2016
118,036
 
$47.12
 
118,036
 
845,006
April 2016
98,150
 
$48.00
 
98,150
 
746,836
Total
216,186
 
$47.52
 
216,186
   
 
 
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Item 6.      Selected Financial Data

For the Years Ended April 30,
Dollars in millions (except per share data)
                      2016
                       2015
                      2014
                      2013
                      2012
Revenue
$1,727.0
$1,822.4
$1,775.2
$1,760.8
$1,782.7
Operating Income (a-b)
188.1
237.7
206.7
199.4
280.4
Net Income (a-c)
145.8
176.9
160.5
144.2
212.7
Working Capital (d)
(111.1)
(62.8)
60.1
(32.2)
(66.3)
Deferred Revenue in Working Capital (d)
 (426.5)
 (372.1)
(385.7)
(363.0)
(342.0)
Total Assets
2,921.1
3,004.2
3,077.4
2,806.4
2,532.9
Long-Term Debt
605.0
650.1
700.1
673.0
475.0
Shareholders’ Equity
1,037.1
1,055.0
1,182.2
988.4
1,017.6
Per Share Data
         
Earnings Per Share (a-c)
         
Diluted
$2.48
$2.97
$2.70
$2.39
$3.47
Basic
$2.51
$3.01
$2.73
$2.43
$3.53
Cash Dividends
         
Class A Common
$1.20
$1.16
$1.00
$0.96
$0.80
Class B Common
$1.20
$1.16
$1.00
$0.96
$0.80
 
a)  
In fiscal years 2016, 2015, 2014 and 2013, the Company recorded restructuring charges of $28.6 million ($0.8 per share), $28.8 million ($0.34 per share), $42.7 million ($0.48 per share) and $29.3 million ($0.33 per share), respectively, and related impairment charges in fiscal years 2014 and 2013 of $4.8 million ($0.06 per share) and $30.7 million ($0.35 per share), respectively.
 
b)  
In fiscal year 2013, the Company recorded a gain, net of losses, on the sale of certain Professional Development consumer publishing programs of $6.0 million ($0.04 per share).
 
c)  
Certain tax benefits and charges included in fiscal year results are as follows:
 
·  
Fiscal years 2016, 2014, 2013 and 2012 include tax benefits of $5.9 million ($0.10 per share), $10.6 million ($0.18 per share), $8.4 million ($0.14 per share), and $8.8 million ($0.14 per share), respectively, principally associated with consecutive tax legislation enacted in the United Kingdom that reduced the U.K. corporate income tax rates.
·  
Fiscal year 2015 includes a non-recurring tax benefit of $3.1 million ($0.05 per share) related to tax deductions claimed on the write-up of certain foreign tax assets to fair market value.
·  
Fiscal year 2012 includes a tax benefit of $7.5 million ($0.12 per share) related to the reversal of an income tax reserve recorded in conjunction with the Blackwell acquisition.
 
d)  
The primary driver of the negative working capital is unearned deferred revenue related to subscriptions for which cash has been collected in advance. Cash received in advance for subscriptions is used by the Company for a number of purposes including acquisitions; debt repayments; funding operations; dividend payments; and purchasing treasury shares. The deferred revenue will be recognized in income over the term of the subscription; when the related issue is shipped or made available online, or the service is rendered.
 
 
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Item 7.
Management’s Discussion and Analysis of Business, Financial Condition and Results of Operations
 
The Company is a global provider of knowledge and knowledge-enabled services that improve outcomes in areas of research, professional practice and education. Through the Research segment, the Company provides digital and print scientific, technical, medical and scholarly journals, reference works, books, database services and advertising. The Professional Development segment provides digital and print books, corporate learning solutions, post and pre-employment assessment and training services, and test preparation and certification. In Education, the Company provides print and digital content, and education solutions including online program management services for higher education institutions and course management tools for instructors and students. The Company takes full advantage of its content from all three businesses in developing and cross-marketing products to its diverse customer base of researchers, professionals, students, and educators. The use of technology enables the Company to make its content efficiently more accessible to its customers around the world. The Company’s operations are primarily located in the United States, Canada, Europe, Asia, and Australia.
 
Business growth comes from a combination of organic growth from existing brands and titles; title, imprint and other business acquisitions which complement the Company’s existing businesses; designing and implementing new methods of delivering products to our customers; and the development of new products and services. The Company’s revenue declined at a compound annual rate of 0.2% over the past five years.
 
Core Business Segments
 
Research:
 
The Company’s Research business serves the world’s research and scholarly communities and is the largest publisher for professional and scholarly societies.  Research’s mission is to support researchers, professionals and learners in the discovery and use of research knowledge to help them achieve their goals in research, learning and practice. Research products include scientific, technical, medical and scholarly research journals, books, reference works, databases, clinical decision support tools, laboratory manuals and workflow tools, in the publishing areas of the physical sciences and engineering, health sciences, social science and humanities and life sciences. Research customers include academic, corporate, government, and public libraries; researchers; scientists; clinicians; engineers and technologists; scholarly and professional societies; and students and professors. The Company’s Research products are sold and distributed globally in digital and print formats through multiple channels, including research libraries and library consortia, independent subscription agents, direct sales to professional society members, bookstores, online booksellers and other customers. Publishing centers include Australia, China, Germany, India, the United Kingdom and the United States. Research accounted for approximately 56% of total Company revenue in fiscal year 2016 which declined at a compound annual rate of 1% over the past five years.
 
Research revenue by product type includes: Journal Subscriptions; Author-Funded Access; Other Journal Revenue, which includes publishing service charges for article customization charges, sales of journal licensing rights, journal reprint revenue, backfiles and individual articles. In addition, Print Books; Digital Books; and Other Books and Reference Revenue, which includes, advertising, book licensing rights, distribution services and the sale of protocols.
 
 
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The graph below presents Research revenue by product type for fiscal year 2016 and 2015:
 

Key growth strategies for the Research business include evolving and developing new licensing models for the Company’s institutional customers; developing new funded access revenue streams; focusing resources on high-growth and emerging markets; and developing new digital products, services and workflow solutions to meet the needs of researchers, authors, societies and corporate customers.
 
Approximately 50% of Journal Subscription revenue is derived from publishing rights owned by the Company. Publishing alliances also play a major role in Research’s success. Approximately 50% of Journal Subscription revenue is derived from publication rights which are owned by professional societies and published by the Company pursuant to a long-term contract or owned jointly with a professional society. These society alliances bring mutual benefit, with the societies gaining Wiley’s publishing, marketing, sales and distribution expertise, while Wiley benefits from being affiliated with prestigious societies and their members. The Company publishes the journals of many prestigious societies, including the American Cancer Society, the American Heart Association, the British Journal of Surgery Society, the European Molecular Biology Organization, the American Anthropological Association, the American Geophysical Union and the German Chemical Society.
 
The Company transitioned from issue-based to time-based digital journal subscription agreements for calendar year 2016. Under this new model, the Company provides access to all journal content published within a calendar year and recognizes revenue on a straight-line basis over the calendar year. Under the Company’s 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. The change shifted approximately $37 million of revenue from fiscal year 2016 to the remainder of calendar year 2016 (fiscal year 2017). The change had no impact on free cash flow. The Company made these changes to significantly simplify the contracting and administration of digital journal subscriptions.
 
The Company’s Research business is a provider of content and services in evidence-based medicine (EBM). Through the Company’s alliance with The Cochrane Collaboration, the Company publishes The Cochrane Library, a premier source of high-quality independent evidence to inform healthcare decision-making, which provides the foundation for the Company’s growing suite of EBM products designed to improve patient healthcare. EBM facilitates the effective management of patients through clinical expertise informed by best practice evidence that is derived from medical literature.
 
Wiley Online Library, the online publishing platform for the Company’s Research business, is one of the world’s broadest and deepest multidisciplinary collections of online resources covering life, health and physical sciences, social science and the humanities. Designed with extensive input from scholars around the world, Wiley Online Library delivers seamless integrated access to over 7 million articles from 1,700 journals, 19,000 online books, and hundreds of multi-volume reference works, laboratory protocols and databases. Wiley Online Library provides the user with intuitive navigation, enhanced discoverability, expanded functionality and a range of personalization options. Access to abstracts is free, full content is accessible through licensing agreements or as individual article purchases. Large portions of the content are provided free or at nominal cost to nations in the developing world through partnerships with certain non-profit organizations. Wiley Online Library also provides the Company with revenue growth opportunities through new applications and business models, online advertising, deeper market penetration and individual sales and pay-per-view options.
 
 
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Full content Access on Wiley Online Library is sold through licenses with academic and corporate libraries, consortia and other academic, government and corporate customers. The Company offers a range of licensing options including customized suites of journal publications for individual customer needs as well as subscriptions for individual journal and online book publications. Licenses are typically sold in durations of one to three years. Through the Article Select and PayPerView programs, the Company provides fee-based access to non-subscribed journal content, book chapters and major reference work articles.
 
Wiley Online Library takes advantage of technology to update content frequently and to add new features and resources on an ongoing basis to increase the productivity of scientists, professionals and students. Two examples are EarlyView, through which customers can access individual articles well in advance of print publication, and the Wiley Journals Apps service, which enables users to access articles and related content from over 200 titles on a tablet or other mobile device.
 
Wiley Open Access is the Company’s publishing program for open-access research articles. Under the Wiley Open Access business model, research articles submitted by authors are published in open-access journals. All research articles published in Wiley Open Access journals are freely available to the general public on Wiley Online Library to read, download and share.  A publication service fee is charged upon acceptance of a research article by the Company, which may be paid by the individual author or by the author’s funder or institution. To actively support researchers and members who wish to publish in Wiley Open Access journals, an academic or research institution, society or corporation may fund the fee directly. In return for the service fee, the Company provides its customary publishing, editing, peer review, technology and distribution services. All accepted open-access articles are subject to the same rigorous peer-review process applied to the Company’s subscription based journals which are supported by the Company’s network of prestigious journals and societies. In addition to Wiley Open Access, the Company provides authors with the opportunity to make their individual research articles that were published within the Company’s paid subscription journals freely available to the general public through OnlineOpen on payment of an Article Payment Charge.
 
Professional Development (“PD”):
 
The Company’s Professional Development business acquires, develops and publishes professional information and content delivered through print and digital books, test preparation, assessments, online learning solutions and certification and training services. Communities served include business, finance, accounting, workplace learning, management, leadership, technology, behavioral health, engineering/architecture and education. Professional Development’s mission is to create products and services that help professionals worldwide learn, achieve results, and enhance their skills throughout their careers enabling corporations to maximize their investment in employees, having them become more effective in the workplace. Products are developed in print and digitally for worldwide distribution through multiple channels, including chain and online booksellers, libraries, colleges and universities, corporations, direct to consumer, websites, distributor networks and other online applications. Publishing centers include Australia, Germany, India, the United Kingdom and the United States. Professional Development accounted for approximately 23% of total Company revenue in fiscal year 2016 which declined at a compound annual rate of 1% over the past five years, including the impact of the divested consumer publishing programs in fiscal year 2013 and the acquisitions of Inscape in fiscal year 2012, Efficient Learning Systems, Inc. in fiscal year 2013, Profiles in fiscal year 2014 and CrossKnowledge in fiscal year 2015.
 
 
17

 
 
Professional Development revenue by product type includes Print Books; Digital Books; Online Test Preparation and Certification; Assessments; and Corporate Learning.
 
The graph below presents PD revenue by product type for fiscal year 2016 and 2015:

Key growth strategies for the Professional Development business include: developing and acquiring products and services to drive corporate development and professional career development; developing leading brands and franchises; executing strategic acquisitions and partnerships; innovating digital book formats while expanding their global discoverability and distribution; and creating advertising opportunities on the Company’s branded websites and online applications. Several of the more recent acquisitions that focus on achieving these growth strategies are described in more detail below.
 
In May 2014, the Company acquired CrossKnowledge for approximately $166 million in cash, net of cash acquired. CrossKnowledge is a learning solutions provider focused on leadership and managerial skills development that offers subscription-based, digital learning solutions for global corporations, universities, and small and medium-sized enterprises. CrossKnowledge’s solutions include a variety of managerial and leadership skills assessments, courses, certifications, content and executive training programs that are delivered on a cloud-based LMS platform with over 19,000 learning objects in 17 languages. CrossKnowledge serves over seven million end-users in 80 countries. CrossKnowledge generated revenue of $50.7 million in fiscal year 2016.
 
In April 2014, the Company acquired Profiles International (“Profiles”) for approximately $48 million in cash, net of cash acquired. Profiles provides pre-employment assessment and selection tools that enable employers to optimize candidate selections and develop the full potential of their employees. Solutions include pre-hire assessments, including those designed to measure and match personality, knowledge, skills, managerial fit, loyalty, and values; and post-hire assessments, focused on measuring sales and managerial effectiveness, employee performance and career potential. Profiles serves approximately 4,000 corporate clients and millions of end users in over 120 countries, with assessments available in 32 languages. Profiles generated revenue of $20.3 million in fiscal year 2016.
 
 
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In 2012, the Company acquired Efficient Learning Systems, Inc. (“ELS”) for approximately $24 million in cash, net of cash acquired. ELS is an e-learning system provider focused in the areas of professional finance and accounting.  ELS’ flagship product, CPAExcel, is a modular, digital platform comprised of online self-study, videos, mobile apps, and sophisticated planning tools that has helped over 65,000 professionals prepare for the CPA exam since 1998. The acquisition enhanced Wiley’s position in the growing CPA test preparation market and provided the Company with a scalable platform that can be leveraged globally across other areas of its Professional Development business. In 2013, the Company also acquired Elan Guides for approximately $2.5 million. Elan Guides provides content in multiple formats to help prepare candidates for the CFA examinations. The fiscal year 2016 revenue associated with these businesses was approximately $14.1 million.
 
In 2012, Wiley acquired Inscape Holdings, Inc. (“Inscape”), a leading provider of assessment-based employee training solutions, for approximately $85 million in cash, net of cash acquired. The acquisition combined Wiley’s deep well of valuable content and global reach in leadership and training with Inscape’s talent development content, technology and distribution network, including the innovative EPIC online assessment-delivery platform and an elite global authorized distributor network of over 1,700 independent consultants, trainers, and coaches. Inscape’s solution-focused products are used in thousands of organizations, including major government agencies and Fortune 500 companies. Inscape generated revenue of $29.3 million in fiscal year 2016.
 
Inscape’s solutions-focused DiSC® offerings complement Wiley’s existing offerings, such as Kouzes and Posner’s Leadership Practices Inventory® and The Five Behaviors of a Cohesive TeamTM, in the growing workplace learning industry. The combined assessment offerings increased the Company’s presence in the professional training and development arena. We believe Inscape’s competitive strengths will also advance a number of Professional Development’s major strategic goals. As a workplace learning business with more than 90% of revenue from a proprietary digital platform, Inscape enables Wiley to move more rapidly into digital delivery within the growing workplace learning and assessment market and build a significant market position in the category of leadership development. Inscape also enhanced Wiley’s global presence, serving customers around the world in more than 30 languages each year, with approximately 28% of fiscal year 2016 revenue generated outside the U.S through Inscape’s dedicated global distributor network.
 
Publishing Alliances and Programs:
 
Publishing alliances and franchise products are central to the Company’s strategy. Professional Development alliance partners include Bloomberg Press, the American Institute of Architects, the Leader to Leader Institute, Fisher Investments, the CFA Institute, ACT (American College Test), Autodesk and many others.
 
The Company also promotes an active and growing Professional Development custom publishing program. Custom publications are typically used by organizations for internal promotional or incentive programs. The Company’s custom publications include digital and print books written specifically for a customer and customizations of Professional Development’s existing publications to include custom cover art, such as imprints, messages and slogans. Of special note are customized For Dummies publications, which leverage the power of this well-known brand to meet the specific information needs of a wide range of organizations around the world.
 
Education:
 
The Company’s Education business produces educational content and solutions, including course management tools for instructors and students and online program services for higher education institutions. Education’s mission is to help teachers teach and students learn by delivering personalized content, tools and services that demonstrate results to students, faculty and institutions throughout the world. Education offers learning solutions, innovative products and services principally delivered through college bookstores, online distributors and directly to institutions and more recently direct-to-student, with customers having access to content in digital and custom print formats, as well as the traditional print textbook. Education’s cost-effective, flexible solutions are available in each of its publishing disciplines, including sciences, engineering, computer science, mathematics, business and accounting, statistics, geography, hospitality and the culinary arts, education, psychology and modern languages.
 
 
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Education accounted for approximately 21% of total Company revenue in fiscal year 2016 and generated revenue growth at a compound annual rate of 3% over the past five years, including the acquisition of Deltak in fiscal year 2013.
 
Education revenue by product type includes Print Textbooks; Digital Books; Online Program Management (Deltak); Custom Material; Course Workflow (WileyPLUS), and Other Education revenue which includes revenue from the licensing of publishing content rights and other content adaptions.
 
The graph below presents Education revenue by product type for fiscal year 2016 and 2015:
 
 
The Company continues to transform the Education business from a content publisher to an education solutions provider. Education’s key growth strategies include developing and acquiring digital products and solutions across the educational value chain; continuing the transformation of the business from traditional print products to digital and custom products and services; focusing on institutional relationships and direct-to-student digital products; and developing the Company’s online education services model acquired with Deltak.
 
In 2012, the Company acquired Deltak for approximately $220 million in cash, net of cash acquired. Deltak works in close partnership with leading colleges and universities to develop and support online degree and certificate programs. These new services position the Company as an online education services provider. Wiley now provides a complete solution to help higher education institutions transition their programs into valuable online experiences. Deltak offers market research to validate degree or certification program demand; instructional design; marketing; student recruitment; and retention services. Deltak uses its Engage Learning Management System and Student Relationship Platform to enhance the quality and efficacy of online and hybrid programs. The Company now has access to high-growth markets and a variety of capabilities and technologies for its expansion into custom online courses and curriculum development. The Company leverages its strong reputation and financial stability for new program investment, to accelerate growth globally, to access professional consumers and corporations and to expand content and faculty development offerings. As of April 30, 2016, the Company had 38 partners and 226 degree programs under contract.  Deltak generated revenue of $96.5 million in fiscal year 2016.
 
 
20

 
 
Strategic partnerships and relationships with companies such as Microsoft®, Blackboard, Canvas, Snapwiz and the Culinary Institute of America are an important component of Education’s growth strategy. The ability to join Wiley’s product development, sales, marketing, distribution and technology with a partner’s content, technology and/or brand name has contributed to Education’s success.
 
Education offers high-quality online learning solutions including Course Workflow (WileyPLUS), a research-based, online environment for effective teaching and learning that is integrated with a complete digital textbook. WileyPLUS improves student learning through instant feedback, personalized learning plans, and self-evaluation tools as well as a full range of course-oriented activities, including online planning, presentations, study, homework and testing. In selected courses, WileyPlus includes a personalized adaptive learning component, Orion, which is based on cognitive science. Orion helps to build student proficiency on topics while improving the effectiveness of their study time. It assists educators in identifying areas that need reinforcement and measures student engagement and proficiency throughout the course.
 
Education promotes and supports the customization of its content. Wiley Custom Learning Solutions is a full-service custom publishing program that offers an array of tools and services designed to put creation of customized content in instructors’ hands. Our suite of custom products empowers users to create high-quality, affordable education solutions tailored to meet individual classroom needs. Through Wiley Custom Select, an online custom textbook system, instructors can easily build print and digital materials tailored to their specific course needs and add their own content to create a customized solution derived from any one of the Company’s three business segments.
 
Knowledge-Enabled Products and Services:
 
Journal Products:
 
The Company publishes approximately 1,700 Research and Professional Development journals. Journal Subscription revenue and other related publishing income, such as Author-Funded Access, advertising, backfile sales, the licensing of publishing rights, journal reprints and individual article sales accounted for approximately 48% of the Company’s consolidated fiscal year 2016 revenue. The journal portfolio includes titles owned by the Company, in which case they may or may not be sponsored by a professional society; titles owned jointly with a professional society; and titles owned by professional societies and published by the Company pursuant to long-term contracts.
 
The Company sells journal subscriptions directly through Company sales representatives; indirectly through independent subscription agents; through promotional campaigns; and through memberships in professional societies for those journals that are sponsored by societies. Journal subscriptions are primarily licensed through contracts for digital content delivered through the Company’s online platform, Wiley Online Library. Contracts are negotiated by the Company directly with customers or their subscription agents. Licenses range from one to three years in duration and typically cover calendar years. Print journals are generally mailed to subscribers directly from independent printers. The Company does not own or manage printing facilities. The print journal content is also available online via Wiley Online Library. Subscription revenue is generally collected in advance, and deferred until the Company has fulfilled its obligation to the customer at which time the revenue is earned. The Company transitioned from issue-based to time-based digital journal subscription agreements for calendar year 2016. Under this new model, the Company provides access to all journal content published within a calendar year and recognizes revenue on a straight-line basis over the calendar year. Under the Company’s 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.  The Company made these changes to simplify the contracting and administration of digital journal subscriptions.  Print journal subscription revenue is recognized once the related issue is shipped.
 
 
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Societies that sponsor or own such journals generally receive a royalty and/or other consideration. The Company may procure editorial services from such societies on a pre-negotiated fee basis. The Company also enters into agreements with outside independent editors of journals that define the duties of the editors, and the fees and expenses for their services. Contributors of articles to the Company’s journal portfolio transfer publication rights to the Company or a professional society, as applicable. Journal articles may be based on funded research through government or charitable grants. In certain cases the terms of the grant may require the grant holder to make articles (either the published version or an earlier unedited version) available free of charge to the general public, typically after an embargo period. Funded open access under the Company’s Wiley Open Access and OnlineOpen business models facilitate the ability of the grant holder to comply.
 
Book Products:
 
Book products and other book publishing revenue, such as advertising and the sale of publishing rights, accounted for approximately 41% of the Company’s consolidated fiscal year 2016 revenue.  Materials for book publications are obtained from authors throughout most of the world through the efforts of an editorial staff, outside editorial advisors, and advisory boards. Most materials are originated by the authors themselves or as a result of suggestion or solicitations by editors and advisors. The Company enters into agreements with authors that state the terms and conditions under which the materials will be published, the name in which the copyright will be registered, the basis for any royalties, and other matters. Most of the authors are compensated with royalties, which vary depending on the nature of the product. The Company may make advance payments against future royalties to authors of certain publications. Royalty advances are reviewed for recoverability and a reserve for loss is maintained, if appropriate.
 
The Company continues to add new titles, revise existing titles, and discontinue the sale of others in the normal course of its business, and also creates adaptations of original content for specific markets based on customer demand. The Company’s general practice is to revise its textbooks approximately every three years, if warranted, and to revise other titles as appropriate. Subscription-based products are updated on a more frequent basis.
 
Professional books are sold to bookstores and online booksellers serving the general public; wholesalers who supply such bookstores; warehouse clubs; college bookstores; individual practitioners; and research institutions, libraries (including public, professional, academic, and other special libraries), industrial organizations, and government agencies. The Company employs sales representatives who call upon independent bookstores, national and regional chain bookstores and wholesalers. Sales of professional books also result from direct mail campaigns, telemarketing, online access, advertising and reviews in periodicals. Trade sales are generally made on a returnable basis with certain restrictions. The Company provides for estimated future returns on sales made during the year based on historical return experience and current market trends.
 
Adopted education textbooks and related supplementary material and digital products are sold primarily to bookstores and online booksellers, serving both for-profit, nonprofit educational institutions and direct-to-students. The Company employs sales representatives who call on faculty responsible for selecting books to be used in courses, and on the bookstores that serve such institutions and their students. Textbook sales are generally made on a returnable basis with certain restrictions. The textbook business is seasonal, with the majority of textbook sales occurring during the June through August and November through January periods. There are active used and rental textbook markets, which adversely affect the sale of new textbooks.
 
The Company generally contracts with independent printers and binderies globally for their services. The Company purchases its paper from independent suppliers and printers. The fiscal year 2016 weighted average U.S. paper prices decreased approximately 1% from fiscal year 2015. Approximately 75% of the Company’s paper inventory is held in the United States. Management believes that adequate printing and binding facilities, sources of paper and other required materials are available to it, and that it is not dependent upon any single supplier. Printed book products are distributed from both Company-operated warehouses and independent distributors.
 
 
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The Company develops content in a digital format that can be used for both digital and print products, resulting in productivity and efficiency savings, and enabling print-on-demand delivery. Book content is available online through Wiley Online Library, WileyPLUS, Wiley Custom Select and other proprietary platforms.  Digital books are delivered to intermediaries including Amazon, Apple and Google, for re-sale to individuals in various industry-standard formats, which are now the preferred deliverable for licensees of all types, including foreign language publishers. Digital books are also licensed to libraries through aggregators. Specialized formats for digital textbooks go to distributors servicing the academic market, and digital book collections are sold by subscription through independent third-party aggregators servicing distinct communities. Custom deliverables are provided to corporations, institutions and associations to educate their employees, generate leads for their products, and extend their brands. Content from digital books is also used to create website articles, mobile apps, newsletters and promotional collateral. This continual re-use of content improves margins, speeds delivery and helps satisfy a wide range of customer needs. The Company’s online presence not only enables it to deliver content online, but also to sell more books. The growth of online booksellers benefits the Company because they provide unlimited virtual “shelf space” for the Company’s entire backlist.
 
Marketing and distribution services are made available to other publishers under agency arrangements. The Company also engages in co-publishing titles with international publishers and receives licensing revenue from photocopies, reproductions, translations, and digital uses of its content.
 
Solutions:
 
The Company believes that the demand for learning solutions will continue to increase for the foreseeable future.  In order to meet this demand, the Company is focused on delivering knowledge-enabled services, which improve learning, career development and employment management for its target communities.  With the goal of servicing its customers across the arc of their careers the Company is creating new revenue streams through organic development and acquisition. The acquisitions of Deltak, Inscape, ELS, Profiles and CrossKnowledge have enhanced the Company’s portfolio of knowledge-enabled digital services and provided the Company with new capabilities and expertise, including new channels to market and direct end-user engagement. The Inscape, ELS, Profiles and CrossKnowledge acquisitions highlight the Company’s focus on providing digital content; workflow solutions around professional career development and talent assessment, while the Deltak acquisition positions the Company as an online higher educational solutions provider with a variety of capabilities and technologies for its expansion into custom online course and curriculum development. In addition, Education’s Course Workflow (WileyPLUS) platform improves student learning through instant feedback, personalized learning plans and self-evaluation tools.
 
Corporate Learning:
 
The Corporate Learning (CrossKnowledge) business offers digital learning solutions for global corporations, universities, and small and medium-sized enterprises, which are sold on a subscription or fee basis. CrossKnowledge’s solutions include a variety of managerial and leadership topics such as leadership, diversity, value creation, client orientation, change and corporate strategy, that are delivered on a cloud-based LMS platform with over 19,000 learning objects in 17 languages. Its Mohive offering also provides a collaborative e-learning publishing and program creation system. Revenue growth is derived from legacy markets, such as Europe, Asia and the Nordics, and in newer markets, such as the U.S. and Latin America. In addition, content and LMS offerings are continuously refreshed and expanded to serve a wider variety of customer needs. Corporate Learning revenue was approximately $50.7 million in fiscal year 2016.
 
 
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Assessments:
 
The Inscape and Profiles businesses represent the core of the Company’s professional assessment services. These businesses offer four of the leading assessment brands available in the market today. The offerings are delivered to customers through online digital delivery platforms either directly or through an authorized distributor network of independent consultants, trainers and coaches. The Company’s professional assessment services offer highly flexible packages and modules for its customers that include online pre and post-hire assessments. Revenue for these products and services are deferred until the Company’s obligation has been performed, typically when an online assessment has been completed. Assessment revenue was approximately $57.4 million in fiscal year 2016.
 
Professional Online Test Preparation and Certifications:
 
The Company’s acquisitions of ELS and Elan Guides represent the Company’s professional Online Test Preparation and Certification services. These businesses offer a variety of online learning solutions and training activities that are delivered to customers directly through online digital delivery platforms.  ELS’ flagship product, CPAExcel, is a modular, digital platform comprised of online self-study, videos, mobile apps, and sophisticated planning tools to help professionals prepare for the CPA exam. Elan Guides provides content in multiple formats to help prepare candidates for the Certified Financial Analyst examinations.  Revenue for these products and services are deferred until the Company’s obligation has been performed, typically when an online training program has been completed or over the timeframe covered by a license to use the online training and study materials. PD’s Online Test Preparation and Certification revenue was approximately $28.2 million in fiscal year 2016.
 
Online Program Management (Deltak):
 
As student demand continues to drive higher education institutions to offer online degree and certificate programs, institutions are partnering with online program management businesses to develop and support these programs.  Through the Deltak acquisition, the Company has entered this high-growth market, accelerated its digital learning strategy and diversified the service offerings of its Education business to include both operational and academic solutions for higher education institutions. Through Deltak, the Company acquired capabilities and technologies to expand into custom online course and curriculum development. Deltak services include market research, marketing, student recruitment, enrollment support, proactive retention support, academic services to design courses, faculty support and access to the Deltak Engage Learning Management System.  Deltak’s online program management revenue is derived from pre-negotiated contracts with institutions that provide for a share of tuition generated from students who enroll in programs that Deltak develops and manages for its institutional partners. Online program management revenue is deferred and recognized over the timeframe that each student is enrolled in the online program. As of April 30, 2016 the Company had 38 partners and 226 degree programs under contract. Deltak generated revenue of $96.5 million in fiscal year 2016.
 
Course Workflow (WileyPLUS):
 
Through Education’s WileyPLUS platform, the Company offers an online environment for effective teaching and learning that is fully integrated with a complete digital or print textbook. WileyPLUS improves student learning through instant feedback, personalized learning plans, and self-evaluation tools as well as a full range of course-oriented activities, including online planning, presentations, study, homework and testing.  WileyPLUS revenue is deferred and recognized over the timeframe that each student is enrolled in the online course. WileyPLUS revenue was approximately $58.6 million in fiscal year 2016.
 
 
24

 
 
Advertising Revenue:
 
The Company generates advertising revenue from print and online journal subscription products; its online publishing platform, Wiley Online Library; online events such as webinars and virtual conferences; community interest websites such as spectroscopyNOW.com and websites for the Company’s leading brands like Dummies.com. These revenues accounted for approximately 2% of the Company’s consolidated fiscal year 2016 revenue.
 
Advertisements are sold by company and independent sales representatives to advertising agencies representing the Company’s target customers. Typical customers include worldwide pharmaceutical companies; equipment manufacturers and distributors servicing the pharmaceutical industry; recruiters; and a variety of businesses targeting the Company’s leading brand customers. The Company’s advertising growth strategy focuses on increasing the volume of advertising on its online publishing platform; leveraging the brand recognition of its titles and society partnerships; the development of new advertising products such as online video promotions or event sponsorship arrangements; and advertising in new and emerging technologies such as the mobile devices market (i.e. applications for smartphones and tablets).
 
Global Operations
 
The Company’s publications and services are sold throughout most of the world through operations primarily located in Europe, Canada, Australia, Asia, and the United States. All operations market their indigenous publications, as well as publications produced by other publishing locations of the Company. The Company also markets publications through independent agents as well as independent sales representatives in countries not served by the Company. John Wiley & Sons International Rights, Inc., a wholly owned subsidiary of the Company, sells reprint and translations rights worldwide. The Company publishes or licenses others to publish its products, which are distributed throughout the world in many languages. Approximately 49% of the Company’s consolidated fiscal year 2016 revenue was billed in non-U.S. markets.
 
The global nature of the Company’s business creates an exposure to foreign currency. Each of the Company’s geographic locations sells products worldwide in multiple currencies. The percentage of Consolidated Revenue for fiscal year 2016 recognized in the following currencies (on an equivalent U.S. dollar basis) were: approximately 57% U.S dollar; 28% British pound sterling; 8% euro and 7% other currencies.
 
Competition and Economic Drivers within the Publishing Industry
 
The sectors of the publishing and information services industry in which the Company is engaged are competitive. The principal competitive criteria for the publishing industry are considered to be the following: product quality, customer service, suitability and searchability of format and subject matter, author reputation, price, timely availability of both new titles and revisions of existing books, digital availability of published products, and timely delivery of products to customers.
 
The Company is in the top rank of publishers of research journals worldwide, a leading commercial research chemistry publisher; the leading professional society journal publisher; one of the leading publishers of university and college textbooks and related materials for the “hardside” disciplines, (i.e. sciences, engineering, and mathematics), and a leading publisher in its targeted Professional Development markets. The Company knows of no reliable industry statistics that would enable it to determine its share of the various international markets in which it operates.
 
 
25

 
 
Performance Measurements
 
The Company measures its performance based upon revenue, operating income, earnings per share and cash flow, excluding unusual or one-time events, and considering worldwide and regional economic and market conditions. The Company evaluates market share statistics for publishing programs in each of its businesses.  Research uses various reports to monitor competitor performance and industry financial metrics.  Specifically for Research journal titles, the Thomson Reuters® Journal Citation Reports are used as a key metric of a journal title’s influence in scientific publishing. For Professional Development, the Company evaluates market share statistics periodically published by BOOKSCAN, a statistical clearinghouse for book industry point of sale data in the United States. The statistics include survey data from all major retail outlets, online booksellers, mass merchandisers, small chain and independent retail outlets. For Education, the Company subscribes to Management Practices Inc., which publishes customized comparative sales reports, and also uses industry statistics and reports produced by the Association of American Publishers.
 
Results of Operations
 
Throughout this report, references to variances “excluding foreign exchange”, “currency neutral basis” and “performance basis” exclude both foreign currency translation effects and transactional gains and losses. Foreign currency translation effects are based on the change in average exchange rates for each reporting period multiplied by the current period’s volume of activity in local currency for each non-U.S. location.  For fiscal years 2016 and 2015, the average annual exchange rates to convert British pounds sterling to U.S. dollars were 1.50 and 1.60; the average annual exchange rates to convert euros into U.S. dollars were 1.11 and 1.25, respectively; and the average annual exchange rates to convert Australian dollars into U.S. dollars were 0.74 and 0.86, respectively. Unless otherwise noted, all variance explanations below are on a currency neutral basis.
 
FISCAL YEAR 2016 SUMMARY RESULTS
 
Revenue:
 
Revenue for fiscal year 2016 decreased 5% to $1,727.0 million, or 2% excluding the unfavorable impact of foreign exchange.  The decrease was mainly driven by a decline in print books ($44 million) and the previously announced transition to time-based digital journal subscription agreements for calendar year 2016 ($37 million), partially offset by growth in Online Program Management (Deltak) ($14 million); Corporate Learning (CrossKnowledge) ($13 million); online test preparation and certification ($6 million); new product formats in Education ($6 million); digital books ($4 million) and other ($4 million).
 
As previously announced the Company transitioned from issue-based to time-based digital journal subscription agreements for calendar year 2016. The transition to time-based digital journal subscription agreements shifted approximately $37 million of revenue from fiscal year 2016 to the remainder of calendar year 2016 (fiscal year 2017). The change had no impact on free cash flow. The Company made these changes to simplify the contracting and administration of digital journal subscriptions.
 
Cost of Sales and Gross Profit:
 
Cost of sales for fiscal year 2016 decreased 7% to $465.9 million, or 4% excluding the favorable impact of foreign exchange.  The decrease was mainly driven by lower sales volume ($8 million); cost savings from outsourcing and procurement initiatives and lower cost digital products ($13 million); lower royalty cost due to the transition to time-based digital journal subscription agreements ($5 million) and other ($4 million), mainly lower composition costs, partially offset by higher royalty rates on society owned journals ($5 million); growth in Corporate Learning (CrossKnowledge) ($4 million) and Online Program Management (Deltak) ($2 million).
 
 
26

 
 
Gross profit margin for fiscal year 2016 increased 40 basis points to 73.0% mainly driven by growth in higher margin digital products (70 basis points), partially offset by the impact of transitioning to time-based digital journal subscription agreements.
 
Operating and Administrative Expenses:
 
Operating and administrative expense for fiscal year 2016 decreased 1% to $994.6 million, but increased 2% excluding the favorable impact of foreign exchange.  The increase reflects higher student recruitment costs to support new Online Program Management (Deltak) programs ($14 million); investment in the Company’s Enterprise Resource Planning and related systems ($13 million) and other technology development and maintenance ($17 million); higher employment costs ($13 million), mainly merit increases and higher accrued variable incentive compensation; investments in Corporate Learning (CrossKnowledge) ($11 million); and higher process reengineering consulting ($4 million) and legal costs ($4 million).  Restructuring and other cost savings initiatives ($41 million); synergies from the Talent Solution-Assessment business ($6 million); and lower distribution costs due to lower sales volumes of print books and journals ($2 million) partially offset the cost  increases.
 
Restructuring Charges:
 
Beginning in fiscal year 2013, the Company initiated a program (the “Restructuring and Reinvestment Program”) to restructure and realign its cost base with current and anticipated future market conditions. The Company is targeting a majority of the cost savings achieved to improve margins and earnings, while the remainder will be reinvested in high growth digital business opportunities.
 
In fiscal years 2016 and 2015, the Company recorded pre-tax restructuring charges of $28.6 million ($0.32 per share) and $28.8 million ($0.34 per share), respectively, related to this program. These charges are reflected in Restructuring Charges in the Consolidated Statements of Income and summarized in the following table (in thousands):
 
         
Total Charges
 
2016
 
2015
 
Incurred to Date
Charges by Segment:
         
   Research
$5,048
 
$4,555
 
$20,273
   Professional Development
2,277
 
4,385
 
24,806
   Education
1,206
 
1,571
 
4,786
   Shared Services
20,080
 
18,293
 
74,724
Total Restructuring Charges
$28,611
 
$28,804
 
$124,589
           
Charges by Activity:
         
   Severance
$16,443
 
$17,093
 
$79,204
   Process reengineering consulting
7,191
 
301
 
18,666
   Other activities
4,977
 
11,410
 
26,719
Total Restructuring Charges
$28,611
 
$28,804
 
$124,589
 
Other Activities reflects leased facility consolidations, contract termination costs and the curtailment of certain defined benefit pension plans. The fiscal year 2016 restructuring charges of $28.6 million are expected to be fully recovered within the next 18 months.

 
27

 
 
Amortization of Intangibles:
 
Amortization of intangibles decreased $1.5 million in fiscal year 2016 mainly due to the effect of foreign exchange.
 
Interest Expense/Income, Foreign Exchange and Other:
 
Interest expense for fiscal year 2016 decreased $0.4 million to $16.7 million due to a decrease in the Company’s average borrowing rate from 2.1% to 2.0%, partially offset by higher average debt balances outstanding.  Foreign exchange transaction gains decreased from $1.7 million to $0.5 million in fiscal year 2016.
 
Provision for Income Taxes:
 
The effective tax rate for fiscal year 2016 was 16.6% compared to 21.6% in the prior year.  In fiscal year 2016, the Company recorded non-cash deferred tax benefits of $5.9 million ($0.10 per share), principally associated with new tax legislation enacted in the United Kingdom (“U.K.”) that reduced the future U.K. statutory income tax rates by 2%. The benefits reflect the remeasurement of all applicable U.K. deferred tax balances to the new income tax rates of 19% effective April 1, 2017 and 18% effective April 1, 2020.  In fiscal year 2015, the Company recognized a non-recurring tax benefit of $3.1 million ($0.05 per share) related to tax deductions claimed on the write-up of certain foreign tax assets to fair market value. Excluding the impact of the tax benefits described above, the Company’s effective tax rate decreased from 22.9% to 19.9% principally due to lower foreign tax rates, a tax reserve release and a lower proportion of income from the U.S. at higher tax rates.
 
Earnings Per Share:
 
Earnings per diluted share for fiscal year 2016 decreased $0.49 per share to $2.48 per share, or $0.43 per share excluding the current ($0.32 per share) and prior year ($0.34 per share) restructuring charges, the current year deferred tax benefit on the U.K. rate change ($0.10 per share), the prior year non-recurring tax benefit ($0.05 per share) and the unfavorable impact of foreign exchange ($0.13 per share).  The decline was mainly driven by the transition to time-based digital journal subscription agreements ($0.42 per share); investments in the Company’s Enterprise Resource Planning and related systems, Online Program Management (Deltak) and Corporate Learning (CrossKnowledge), partially offset by restructuring and other cost savings initiatives.
 
BUSINESS SEGMENT RESULTS:
 
As part of Wiley’s Restructuring and Reinvestment Program, the Company consolidated its marketing services functions into a single global shared service function. This newly centralized service group enables significant cost reduction opportunities, including efficiencies gained from standardized technology and centralized management. The costs of these functions were previously reported as direct operating expenses in each business segment but are now reported within Shared Services and Administrative Costs and are allocated to each business segment. In addition, the Company modified its product/service revenue categories for the Research segment. As a result, prior year amounts have been restated to reflect these same reporting methodologies. The Company uses occupied square footage of space; number of employees; units shipped; specific identification/activity-based; gross profit; revenue and number of invoices to allocate shared service costs to each business segment.
 
 
28

 

     
% change
RESEARCH:
2016
2015
% change
w/o FX (a)
Revenue:
       
Journal Revenue:
       
Journal Subscriptions
 $611,403
 $672,218
-9%
-6%
Author-Funded Access
 25,669
 22,388
15%
21%
Licensing, Reprints, Backfiles, and Other
 178,542
 188,326
-5%
0%
Total Journal Revenue
 815,614
 882,932
-8%
-4%
   
 
   
Books and References:
       
Print Books
 90,586
 99,746
-9%
-6%
Digital Books
 44,788
 42,512
5%
9%
Licensing and Other
 14,266
 15,605
-9%
0%
Total Books and References Revenue
 149,640
 157,863
-5%
-1%
 
 
     
Total Revenue
 $965,254
 $1,040,795
-7%
-3%
         
Cost of Sales
 (262,693)
 (275,487)
-5%
-1%
         
Gross Profit
 $702,561
 $765,308
-8%
-4%
Gross Profit Margin
72.8%
73.5%
   
         
Direct Expenses
 (229,666)
 (245,278)
-6%
-2%
Amortization of Intangibles
 (27,546)
 (28,190)
-2%
2%
Restructuring Charges (see Note 6)
 (5,048)
 (4,555)
   
         
Direct Contribution to Profit
 $440,301
 $487,285
-10%
-6%
Direct Contribution Margin
45.6%
46.8%
   
         
Shared Services and Administrative Costs:
       
Distribution and Operation Services
 (39,348)
 (44,620)
-12%
-7%
Technology and Content Management
 (98,442)
 (96,486)
2%
5%
Occupancy and Other
 (29,516)
 (30,405)
-3%
2%
         
Contribution to Profit
 $272,995
 $315,774
-14%
-10%
Contribution Margin
28.3%
30.3%
   
 
(a)  Adjusted to exclude the fiscal year 2016 and 2015 Restructuring Charges
 
Revenue:
 
Research revenue for fiscal year 2016 decreased 7% to $965.3 million, or 3% excluding the unfavorable impact of foreign exchange. As previously announced, the Company transitioned from issue-based to time-based digital journal subscription agreements for calendar year 2016. The change shifted approximately $37 million of revenue from fiscal year 2016 to the remainder of calendar year 2016 (fiscal year 2017). The change had no impact on free cash flow. The Company made these changes to simplify the contracting and administration of digital journal subscriptions. Excluding the impact of the transition to time-based subscriptions and foreign exchange, Research revenue was flat with the prior year.
 
Journal Subscriptions revenue decreased 6% on a currency neutral basis mainly due the impact of moving to time-based digital journal subscriptions ($37 million) and the trailing effects of the Swets bankruptcy ($3 million).  As previously disclosed, Swets Information Services, a global library subscription agent based in Amsterdam, declared bankruptcy in late September 2014. Excluding the impact of transitioning to time-based journal subscription agreements and foreign exchange, Journal Subscription revenue was flat with the prior year.  As of April 30, 2016, calendar year 2016 journal subscription renewals were 1% higher than calendar year 2015 billings on a constant currency basis with approximately 95% of targeted business under contract for the 2016 calendar year.
 
 
29

 
 
Author-Funded Access, which represents article publication fees that provide for free access to articles, grew $3.3 million in fiscal year 2016. Licensing, Reprints, Backfiles and Other revenue of $178.5 million was flat with the prior year on a constant currency basis.
 
On a currency neutral basis, Print Books declined 6% to $90.6 million in fiscal year 2016.  Digital Books grew 9% on a currency neutral basis which was mainly driven by a single $4 million digital book sale in the current year. Licensing and Other revenue of $14.3 million was flat with the prior year on a currency neutral basis.
 
Revenue by Region is as follows:
   
% of
% change
 
2016
2015
Revenue
w/o FX
Revenue by Region:
       
Americas
$370,111
$398,573
38%
-6%
EMEA
540,562
585,693
56%
-3%
Asia-Pacific
54,581
 56,529
6%
7%
Total Revenue
 $965,254
 $1,040,795
100%
-3%
 
Cost of Sales:
 
Cost of Sales for fiscal year 2016 decreased 5% to $262.7 million, or 1% excluding the favorable impact of foreign exchange. The decrease was mainly driven by lower royalty costs due to the transition to time-based digital journal subscription agreements ($5 million) and cost savings from outsourcing and procurement initiatives and lower cost digital products ($4 million), partially offset by higher royalty rates on society owned journals ($5 million) and higher print inventory obsolescence provisions ($1 million).
 
Gross Profit:
 
Gross Profit Margin decreased 70 basis points to 72.8% in fiscal year 2016 mainly due to the impact of transitioning to time-based digital journal subscription agreements.
 
Direct Expenses and Amortization:
 
Direct Expenses for fiscal year 2016 decreased 6% to $229.7 million, or 2% excluding the favorable impact of foreign exchange.  The decrease was mainly driven by the curtailment of a Company defined benefit pension plan ($3 million) and other restructuring savings and cost containment initiatives ($6 million), partially offset by merit increases ($2 million); higher legal and process reengineering consulting fees ($2 million); and higher accrued incentive compensation ($1 million).  Amortization of Intangibles decreased $0.6 million to $27.5 million in fiscal year 2016 mainly due to the favorable impact of foreign exchange.
 
Contribution to Profit:
 
Contribution to Profit for fiscal year 2016 decreased 14% to $273.0 million, or 10% excluding the unfavorable impact of foreign exchange and the current and prior year Restructuring Charges.  The decrease was principally driven by the impact of the transition to time-based journal subscriptions; higher royalty rates on society owned journals; and higher employment costs, partially offset by restructuring and other cost savings from outsourcing and procurement initiatives.  Contribution Margin was 28.3% compared to 30.3% in the prior year period.

 
30

 
 
Society Partnerships
·  
6 new society journals were signed with combined annual revenue of approximately $12 million
·  
87 renewals/extensions were signed with approximately $54 million in combined annual revenue
·  
18 journals were not renewed with combined annual revenue of approximately $11 million
 
Journal Impact Index
 
In July 2015, Wiley announced a strong performance in the number of its journal titles indexed in the Thomson Reuters® 2014 Journal Citation Reports (JCR). A total of 1,200 Wiley titles were indexed, with 24 Wiley journals achieving the top rank in their respective categories and 240 achieving a top 10 ranking. The Thomson Reuters index is a barometer of journal influence across the research community.
 
     
% change
PROFFESIONAL DEVELOPMENT (PD):
2016
2015
% change
w/o FX (a)
Revenue:
       
Knowledge Services:
       
Print Books
 $192,149
 $206,086
-7%
-4%
Digital Books
 47,089
 49,672
-5%
-3%
Online Test Preparation and Certification
 28,169
 22,119
27%
27%
Other Knowledge Service Revenue
 28,813
 30,094
-4%
-2%
 
 296,220
 307,971
-4%
-2%
Talent Solutions:
       
Assessment
 $57,369
 $57,035
1%
1%
Corporate Learning
 50,692
 42,017
21%
31%
 
 108,061
 99,052
9%
14%
         
Total Revenue
 $404,281
 $407,023
-1%
2%
         
Cost of Sales
 (103,652)
 (114,014)
-9%
-7%
         
Gross Profit
 $300,629
 $293,009
3%
6%
Gross Profit Margin
74.4%
72.0%
   
         
Direct Expenses
 (118,638)
 (131,969)
-10%
-7%
Amortization of Intangibles
 (12,691)
 (13,498)
-6%
-3%
Restructuring Charges (see Note 6)
 (2,277)
 (4,385)
   
         
Direct Contribution to Profit
 $167,023
 $143,157
17%
17%
Direct Contribution Margin
41.3%
35.2%
   
         
Shared Services and Administrative Costs:
       
Distribution and Operation Services
 (28,364)
 (30,838)
-8%
-5%
Technology and Content Management
 (40,951)
 (48,002)
-15%
-13%
Occupancy and Other
 (23,160)
 (26,180)
-12%
-8%
         
Contribution to Profit
 $74,548
 $38,137
95%
84%
Contribution Margin
18.4%
9.4%
   
 
(a)  Adjusted to exclude the fiscal year 2016 and 2015 Restructuring Charges
 
Revenue:
 
PD revenue for fiscal year 2016 decreased 1% to $404.3 million, but increased 2% excluding the unfavorable impact of foreign exchange.  The increase on a currency neutral basis was driven by growth in Talent Solutions, and Online Test Preparation and Certification partially offset by a decline in Book Revenue.

 
31

 
 
Knowledge Services revenue decreased 4% to $296.2 million, or 2% excluding the unfavorable impact of foreign exchange.  The decrease was mainly driven by Print ($9 million) and Digital ($2 million) Books and Other Knowledge Services Revenue ($1 million), partially offset by growth in Online Test Preparation and Certification ($6 million).  Print and Digital Books results reflected continued retail softness, particularly in EMEA and Asia, partially offset by lower sales return provisions.  The increase in Online Test Preparation and Certification was driven by new editions of GMAT titles and growth in proprietary sales of the Company’s CPA, CFA and CMA online certification products.  The decline in Other Knowledge Services was driven by lower revenue from the licensing of intellectual content.
 
Talent Solutions revenue increased 9% to $108.1 million, or 14% excluding the unfavorable impact of foreign exchange.  Revenue growth in Corporate Learning came from new customers, including the expansion into the U.S. market, and renewals for existing customers, with France, U.S. and Central and South American markets driving the results. Assessment revenue grew 1% in fiscal year 2016 and was driven by higher post-hire assessment revenue, partially offset by an expected decline in pre-hire assessment revenue following portfolio actions to optimize longer-term profitable growth.
 
Revenue by Region is as follows:
   
% of
% change
 
2016
2015
Revenue
w/o FX
Revenue by Region:
       
Americas
 $291,258
 $288,882
72%
1%
EMEA
92,106
95,613
23%
4%
Asia-Pacific
20,917
22,528
5%
0%
Total Revenue
 $404,281
 $407,023
100%
2%
 
Cost of Sales:
 
Cost of Sales for fiscal year 2016 decreased 9% to $103.7 million, or 7% excluding the favorable impact of foreign exchange.  The decrease was mainly driven by lower cost digital products ($6 million); lower royalty and print inventory obsolescence provisions ($4 million); and lower sales volume ($2 million), partially offset by growth in the Corporate Learning business ($4 million).
 
Gross Profit:
 
Gross Profit Margin increased by 240 basis points to 74.4% in fiscal year 2016.  The improvement was mainly driven by higher margin digital revenue (170 bps) and lower royalty and print inventory obsolescence provisions (70 bps).
 
Direct Expenses and Amortization:
 
Direct Expenses for fiscal year 2016 decreased 10% to $118.6 million, or 7% excluding the favorable impact of foreign exchange. The reduction was driven by restructuring and other cost savings ($18 million) and lower process reengineering consulting fees ($1 million), partially offset by Corporate Learning business growth ($8 million); higher accrued variable incentive compensation ($2 million); and merit increases ($1 million). Amortization of Intangibles decreased $0.8 million to $12.7 million in fiscal year 2016.
 
Contribution to Profit:
 
Contribution to Profit for fiscal year 2016 was $74.5 million compared to $38.1 million in the prior year. The improvement was mainly driven by restructuring and other cost savings, gross margin improvement and reduced technology investment. Contribution Margin for fiscal year 2016 increased from 9.4% to 18.4%.
 
 
32

 
 
Test Preparation Partnership
 
Wiley announced a partnership with ACT, the nation’s leader in college and career readiness, to enhance both organizations’ test prep product offerings and take over as the exclusive publisher for ACT’s The Real ACT® Prep Guide beginning in January 2016.  Maker of the ACT test and ACT WorkKeys®, among other respected assessment programs, ACT (American College Test) is committed to providing insights that help individuals better prepare for success throughout their lives—from education through career.
 
Junior Achievement Program
 
CrossKnowledge and Junior Achievement USA® announced a joint partnership that will bring digital learning solutions to thousands of students and educators.  As part of the agreement, CrossKnowledge has donated the use of its Learning Management System (LMS) to Junior Achievement USA (JA) for the next five years (starting in 2016) through the CrossKnowledge Foundation. This in-kind contribution is one of the largest of its kind in the history of JA. By 2020, we expect that CrossKnowledge programs will reach 1.6 million JA users.
 
CrossKnowledge/L’Oréal platform:
 
CrossKnowledge announced the creation of MySalon-Edu.com, an online platform that focuses on salon education, in conjunction with L’Oréal group. The e-cademy massive online open course (MOOC) was created for professional hairdressers and beauticians.
 
     
% change
EDUCATION:
2016
2015
% change
w/o FX (a)
Revenue:
       
Books:
       
Print Textbooks
 $107,636
 $144,500
-26%
-20%
Digital Books
 34,462
 34,086
1%
5%
 
 142,098
 178,586
-20%
-15%
         
Custom Materials
 51,842
 50,659
2%
2%
         
Course Workflow Solutions (WileyPLUS)
 58,551
 54,200
8%
10%
         
Online Program Management (Deltak)
 96,469
 81,593
18%
18%
         
Other Education Revenue
 8,542
 9,584
-11%
-11%
         
Total Revenue
 $357,502
 $374,622
-5%
-2%
         
Cost of Sales
 (99,573)
 (110,182)
-10%
-8%
         
Gross Profit
 $257,929
 $264,440
-2%
0%
Gross Profit Margin
72.1%
70.6%
   
         
Direct Expenses
 (128,821)
 (125,613)
3%
5%
Amortization of Intangibles
 (9,527)
 (9,527)
0%
0%
Restructuring Charges (see Note 6)
 (1,206)
 (1,571)
 
0%
         
Direct Contribution to Profit
 $118,375
 $127,729
-7%
-3%
Direct Contribution Margin
33.1%
34.1%
   
         
Shared Services and Administrative Costs:
       
Distribution and Operation Services
 (15,207)
 (12,863)
18%
24%
Technology and Content Management
 (51,612)
 (54,272)
-5%
-3%
Occupancy and Other
 (15,688)
 (13,950)
12%
15%
         
Contribution to Profit
 $35,868
 $46,644
-23%
-18%
Contribution Margin
10.0%
12.5%
   
 
(a)  
Adjusted to exclude the fiscal year 2016 and 2015 Restructuring Charges
 
 
33

 
 
Revenue:
 
Education revenue for fiscal year 2016 decreased 5% to $357.5 million, or 2% excluding the unfavorable impact of foreign exchange.  Print Textbooks decreased 20% to $107.6 million due to higher returns; retail channel consolidation; lower enrollments; increased market penetration by rental; and a shift to lower priced alternatives such as Digital Books, Custom Materials and Course Workflow Solutions (WileyPLUS). Digital books increased 5% to $34.5 million, Custom Materials increased 2% to $51.8 million, and Course Workflow Solutions (WileyPLUS) increased 10% to $58.6 million on a currency neutral basis due to new and digital formats. Other Education Revenue decreased 11% to $8.5 million principally due to lower revenue from the licensing of intellectual content.
 
Revenue from Online Program Management (Deltak) grew 18% to $96.5 million reflecting higher enrollments; an increase in institutional partners and programs generating revenue; and growth in fee-for-service agreements. As of April 30, 2016, Deltak had 38 partners and 226 degree programs under contract, compared to 38 partners and 200 programs as of April 30, 2015. As of April 30, 2016, 186 of Deltak’s 226 degree programs were revenue generating.
 
Revenue by Region is as follows:
 
 
% of
% change
 
2016
2015
Revenue
w/o FX
Revenue by Region:
       
Americas
 $295,296
 $300,174
83%
-1%
EMEA
 15,764
 19,265
4%
-15%
Asia-Pacific
 46,442
 55,183
13%
-4%
Total Revenue
 $357,502
 $374,622
100%
-2%
 
Cost of Sales:
 
Cost of Sales for fiscal year 2016 decreased 10% to $99.6 million, or 8% excluding the favorable impact of foreign exchange. The decrease was mainly driven by lower sales volume ($7 million); savings from procurement initiatives and lower cost digital products ($3 million); and lower composition costs ($3 million), partially offset by higher Online Program Management (Deltak) costs due to program growth ($2 million) and higher royalty costs due to mix ($2 million).
 
Gross Profit:
 
Gross Profit Margin for fiscal year 2016 improved 150 basis points to 72.1% principally due higher margin growth from Online Program Management (Deltak) (80 bps) and lower inventory and composition costs.
 
Direct Expenses and Amortization:
 
Direct Expenses increased 3% to $128.8 million, or 5% excluding the favorable impact of foreign exchange.  The increase was mainly driven by student recruitment costs to support new Online Program Management (Deltak) programs ($14 million) and merit increases ($1 million), partially offset by restructuring and other cost savings ($5 million); lower accrued variable incentive compensation ($2 million); and other, mainly lower third-party advertising and promotional expenses ($2 million). Amortization of Intangibles was $9.5 million in fiscal years 2016 and 2015.

 
34

 
 
Contribution to Profit:
 
Contribution to Profit for fiscal year 2016 decreased 23% to $35.9 million, or 18% excluding the current and prior year Restructuring Charges and the unfavorable impact of foreign exchange.  The decline was mainly driven by lower print book revenue; investment in Online Program Management (Deltak) programs; and higher digital fulfillment and marketing support costs, partially offset by restructuring and other cost savings and reduced technology investments. Contribution Margin was 10.0% compared to 12.5% in the prior year.
 
SHARED SERVICES AND ADMINISTRATIVE COSTS:
 
As part of Wiley’s Restructuring and Reinvestment Program, the Company consolidated its marketing services functions into a single global shared service function. This newly centralized service group enables significant cost reduction opportunities, including efficiencies gained from standardized technology and centralized management. The costs of these functions were previously reported as direct operating expenses in each business segment but are now reported within Shared Services and Administrative Costs and are allocated to each business segment. As a result, prior year amounts have been restated to reflect these same reporting methodologies. The Company uses occupied square footage of space; number of employees; units shipped; specific identification/activity-based; gross profit; revenue and number of invoices to allocate shared service costs to each business segment.
 
       
% Change
Dollars in thousands
2016
2015
% Change
w/o FX (a)
Distribution and Operation Services
 $83,109
 $89,024
-7%
-3%
Technology and Content Management
 257,822
 244,850
5%
8%
Finance
 49,798
 52,796
-6%
-2%
Other Administration
 126,777
 115,469
10%
13%
Restructuring Charges (see Note 6)
 20,080
 18,293
   
Total
 $537,586
 $520,432
3%
6%
 
(a)  Adjusted to exclude the fiscal year 2016 and 2015 Restructuring Charges
 
Shared Services and Administrative Costs for fiscal year 2016 increased 3% to $537.6 million, or 6% on a currency neutral basis and excluding the current and prior year Restructuring Charges. Lower Distribution and Operation Services costs mainly reflect lower journal shipping and handling costs ($2 million). Technology and Content Management increased mainly due to incremental investments in the Company’s Enterprise Resource Planning and related systems ($13 million); higher license, maintenance and hosting costs ($11 million); investments in Corporate Learning (CrossKnowledge) and Online Program Management (Deltak) programs ($3 million); and merit increases ($2 million), partially offset by restructuring and other cost savings ($14 million). Finance costs decreased 2% on a currency neutral basis mainly due to restructuring and other cost savings ($1 million). Other Administration costs increased mainly due to higher employment costs ($8 million); higher legal costs ($3 million); Online Program Management (Deltak) program growth ($2 million); and process reengineering consulting costs ($2 million).
 
U.S. Distribution Outsourcing:
 
As part of the Company’s restructuring initiatives, in November 2015, Wiley entered into an agreement to outsource its US-based print textbook fulfillment operations to Cengage Learning, with the aim of creating a more efficient and variable cost model.  As of April 30, 2016 these operations were fully transitioned to Cengage.
 
 
35

 
 
LIQUIDITY AND CAPITAL RESOURCES:
 
The Company’s Cash and Cash Equivalents balance was $363.8 million at the end of fiscal year 2016, compared with $457.4 million a year earlier. Cash Provided by Operating Activities in fiscal year 2016 decreased $5.2 million from fiscal year 2015 to $350.0 million principally due to the timing of vendor and royalty payments ($28 million); higher employee retirement plan contributions ($6 million); and higher royalty advance payments due to higher royalty rates on society owned journals and new society contracts ($5 million), partially offset by lower annual incentive compensation payments ($15 million); lower income tax payments and deposits ($11 million); lower payments related to the Company’s restructuring programs ($2 million); and timing of journal subscription cash collections. The change in deferred revenue was driven by lower non-cash earnings mainly due to the impact of transitioning to time-based digital journal subscription agreements; foreign exchange; and timing of cash collections.
 
Cash Used for Investing Activities in fiscal year 2016 was $151.4 million compared to $279.7 million in the prior year. Fiscal year 2015 includes the acquisition of CrossKnowledge (Corporate Learning) for approximately $166 million in cash, net of cash acquired. The acquisition was funded through the use of the existing credit facilities and available cash and did not have an impact on the Company’s ability to meet other operating, investing and financing needs. Acquisitions in fiscal year 2016 mainly reflect the acquisition of publication rights for society journals. During fiscal year 2015, the Company received $1.1 million of escrow proceeds from the sale of certain consumer publishing assets in fiscal year 2013 which represented the final amounts due to the Company from the sale of those assets.
 
Composition spending was $37.3 million in fiscal year 2016 compared to $39.4 million in the prior year. Cash used for technology, property and equipment was $93.7 million in fiscal year 2016 compared to $69.1 million in the prior year.  The increase mainly reflects incremental investment in the Company’s Enterprise Resource Planning and related systems ($18 million) and other technology infrastructure.
 
Cash Used for Financing Activities was $285.7 million in fiscal year 2016 compared to $61.0 million in the prior year. During fiscal year 2016, net debt repayments were $145.1 million compared to borrowings of $47.7 million in the prior year.  The Company’s net debt (debt less cash and cash equivalents) decreased $51.4 million from the prior year to $241.2 million.
 
On March 1, 2016, the Company amended and extended its existing revolving credit agreement (“RCA”) with a syndicated bank group led by Bank of America. The previous RCA consisted of a $940 million senior revolving credit facility due on November 2, 2016. The new agreement consists of a $1.1 billion five-year senior revolving credit facility payable March 1, 2021. The proceeds of the amended facility will be used for general corporate purposes including seasonal operating cash requirements investments in technology systems and new businesses, and strategic acquisitions. Under the agreement, which can be drawn in multiple currencies, the Company has 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 the Company’s 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 the Company’s 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, the Company pays a facility fee ranging from 0.15% to 0.25% depending on the Company’s consolidated leverage ratio.  The Company also has 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 credit agreement contains certain restrictive covenants related to the Company’s consolidated leverage ratio and interest coverage ratio, which the Company was in compliance with as of April 30, 2016. Due to the fact that there are no principal payments due until the end of the agreement in fiscal year 2021, the Company has classified its entire debt obligation related to this facility as long-term which was approximately $605.0 million as of April 30, 2016. As of April 30, 2015, the entire debt obligation related to the previous facility of approximately $750.1 was classified as long-term.  As part of the amendment, the Company paid $3.4 million in debt financing costs in fiscal year 2016 which were capitalized and included in the Other Assets line item in the Consolidated Statements of Financial Position. The total notional amount of the fixed interest rate swap agreements associated with the Company’s revolving credit facility was $500.0 million as of April 30, 2016.
 
 
36

 
 
On August 6, 2015, the Company amended its December 22, 2014 364-day U.S. dollar revolving credit facility reinstated every 30 days with Santander Bank, N.A. by increasing the facility to $100 million from $50 million.  The additional $50 million was drawn during August and used to repay a portion of the senior revolving credit facility. The facility was equally ranked with the Company’s previous agreement with Bank of America - Merrill Lynch and The Royal Bank of Scotland plc, and TD Bank, N.A. The facility was fully paid on April 29, 2016.  This facility’s termination date was May 23, 2016 and was not renewed.
 
During fiscal year 2016, the Company repurchased 1,432,284 shares of common stock at an average price of $48.86 compared to 1,082,502 shares at an average price of $57.26 in the prior year.  In fiscal year 2016, the Company increased its quarterly dividend to shareholders by 3% to $0.30 per share versus $0.29 per share in the prior year. Lower proceeds from the exercise of stock options mainly reflected lower stock option exercises in fiscal year 2016 compared to the prior year.
 
The Company’s operating cash flow is affected by the seasonality and timing of receipts from its Research journal subscriptions and its Education business. Cash receipts for calendar year Research subscription journals occur primarily from December through April.  Reference is made to the Customer Credit Risk section, which follows, for a description of the impact on the Company as it relates to independent journal agents’ financial position and liquidity. Sales primarily in the U.S. higher education market tend to be concentrated in June through August, and again in November through January. Due to this seasonality, the Company normally requires increased funds for working capital from May through October.
 
Cash and Cash Equivalents held outside the U.S. were approximately $339 million as of April 30, 2016. The balances in equivalent U.S. dollars were comprised primarily of pound sterling ($222 million), euros ($46 million), Singapore dollars ($19 million), U.S. dollars ($18 million), Australian dollars ($14 million), and other ($20 million). Maintenance of these cash and cash equivalent balances outside the U.S. does not have a material impact on the liquidity or capital resources of the Company’s global, including U.S., operations. Cash and cash equivalent balances outside the U.S. may be subject to U.S. taxation, if repatriated. The Company intends to reinvest cash outside the U.S. except in instances where repatriating such earnings would result in no additional income tax.  Accordingly, the Company has not accrued for U.S. income tax on the repatriation of non-U.S. earnings.  It is not practical to determine the U.S. income tax liability that would be payable if such cash and cash equivalents were not indefinitely reinvested.
 
As of April 30, 2016, the Company had approximately $605 million of debt outstanding and approximately $602 million of unused borrowing capacity under its Revolving Credit and other facilities. The Company believes that its operating cash flow, together with its revolving credit facilities and other available debt financing, will be adequate to meet its operating, investing and financing needs in the foreseeable future, although there can be no assurance that continued or increased volatility in the global capital and credit markets will not impair its ability to access these markets on terms commercially acceptable.  The Company does not have any off-balance-sheet debt.
 
 
37

 
 
The Company’s working capital can be negative due to the seasonality of its businesses. The primary driver of the negative working capital is unearned deferred revenue related to subscriptions for which cash has been collected in advance. Cash received in advance for subscriptions is used by the Company for a number of purposes including acquisitions; debt repayments; funding operations; dividend payments; and purchasing treasury shares. The deferred revenue will be recognized as income when the products are shipped or made available online to the customers over the term of the subscription. Current liabilities as of April 30, 2016 include $426.5 million of such deferred subscription revenue for which cash was collected in advance.
 
Projected capital spending for Technology, Property and Equipment and Composition for fiscal year 2017 is forecast to be approximately $115 million and $50 million, respectively. The increase in fiscal year 2017 Technology, Property and Equipment projected spending is mainly driven by investment in new enterprise resource systems to enable future operating efficiency gains and spending to transform the Company’s Hoboken headquarters to enable consolidation and productivity gains. Projected spending for author advances, which is classified as an operating activity, for fiscal year 2017 is forecast to be approximately $110 million.
 
FISCAL YEAR 2015 SUMMARY RESULTS
 
Revenue:
 
Revenue for fiscal year 2015 increased 3% to $1,822.4 million, or 4% excluding the unfavorable impact of foreign exchange. The increase mainly reflects incremental revenue from the recent acquisitions of CrossKnowledge Group, Ltd. (“CrossKnowledge”) ($42 million) and Profiles International (“Profiles”) ($21 million), growth in Education custom products and workflow solutions ($12 million), Education Services (Deltak) ($11 million), the sale of an individually large journal backfile license ($10 million), journal subscriptions ($7 million), funded access revenue ($5 million), growth in online test preparation ($3 million) and other ($9 million), mainly the licensing of research publication content, partially offset by lower print book revenue in all three businesses ($46 million).
 
Cost of Sales and Gross Profit:
 
Cost of sales for fiscal year 2015 decreased 1% to $499.7 million, but was flat excluding the favorable impact of foreign exchange. Cost savings from outsourcing and procurement initiatives ($10 million), lower print volume ($5 million) and lower cost digital products ($5 million) were partially offset by incremental costs from acquisitions ($8 million), higher royalty rates on society owned journals ($5 million), Education Services (Deltak) program growth ($3 million) and higher journal subscription volume ($3 million).
 
Gross profit for fiscal year 2015 of 72.6% was 120 basis points higher than prior year due to cost savings from outsourcing and procurement initiatives and growth in digital products (90 basis points) and incremental revenue from higher margin acquisitions (60 basis points), partially offset by higher royalty rates on society owned journals (30 basis points).
 
Operating and Administrative Expenses:
 
Operating and administrative expenses for fiscal year 2015 increased 4% to $1,005.0 million, or 5% excluding the favorable impact of foreign exchange. The increase was mainly driven by incremental operating and administrative expenses from acquisitions ($54 million), higher technology costs related to investments in internal systems and digital platforms ($18 million) including continued development costs related to the Company’s new global Enterprise Resource Planning (“ERP”) system ($6 million), Education Services (Deltak) program growth ($16 million), other employment costs, principally merit ($3 million); the expiration of a real estate tax incentive related to the Hoboken headquarters ($3 million) and higher editorial costs in Research to support business growth ($2 million), partially offset by restructuring and other cost savings ($39 million) and lower accrued incentive compensation ($12 million).
 
 
38

 
 
Restructuring Charges:
 
In fiscal year 2013, the Company initiated a program (the “Restructuring and Reinvestment Program”) to restructure and realign its cost base with current and anticipated future market conditions. The Company is targeting a majority of the cost savings achieved to improve margins and earnings, while the remainder will be reinvested in high growth digital business opportunities.
 
In fiscal years 2015 and 2014, the Company recorded pre-tax restructuring charges of $28.8 million ($0.34 per share) and $42.7 million ($0.48 per share), respectively, related to this program. These charges are summarized in the following table (in thousands):
 
         
Total Charges
 
2015
 
2014
 
Incurred to Date
Charges by Segment:
         
   Research
$4,555
 
$7,774
 
$15,225
   Professional Development
4,385
 
11,860
 
22,529
   Education
1,571
 
891
 
3,580
   Shared Services
18,293
 
22,197
 
54,644
Total Restructuring Charges
$28,804
 
$42,722
 
$95,978
           
           
Charges by Activity:
         
   Severance
$17,093
 
$25,962
 
$62,761
   Process reengineering consulting
301
 
8,556
 
11,475
   Other activities
11,410
 
8,204
 
21,742
Total Restructuring Charges
$28,804
 
$42,722
 
$95,978
 
Other Activities mainly reflect lease and other contract termination costs. The cumulative charge recorded to-date related to the Restructuring and Reinvestment Program of $96.0 million is expected to be fully recovered by April 30, 2016.
 
Impairment Charges:
 
In fiscal year 2014, the Company terminated a multi-year software development program for an internal operations application due to a change in the Company’s longer-term enterprise systems plans. As a result, the Company recorded an asset impairment charge for previously capitalized software costs related to the program of $4.8 million ($0.06 per share).
 
Amortization of Intangibles:
 
Amortization of intangibles increased $6.5 million to $51.2 million in fiscal year 2015 and was mainly driven by Talent Solutions acquisitions in Professional Development.
 
Interest Expense/Income, Foreign Exchange and Other:
 
Interest expense for fiscal year 2015 increased $3.2 million to $17.1 million. The increase was driven by higher interest rates and higher average debt due to acquisition financing. The Company’s average cost of borrowing in fiscal years 2015 and 2014 was 1.9% and 1.8%, respectively. In fiscal year 2015, the Company recognized foreign exchange transaction gains of $1.7 million mainly related to U.S. dollar intercompany receivables in the U.K. and Germany.
 
 
39

 
 
Provision for Income Taxes:
 
The effective tax rate for fiscal year 2015 was 21.6% compared to 17.9% in the prior year. In the fourth quarter of fiscal year 2015, the Company recognized a non-recurring tax benefit of $3.1 million related to tax deductions claimed on the write up of certain foreign tax assets to fair market value. During fiscal year 2014, the Company recorded non-cash deferred tax benefits of $10.6 million ($0.18 per share), principally associated with new tax legislation enacted in the United Kingdom (“U.K”) that reduced the U.K. statutory income tax rates by 3%. The benefits reflect the measurement of all applicable U.K. deferred tax balances to the new income tax rates of 21% effective April 1, 2014 and 20% effective April 1, 2015. Excluding the impact of the tax benefits described above, the Company’s effective tax rate decreased from 23.3% to 22.9% principally due to higher non-U.S. tax benefits and lower U.K. income tax rates, partially offset by lower net tax reserve releases of $2.0 million.
 
Earnings Per Share:
 
Earnings per diluted share for fiscal year 2015 increased 10% to $2.97 per share. Excluding the impact of the fiscal year 2015 ($0.34 per share) and the fiscal year 2014 ($0.48 per share) restructuring charges, the prior year asset impairment charges ($0.06 per share), fiscal year 2015 ($0.05 per share) and fiscal year 2014 ($0.18 per share) non-recurring tax benefits and the unfavorable impact of foreign exchange ($0.11 per share), earnings per diluted share increased 7%. The growth was mainly driven by company-wide restructuring and other cost savings, higher margin digital revenue and lower accrued incentive compensation, partially offset by the dilutive impacts of investments in CrossKnowledge and Education Services (Deltak) and costs incurred for the development of internal systems and digital platforms.
 
FISCAL YEAR 2015 SEGMENT RESULTS:
 
As part of Wiley’s Restructuring and Reinvestment Program, during the first quarter of fiscal year 2015, the Company consolidated certain decentralized business functions (Content Management, Vendor Procurement Services, Marketing Services, etc.) into Shared Service and Administrative functions. These newly centralized service groups are part of the Company’s plan to reduce costs through efficiencies gained from standardized technology and centralized management. The costs of these functions were previously reported as direct operating expenses in each business segment but are now reported within the shared service functions. Prior year amounts have been restated to reflect the same reporting methodology. The Company uses occupied square footage of space; number of employees; units shipped; specific identification/activity-based; gross profit; revenue and number of invoices to allocate shared service costs to each business segment.
 
 
40

 
 
     
% change
RESEARCH:
2015
2014
% change
w/o FX (a)
Revenue:
       
Journal Revenue:
       
Journal Subscriptions
 $672,218
 $675,266
0%
1%
Author-Funded Access
 22,388
 17,673
27%
29%
Licensing, Reprints, Backfiles, and Other
 188,326
 177,255
6%
9%
Total Journal Revenue
 882,932
 870,194
1%
3%
         
Books and References:
       
Print Books
 99,746
 112,386
-11%
-10%
Digital Books
 42,512
 45,934
-7%
-5%
Licensing and Other
 15,605
 15,835
-1%
2%
Total Books and References Revenue
 157,863
 174,155
-9%
-7%
         
 
 
 
 
 
Total Revenue
 $1,040,795
 $1,044,349
0%
2%
         
Cost of Sales
 (275,487)
 (280,794)
-2%
-1%
         
Gross Profit
 $765,308
 $763,555
0%
2%
Gross Profit Margin
73.5%
73.1%
   
         
Direct Expenses
 (245,278)
 (248,404)
-1%
1%
Amortization of Intangibles
 (28,190)
 (28,188)
0%
0%
Restructuring Charges (see Note 6)
 (4,555)
 (7,774)
 
 
         
Direct Contribution to Profit
 $487,285
 $479,189
2%
3%
Direct Contribution Margin
46.8%
45.9%
   
         
Shared Services and Administrative Costs:
       
Distribution and Operation Services
 (44,620)
 (45,773)
-3%
-1%
Technology and Content Management
 (96,486)
 (99,929)
-3%
-3%
Occupancy and Other
 (30,405)
 (28,491)
7%
9%
         
Contribution to Profit
 $315,774
 $304,996
4%
5%
Contribution Margin
30.3%
29.2%
   
 
(a)  Adjusted to exclude the fiscal year 2015 and 2014 Restructuring Charges
 
Revenue:
 
Research revenue for fiscal year 2015 of $1,040.8 million was flat with the prior year, but increased 2% excluding the unfavorable impact of foreign exchange. The increase was driven by Journal Subscriptions; Licensing, Reprints, Backfiles and Other Journal revenue; and Author-Funded Access, partially offset by declines in Print and Digital Books. Journal Subscription revenue growth was driven by new subscriptions ($4 million), new titles ($2 million) and publication timing ($1 million). As of April 30, 2015, calendar year 2015 journal subscription renewals were up approximately 1% over calendar year 2014 on a constant currency basis with approximately 97% of targeted business closed. Growth in Licensing, Reprints, Backfiles, and Other was mainly driven by the sale of an individually large journal backfile license ($10 million) and journal content rights ($6 million).
 
 
41

 
 
Author-Funded Access revenue, which represents article publication fees that provide for free access to author articles, grew $4.7 million in fiscal year 2015 due to a higher volume of articles published by the Company. Print Books declined 10% to $99.7 million and Digital Books declined 5% to $42.5 million excluding the unfavorable impact of foreign exchange.
 
Revenue by Region is as follows:
   
% of
% change
 
2015
2014
Revenue
w/o FX
Revenue by Region:
       
Americas
$398,573
 $408,001
38%
-2%
EMEA
585,693
 578,099
56%
4%
Asia-Pacific
 56,529
 58,249
6%
3%
Total Revenue
 $1,040,795
 $1,044,349
100%
1%
 
Cost of Sales:
 
Cost of Sales for fiscal year 2015 decreased 2% to $275.5 million, or 1% excluding the favorable impact of foreign exchange. The decrease reflects cost savings from outsourcing and procurement initiatives and lower cost digital products ($10 million), partially offset by higher royalty rates on society owned journals ($5 million) and higher journal volume ($3 million).
 
Gross Profit:
 
Gross Profit Margin for fiscal year 2015 of 73.5% was 40 basis points higher than prior year mainly due to cost savings from outsourcing and procurement initiatives and growth in digital products (110 basis points), including the sale of an individually large digital journal backfile license, partially offset by higher royalty rates on society owned journals (70 basis points).
 
Direct Expenses and Amortization:
 
Direct Expenses for fiscal year 2015 of $245.3 million decreased 1% from the prior year, but increased 1% excluding the favorable impact of foreign exchange. The increase was mainly driven by higher editorial costs to support business growth ($3 million) and higher employment costs ($3 million), partially offset by lower accrued incentive compensation ($3 million). Amortization of Intangibles in fiscal year 2015 of $28.2 million was flat with the prior year.
 
Contribution to Profit:
 
Contribution to Profit for fiscal year 2015 increased 4% to $315.8 million, or 5% excluding the current and prior year Restructuring Charges and the unfavorable impact of foreign exchange.  Revenue growth and cost savings from outsourcing and procurement initiatives were partially offset by higher royalty rates on society owned journals and higher employment costs.  Contribution Margin increased 110 basis points to 30.3% in fiscal year 2015 mainly due to cost savings from outsourcing and procurement initiatives and growth in digital products, partially offset by higher royalty rates on society owned journals.
 
Society Partnerships
·  
9 new society journals were signed with combined annual revenue of approximately $5 million
·  
45 renewals/extensions were signed with approximately $30 million in combined annual revenue
·  
14 journals were not renewed with combined annual revenue of approximately $9 million

 
42

 

Journal Impact Index
 
In July 2014, the Company announced a continued increase in the number of its journal titles indexed in the Thomson Reuters® 2013 Journal Citation Reports (JCR).  A total of 1,202 Wiley titles were indexed, up from 1,193 in the previous year report.  27 Wiley journals achieved the top category rank, up from 25 in the previous year. The Thomson Reuters index is an important barometer of journal influence and impact.
 
     
% change
PROFFESIONAL DEVELOPMENT (PD):
2015
2014
% change
w/o FX (a)
Revenue:
       
Knowledge Services:
       
Print Books
 $206,086
 $229,199
-10%
-9%
Digital Books
 49,672
 53,764
-8%
-7%
Online Test Preparation and Certification
22,119
 17,975
23%
23%
Other Knowledge Service Revenue
 30,094
 29,884
1%
1%
 
 307,971
 330,822
-7%
-6%
Talent Solutions:
       
Assessment
 $57,035
 $33,047
73%
73%
Corporate Learning
 42,017
 -
-
 
 
 99,052
 33,047
200%
200%
         
Total Revenue
 $407,023
 $363,869
12%
13%
         
Cost of Sales
 (114,014)
 (111,911)
2%
3%
         
Gross Profit
 $293,009
 $251,958
16%
17%
Gross Profit Margin
72.0%
69.2%
   
         
Direct Expenses
 (131,969)
 (102,706)
28%
29%
Amortization of Intangibles
 (13,498)
 (6,965)
94%
94%
Restructuring Charges (see Note 6)
 (4,385)
 (11,860)
   
         
Direct Contribution to Profit
 $143,157
 $130,427
10%
8%
Direct Contribution Margin
35.2%
35.8%
   
         
Shared Services and Administrative Costs:
       
Distribution and Operation Services
 (30,838)
 (37,673)
-18%
-17%
Technology and Content Management
 (48,002)
 (50,426)
-5%
-5%
Occupancy and Other
 (26,180)
 (19,712)
33%
33%
         
Contribution to Profit
 $38,137
 $22,616
69%
47%
Contribution Margin
9.4%
6.2%
   
 
(a)  Adjusted to exclude the fiscal year 2015 and 2014 Restructuring Charges
 
Revenue:
 
PD revenue for fiscal year 2015 increased 12% to $407.0 million, or 13% excluding the unfavorable impact of foreign exchange. Revenue includes incremental revenue from the Talent Solutions acquisitions of CrossKnowledge ($42 million) and Profiles ($21 million). Excluding revenue from both acquisitions, revenue decreased 6% on a currency neutral basis as declines in Book sales, exceeded growth in Online Test Preparation and Certification and other Assessment revenue. The decline in Book revenue was mainly driven by slow demand for backlist titles through retail and wholesale accounts and strategically planned reductions in front list titles. Growth in Online Test Preparation and Certification reflects the addition of new products, mainly test preparation for the CFA and CMA exams, to the ELS Excel platform. Growth in Assessment revenue excluding the acquisitions was approximately $3.0 million and driven by new Inscape assessment products and other growth in Workplace Learning Solutions products. Other Knowledge Services revenue, which includes the sale of licensing rights, subscription revenue and advertising and agency revenue, increased 1% to $30.1 million due to growth in licensing revenue.

 
43

 
 
Revenue by Region is as follows:
   
% of
% change
 
2015
2014
Revenue
w/o FX
Revenue by Region:
       
Americas
 $288,882
 $285,376
71%
2%
EMEA
95,613
 54,240
23%
78%
Asia-Pacific
22,528
 24,253
6%
-4%
Total Revenue
 $407,023
 $363,869
100%
13%
 
Cost of Sales:
 
Cost of Sales for fiscal year 2015 increased 2% or 3% excluding the favorable impact of foreign exchange to $114.0 million. The increase was mainly driven by costs from new acquisitions ($8 million), partially offset by lower Print Book volume ($5 million).
 
Gross Profit:
 
Gross Profit Margin increased from 69.2% to 72.0% in fiscal year 2015.  The improvement was mainly driven by higher margin incremental revenue from the CrossKnowledge (150 basis points) and Profiles (140 basis points) acquisitions.
 
Direct Expenses and Amortization:
 
Direct Expenses for fiscal year 2015 increased 28% to $132.0 million, or 29% excluding the favorable impact of foreign exchange. The increase was driven by incremental operating expenses from Talent Solutions acquisitions ($40 million) and content development costs for new assessment products ($1 million), partially offset by restructuring and other cost savings ($12 million).  Amortization of Intangibles increased $6.5 million in fiscal year 2015 principally due to the Talent Solutions acquisitions of CrossKnowledge and Profiles.
 
Contribution to Profit:
 
Contribution to Profit increased 69% to $38.1 million in fiscal year 2015, or 47% on a currency neutral basis and excluding the current and prior year Restructuring Charges. The improvement was mainly driven by restructuring and other cost savings, partially offset by lower Book revenue and the dilutive impact of the CrossKnowledge acquisition.  Contribution Margin increased from 6.2% to 9.4% in fiscal year 2015, or 120 basis points on a currency neutral basis and excluding the Restructuring Charges. The increase was mainly driven by restructuring and other cost savings, partially offset by the dilutive impact of the CrossKnowledge acquisition.
 
Acquisitions
·  
On April 1, 2014, the Company acquired Profiles International (“Profiles”) for approximately $48 million in cash, net of cash acquired. Profiles provides pre-employment assessment and selection tools that enable employers to optimize candidate selections and develop the full potential of their employees. Solutions include pre-hire assessments, including those designed to measure and match personality, knowledge, skills, managerial fit, loyalty, and values; and post-hire assessments, focused on measuring sales and managerial effectiveness, employee performance and career potential. Profiles serves approximately 4,000 corporate clients and millions of end users in over 120 countries, with assessments available in 32 languages. Profiles revenue and operating income for fiscal year 2015 was $23.3 million and $1.0 million, respectively.
 
 
44

 
 
·  
On May 1, 2014, the Company acquired CrossKnowledge Group Limited (“CrossKnowledge”) for approximately $166 million in cash, net of cash acquired. CrossKnowledge is a learning solutions provider focused on leadership and managerial skills development that offers subscription-based, digital learning solutions for global corporations, universities, and small and medium-sized enterprises. CrossKnowledge’s solutions include a variety of managerial and leadership skills assessments, courses, certifications, content and executive training programs that are delivered on a cloud-based LMS platform with over 19,000 learning objects in 17 languages. CrossKnowledge serves over seven million end-users in 80 countries. For the fiscal year ended April 30, 2015, CrossKnowledge’s revenue and operating loss included in Wiley’s results was $42.0 million and $5.1 million, respectively, including $4.6 million of acquisition amortization.
 
Collaborations and Alliances
·  
CrossKnowledge announced an agreement with Gavisus, a Scandinavian-based digital learning and talent development company. CrossKnowledge will provide Gavisus with the technology to plan, design and deliver online leadership training to clients in Norway, Sweden and Denmark.
·  
Wiley announced a strategic collaboration with SilverCloud Health, a global provider of online behavioral and wellness solutions. The partnership, which will provide a comprehensive range of therapeutic programs across behavioral health and long-term chronic disease management, brings together Wiley’s evidence-based psychological and wellness content and SilverCloud Health’s award-winning cloud-based technology platform. The first set of programs, released in 2015, will address Generalized Anxiety Disorder and Diabetes, conditions that affect more than 40 million people in the United States on a daily basis alone.
·  
Wiley has partnered with Chinese Cultural University to distribute the CPAexcel test preparation platform in China.
·  
The Institute of Management Accountants announced a partnership agreement in India with Wiley to offer Wiley’s Certified Management Accountant Exam (CMA) Learning System as part of a full offering that includes live training from Miles Professional Education, a major professional certification course provider in India.
 
 
45

 
 
     
% change
EDUCATION:
2015
2014
% change
w/o FX (a)
Revenue:
       
Books:
       
Print Textbooks
$144,500
$163,152
-11%
-9%
Digital Books
34,086
30,137
13%
15%
 
178,586
193,289
-8%
-6%
         
Custom Materials
50,659
43,556
16%
16%
         
Course Workflow Solutions (WileyPLUS)
54,200
49,459
10%
11%
         
Online Program Management (Deltak)
81,593
70,179
16%
16%
         
Other Education Revenue
9,584
10,494
-9%
-9%
         
Total Revenue
$374,622
$366,977
2%
3%
         
Cost of Sales
(110,182)
(114,174)
-3%
-2%
         
Gross Profit
$264,440
$252,803
5%
6%
Gross Profit Margin
70.6%
68.9%
   
         
Direct Expenses
(125,613)
(118,240)
6%
7%
Amortization of Intangibles
(9,527)
(9,527)
0%
0%
Restructuring Charges (see Note 6)
(1,571)
(891)
   
         
Direct Contribution to Profit
$127,729
$124,145
3%
4%
Direct Contribution Margin
34.1%
33.8%
   
         
Shared Services and Administrative Costs:
       
Distribution and Operation Services
(12,863)
(15,685)
-18%
-16%
Technology and Content Management
(54,272)
(48,097)
13%
13%
Occupancy and Other
(13,950)
(11,769)
19%
19%
         
Contribution to Profit
$46,644
$48,594
-4%
0%
Contribution Margin
12.5%
13.2%
   
 
(a)  
Adjusted to exclude the fiscal year 2015 and 2014 Restructuring Charges
 
Revenue:
 
Education revenue for fiscal year 2015 increased 2% to $374.6 million, or 3% excluding the unfavorable impact of foreign exchange. The growth was mainly driven by Online Program Management (Deltak), Custom Materials, Course Workflow Solutions (WileyPLUS) and Digital Books, partially offset by a decline in Print Textbooks. WileyPLUS revenue, which is earned ratably over the school semester, grew 10% in fiscal year 2015. Unearned deferred WileyPLUS revenue as of April 30, 2015 was $3.8 million. The decline in Print Textbooks reflects student’s preference for Digital Books and Custom Products, a decline in for-profit enrollments and impact from rental book programs.
 
Online Program Management (Deltak) accounted for 22% of total Education revenue in fiscal year 2015 compared to 19% in the prior year.  During the fiscal year, Wiley added 27 net programs and signed the University of Birmingham (UK), Manhattan College (US), University College Cork (Ireland), University of Delaware (US), and the largest partnership to-date, a university-wide agreement with one of America’s most prestigious institutions. As of April 30, 2015, Deltak had 38 partners and 200 degree programs under contract.

 
46

 
 
Revenue by Region is as follows:
 
 
% of
% change
 
2015
2014
Revenue
w/o FX
Revenue by Region:
       
Americas
 $300,174
 $288,329
80%
5%
EMEA
 19,265
 19,334
5%
0%
Asia-Pacific
 55,183
 59,314
15%
-2%
Total Revenue
 $374,622
 $366,977
100%
3%
 
Cost of Sales
 
Cost of Sales for fiscal year 2015 decreased 3% to $110.2 million, or 2% excluding the favorable impact of foreign exchange.  The decrease was mainly driven by lower composition costs from lower cost digital products ($3 million), lower royalty costs due to product mix ($2 million) and lower inventory obsolescence provisions ($1 million), partially offset by higher student recruitment costs in Online Program Management (Deltak) due to growth in new partners and programs ($3 million).
 
Gross Profit:
 
Gross Profit Margin for fiscal year 2015 improved 170 basis points to 70.6% principally due to lower composition costs from lower cost digital products (70 basis points), lower royalty costs due to product mix (60 basis points) and lower inventory obsolescence provisions (40 basis points).
 
Direct Expenses and Amortization:
 
Direct Expenses increased 6% to $125.6 million, or 7% excluding the favorable impact of foreign exchange.  The increase was mainly driven by costs associated with growth in Online Program Management (Deltak) partner programs ($12 million), partially offset by restructuring and other cost savings ($2 million), lower accrued incentive compensation ($1 million) and lower editorial costs due to a reduced title count ($1 million).  Amortization of Intangibles was $9.5 million in fiscal years 2015 and 2014.
 
Contribution to Profit:
 
Contribution to Profit for fiscal year 2015 decreased 4% to $46.6 million, but was flat on a currency neutral basis and excluding the current and prior year Restructuring Charges. Digital revenue growth and cost savings initiatives were partially offset by continued investment in Online Program Management (Deltak) programs.  Contribution Margin decreased 70 basis points to 12.5% in fiscal year 2015, or 40 basis points on a currency neutral basis and excluding the Restructuring Charges. The decline was mainly driven by continued investment in Online Program Management (Deltak) program development, partially offset by higher gross profit margins and restructuring and other cost savings.

 
47

 
 
SHARED SERVICES AND ADMINISTRATIVE COSTS:
 
The following table reflects total shared services and administrative costs by function, which are included in the Operating and Administrative Expenses line item in the Consolidated Statements of Income.  A portion of these costs are allocated to each segment above based on allocation methodologies described in Note 20.
 
       
% Change
Dollars in thousands
2015
2014
% Change
w/o FX (a)
Distribution and Operation Services
$89,024
$100,310
-11%
-10%
Technology and Content Management
244,850
240,797
2%
2%
Finance
52,796
54,191
-3%
-1%
Other Administration
115,469
104,807
10%
12%
Restructuring Charges (see Note 6)
18,293
22,197
-
-
Impairment Charges (see Note 7)
-
4,786
-
-
Total
$520,432
$527,088
-1%
1%
 
(a)  Adjusted to exclude the fiscal year 2015 and 2014 Restructuring and fiscal year 2014 Impairment Charges
 
Shared Services and Administrative Costs for fiscal year 2015 decreased 1% to $520.4 million, but increased 1% on a currency neutral basis and excluding the current and prior year Restructuring Charges and prior year Asset Impairment Charges.
 
Distribution and Operation Services costs decreased mainly due to the outsourcing of certain warehousing ($8 million), lower print volume ($1 million) and lower accrued incentive compensation ($1 million). Technology and Content Management costs increased mainly due to investments in digital platforms and internal systems ($20 million), including approximately $6 million for the continued investment in the Company’s Enterprise Resource Planning System, incremental costs from Talent Solutions acquisitions ($7 million) and investments in new Online Program Management (Deltak) partners and programs ($2 million), partially offset by Content Management restructuring and other cost savings ($18 million) and lower accrued incentive compensation ($4 million). Finance costs decreased mainly due to lower employment costs ($4 million), partially offset by incremental costs from acquisitions ($3 million). Other Administration costs increased mainly due to incremental costs from the CrossKnowledge acquisition ($5 million) and the expiration of a real estate tax incentive related to the Company’s Hoboken headquarters ($3 million).
 
LIQUIDITY AND CAPITAL RESOURCES:
 
The Company’s Cash and Cash Equivalents balance was $457.4 million at the end of fiscal year 2015, compared with $486.4 million a year earlier.  Cash Provided by Operating Activities in fiscal year 2015 increased $6.9 million to $355.1 million principally due to lower income tax payments ($18 million), lower income tax deposits paid to German tax authorities ($7 million), lower employee retirement plan contributions ($6 million) and lower royalty advance payments ($5 million), partially offset by higher annual incentive compensation payments ($20 million), higher payments related to the Company’s restructuring programs ($4 million) and other working capital changes mainly due to timing.
 
Cash Used for Investing Activities in fiscal year 2015 was $279.7 million compared to $149.3 million in the prior year. Fiscal year 2015 includes the acquisition of CrossKnowledge for approximately $166 million in cash, net of cash acquired, while fiscal year 2014 includes the acquisition of Profiles for approximately $48 million, net of cash acquired. The acquisitions were funded through the use of the existing credit facility and available cash and did not have an impact on the Company’s ability to meet other operating, investing and financing needs.  During fiscal years 2015 and 2014, the Company received $1.1 million and $3.3 million of escrow proceeds, respectively, from the sale of certain consumer publishing assets in fiscal year 2013 which represented the final amounts due to the Company from the sale of those assets.
 
 
48

 
 
Composition spending was $39.4 million in fiscal year 2015 compared to $40.6 million in the prior year. The decrease reflects lower spending in Education and Research due to cost reduction efficiencies and lower planned title volume. Cash used for technology, property and equipment was $69.1 million in fiscal year 2015 compared to $57.6 million in the prior year.  The increase mainly reflects Deltak curriculum development costs due to growth in new partners and programs ($5 million), incremental capital spending for CrossKnowledge ($4 million), and capital spending on new leased facilities ($2 million).
 
Cash Used for Financing Activities was $61.0 million in fiscal year 2015 as compared to $53.5 million in the prior year. The Company’s net debt (debt less cash and cash equivalents) increased $78.9 million from the prior year principally to fund the CrossKnowledge acquisition ($166 million). During fiscal year 2015, net debt borrowings were $47.7 million compared to $27.1 million in the prior year.  The total notional amount of the interest rate swap agreements associated with the Company’s revolving credit facilities was $300 million as of April 30, 2015.
 
To take advantage of more favorable interest rates available in the current market, on December 22, 2014, the Company entered into a $50 million 364-day U.S. dollar revolving credit facility reinstated every 30 days with Santander Bank, N.A. which is equally ranked with the Company’s existing agreement with Bank of America - Merrill Lynch and The Royal Bank of Scotland plc, and TD Bank, N.A.. The facility was fully drawn as of April 30, 2015. The borrowing rate is LIBOR plus a margin of 1.00%. The proceeds of the revolving credit facility were used to pay a portion of the Company’s existing revolving credit facilities and meet seasonal operating cash requirements.
 
On October 31, 2014, the Company entered into a U.S. dollar facility with TD Bank, N.A. which is equally ranked with the Company’s existing agreement with Bank of America - Merrill Lynch and The Royal Bank of Scotland plc, and Santander Bank. The new agreement consists of a $50 million 364-day revolving credit facility. The facility was fully drawn as of April 30, 2015. The borrowing rate is LIBOR plus an applicable margin ranging from 0.80% to 1.40%, and a facility fee will be due on any undrawn amounts ranging from 0.125% to 0.30%, both depending on the Company consolidated leverage ratio, as defined. The credit agreement contains certain restrictive covenants related to the Company’s consolidated leverage ratio and interest coverage ratio, which the Company was in compliance with as of April 30, 2015. The proceeds of the new revolving credit facility were used to pay a portion of the Company’s existing revolving credit facility and meet seasonal operating cash requirements.
 
During fiscal year 2015, the Company repurchased 1,082,502 shares of common stock at an average price of $57.26 compared to 1,248,030 shares at an average price of $50.79 in the prior year.  In fiscal year 2015, the Company increased its quarterly dividend to shareholders by 16% to $0.29 per share versus $0.25 per share in the prior year. Lower proceeds from the exercise of stock options reflect a lower volume of stock option exercises in fiscal year 2015 compared to the prior year.
 
The Company’s operating cash flow is affected by the seasonality and timing of receipts from its Research journal subscriptions and its Education business. Cash receipts for calendar year Research subscription journals occur primarily from December through April.  Reference is made to the Customer Credit Risk section, which follows, for a description of the impact on the Company as it relates to independent journal agents’ financial position and liquidity. Sales primarily in the U.S. higher education market tend to be concentrated in June through August, and again in November through January. Due to this seasonality, the Company normally requires increased funds for working capital from May through October.
 
 
49

 
 
Cash and Cash Equivalents held outside the U.S. were approximately $411.6 million as of April 30, 2015. The balances in equivalent U.S. dollars were comprised primarily of pound sterling ($256 million), euros ($73 million), Australian dollars ($45 million), Singapore dollars ($34 million) and other ($4 million). Maintenance of these cash and cash equivalent balances outside the U.S. does not have a material impact on the liquidity or capital resources of the Company’s global, including U.S., operations. Cash and cash equivalent balances outside the U.S. may be subject to U.S. taxation, if repatriated. The Company intends to reinvest cash outside the U.S. except in instances where repatriating such earnings would result in no additional income tax.  Accordingly, the Company has not accrued for U.S. income tax on the repatriation of non-U.S. earnings.  It is not practical to determine the U.S. income tax liability that would be payable if such cash and cash equivalents were not indefinitely reinvested.
 
As of April 30, 2015, the Company had approximately $750.1 million of debt outstanding and approximately $302.9 million of unused borrowing capacity under its Revolving Credit and other facilities. The Company believes that its operating cash flow, together with its revolving credit facilities and other available debt financing, will be adequate to meet its operating, investing and financing needs in the foreseeable future, although there can be no assurance that continued or increased volatility in the global capital and credit markets will not impair its ability to access these markets on terms commercially acceptable.  The Company does not have any off-balance-sheet debt.
 
The Company’s working capital can be negative due to the seasonality of its businesses. The primary driver of the negative working capital is unearned deferred revenue related to subscriptions for which cash has been collected in advance. Cash received in advance for subscriptions is used by the Company for a number of purposes including acquisitions; debt repayments; funding operations; dividend payments; and purchasing treasury shares. The deferred revenue will be recognized as income when the products are shipped or made available online to the customers over the term of the subscription. Current liabilities as of April 30, 2015 include $372.1 million of such deferred subscription revenue for which cash was collected in advance.
 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
 
The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements, and reported amounts of revenue and expenses during the reporting period. Management continually evaluates the basis for its estimates. Actual results could differ from those estimates, which could affect the reported results. Note 2 of the “Notes to Consolidated Financial Statements” includes a summary of the significant accounting policies and methods used in preparation of our Consolidated Financial Statements. Set forth below is a discussion of the Company’s more critical accounting policies and methods.
 
Revenue Recognition: The Company recognizes 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 are generally collected in advance are deferred and recognized as earned over the term of the subscription; when the related issue is shipped; 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 the Company.
 
 
50

 
 
The Company transitioned from issue-based to time-based digital journal subscription agreements for calendar year 2016. Under this new contractual agreement, the Company provides access to all journal content published within a calendar year and recognizes revenue on a straight-line basis over the calendar year. Under the Company’s 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. The Company made these changes to simplify the contracting and administration of digital journal subscriptions.
 
When a product is sold with multiple deliverables, the Company accounts 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 the Company when it is sold separately. The Company’s multiple deliverable arrangements principally include WileyPLUS, the online course management tool for the Company’s Education business which 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 the Company’s Research business; and test preparation, assessment, certification and training services sold by the Professional Development business which can include bundles of print and digital content and online workflow solutions.
 
The Company enters into contracts for the resale of its content through a third party where the Company is not the primary obligor of the arrangement because it is not responsible for fulfilling the customer’s order;  handling customer requests or claims and/or maintains credit risk. The Company recognizes revenue for the sale of its content, net of any commission owed to the third party seller or taxes which are remitted to government authorities.
 
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 in the Consolidated Statements of Financial Position and amounted to $7.3 million and $8.3 million as of April 30, 2016 and 2015, respectively.
 
Sales Return Reserve:  The estimated allowance for sales returns is based on a review of the historical return patterns, as well as current market trends in the businesses in which we operate. Associated with the estimated sales return reserves, the Company also includes a related reduction in inventory and royalty costs as a result of the expected returns. Net print book sales return reserves amounted to $19.9 million and $25.3 million as of April 30, 2016 and 2015, respectively. The reserves are reflected in the following accounts of the Consolidated Statements of Financial Position – increase (decrease):
 
2016
2015
Accounts Receivable
$(29,447)
$(37,300)
Inventories
4,924
6,555
Accounts and Royalties Payable
(4,662)
(5,405)
Decrease in Net Assets
$(19,861)
$(25,340)
 
A one percent change in the estimated sales return rate could affect net income by approximately $2.0 million. A change in the pattern or trends in returns could affect the estimated allowance.
 
 
51

 
 
Reserve for Inventory Obsolescence: Inventories are carried at the lower of cost or market. 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. A change in sales trends could affect the estimated reserve. The inventory obsolescence reserve is reported as a reduction of the Inventories balance in the Consolidated Statements of Financial Position and amounted to $22.0 million and $21.9 million as of April 30, 2016 and 2015, respectively.
 
Allocation of Acquisition Purchase Price to Assets Acquired and Liabilities Assumed: In connection with acquisitions, the Company allocates 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 expected tax basis of assets acquired. The Company may use a third party valuation consultant to assist in the determination of such estimates.
 
Goodwill and Indefinite-lived Intangible Assets: Goodwill is the excess of the purchase price paid over the fair value of the net assets of the business acquired.  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. Goodwill and indefinite-lived intangible assets are not amortized but are reviewed annually for impairment, or more frequently if events or changes in circumstances indicate the asset might be impaired. The Company evaluates the recoverability of indefinite-lived intangible assets by comparing the fair value of the intangible asset to its carrying value.
 
To evaluate the recoverability of goodwill, the Company primarily uses a two-step impairment test approach at the reporting unit level. In the first step, the estimated fair value of the entire reporting unit is compared to its carrying value including goodwill. If the fair value of the reporting unit is less than the carrying value, a second step is performed to determine the charge for goodwill impairment. In the second step, the Company determines an implied fair value of the reporting unit’s goodwill by determining the fair value of the individual assets and liabilities (including any previously unrecognized intangible assets) of the reporting unit other than goodwill. The resulting implied fair value of the goodwill is compared to the carrying amount and an impairment charge is recognized for the difference.
 
In certain circumstances, the Company uses a qualitative assessment as an alternative to the two-step test approach. Under this approach certain market, industry and financial performance factors are considered to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If that is the case, the two-step approach described above is then performed to evaluate the recoverability of goodwill.
 
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 life of these intangibles is 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 5 to 40 years. Non-compete agreements are amortized over the terms of the individual agreement, generally up to 5 years.
 
 
52

 
 
Intangible assets with finite lives are amortized on a straight line basis over the following weighted average estimated useful lives: content and publishing rights – 31 years; customer relationships – 20 years; brands and trademarks – 13 years; non-compete agreements – 4 years.
 
Assets with finite lives are only 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.
 
Share-Based Compensation: The Company recognizes share-based compensation expense based on the fair value of the share-based awards on the grant date, reduced by an estimate of future forfeited awards.  As such, share-based compensation expense is only recognized for those awards that are expected to ultimately vest. The fair value of share-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 requires the Company to make significant judgments and estimates, which include the expected life of an option, the expected volatility of the Company’s Common Stock over the estimated life of the option, a risk-free interest rate and the expected dividend yield. Judgment is also required in estimating the amount of share-based awards that may be forfeited. Share-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, the Company’s share-based compensation expense and results of operations could be impacted.
 
Retirement Plans: The Company provides defined benefit pension plans for certain employees worldwide. The Company’s Board of Directors approved amendments to the U.S., Canada and U.K. defined benefit plans that froze the future accumulation of benefits effective June 30, 2013, December 31, 2015 and April 30, 2015, respectively. Under the amendments, no new employees will be permitted to enter these plans and no additional benefits for current participants for future services will be accrued after the effective dates of the amendments.
 
The accounting for benefit plans is highly dependent on assumptions concerning the outcome of future events and circumstances, including compensation increases, long-term return rates on pension plan assets, healthcare cost trends, discount rates and other factors. In determining such assumptions, the Company consults with outside actuaries and other advisors. The discount rates for the U.S., United Kingdom and Canadian pension plans are based on the derivation of a single-equivalent discount rate using a standard spot rate curve and the timing of expected payments as of the balance sheet date. The spot rate curve is based upon a portfolio of Moody’s-rated Aa3 (or higher) corporate bonds. The discount rates for other non-U.S. plans are based on similar published indices with durations comparable to that of each plan’s liabilities. The expected long-term rates of return on pension plan assets are estimated using market benchmarks for equities, real estate and bonds applied to each plan’s target asset allocation and are estimated by asset class including an anticipated inflation rate. The expected long-term rates are then compared to the historic investment performance of the plan assets as well as future expectations and estimated through consultation with investment advisors and actuaries. Salary growth and healthcare cost trend assumptions are based on the Company’s historical experience and future outlook. While the Company believes that the assumptions used in these calculations are reasonable, differences in actual experience or changes in assumptions could materially affect the expense and liabilities related to the defined benefit pension plans of the Company. A hypothetical one percent increase in the discount rate would impact net income and the accrued pension liability by approximately $1.5 million and $143.3 million, respectively. A one percent decrease in the discount rate would impact net income and the accrued pension liability by approximately $1.2 million and $178.6 million, respectively. A one percent change in the expected long term rate of return would affect net income by approximately $3.7 million.
 
 
53

 
 
Recently Issued Accounting Standards:
 
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 GAAP). The standard is effective for the company on May 1, 2017, with early adoption permitted. The Company is currently assessing the impact the new guidance will have on its consolidated financial statements.
 
In February 2016, the FASB issued ASU 2016-02 "Leases (Topic 842)”.  ASU 2016-02 requires lessees to recognize most leases on the balance sheet which will result in an increase in reported assets and liabilities. The recognition of expenses within the income statement is consistent with the existing lease accounting standards. There are no significant changes in the new standard for lessors under operating leases. The standard is effective for the Company on May 1, 2019 with early adoption permitted. Adoption requires application of the new guidance for all periods presented.  The Company is currently assessing the impact the new guidance will have on its consolidated financial statements.
 
In November 2015, the FASB issued ASU 2015-17 “Income Taxes- Balance Sheet Classification of Deferred Taxes”. To simplify the presentation of deferred income taxes, the amendments in this update require that all deferred tax liabilities and assets, including those previously classified as current, be classified as noncurrent in a classified statement of financial position. The amendments in this Update will align the presentation of deferred income tax assets and liabilities with IFRS. The standard is effective for the company May 1, 2017 with early adoption permitted. The Company is currently assessing the impact the new guidance will have on its consolidated financial statements.
 
In April 2015, the FASB issued ASU 2015-05 "Intangibles- Goodwill and Other- Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in Cloud Computing Arrangements" (“ASU 2015-05”). Cloud computing arrangements represent the delivery of hosted services over the internet which includes software, platforms, infrastructure and other hosting arrangements. The ASU provides criteria to determine whether the cloud computing arrangement includes a software license. A software license can include customized development, maintenance, hosting and other related costs. If the criteria are met, the customer will capitalize the fee attributable to the software license portion of the arrangement as internal-use software. If the arrangement does not include a software license, it should be treated as a service contract. The standard is effective for the Company on May 1, 2016 with early adoption permitted. An entity can elect to adopt either prospectively for all arrangements entered into or materially modified after the effective date or retrospectively. The Company intends to adopt the new guidance on a prospective basis as of May 1, 2016.
 
 
54

 
 
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09 "Revenue from Contracts with Customers" (Topic 606) (“ASU 2014-09”), and the International Accounting Standards Board (“IASB”) published its equivalent standard, International Financial Reporting Standard (“IFRS”) 15, “Revenue from Contracts with Customers”. These joint comprehensive new revenue recognition standards will supersede most existing revenue recognition guidance and are intended to improve and converge revenue recognition and related financial reporting requirements. The standard is effective for the Company on May 1, 2018 with early adoption permitted on May 1, 2017. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all periods presented, or “cumulative effect” adoption, meaning the standard is applied only to the most current period presented in the financial statements. Subsequently, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606) – Principal versus Agent Considerations (“ASU 2016-08”), ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606) – Identifying Performance Obligations and Licensing (“ASU 2016-10”), and ASU 2016-12, Revenue from Contracts with Customers (Topic 606) – Narrow Scope Improvements and Practical Expedients (“ASU 2016-12”), which provide clarification and additional guidance related to ASU 2014-09. The Company must adopt ASU 2016-08, ASU 2016-10, and ASU 2016-12 with ASU 2014-09. The Company is currently assessing whether the adoption of the new guidance will have a significant impact on its consolidated financial statements.
 
Contractual Obligations and Commercial Commitments
 
A summary of contractual obligations and commercial commitments, excluding unrecognized tax benefits further described in Note 12, as of April 30, 2016 is as follows (in thousands):
   
Payments Due by Period
 
   
Within
2-3
4-5
After 5
 
Total
Year 1
Years
Years
Years
           
Total Debt
$605.0
$        -
$        -
$605.0
$        -
Interest on Debt1
50.7
11.6
20.4
18.7
-
Non-Cancelable Leases
328.2
35.2
47.3
46.4
199.3
Minimum Royalty Obligations
257.4
83.4
97.4
55.0
21.6
Other Operating Commitments
71.7
30.5
30.0
11.2
-
Total
$1,313.0
$160.7
$195.1
$736.3
$220.9
 
1 Interest on Debt includes the effect of the Company’s interest rate swap agreements and the estimated future interest payments on the Company’s unhedged variable rate debt, assuming that the interest rates as of April 30, 2016 remain constant until the maturity of the debt.
 
Item 7A.  Quantitative and Qualitative Disclosures about Market Risk
 
The Company is exposed to market risk primarily related to interest rates, foreign exchange and credit risk. It is the Company’s policy to monitor these exposures and to use derivative financial investments and/or insurance contracts from time to time to reduce fluctuations in earnings and cash flows when it is deemed appropriate to do so. The Company does not use derivative financial instruments for trading or speculative purposes.
 
Interest Rates:
 
The Company had $605.0 million of variable rate loans outstanding at April 30, 2016, which approximated fair value. 
 
On April 4, 2016, the Company 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, the Company 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, 2016, the notional amount of the interest rate swap was $350.0 million.
 
 
55

 
 
On August 15, 2014, the Company entered into an interest rate swap agreement which fixed a portion of the variable interest due on its variable rate loans outstanding. Under the terms of the agreement, the Company pays a fixed rate of 0.65% and receives a variable rate of interest based on one-month LIBOR (as defined) from the counterparty which is reset every month for a two-year period ending August 15, 2016. As of April 30, 2016, the notional amount of the interest rate swap was $150.0 million.
 
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. During fiscal year 2016, the Company recognized a loss on its hedge contracts of approximately $0.9 million which is reflected in Interest Expense in the Consolidated Statements of Income. At April 30, 2016, the fair value of the outstanding interest rate swaps was a deferred loss of $0.6 million. Based on the maturity dates of the contracts, approximately $0.1 million and $0.5 million of the deferred loss was recorded in Other Accrued Liabilities and Other Long-Term Liabilities, respectively. On an annual basis, a hypothetical one percent change in interest rates for the $455 million of unhedged variable rate debt as of April 30, 2016 would affect net income and cash flow by approximately $0.7 million.
 
Foreign Exchange Rates:
 
Fluctuations in the currencies of countries where the Company operates outside the U.S. may have a significant impact on financial results. The Company is primarily exposed to movements in British pound sterling, euros, Canadian and Australian dollars, and certain currencies in Asia. The Statements of Financial Position of non-U.S. business units are translated into U.S. dollars using period-end exchange rates for assets and liabilities and weighted-average exchange rates for revenues and expenses. The percentage of Consolidated Revenue for fiscal year 2016 recognized in the following currencies (on an equivalent U.S. dollar basis) were: approximately 57% U.S dollar; 28% British pound sterling; 8% euro and 7% other currencies.
 
The Company’s significant investments in non-U.S. businesses are exposed to foreign currency risk.  Adjustments resulting from translating assets and liabilities are reported as a separate component of Accumulated Other Comprehensive Loss within Shareholders’ Equity under the caption Foreign Currency Translation Adjustment.  During fiscal year 2016, the Company recorded foreign currency translation losses in other comprehensive income of approximately $21.1 million primarily as a result of the weakening of the U.S. dollar relative to the British pound sterling.
 
Exchange rate gains or losses related to foreign currency transactions are recognized as transaction gains or losses in the Consolidated Statements of Income as incurred. Under certain circumstances, the Company may enter into derivative financial instruments in the form of foreign currency forward contracts to hedge against specific transactions, including intercompany purchases and loans. The Company does not use derivative financial instruments for trading or speculative purposes.
 
The Company may enter into forward exchange contracts to manage the Company’s exposure on certain foreign currency denominated assets and liabilities. The forward exchange contracts are marked to market through Foreign Exchange Transaction Gains and Losses 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 Gains and Losses. As of April 30, 2016 and 2015, the Company had two open forward contracts with notional amounts of 31 million Euros and 274 million Pound Sterling to hedge intercompany loans. As of April 30, 2015, the Company did not maintain any open forward contracts. During fiscal years 2014 through 2016, the Company did not designate any forward exchange contracts as hedges under current accounting standards as the benefits of doing so were not material due to the short-term nature of the contracts. The fair value changes in the forward exchange contracts substantially mitigated the changes in the value of the applicable foreign currency denominated assets and liabilities. As of April 30, 2016, the fair value of the open forward exchange contracts was a gain of approximately $1.3 million which was measured on a recurring basis using Level 2 inputs and recorded within the Prepaid and Other Line item in the Consolidated Statements of Financial Position. For fiscal years 2016, 2015 and 2014, the gains (losses) recognized on the forward contracts were $1.3 million, $(11.2) million, and $(0.4) million, respectively.
 
 
56

 
 
Customer Credit Risk:
 
In the journal publishing business, subscriptions are primarily sourced through journal subscription agents who, acting as agents for library customers, facilitate ordering by consolidating the subscription orders/billings of each subscriber with various publishers. Cash is generally collected in advance from subscribers by the subscription agents and is principally remitted to the Company between the months of December and April. Although at fiscal year-end the Company had minimal credit risk exposure to these agents, future calendar-year subscription receipts from these agents are highly dependent on their financial condition and liquidity. Subscription agents account for approximately 22% of total annual consolidated revenue and no one agent accounts for more than 11% of total annual consolidated revenue.
 
The Company’s non-journal subscription business is not dependent upon a single customer. Although no one non-journal customer accounts for more than 9% of total consolidated revenue and 12% of accounts receivable at April 30, 2016, the top 10 non-journal customers account for approximately 16% of total consolidated revenue and approximately 26% of accounts receivable at April 30, 2016. The Company maintains approximately $25 million of trade credit insurance, subject to certain limitations, covering balances due from certain named customers which expires in May, 2017.
 
Disclosure of Certain Activities Relating to Iran:
 
The European Union, Canada and United States have imposed sanctions on business relationships with Iran, including restrictions on financial transactions and prohibitions on direct and indirect trading with listed “designated persons.”  In fiscal year 2016, the Company recorded revenue and net profits of approximately $2.8 million and $0.7 million, respectively, related to the sale of scientific and medical content to certain publicly funded universities, hospitals and institutions that meet the definition of the “Government of Iran” as defined under section 560.304 of title 31, Code of Federal Regulations. The Company has assessed its business relationship and transactions with Iran and believes it is in compliance with the regulations governing the sanctions.  The Company intends to continue in these or similar sales as long as they continue to be consistent with all applicable sanctions-related regulations.

 
57

 
 
“Safe Harbor” Statement Under the
Private Securities Litigation Reform Act of 1995
 
This report contains certain forward-looking statements concerning the Company’s operations, performance, and financial condition. Reliance should not be placed on forward-looking statements, as actual results may differ materially from those in any forward-looking statements.  Any such forward-looking statements are based upon a number of assumptions and estimates that are inherently subject to uncertainties and contingencies, many of which are beyond the control of the Company, and are subject to change based on many important factors. Such factors include, but are not limited to (i) the level of investment in new technologies and products; (ii) subscriber renewal rates for the Company’s journals; (iii) the financial stability and liquidity of journal subscription agents; (iv) the consolidation of book wholesalers and retail accounts; (v) the market position and financial stability of key retailers; (vi) the seasonal nature of the Company’s education business and the impact of the used-book market; (vii) worldwide economic and political conditions; (viii) the Company’s ability to protect its copyrights and other intellectual property worldwide; (ix) the ability of the Company to successfully integrate acquired operations and realize expected opportunities and (x) other factors detailed from time to time in the Company’s filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any such forward-looking statements to reflect subsequent events or circumstances.

 
58

 

Item 8.  Financial Statements and Supplementary Data

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

 
To our Shareholders
John Wiley and Sons, Inc.:
 
The management of John Wiley and 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, 2016.
 
Changes in Internal Control over Financial Reporting:
 
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 with respect to certain subsidiaries/locations and will continue to roll out the ERP in phases over the next three years.
 
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 2016.
 
The effectiveness of our internal control over financial reporting as of April 30, 2016 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—Investor Relations—Corporate Governance” captions.  Copies are also available free of charge to shareholders on request to the Corporate Secretary, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774.
 

/s/ Mark Allin
 
Mark Allin
 
President and
 
Chief Executive Officer
 
   
 
 
 
59

 
 
 
   
/s/ John A. Kritzmacher
 
John A. Kritzmacher
 
Chief Financial Officer and
 
Executive Vice President, Technology and Operations
 
   
/s/ Edward J. Melando
 
Edward J. Melando
 
Senior Vice President, Controller and
 
Chief Accounting Officer
 
   
June 29, 2016
 

 
 
60

 
 
 
 Report of Independent Registered Public Accounting Firm
 
The Board of Directors and Shareholders
John Wiley & Sons, Inc.:
 
We have audited the accompanying consolidated statements of financial position of John Wiley & Sons, Inc. (the “Company”) and subsidiaries as of April 30, 2016 and 2015, and the related consolidated statements of income, comprehensive income (loss), cash flows and shareholders’ equity for each of the years in the three-year period ended April 30, 2016. In connection with our audits of the consolidated financial statements, we also have audited Schedule II of this Form 10-K. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of John Wiley & Sons, Inc. and subsidiaries as of April 30, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended April 30, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), John Wiley & Sons, Inc.’s internal control over financial reporting as of April 30, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)”), and our report dated June 29, 2016 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
 

 
(signed) KPMG LLP
 
Short Hills, New Jersey
 
June 29, 2016
 

 
61

 
 
 
Report of Independent Registered Public Accounting Firm
 
The Board of Directors and Shareholders
John Wiley & Sons, Inc.:
 
We have audited John Wiley & Sons, Inc.’s internal control over financial reporting as of April 30, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). John Wiley & Sons, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, John Wiley & Sons, Inc. maintained, in all material respects, effective internal control over financial reporting as of April 30, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial position of John Wiley & Sons, Inc. and subsidiaries as of April 30, 2016 and 2015, and the related consolidated statements of income, comprehensive income (loss), cash flows and shareholders’ equity for each of the years in the three-year period ended April 30, 2016, and our report dated June 29, 2016 expressed an unqualified opinion on those consolidated financial statements.
 
(signed) KPMG LLP
 
Short Hills, New Jersey
June 29, 2016

 
62

 
 
 
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
John Wiley & Sons, Inc., and Subsidiaries
 
April 30,
Dollars in thousands
 
2016
 
2015
Assets:
       
Current Assets
       
Cash and cash equivalents
$
 363,806
$
457,441
Accounts receivable
 
 167,638
 
147,183
Inventories
 
 57,779
 
63,779
Prepaid and other
 
 81,456
 
72,516
Total Current Assets
 
 670,679
 
740,919
         
Product Development Assets
 
 72,126
 
69,589
Technology, Property & Equipment
 
 214,770
 
193,010
Intangible Assets
 
 877,007
 
917,621
Goodwill
 
 951,663
 
962,367
Income Tax Deposits
 
 62,912
 
57,098
Other Assets
 
 71,939
 
63,639
Total Assets
$
 2,921,096
$
3,004,243
         
Liabilities and Shareholders’ Equity:
       
Current Liabilities
       
Short-term debt
$
 -
$
100,000
Accounts and royalties payable
 
 166,222
 
161,465
Deferred revenue
 
 426,489
 
372,051
Accrued employment costs
 
 97,902
 
93,922
Accrued income taxes
 
 9,450
 
9,484
Accrued pension liability
 
 5,492
 
4,594
Other accrued liabilities
 
 76,252
 
62,167
Total Current Liabilities
 
 781,807
 
803,683
         
Long-Term Debt
 
 605,007
 
650,090
Accrued Pension Liability
 
 224,170
 
209,727
Deferred Income Tax Liabilities
 
 189,868
 
198,947
Other Long-Term Liabilities
 
 83,138
 
86,756
Shareholders’ Equity
       
Preferred Stock, $1 par value: Authorized - 2 million, Issued - zero
 
-
 
-
Class A Common Stock, $1 par value: Authorized - 180 million,
       
Issued – 69,797,994
 
69,798
 
69,798
Class B Common Stock, $1 par value:  Authorized - 72 million,
       
Issued – 13,392,268
 
13,392
 
13,392
Additional paid-in capital
 
368,698
 
353,018
Retained earnings
 
1,673,325
 
1,597,439
Accumulated other comprehensive (loss):
       
Foreign currency translation adjustment
 
 (267,920)
 
(246,854)
Unamortized retirement costs, net of tax
 
 (179,405)
 
(159,434)
Unrealized loss on interest rate swap, net of tax
 
 (361)
 
(345)
   
(447,686)
 
(406,633)
Less Treasury Shares At Cost (Class A – 21,708,905 and 20,441,767;
       
Class B – 3,917,128 and 3,910,264)
 
(640,421)
 
(571,974)
Total Shareholders’ Equity
 
 1,037,106
 
1,055,040
Total Liabilities and Shareholders’ Equity
$
 2,921,096
$
3,004,243
 
The accompanying notes are an integral part of the consolidated financial statements.
 
 
63

 
 
 
CONSOLIDATED STATEMENTS OF INCOME
 
John Wiley & Sons, Inc., and Subsidiaries
 
For the years ended April 30,
Dollars in thousands, except per share data
 
2016
 
2015
 
2014
             
Revenue
$
1,727,037
$
1,822,440
$
1,775,195
             
Costs and Expenses
           
Cost of sales
 
465,917
 
499,683
 
506,879
Operating and administrative expenses
 
994,632
 
1,005,000
 
969,456
Restructuring charges
 
28,611
 
28,804
 
42,722
Impairment charges
 
-
 
-
 
4,786
Amortization of intangibles
 
49,764
 
51,214
 
44,679
Total Costs and Expenses
 
1,538,924
 
1,584,701
 
1,568,522
             
Operating Income
 
188,113
 
237,739
 
206,673
             
Interest expense
 
(16,707)
 
(17,077)
 
(13,916)
Foreign exchange transaction gains (losses)
 
473
 
1,742
 
(8)
Interest income and other
 
2,914
 
3,057
 
2,785
             
Income Before Taxes
 
174,793
 
225,461
 
195,534
Provision for Income Taxes
 
29,011
 
48,593
 
35,024
             
Net Income
$
145,782
$
176,868
$
160,510
             
Earnings Per Share
           
Diluted
$
2.48
$
2.97
$
2.70
Basic
 
2.51
 
3.01
 
2.73
             
Cash Dividends Per Share
           
Class A Common
$
1.20
$
1.16
$
1.00
Class B Common
 
1.20
 
1.16
 
1.00
             
Average Shares
           
Diluted
 
58,734
 
59,594
 
59,514
Basic
 
57,998
 
58,733
 
58,635
             
The accompanying notes are an integral part of the consolidated financial statements.

 
64

 

 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
John Wiley & Sons, Inc., and Subsidiaries
 
For the years ended April 30,
Dollars in thousands
 
2016
 
2015
 
2014
             
Net Income
$
145,782
$
176,868
$
160,510
             
Other Comprehensive Income (Loss):
           
Foreign currency translation adjustment
 
(21,066)
 
(180,190)
 
67,875
Unrealized retirement costs net of tax benefit (provision) of $8,807; $15,779 and $(12,946), respectively
 
(19,971)
 
(36,409)
 
20,099
Unrealized (loss) gain on interest rate swaps net of tax benefit (provision) of $10; $(157) and $(225), respectively
 
(16)
 
257
 
367
Total Other Comprehensive Income (Loss)
 
(41,053)
 
(216,342)
 
88,341
             
Comprehensive Income (Loss)
$
104,729
$
(39,474)
$
248,851
             
 
 
The accompanying notes are an integral part of the consolidated financial statements.

 
65

 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
John Wiley & Sons, Inc., and Subsidiaries
 
For the years ended April 30,
Dollars in thousands
 
2016
 
2015
 
2014
Operating Activities
           
Net Income
$
145,782
$
176,868
$
160,510
Adjustments to reconcile net income to net cash provided by operating activities
           
Amortization of intangibles
 
    49,764
 
51,214
 
44,679
Amortization of composition costs
 
    39,658
 
40,639
 
45,097
Depreciation of technology, property and equipment
 
    66,427
 
62,072
 
58,321
Restructuring  and impairment charges
 
    28,611
 
28,804
 
47,508
Deferred tax benefits on U.K. rate changes
 
    (5,859)
 
-
 
(10,634)
Share-based compensation
 
16,105
 
13,617
 
12,851
(Excess) shortfalls in tax benefits from share-based compensation
 
     (1,027)
 
(3,191)
 
1,466
Employee retirement plan expense
 
    14,323
 
22,599
 
30,454
Royalty advances
 
 (110,135)
 
(104,876)
 
(107,639)
Earned royalty advances
 
  109,102