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EXCEL - IDEA: XBRL DOCUMENT - WILEY JOHN & SONS, INC.Financial_Report.xls
EX-31.1 - CERTIFICATION - WILEY JOHN & SONS, INC.exhibit31_1.htm
EX-31.2 - CERTIFICATION - WILEY JOHN & SONS, INC.exhibit31_2.htm
EX-32.1 - CERTIFICATION - WILEY JOHN & SONS, INC.exhibit32_1.htm
EX-32.2 - CERTIFICATION - WILEY JOHN & SONS, INC.exhibit32_2.htm


 
UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

[X]                    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT 1934
 
For the quarterly period ended January 31, 2015
 
Commission File No. 1-11507
 
OR
[  ]                       TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES ACT OF 1934
For the transition period from_____  to _____

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

NEW YORK
 
13-5593032
(State of 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
Registrant’s telephone number, including area code
 
(201) 748-6000
NOT APPLICABLE

Former name, former address, and former fiscal year, if changed since last report

Indicate by check mark, whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the securities exchange act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes [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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition 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 number of shares outstanding of each of the Registrant’s classes of Common Stock as of February 28, 2015 were:
 
 
Class A, par value $1.00 – 49,236,530
Class B, par value $1.00 – 9,482,004
 
 
This is the first page of a 48 page document
 
 
1

 

 
JOHN WILEY & SONS, INC.

INDEX


PART I
-
FINANCIAL INFORMATION
 
PAGE NO.
         
Item 1.
 
Financial Statements
   
         
     
3
         
     
4
         
     
5
         
     
6
         
     
7-18
         
Item 2.
   
19-38
         
Item 3.
   
39-41
         
Item 4.
   
41
         
PART II
-
OTHER INFORMATION
   
         
Item 2.
   
42
         
Item 6.
   
43
         
SIGNATURES AND CERTIFICATIONS
 
44-48
     
   
 

 
2

 

JOHN WILEY & SONS, INC. AND SUBSIDIARIES
(In thousands)
         
   
January 31,
 
April 30,
   
           2015
 
          2014
 
           2014
   
      (Unaudited)
 
      (Unaudited)
   
Assets:
           
Current Assets
           
Cash and cash equivalents
$
260,215
$
315,985
$
486,377
Accounts receivable
 
220,311
 
205,796
 
149,733
Inventories
 
65,027
 
79,168
 
75,495
Prepaid and other
 
68,369
 
60,540
 
78,057
Total Current Assets
 
613,922
 
661,489
 
789,662
             
Product Development Assets
 
71,124
 
89,142
 
82,940
Technology, Property & Equipment
 
187,643
 
181,092
 
188,718
Intangible Assets
 
933,299
 
961,931
 
984,661
Goodwill
 
964,818
 
856,707
 
903,665
Income Tax Deposits
 
60,133
 
61,086
 
64,037
Other Assets
 
63,069
 
61,799
 
63,682
Total Assets
$
2,894,008
$
2,873,246
$
3,077,365
             
Liabilities & Shareholders' Equity:
           
Current Liabilities
           
Short-term debt
$
100,000
$
-
$
-
Accounts and royalties payable
 
202,173
 
205,154
 
142,534
Deferred revenue
 
307,783
 
279,681
 
385,654
Accrued employment costs
 
79,063
 
88,514
 
118,503
Accrued income taxes
 
9,450
 
6,802
 
13,324
Accrued pension liability
 
4,567
 
4,386
 
4,671
Other accrued liabilities
 
61,025
 
48,017
 
64,901
Total Current Liabilities
 
764,061
 
632,554
 
729,587
             
Long-Term Debt
 
588,111
 
634,000
 
700,100
Accrued Pension Liability
 
144,818
 
195,037
 
164,634
Deferred Income Tax Liabilities
 
222,922
 
199,660
 
222,482
Other Long-Term Liabilities
 
89,016
 
76,005
 
78,314
             
Shareholders’ Equity
           
Class A & Class B Common Stock
 
83,190
 
83,190
 
83,190
Additional paid-in-capital
 
351,715
 
321,484
 
327,588
Retained earnings
 
1,567,544
 
1,467,949
 
1,489,069
Accumulated other comprehensive loss
 
(343,255)
 
(229,677)
 
(190,291)
Treasury stock
 
(574,114)
 
(506,956)
 
(527,308)
Total Shareholders’ Equity
 
1,085,080
 
1,135,990
 
1,182,248
Total Liabilities & Shareholders' Equity
$
2,894,008
$
2,873,246
$
3,077,365
 
The accompanying notes are an integral part of the condensed consolidated financial statements.

 
3

 

JOHN WILEY & SONS, INC. AND SUBSIDIARIES
(In thousands except per share information)
 
   
For The Three Months
 
For The Nine Months
   
Ended January 31,
 
Ended January 31,
   
2015
 
2014
 
2015
 
2014
                 
Revenue
$
465,905
$
457,933
$
1,380,794
$
1,318,106
                 
Costs and Expenses
               
Cost of sales
 
124,245
 
130,563
 
382,839
 
380,706
Operating and administrative expenses
 
250,479
 
238,569
 
755,541
 
713,090
Restructuring charges
 
24,034
 
4,256
 
23,879
 
27,327
Impairment charges
 
-
 
-
 
-
 
4,786
Amortization of intangibles
 
13,105
 
11,165
 
38,859
 
33,066
Total Costs and Expenses
 
411,863
 
384,553
 
1,201,118
 
1,158,975
                 
Operating Income
 
54,042
 
73,380
 
179,676
 
159,131
                 
Interest Expense
 
(4,365)
 
(3,485)
 
(13,015)
 
(10,348)
Foreign Exchange Transaction Gain
 
2,783
 
29
 
2,828
 
329
Interest Income and Other
 
800
 
466
 
2,218
 
2,095
 
               
                 
Income Before Taxes
 
53,260
 
70,390
 
171,707
 
151,207
Provision For Income Taxes
 
10,712
 
17,901
 
41,736
 
26,588
                 
Net Income
$
42,548
$
52,489
$
129,971
$
124,619
                 
Earnings Per Share
               
Diluted
$
0.72
$
0.88
$
2.18
$
2.10
Basic
$
0.73
$
0.89
$
2.21
$
2.13
                 
Cash Dividends Per Share
               
Class A Common
$
0.29
$
0.25
$
0.87
$
0.75
Class B Common
$
0.29
$
0.25
$
0.87
$
0.75
                 
Average Shares
               
Diluted
 
59,343
 
59,713
 
59,632
 
59,388
Basic
 
58,517
 
58,734
 
58,813
 
58,569
     
 
 
       
The accompanying notes are an integral part of the condensed consolidated financial statements.
 
 
4

 

JOHN WILEY & SONS, INC. AND SUBSIDIARIES
(In thousands)
 
 
For The Three Months
 
For The Nine Months
 
Ended January 31,
 
Ended January 31,
 
2015
 
2014
 
2015
 
2014
               
Net Income
$42,548
 
$52,489
 
$129,971
 
$124,619
               
Other Comprehensive (Loss) Income:
             
Foreign currency translation adjustment
(99,306)
 
4,351
 
(166,094)
 
45,488
Unamortized retirement costs, net of tax provision of $2,293, $670 $4,559 and $1,551, respectively
6,450
 
1,477
 
13,000
 
3,176
Unrealized gain (loss) on interest rate swaps, net of tax provision (benefit) of $55, $(39), $56 and $159, respectively
91
 
(42)
 
130
 
291
Total Other Comprehensive (Loss) Income
(92,765)
 
5,786
 
(152,964)
 
48,955
               
Comprehensive (Loss) Income
$(50,217)
 
$58,275
 
$(22,993)
 
$173,574
 
 
 
The accompanying notes are an integral part of the condensed consolidated financial statements.

 
5

 
 
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
(In thousands)
   
For The Nine Months
 
 
Ended January 31,
   
2015
 
2014
Operating Activities
       
Net income
$
129,971
$
124,619
Adjustments to reconcile net income to cash used for operating activities:
       
Amortization of intangibles
 
38,859
 
33,066
Amortization of composition costs
 
30,695
 
33,940
Depreciation of technology, property and equipment
 
46,225
 
43,596
Restructuring and impairment charges
 
23,879
 
32,113
Restructuring payments
 
(25,473)
 
(20,136)
Deferred tax benefits on U.K. rate changes
 
-
 
(10,634)
Stock-based compensation expense
 
11,778
 
10,995
Excess tax (benefit) charge from stock-based compensation
 
(2,487)
 
2,880
Royalty advances
 
(77,265)
 
(83,237)
Earned royalty advances
 
77,755
 
77,663
Other non-cash charges
 
30,407
 
37,766
Change in deferred revenue
 
(62,822)
 
(91,174)
Income tax deposit
 
(6,814)
 
(10,433)
Net change in operating assets and liabilities, excluding acquisitions
 
(60,557)
 
(27,227)
Cash Provided by Operating Activities
 
154,151
 
153,797
Investing Activities
       
Composition spending
 
(26,872)
 
(30,460)
Additions to technology, property and equipment
 
(47,293)
 
(38,733)
Acquisitions, net of cash acquired
 
(172,661)
 
(5,150)
Escrowed proceeds from sale of consumer publishing programs
 
1,100
 
-
Cash Used for Investing Activities
 
(245,726)
 
(74,343)
Financing Activities
       
Repayment of long-term debt
 
(550,083)
 
(486,600)
Borrowings of long-term debt
 
435,700
 
447,600
Borrowings of short-term debt
 
100,000
 
-
Change in book overdrafts
 
(8,742)
 
(21,859)
Cash dividends
 
(51,491)
 
(44,182)
Purchase of treasury stock
 
(61,981)
 
(38,533)
Proceeds from exercise of stock options and other
 
24,492
 
48,540
Excess tax benefit (charge) from stock-based compensation
 
2,487
 
(2,880)
Cash Used for Financing Activities
 
(109,618)
 
(97,914)
Effects of Exchange Rate Changes on Cash and Cash Equivalents
 
(24,969)
 
305
Cash and Cash Equivalents
       
Decrease for the Period
 
(226,162)
 
(18,155)
Balance at Beginning of Period
 
486,377
 
334,140
Balance at End of Period
$
260,215
$
315,985
Cash Paid During the Period for:
       
Interest
$
11,267
$
9,331
Income taxes, net
$
35,061
$
52,046
   
 
 
 
     
 
 
The accompanying notes are an integral part of the condensed consolidated financial statements.

 
6

 
 
JOHN WILEY & SONS, INC., AND SUBSIDIARIES
 
1.
Basis of Presentation
 
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial condition, results of operations, comprehensive (loss) income and cash flows for the periods presented. Operating results for the interim period are not necessarily indicative of the results expected for the full year. For the Company’s recent international acquisition CrossKnowledge Group, Ltd. (“CrossKnowledge”), results reflect five and nine months of operations for the quarter and year-to-date periods ending January 31, 2015, respectively. Previously reported results were on a two-month lag, as disclosed, to facilitate accurate reporting. With the five months reported, CrossKnowledge is now current on a year-to-date basis. These financial statements should be read in conjunction with the most recent audited financial statements included in the Company’s Form 10-K for the fiscal year ended April 30, 2014.
 
The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to the current year’s presentation.
 
 
2.
Recent Accounting Standards
 
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”. The standard will require companies to review contract arrangements with customers and ensure all separate performance obligations are properly recognized in compliance with the new guidance. The standard is effective for the Company on May 1, 2017 with early adoption prohibited. 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. The Company is currently assessing whether the adoption of the guidance will have an impact on its consolidated financial statements.
 
 
3.
Share-Based Compensation
 
The Company has share-based compensation plans under which employees may be granted options to purchase shares of Company common stock at the fair market value at the time of grant.  In addition to stock options, the Company grants performance-based stock awards and other restricted stock awards to certain management level employees. The Company recognizes the grant date fair value of share-based compensation in net income on a straight-line basis over the requisite service period. The measurement of performance for performance-based stock awards is based on actual financial results for targets established three years in advance. For both the three months ended January 31, 2015 and 2014, the Company recognized share-based compensation expense, on a pre-tax basis, of $3.7 million. For the nine months ended January 31, 2015 and 2014, the Company recognized share-based compensation expense, on a pre-tax basis, of $11.8 million and $11.0 million, respectively.
 
 
7

 
 
The following table provides share-based compensation data for awards granted by the Company:
 
   
For the Nine Months
Ended January 31,
   
2015
 
2014
 
Restricted Stock:
     
 
Awards granted (in thousands)
306
 
375
 
Weighted average fair value of grant
$59.63
 
$40.75
         
 
Stock Options:
     
 
Awards granted (in thousands)
188
 
322
 
Weighted average fair value of grant
$16.97
 
$10.12
 
 
The weighted average Black-Scholes fair value assumptions for stock option grants are as follows:
 
   
For the Nine Months
Ended January 31,
   
2015
 
2014
 
Expected life of options (years)
7.2
 
7.4
 
Risk-free interest rate
2.2%
 
2.1%
 
Expected volatility
30.9%
 
30.5%
 
Expected dividend yield
1.9%
 
2.5%
 
Fair value of common stock on grant date
$59.70
 
$39.53
 
 
 
4.     Accumulated Other Comprehensive Loss
 
Changes in Accumulated Other Comprehensive Loss by component, net of tax, for the three and nine months ended January 31, 2015 were as follows (in thousands):
 
   
Foreign
 
Unamortized
 
Interest
   
   
Currency
 
Retirement
 
Rate
   
   
Translation
 
Costs
 
Swaps
 
Total
                 
 
Balance at October 31, 2014
$(133,452)
 
$(116,475)
 
$(563)
 
$(250,490)
 
Other comprehensive (loss) income before reclassifications
(99,306)
 
4,998
 
(215)
 
(94,523)
 
Amounts reclassified from accumulated other comprehensive loss
-
 
1,452
 
306
 
1,758
 
Total other comprehensive (loss) income
(99,306)
 
6,450
 
91
 
(92,765)
 
Balance at January 31, 2015
$(232,758)
 
$(110,025)
 
$(472)
 
$(343,255)
 

 
   
Foreign
 
Unamortized
 
Interest
   
   
Currency
 
Retirement
 
Rate
   
   
Translation
 
Costs
 
Swaps
 
Total
                 
 
Balance at April 30, 2014
$(66,664)
 
$(123,025)
 
$(602)
 
$(190,291)
 
Other comprehensive (loss) income before reclassifications
(166,094)
 
8,439
 
(638)
 
(158,293)
 
Amounts reclassified from accumulated other comprehensive loss
-
 
4,561
 
768
 
5,329
 
Total other comprehensive (loss) income
(166,094)
 
13,000
 
130
 
(152,964)
 
Balance at January 31, 2015
$(232,758)
 
$(110,025)
 
$(472)
 
$(343,255)
 
 
8

 
 
   
Foreign
 
Unamortized
 
Interest
   
   
Currency
 
Retirement
 
Rate
   
   
Translation
 
Costs
 
Swaps
 
Total
                 
 
Balance at October 31, 2013
$(93,402)
 
$(141,425)
 
$(636)
 
$(235,463)
 
Other comprehensive income (loss) before reclassifications
4,351
 
(1,134)
 
(128)
 
3,089
 
Amounts reclassified from accumulated other comprehensive loss
-
 
2,611
 
86
 
2,697
 
Total other comprehensive income (loss)
4,351
 
1,477
 
(42)
 
5,786
 
Balance at January 31, 2014
$(89,051)
 
$(139,948)
 
$(678)
 
$(229,677)

 
 
   
Foreign
 
Unamortized
 
Interest
   
   
Currency
 
Retirement
 
Rate
   
   
Translation
 
Costs
 
Swaps
 
Total
                 
 
Balance at April 30, 2013
$(134,539)
 
$(143,124)
 
$(969)
 
$(278,632)
 
Other comprehensive income (loss) before reclassifications
45,488
 
(4,528)
 
(157)
 
40,803
 
Amounts reclassified from accumulated other comprehensive loss
-
 
7,704
 
448
 
8,152
 
Total other comprehensive income
45,488
 
3,176
 
291
 
48,955
 
Balance at January 31, 2014
$(89,051)
 
$(139,948)
 
$(678)
 
$(229,677)
 
During the three months ended January 31, 2015 and 2014, pre-tax actuarial losses included in Unamortized Retirement Costs of approximately $2.1 million and $3.7 million, respectively, were amortized from Accumulated Other Comprehensive Loss and recognized as pension expense in Operating and Administrative Expenses in the Condensed Consolidated Statements of Income. During the nine months ended January 31, 2015 and 2014, pre-tax actuarial losses of approximately $6.0 million and $10.9 million, respectively, were amortized.
 
 
 
5.     Reconciliation of Weighted Average Shares Outstanding and Share Repurchases
 
A reconciliation of the shares used in the computation of earnings per share follows (in thousands):
 
   
For the Three Months
Ended January 31,
 
For the Nine Months
Ended January 31,
   
2015
 
2014
 
2015
 
2014
                 
 
Weighted average shares outstanding
58,773
 
59,040
 
59,061
 
58,857
 
Less: Unearned restricted shares
(256)
 
(306)
 
(248)
 
(288)
 
Shares used for basic earnings per share
58,517
 
58,734
 
58,813
 
58,569
 
Dilutive effect of stock options and other stock awards
826
 
979
 
819
 
819
 
Shares used for diluted earnings per share
59,343
 
59,713
 
59,632
 
59,388
 
Since their inclusion in the calculation of diluted earnings per share would have been anti-dilutive, options to purchase 178,144  shares of Class A Common Stock have been excluded for both the three and nine months ended January 31, 2015. There were no anti-dilutive options excluded for the three months ended January 31, 2014 and 715,952 shares were excluded for the nine months ended January 31, 2014.
 
 
9

 
 
During the three and nine months ended January 31, 2015, the Company repurchased 350,000 shares of common stock at an average price of $58.42 and 1,082,502 shares of common stock at an average price of $47.56, respectively.
 
6.     Acquisitions:
 
CrossKnowledge:
 
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 managerial and leadership skills assessments, courses, certifications, content and executive training programs that are delivered on a cloud-based platform providing over 17,000 learning objects in 17 languages. CrossKnowledge serves over five million end-users in 80 countries. CrossKnowledge reported approximately $37 million of revenue and approximately $5 million of operating income in its fiscal year ended June 30, 2013.
 
CrossKnowledge results reflect five and nine months of operations for the quarter and year-to-date periods ended January 31, 2015, respectively. Previously reported results were on a two-month lag, as disclosed, to facilitate accurate reporting. With the five months reported, CrossKnowledge is now current on a year-to-date basis. For the quarter and year-to-date periods ending January 31, 2015, CrossKnowledge’s revenue included in Wiley’s results was $16.2 million and $31.5 million, respectively, and CrossKnowledge’s operating loss included in Wiley’s results was $2.8 million and $3.6 million, respectively. The $166 million purchase price was allocated to identifiable long-lived intangible assets ($63.0 million), mainly customer relationships and content; technology ($6.3 million); long-term deferred tax liabilities ($21.5 million); negative working capital ($4.3 million); and goodwill ($122.5 million). The fair value of intangible assets and technology acquired was based on management’s assessment performed with the assistance of a third party valuation consultant. Goodwill represents the excess of the purchase price over the fair value of net assets acquired and comprises the estimated value of CrossKnowledge’s workforce, unidentifiable intangible assets and the fair value of expected synergies. None of the goodwill is deductible for tax purposes. The identifiable long-lived intangible assets are primarily amortized over a weighted average estimated useful life of approximately 15 years. The acquisition was funded through the use of the Company’s existing credit facility and available cash balances. The Company expects to finalize its purchase accounting for CrossKnowledge by April 30, 2015.
 
Profiles International:
 
On April 1, 2014, the Company acquired all of the stock of Profiles International (“Profiles”) for approximately $47.5 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. Founded in 1991 and based in Waco, Texas, Profiles has served more than 40,000 enterprise clients and millions of end users in over 120 countries, with assessments available in 32 languages. Profiles reported approximately $27 million of revenue and approximately $5 million of operating income in its fiscal year ended December 31, 2013. The $47.5 million purchase price was allocated to identifiable long-lived intangible assets ($22.9 million), mainly customer relationships and assessment content; technology ($2.7 million); long-term deferred tax liabilities ($9.4 million); a credit to short-term deferred tax assets ($1.9 million); negative working capital ($6.7 million) and goodwill ($39.9 million). The fair value of intangible assets and technology acquired was based on management’s assessment performed with the assistance of a third party valuation consultant. Goodwill represents the excess of the purchase price over the fair value of net assets acquired and comprises the estimated value of Profile’s workforce, unidentifiable intangible assets and the fair value of expected synergies. None of the goodwill is deductible for tax purposes. The Company expects to finalize its purchase accounting for Profiles by April 30, 2015. Profiles contributed $5.8 million and $17.2 million to the Company’s revenue for the three and nine months ended January 31, 2015, respectively.
 
Unaudited proforma financial information has not been presented since the effects of the acquisitions were not material.
 
 
10

 
 
7.     Restructuring Programs
 
Restructuring and Reinvestment Program:
 
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.
 
The following tables summarize the pre-tax restructuring charges related to this program, which are reflected in Restructuring Charges in the Condensed Consolidated Statements of Income (in thousands):
 
           
Cumulative
           
Program
   
For the Three Months
 
For the Nine Months
 
Charges
   
Ended January 31,
 
Ended January 31,
 
to Date
   
2015
 
2014
 
2015
 
2014
   
 
Charges (Credits) by Segment:
                 
 
Research
$4,507
 
$(782)
 
$4,322
 
$4,590
 
$14,992
 
Professional Development
3,588
 
(833)
 
3,833
 
4,834
 
21,977
 
Education
1,033
 
117
 
1,084
 
375
 
3,092
 
Shared Services
14,906
 
5,754
 
14,640
 
17,528
 
50,992
 
Total Restructuring Charges
$24,034
 
$4,256
 
$23,879
 
$27,327
 
$91,053
                     
 
Charges (Credits) by Activity:
                 
 
Severance
$11,962
 
$(270)
 
$12,605
 
$14,661
 
$58,271
 
Process reengineering consulting
446
 
2,588
 
301
 
8,199
 
11,475
 
Other activities
11,626
 
1,938
 
10,973
 
4,467
 
21,307
 
Total Restructuring Charges
$24,034
 
$4,256
 
$23,879
 
$27,327
 
$91,053
 
The credits reflected above within the three month period of fiscal year 2014 reflect true-ups to the previously estimated accrued restructuring charges. Other Activities mainly reflect leased facility consolidations and other contract termination costs.
 
 
The following table summarizes the activity for the Restructuring and Reinvestment Program liability for the nine months ended January 31, 2015 (in thousands):
 
         
Foreign
 
   
April 30,
   
Translation &
January 31,
   
2014
Charges
Payments
Reclassifications
2015
 
Severance
$29,255
$12,605
$(21,460)
$(695)
$19,705
 
Process reengineering consulting
722
301
(1,024)
46
45
 
Other activities
4,995
10,973
(2,989)
388
13,367
 
Total
$34,972
$23,879
$(25,473)
$(261)
$33,117
 
The restructuring liability for accrued Severance costs is reflected in Accrued Employment Costs in the Condensed Consolidated Statements of Financial Position while the Process reengineering consulting costs are reflected in Other Accrued Liabilities. Approximately $0.1 million and $13.3 million of the Other Activities are reflected in Other Accrued Liabilities and Other Long-Term Liabilities, respectively.
 
 
11

 
 
8.     Impairment Charges
 
In the second quarter of 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.
 
 
 
9.     Segment Information
 
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, online 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 core 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 North America, Europe, Asia, and Australia.
 
As part of Wiley’s restructuring and reorganization 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 will now be 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.
 
 
12

 
 
Segment information is as follows (in thousands):
   
For the Three Months
 
For the Nine Months
   
Ended January 31,
 
Ended January 31,
   
2015
 
2014
 
2015
 
2014
 
RESEARCH
             
 
Revenue
$246,454
 
$248,797
 
$766,149
 
$747,532
                 
 
Direct Contribution to Profit
$108,727
 
$111,318
 
$344,155
 
$334,179
  Allocated Shared Services and Administrative Costs:               
 
Distribution and Operation Services
(10,722)
 
 (11,406)
 
 (34,141)
 
(34,801)
 
Technology and Content Management
(24,254)
 
(24,888)
 
(75,440)
 
(75,969)
 
Occupancy and Other
(5,752)
 
(5,791)
 
(17,971)
 
(18,763)
 
Contribution to Profit
$67,999
 
$69,233
 
$216,603
 
$204,646
                 
 
PROFESSIONAL DEVELOPMENT
             
 
Revenue
$108,587
 
$94,201
 
$306,581
 
$270,832
                 
 
Direct Contribution to Profit
$35,214
 
$38,886
 
$104,354
 
$100,075
  Allocated Shared Services and Administrative Costs:              
 
Distribution and Operation Services
(7,401)
 
(9,634)
 
(23,671)
 
(28,790)
 
Technology and Content Management
(12,550)
 
(11,834)
 
(35,347)
 
(37,872)
 
Occupancy and Other
(5,956)
 
(4,139)
 
(18,706)
 
(13,900)
 
Contribution to Profit
$9,307
 
$13,279
 
$26,630
 
$19,513
                 
 
EDUCATION
             
 
Revenue
$110,864
 
$114,935
 
$308,064
 
$299,742
                 
 
Direct Contribution to Profit
$46,415
 
$48,411
 
$114,721
 
$113,041
  Allocated Shared Services and Administrative Costs:              
 
Distribution and Operation Services
(3,341)
 
(4,098)
 
(9,886)
 
(11,987)
 
Technology and Content Management
(12,815)
 
(11,935)
 
(39,630)
 
(34,979)
 
Occupancy and Other
(3,678)
 
(2,527)
 
(10,448)
 
(8,573)
 
Contribution to Profit
$26,581
 
$29,851
 
$54,757
 
$57,502
                 
 
Total Contribution to Profit
$103,887
 
$112,363
 
$297,990
 
$281,661
 
Unallocated Shared Services and Administrative Costs
(49,845)
 
(38,983)
 
(118,314)
 
(122,530)
 
Operating Income
$54,042
 
$73,380
 
$179,676
 
$159,131
 
 
The following table reflects total Shared Services and Administrative costs by function, which are allocated to business segments based on the methodologies described above:
 
   
For the Three Months
 
For the Nine Months
   
Ended January 31,
 
Ended January 31,
 
Total Shared Services and Administrative Costs:
2015
 
2014
 
2015
 
2014
 
Distribution & Operation Services
$21,205
 
$25,227
 
$67,324
 
$75,743
 
Technology & Content Management
59,329
 
58,375
 
181,160
 
178,082
 
Finance
13,629
 
13,312
 
40,181
 
39,554
 
Other Administration
27,245
 
22,567
 
80,249
 
72,471
 
Restructuring Charges (see Note 7)
14,906
 
5,754
 
14,640
 
22,314
 
Total
$136,314
 
$125,235
 
$383,554
 
$388,164
 
 
13

 
 
In the first quarter of fiscal year 2015, the Company modified its segment product/service revenue categories to reflect recent changes to the business, including acquisitions and restructuring. All prior periods have been revised to reflect the new categorization as follows:
 
   
For the Three Months
 
For the Nine Months
   
Ended January 31,
 
Ended January 31,
 
Total Revenue by Product/Service:
2015
 
2014
 
2015
 
2014
 
Research Communications
$187,654
 
$185,775
 
$598,175
 
$566,399
 
Books and Custom Print Products
171,131
 
196,468
 
513,237
 
546,860
 
Education Services (Deltak)
22,974
 
19,144
 
58,908
 
50,395
 
Talent Solutions
29,086
 
6,484
 
72,702
 
21,625
 
Course Workflow Solutions (WileyPlus)
20,841
 
18,575
 
40,552
 
35,587
 
Other
34,219
 
31,487
 
97,220
 
97,240
 
Total
$465,905
 
$457,933
 
$1,380,794
 
$1,318,106
 
 
 
10.
Inventories
 
Inventories were as follows (in thousands):
 
   
As of January  31,
 
As of April 30,
   
2015
 
2014
 
2014
 
Finished goods
$48,212
 
$62,460
 
$62,071
 
Work-in-process
6,884
 
6,875
 
6,041
 
Paper, cloth and other
5,485
 
7,088
 
5,476
   
$60,581
 
$76,423
 
$73,588
 
Inventory value of estimated sales returns
9,538
 
8,797
 
6,774
 
LIFO reserve
(5,092)
 
(6,052)
 
(4,867)
 
Total inventories
$65,027
 
$79,168
 
$75,495
 
 
 
11.
Intangible Assets
 
Intangible assets consisted of the following (in thousands):
 
   
  As of January 31,
 
As of April 30,
   
2015
 
2014
 
2014
 
Intangible assets with indefinite lives:
         
 
Brands and trademarks
$151,933
 
$162,179
 
$164,202
 
Content and publishing rights
87,280
 
105,701
 
106,898
 
 
$239,213
 
$267,880
 
$271,100
             
 
Net intangible assets with determinable lives:
         
 
Content and publishing rights
$490,478
 
$529,197
 
$535,827
 
Customer relationships
185,291
 
150,649
 
162,295
 
Brands and trademarks
17,572
 
13,400
 
14,716
 
Covenants not to compete
745
 
805
 
723
 
 
$694,086
 
$694,051
 
$713,561
 
Total
$933,299
 
$961,931
 
$984,661
 
In the third quarter of fiscal year 2015, the Company completed its annual impairment review of Goodwill and indefinite-lived intangible assets. No impairments were identified.
 
 
14

 
 
12.   Income Taxes
 
The effective tax rate for the nine months ended  January 31, 2015 was 24.3% compared to 17.6% in the prior year. During the first quarter of 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 deferred tax benefit described above, the Company’s effective tax rate decreased from 24.6% to 24.3% principally due to a lower proportion of income from high tax jurisdictions in the current year and lower U.K. income tax rates partially offset by  lower net tax reserve releases of $2.0 million.
 
Payments Related to Tax Audit in Germany
 
In fiscal year 2003, the Company merged several of its German subsidiaries into a new operating entity which enabled the Company to increase (“step-up”) the tax deductible net asset basis of the merged subsidiaries to fair market value. The expected tax benefits to be derived from the step-up are approximately 50 million euros claimed as amortization over 15 years beginning in fiscal year 2003.
 
In May 2012, as part of its routine tax audit process, the German tax authorities filed a challenge to the Company’s tax position with respect to the amortization of certain stepped-up assets. The Company filed an appeal with the local finance court in September 2014.  Under German tax law, the Company must pay all contested taxes and the related interest to have the right to defend its position. As a result, the Company made deposits of 5 million and 8 million euros in the first nine months of fiscal years 2015 and 2014, respectively, related to amortization claimed on certain “stepped-up” assets. The Company has made all required payments to date with total deposits paid of 48 million euros through January 31, 2015. The Company expects that it will be required to deposit additional amounts up to 10 million euros plus interest for tax returns to be filed in future periods until the issue is resolved.
 
In October 2014, the Company received an unfavorable decision from the local finance court and is in the process of appealing the court decision. The Company’s management and its advisors continue to believe that the Company is “more likely than not” to successfully defend that the tax treatment was proper and in accordance with German tax regulations. As such, the Company has not recorded any charges related to the loss of the step-up benefit. The Company filed its appeal in January 2015. Resolution of the appeal is expected to take 18 to 24 months. If the Company is ultimately successful, as expected, the tax deposits will be returned with 6% simple interest, based on current German legislation. As of January 31, 2015, the USD equivalent of the deposit and accrued interest was $60.1 million, which is recorded as Income Tax Deposits on the Condensed Consolidated Statements of Financial Position. The Company records the accrued interest at 6% within the Provision for Income Taxes in the Condensed Consolidated Statements of Income.
 
 
13.
Retirement Plans
 
The components of net pension expense for the company’s global defined benefit plans were as follows (in thousands):
 
   
For the Three Months
Ended January 31,
 
For the Nine Months
Ended January 31,
   
2015
 
2014
 
2015
 
2014
 
Service Cost
$1,516
 
$2,042
 
$4,657
 
$6,004
 
Interest Cost
8,039
 
7,509
 
23,228
 
22,173
 
Expected Return on Plan Assets
(9,683)
 
(9,176)
 
(27,660)
 
(27,064)
 
Net Amortization of Prior Service Cost
22
 
32
 
77
 
93
 
Recognized Net Actuarial Loss
2,075
 
3,610
 
5,855
 
10,669
 
Net Pension Expense
$1,969
 
$4,017
 
$6,157
 
$11,875
 
 
15

 
 
As disclosed in the Company’s fiscal year 2013 Form 10-K, in March 2013 the Company’s Board of Directors approved plan amendments that froze the U.S. Employees’ Retirement Plan, Supplemental Benefit Plan, and Supplemental Executive Retirement Plan, defined benefit plans effective June 30, 2013. As a result of freezing the U.S. defined benefit plans, the Company changed the amortization period from the average expected future service period of active plan participants to the average expected life of plan participants. Employer defined benefit pension plan contributions were $3.1 million and $9.0 million for the three months ended January 31, 2015 and 2014, respectively, and $8.1 million and $14.5 million for the nine months ended January 31, 2015 and 2014, respectively. Contributions for employer defined contribution plans were approximately $3.2 million and $6.1 million for the three months ended January 31, 2015 and 2014 respectively, and $12.1 million and $10.8 million for the nine months ended January 31, 2015 and 2014, respectively.
 
The Company’s Board of Directors approved plan amendments that will freeze the Retirement Plan for the Employees of John Wiley & Sons, Canada, which will be effective on December 31, 2015.  Under the amendments, no new employees will be permitted to enter this plan and no additional benefits for current participants for future services will be accrued after December 31, 2015.  The Company recorded a one-time pension plan net credit of $0.6 million in the third quarter of fiscal year 2015 as a result of the plan amendments.
 
 
14.   Debt and Available Credit Facilities
 
On December 22, 2014, the Company entered into a new $50 million 30-day U.S. dollar revolving credit facility 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 December 22, 2014. The borrowing rate is LIBOR plus a margin of 1.0%. The proceeds of the new 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 new 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 October 31, 2014. 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 January 31, 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.
 
 
15.
Derivative Instruments and Hedging Activities
 
The Company, from time-to-time, enters into forward exchange and interest rate swap contracts as a hedge against foreign currency asset and liability commitments, changes in interest rates and anticipated transaction exposures, including intercompany purchases. All derivatives are recognized as assets or liabilities and measured at fair value.  Derivatives that are not determined to be effective hedges are adjusted to fair value with a corresponding adjustment to earnings.  The Company does not use financial instruments for trading or speculative purposes.
 
Interest Rate Contracts:
 
The Company had $688.0 million of variable rate loans outstanding at January 31, 2015, which approximated fair value. As of January 31, 2015 and 2014, the interest rate swap agreements maintained by the Company were designated as fully effective cash flow hedges as defined under Accounting Standards Codification (“ASC”) 815 “Derivatives and Hedging”.  As a result, there was no impact on the Company’s Condensed Consolidated Statements of Income for changes in the fair value of the interest rate swaps. Under ASC 815, fully effective derivative instruments that are designated as cash flow hedges have changes in their fair value recorded initially within Accumulated Other Comprehensive Loss in the Condensed Consolidated Statements of Financial Position. As interest expense is recognized based on the variable rate loan agreements, the corresponding deferred gain or loss on the interest rate swaps is reclassified from Accumulated Other Comprehensive Loss to Interest Expense in the Condensed Consolidated Statements of Income. It is management’s intention that the notional amount of interest rate swaps be less than the variable rate loans outstanding during the life of the derivatives.
 
 
16

 
 
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 January 31, 2015, the notional amount of the interest rate swap was $150.0 million.

On January 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 0.47% 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 January 15, 2016. As of January 31, 2015, the notional amount of the interest rate swap was $150.0 million.
 
On March 30, 2012, 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 0.645% 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 ending March 31, 2015. As of January 31, 2015, the notional amount of the interest rate swap was $150.0 million.
 
The Company records the fair value of its interest rate swaps on a recurring basis using Level 2 inputs of quoted prices for similar assets or liabilities in active markets. The fair value of the interest rate swaps as of January 31, 2015 and 2014 and April 30, 2014 was a deferred loss of $0.8 million, $1.1 million, and $1.0 million, respectively. Based on the maturity dates of the contracts, approximately $0.4 million and $0.7 million of the deferred losses as of January 31, 2015 and April 30, 2014 were recorded in Other Accrued Liabilities, with the remaining deferred losses in each period of $0.4 million and $0.3 million recorded in Other Long-Term Liabilities, respectively. The entire $1.1 million deferred loss as of January 31, 2014 was recorded in Other Long-Term Liabilities. The pre-tax losses that were reclassified from Accumulated Other Comprehensive Loss into Interest Expense for the three months ended January 31, 2015 and 2014 were $0.5 million and $0.3 million, respectively. The pre-tax losses that were reclassified from Accumulated Other Comprehensive Loss into Interest Expense for the nine months ended January 31, 2015 and 2014 were $1.3 million and $0.9 million, respectively.
 
Foreign Currency Contracts:
 
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 (Losses) in the Condensed Consolidated Statements of Income, and carried at their fair value in the Condensed Consolidated Statements of Financial Position. Foreign currency denominated assets and liabilities are remeasured at spot rates in effect on the balance sheet date, with the effects of changes in spot rates reported in Foreign Exchange Transaction Gains (Losses). As of January 31, 2015, the Company maintained two open forward contracts with notional amounts of 75 million euros and 103 million pounds sterling to hedge certain intercompany loans. As of January 31, 2014, the total notional amounts of the open forward contracts were 73 million pounds sterling. The Company did not maintain any open forward contracts as of April 30, 2014. During the first nine months of fiscal years 2015 and 2014, the Company did not designate any forward 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.
 
 
17

 
 
As of January 31, 2015 and 2014, the fair values of the open forward exchange contracts were losses of approximately $8.8 million and $0.3 million, respectively, and recorded within Other Accrued Liabilities, in the Condensed Consolidated Statements of Financial Position. The fair values were measured on a recurring basis using Level 2 inputs. For the three and nine months ended January 31, 2015, losses recognized on the forward contracts were $4.6 million, $8.8 million, respectively. For the three and nine months ended January 31, 2014, losses recognized on the forward contracts were $0.3 million and $0.4 million, respectively.
 
 
16.
Corporate Headquarters Lease Renewal
 
During the first quarter of fiscal year 2015, the Company renewed the lease for its corporate headquarters in Hoboken, New Jersey. The lease renewal is an operating lease which commences on July 1, 2017 and extends the current lease through March 31, 2033.  As a result of the renewal, the Company’s total future minimum payments under the new lease will be $223.0 million, with annual minimum payments of $14.4 million in fiscal years 2018 through 2022.

 
18

 
 

 
RESULTS OF OPERATIONS – THIRD QUARTER ENDED JANUARY 31, 2015
 
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 the third quarters of fiscal years 2015 and 2014, the average exchange rates to convert British pounds sterling to U.S. dollars were 1.56 and 1.63, respectively; the average exchange rates to convert euros into U.S. dollars were 1.22 and 1.36, respectively; and the average exchange rates to convert Australian dollars to U.S. dollars were 0.84 and 0.91, respectively. Unless otherwise noted, all variance explanations below are on a currency neutral basis.
 
For the Company’s recent international acquisition CrossKnowledge Group, Ltd. (“CrossKnowledge”), results reflect five months of operations. Previously reported results were on a two-month lag, as disclosed, to facilitate accurate reporting. With the five months reported, CrossKnowledge is now current on a year-to-date basis..
 
Revenue:
 
Revenue for the third quarter of fiscal year 2015 increased 2% to $465.9 million, or 5% excluding the unfavorable impact of foreign exchange.  The increase mainly reflects incremental revenue from the acquisitions of CrossKnowledge ($16 million) and Profiles International (“Profiles”) ($6 million), growth in journal subscription revenue, Education Services (Deltak), Education custom products and workflow solutions ($3 million) and other publishing income, partially offset by lower print book revenue in all three businesses ($22 million).
 
Cost of Sales and Gross Profit:
 
Cost of sales for the third quarter of fiscal year 2015 decreased 5% to $124.2 million, or 2% excluding the favorable impact of foreign exchange.  The decrease mainly reflects cost savings from outsourcing and procurement initiatives ($3 million) and lower print book volume, partially offset by incremental costs from acquisitions ($3 million) and Education Services (Deltak) program growth ($1 million).
 
Gross profit for the third quarter of fiscal year 2015 of 73.3% was 180 basis points higher than prior year due to incremental revenue from higher margin acquisitions (60 basis points), cost savings from outsourcing and procurement initiatives and growth in lower cost digital products.
 
Operating and Administrative Expenses:
 
Operating and administrative expenses for the third quarter of fiscal year 2015 increased 5% to $250.5 million, or 7% excluding the favorable impact of foreign exchange.  The increase was mainly driven by incremental operating and administrative expenses from acquisitions ($20 million), technology investments in internal systems and digital platforms ($5 million), the expiration of a real estate tax incentive related to the Hoboken headquarters ($3 million) and Education Services (Deltak) program growth ($2 million), partially offset by restructuring and other cost savings over prior year ($11 million).
 
 
19

 
 
Restructuring Charges:
 
In the third quarters of fiscal year 2015 and 2014, the Company recorded pre-tax restructuring charges of $24.0 million ($0.28 per share) and $4.3 million ($0.05 per share), respectively, which are described in more detail below.
 
The following table summarizes the pre-tax restructuring charges related to this program, which are reflected in Restructuring Charges in the Condensed Consolidated Statements of Income (in thousands):
 
       
Cumulative
   
For the Three Months
 
Program Charges
   
Ended January 31,
 
Incurred to Date
   
2015
 
2014
   
 
Charges (Credits) by Segment:
         
 
Research
$4,507
 
$(782)
 
$14,992
 
Professional Development
3,588
 
(833)
 
21,977
 
Education
1,033
 
117
 
3,092
 
Shared Services
14,906
 
5,754
 
50,992
 
Total Restructuring Charges
$24,034
 
$4,256
 
$91,053
             
 
Charges (Credits) by Activity:
         
 
Severance
$11,962
 
$(270)
 
$58,271
 
Process reengineering consulting
446
 
2,588
 
11,475
 
Other activities
11,626
 
1,938
 
21,307
 
Total Restructuring Charges
$24,034
 
$4,256
 
$91,053
 
The credits above within the three month period of fiscal year 2014 reflect true-ups to the previously estimated accrued restructuring charges. Other Activities mainly reflect leased facility consolidations and other contract termination costs. The cumulative charge recorded to-date related to the Restructuring and Reinvestment program of $91.1 million is expected to be fully recovered by the end of fiscal year 2016.
 
Amortization of Intangibles:
 
Amortization of intangibles increased $1.9 million to $13.1 million in the third quarter of fiscal year 2015 and was mainly driven by Talent Solutions acquisitions in Professional Development.
 
Interest Expense/Income, Foreign Exchange and Other:
 
Interest expense for the third quarter of fiscal year 2015 increased $0.9 million to $4.4 million.  The increase was driven by higher average debt mainly due to acquisition financing and higher interest rates. The Company’s average cost of borrowing in the third quarters of fiscal years 2015 and 2014 was 1.9% and 1.8%, respectively. In the third quarter of fiscal year 2015, the Company recognized foreign exchange transaction gains of $2.8 million mainly related to U.S. dollar intercompany receivables held in the U.K. and Germany during the quarter.
 
Provision for Income Taxes:
 
The effective tax rate for the third quarter of fiscal year 2015 was 20.1% compared to 25.4% in the prior year.  The decrease was principally due to a lower proportion of income from high tax jurisdictions in the current year and lower U.K. income tax rates. Current year income included proportionately higher restructuring charges related to U.S. operations.
 
Earnings Per Share:
 
Earnings per diluted share for the third quarter of fiscal year 2015 decreased 18% to $0.72 per share.  Excluding the impact of the third quarter 2015 ($0.28 per share) and third quarter 2014 ($0.05 per share) restructuring charges and the unfavorable impact of foreign exchange ($0.02 per share), earnings per diluted share increased 9%.  The increase was mainly driven by higher gross margins from digital products, restructuring and other cost savings and lower income tax rates, partially offset by investments in digital products and services and internal business systems, as well as the dilutive impact of the recent Talent Solutions acquisitions.
 
 
20

 
 
THIRD QUARTER SEGMENT RESULTS
 
As part of Wiley’s restructuring and reorganization program, in the first quarter of fiscal year 2015, the Company consolidated certain decentralized business functions (Content Management, Vendor Procurement Services, Marketing Services, etc.) into global shared service functions. These newly centralized service groups enable 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 the shared service functions. In addition, the Company has modified its segment product/service revenue categories to reflect recent changes to the business. Prior year amounts have been restated to reflect the same reporting methodology.

   
For the Three Months
   
   
Ended January 31,
 
% change
 
RESEARCH:
2015
2014
% change
w/o FX (a)
           
 
Revenue:
       
 
Research Communication:
 
 
 
 
 
Journal Subscriptions
 $153,755
 $154,035
0%
4%
 
Funded Access
 6,066
 4,347
40%
46%
 
Other Journal Revenue
27,833
 27,393
2%
7%
   
187,654
 185,775
1%
5%
 
Books and References:
       
 
Print Books
 27,743
 30,990
-10%
-8%
 
Digital Books
 10,941
 12,636
-13%
-9%
   
 38,684
 43,626
-11%
-8%
           
 
Other Research Revenue
 20,116
 19,396
4%
8%
           
 
Total Revenue
 $246,454
 $248,797
-1%
3%
           
 
Cost of Sales
 (65,169)
 (68,885)
-5%
-2%
           
 
Gross Profit
 $181,285
 $179,912
1%
5%
 
Gross Profit Margin
73.6%
72.3%
   
           
 
Direct Expenses
 (61,146)
 (62,259)
-2%
2%
 
Amortization of Intangibles
 (6,905)
 (7,117)
-3%
0%
 
Restructuring (Charges) Credits (see Note 7)
 (4,507)
 782
   
           
 
Direct Contribution to Profit
 $108,727
 $111,318
-2%
7%
 
Direct Contribution Margin
44.1%
44.7%
   
           
 
Shared Services and Administrative Costs:
       
 
Distribution and Operational Services
 (10,722)
 (11,406)
-6%
-2%
 
Technology and Content Management
 (24,254)
 (24,888)
-3%
-1%
 
Occupancy and Other
 (5,752)
 (5,791)
-1%
3%
           
 
Contribution to Profit
 $67,999
 $69,233
-2%
11%
 
Contribution Margin
27.6%
27.8%
   
 
(a) Adjusted to exclude the fiscal year 2015 and 2014 Restructuring (Charges) Credits
 
 
21

 
 
Revenue:
 
Research revenue for the third quarter of fiscal year 2015 decreased 1% to $246.5 million, but increased 3% excluding the unfavorable impact of foreign exchange. The growth was driven by Journal Subscriptions, Funded Access, Other Journal Revenue and Other Research Revenue, partially offset by declines in Print and Digital Books.  Journal subscription revenue growth was driven by publication timing ($3 million), new subscriptions ($2 million) and new titles ($1 million). As of January 31, 2015, calendar year 2015 journal subscription renewals were up approximately 1% over calendar year 2014 on a constant currency basis with approximately 81% of targeted business closed.
 
Funded Access revenue, which represents article publication fees that provide for free access to author articles grew $1.7 million in the third quarter. Growth in Other Journal Revenue, which includes service charges for journal page counts and color charges and sales of journal licensing rights, backfiles and individual articles, was mainly driven by the favorable timing of journal licensing rights. Print Books declined 8% to $27.7 million and Digital Books declined 9% to $10.9 million. The decline in Digital Books was mainly due to a significant digital book license sold in the prior year. Other Research Revenue, which includes journal reprint revenue, advertising, book licensing rights, distribution services and the sale of protocols, increased 8% mainly due to higher journal reprint revenue.
 
 
Revenue by Region is as follows (in millions):
   
For the Three Months
   
   
Ended January 31,
% of
% change
   
           2015
          2014
Revenue
w/o FX
 
Revenue by Region
 
 
 
 
 
Americas
$95.6
$97.5
39%
-2%
 
EMEA
136.6
138.0
55%
6%
 
Asia-Pacific
14.3
13.3
6%
15%
 
Total Revenue
 $246.5
$248.8
100%
3%
 
Cost of Sales:
 
Cost of sales for the third quarter of fiscal year 2015 decreased 5% to $65.2 million, or 2% excluding the favorable impact of foreign exchange.  The decrease mainly reflects cost savings from outsourcing and procurement initiatives and lower cost digital products ($3 million), partially offset by higher journal volume ($2 million).
 
Gross Profit:
 
Gross Profit Margin for the third quarter of fiscal year 2015 of 73.6% was 130 basis points higher than prior year mainly due to cost savings from outsourcing and procurement initiatives and growth in digital products.
 
Direct Expenses and Amortization:
 
Direct Expenses for the third quarter of fiscal year 2015 decreased 2% to $61.1 million, but increased 2% excluding the favorable impact of foreign exchange. The increase was mainly driven by higher editorial costs to support business growth. Amortization of Intangibles decreased $0.2 million to $6.9 million, but was flat excluding the favorable impact of foreign exchange.
 
Contribution to Profit:
 
Contribution to Profit for the third quarter of fiscal year 2015 decreased 2% to $68.0 million, but increased 11% excluding the current and prior year Restructuring (Charges) Credits and the unfavorable impact of foreign exchange. The increase was mainly driven by revenue growth and restructuring and other cost savings.  Contribution Margin decreased 20 basis points to 27.6% mainly due to the restructuring charges in the current year, partially offset by restructuring and other cost savings and higher margin digital revenue.
 
 
22

 
 
Society Partnerships
·  
2 new society journals were signed during the quarter with combined annual revenue of approximately $0.2 million
·  
24 renewals/extensions were signed with approximately $13.0 million in combined annual revenue
·  
3 journals were not renewed with combined annual revenue of approximately $0.6 million
 
   
For the Three Months
   
   
Ended January 31,
 
% change
 
PROFESSIONAL DEVELOPMENT (PD):
2015
2014
% change
w/o FX (a)
           
 
Revenue:
       
 
Knowledge Services:
 
 
 
 
 
Print Books
 $55,955
 $64,497
-13%
-11%
 
Digital Books
 11,352
 13,102
-13%
-13%
 
Online Test Preparation and Certification
 4,030
 3,545
14%
14%
 
Other
 8,164
 6,573
24%
26%
 
 
 79,501
 87,717
-9%
-8%
 
Talent Solutions:
       
 
Assessment
 12,891
 6,484
99%
99%
 
Online Learning and Training
 16,195
 -
-
-
 
 
 29,086
 6,484
349%
349%
           
 
Total Revenue
 $108,587
 $94,201
15%
17%
           
 
Cost of Sales
 (29,054)
 (28,520)
2%
3%
           
 
Gross Profit
 $79,533
 $65,681
21%
23%
 
Gross Profit Margin
73.2%
69.7%
   
           
 
Direct Expenses
 (36,921)
 (25,958)
42%
43%
 
Amortization of Intangibles
 (3,810)
 (1,670)
128%
128%
 
Restructuring (Charges) Credits (see Note 7)
 (3,588)
 833
   
           
 
Direct Contribution to Profit
 $35,214
 $38,886
-9%
4%
 
Direct Contribution Margin
32.4%
41.3%
   
           
 
Shared Services and Administrative Costs:
       
 
Distribution and Operational Services
 (7,401)
 (9,634)
-23%
-21%
 
Technology and Content Management
 (12,550)
 (11,834)
6%
7%
 
Occupancy and Other
 (5,956)
 (4,139)
44%
44%
           
 
Contribution to Profit
 $9,307
 $13,279
-30%
6%
 
Contribution Margin
8.6%
14.1%
   
 
(a)   Adjusted to exclude the fiscal year 2015 and 2014 Restructuring (Charges) Credits
 
For the Company’s recent international acquisition, CrossKnowledge, results reflect five months of operations. Previously reported results were on a two-month lag, as disclosed, to facilitate accurate reporting. With the five months reported, CrossKnowledge is now current on a year-to-date basis.
 
 
23

 
 
Revenue:
 
PD revenue for the third quarter of fiscal year 2015 increased 15% to $108.6 million, or 17% excluding the unfavorable impact of foreign exchange reflecting incremental revenue from the CrossKnowledge ($16 million) and Profiles ($6 million) acquisitions.  Excluding revenue from both acquisitions, revenue decreased 7% as declines in Book sales exceeded growth in Online Test Preparation and Certification, Other Knowledge Services and other Assessment revenue. Other Knowledge Services revenue, which includes the sales of licensing rights, subscription revenue and advertising and agency revenue, increased 24% to $8.2 million due to higher advertising and licensing revenue.
 
Revenue by Region is as follows (in millions):
   
For the Three Months
   
   
Ended January 31,
% of
% change
   
         2015
       2014
Revenue
w/o FX
 
Revenue by Region:
 
 
 
 
 
Americas
 $69.6
$73.5
65%
-5%
 
EMEA
33.1
15.1
30%
125%
 
Asia-Pacific
5.9
5.6
5%
10%
 
Total Revenue
 $108.6
$94.2
100%
17%
 
Cost of Sales:
 
Cost of Sales for the third quarter of fiscal year 2015 increased 2% to $29.1 million, or 3% excluding the favorable impact of foreign exchange.  The increase was mainly driven by costs from new acquisitions ($3 million), partially offset by lower Print Book volume ($2 million).
 
Gross Profit:
 
Gross Profit Margin increased from 69.7% to 73.2% in the third quarter of fiscal year 2015.  The improvement was mainly driven by higher margin incremental revenue from the CrossKnowledge (200 basis points) and Profiles (150 basis points) acquisitions.
 
Direct Expenses and Amortization:
 
Direct Expenses for the third quarter of fiscal year 2015 increased 42% to $36.9 million.  The increase was driven by incremental direct operating expenses from acquisitions ($15 million), partially offset by restructuring and other cost savings ($3 million) and lower consulting costs ($1 million).  Amortization of Intangibles increased $2.1 million to $3.8 million in the third quarter of fiscal year 2015 principally due to the Profiles and CrossKnowledge acquisitions.
 
Contribution to Profit:
 
Contribution to Profit decreased $4.0 million to $9.3 million in the third quarter of fiscal year 2015, but increased 6% on a currency neutral basis and excluding the current and prior year Restructuring (Charges) Credits.  The improvement was mainly driven by restructuring and other cost savings, partially offset by the dilutive impact of the Talent Solutions acquisitions.  Contribution Margin decreased from 14.1% to 8.6% in the third quarter of fiscal year 2015 mainly due to the current year Restructuring Charges and the dilutive impact of the Talent Solutions acquisitions, partially offset by restructuring and other cost savings.
 
Online Learning and Training Partnership
 
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.
 
 
24

 
 

   
For the Three Months
   
   
Ended January 31,
 
% change
 
EDUCATION:
2015
2014
% change
w/o FX (a)
           
 
Revenue:
       
 
Books:
 
 
 
 
 
Print Textbooks
 $40,473
 $54,389
-26%
-23%
 
Digital Books
 11,042
 7,962
39%
41%
 
 
 51,515
 62,351
-17%
-14%
           
 
Custom Products
 13,625
 12,892
6%
6%
           
 
Course Workflow Solutions (WileyPLUS)
 20,841
 18,575
12%
13%
           
 
Education Services (Deltak)
 22,974
 19,144
20%
20%
           
 
Other Education Revenue
 1,909
 1,973
-3%
-3%
           
 
Total Revenue
 $110,864
 $114,935
-4%
-2%
           
 
Cost of Sales
 (30,022)
 (33,158)
-9%
-9%
           
 
Gross Profit
 80,842
 81,777
-1%
1%
 
Gross Profit Margin
72.9%
71.2%
   
           
 
Direct Expenses
 (31,012)
 (30,867)
0%
2%
 
Amortization of Intangibles
 (2,382)
 (2,382)
0%
0%
 
Restructuring Charges (see Note 7)
 (1,033)
 (117)
 
 
           
 
Direct Contribution to Profit
 $46,415
$48,411
-4%
-1%
 
Direct Contribution Margin
41.9%
42.1%
   
           
 
Shared Service Costs:
       
 
Distribution and Operational Services
 (3,341)
 (4,098)
-18%
-16%
 
Technology and Content Management
 (12,815)
 (11,935)
7%
8%
 
Occupancy and Other
 (3,678)
 (2,527)
46%
50%
           
 
Contribution to Profit
 $26,581
 $29,851
-11%
-4%
 
Contribution Margin
24.0%
26.0%
   
 
(a)    Adjusted to exclude the fiscal year 2015 and 2014 Restructuring Charges
 
Revenue:
 
Education revenue for the third quarter of fiscal year 2015 decreased 4% to $110.9 million, or 2% excluding the unfavorable impact of foreign exchange. The decrease was driven by Print Textbooks, partially offset by growth in Education Services (Deltak), Digital Books, Course Workflow Solutions (WileyPLUS) and Custom Products. WileyPLUS revenue, which is earned ratably over the school semester, grew 12% during the third quarter of fiscal year 2015. Unearned deferred WileyPLUS revenue as of January 31, 2015 was $14.2 million as compared to $12.8 million as of January 31, 2014.
 
Education Services (Deltak) accounted for 21% of total Education revenue in the third quarter of fiscal year 2015 compared to 17% in the prior year.  During the quarter, Education Services added Manhattan College as an online program partner and 11 new programs under contract.  As of January 31, 2015, Deltak had 38 university partners, compared to 36 in the prior year. As of January 31, 2015, Deltak had 192 programs under contract (28 in development but not yet generating revenue) compared to 165 programs under contract (45 in development but not yet generating revenue) in the prior year period.
 
 
25

 
 
Revenue by Region is as follows (in millions):
   
 For the Three Months
   
   
Ended January 31,
% of
% change
   
          2015
       2014
Revenue
w/o FX
 
Revenue by Region:
 
 
   
 
Americas
 $86.6
$88.6
79%
-2%
 
EMEA
4.9
4.3
4%
10%
 
Asia-Pacific
19.4
22.0
17%
-4%
 
Total Revenue
 $110.9
$114.9
100%
-2%
 
Cost of Sales:
 
Cost of Sales for the third quarter of fiscal year 2015 decreased 9% to $30.0 million. Lower sales volume ($2 million), inventory obsolescence provisions ($1 million) and royalty costs ($1 million) were partially offset by higher student recruitment costs in Education Services (Deltak) due to growth in new partners and programs ($1 million).
 
Gross Profit:
 
Gross Profit Margin for the third quarter of fiscal year 2015 improved 170 basis points to 72.9% principally due to lower inventory obsolescence provisions (80 basis points), product mix (50 basis points) and other, mainly cost savings initiatives.
 
Direct Expenses and Amortization:
 
Direct Expenses were $31.0 million in the third quarter of fiscal year 2015 and flat with the prior year, but increased 2% excluding the favorable impact of foreign exchange. The increase was mainly driven by costs associated with growth in Education Services (Deltak) partner programs ($2 million), partially offset by restructuring and other cost savings. Amortization of Intangibles was $2.4 million in the second quarters of fiscal years 2015 and 2014.
 
Contribution to Profit
 
Contribution to Profit for the third quarter of fiscal year 2015 decreased 11% to $26.6 million, or 4% excluding the unfavorable impact of foreign exchange and the current and prior year Restructuring Charges. The decrease was mainly due to lower Print Textbook volume. Contribution Margin decreased 200 basis points to 24.0% in the third quarter of fiscal year 2015, or 70 basis points on a currency neutral basis and excluding the current and prior year Restructuring Charges. The decline reflects continued investment in new partners and programs of Education Services (Deltak).
 
SHARED SERVICES AND ADMINISTRATIVE COSTS:
 
As part of Wiley’s restructuring and reorganization program, in the first quarter of fiscal year 2015 the Company consolidated certain decentralized business functions (Content Management, Vendor Procurement Services, Central Marketing, etc.) into global shared service functions. These newly centralized service groups enable 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 the shared service functions.  Prior year amounts have been restated to reflect the same reporting methodology.

 
26

 

   
For the Three Months
   
   
Ended January 31,
 
% change
   
2015
2014
% change
w/o FX (a)
           
 
Distribution and  Operation Services
 $21,205
 $25,227
-16%
-13%
 
Technology and Content Management
 59,329
 58,375
2%
3%
 
Finance
 13,629
 13,312
2%
5%
 
Other Administration
 27,245
 22,567
21%
23%
 
Restructuring Charges (see Note 7)
 14,906
 5,754
   
 
Total
 $136,314
 $125,235
2%
11%
 
(a) Adjusted to exclude the fiscal year 2015 and 2014 Restructuring Charges
 
Shared Services and Administrative Costs for the third quarter of fiscal year 2015 increased 2% to $136.3 million, or 11% on a currency neutral basis and excluding the current and prior year Restructuring Charges. Distribution and Operation Service costs decreased reflecting restructuring and other cost savings ($3 million) and lower print volume ($1 million). Technology and Content Management costs increased mainly due to incremental costs from acquisitions ($3 million) and investments in internal systems and digital platforms, partially offset by restructuring and other cost savings ($3 million). Finance costs increased mainly due to incremental costs from acquisitions. Other Administration costs increased mainly due to the expiration of a real estate tax incentive related to the Hoboken headquarters ($3 million), incremental costs from the CrossKnowledge acquisition ($1 million) and business consulting costs ($1 million).
 
 
RESULTS OF OPERATIONS – NINE MONTHS ENDED JANUARY 31, 2015
 
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 the first nine months of fiscal years 2015 and 2014, the average exchange rates to convert British pounds sterling to U.S. dollars were 1.63 and 1.58, respectively; the average exchange rates to convert euros into U.S. dollars were 1.29 and 1.34, respectively; and the average exchange rates to convert Australian dollars to U.S. dollars were 0.89 and 0.93, respectively. Unless otherwise noted, all variance explanations below are on a currency neutral basis.
 
Revenue:
 
Revenue for the first nine months of fiscal year 2015 increased 5% to $1,380.8 million.  The increase mainly reflects incremental revenue from the Talent Solutions acquisitions of CrossKnowledge Group, Ltd. (“CrossKnowledge”) ($32 million) and Profiles International (“Profiles”) ($17 million), growth in journal subscription revenue ($11 million), Education custom products and workflow solutions ($11 million), the sale of a journal backfile license ($10 million), Education Services (Deltak) ($9 million), funded access revenue ($5 million) and other publishing income ($7 million), partially offset by lower print book revenue in all three businesses ($36 million).
 
Cost of Sales and Gross Profit:
 
Cost of sales for the first nine months of fiscal year 2015 increased 1% to $382.8 million, but was flat excluding the unfavorable impact of foreign exchange.  Incremental costs from acquisitions ($6 million), higher royalty rates on society owned journals ($5 million), higher journal volume ($5 million) and Education Services (Deltak) program growth ($2 million) were offset by cost savings from outsourcing and procurement initiatives ($12 million) and lower print book volume ($4 million).
 
 
27

 
 
Gross profit for the first nine months of fiscal year 2015 of 72.3% was 120 basis points higher than prior year due to incremental revenue from higher margin acquisitions (50 basis points), cost savings from outsourcing and procurement initiatives and growth in lower cost digital products.
 
Operating and Administrative Expenses:
 
Operating and administrative expenses for the first nine months of fiscal year 2015 increased 6% to $755.5 million.  The increase was mainly driven by incremental operating and administrative expenses from acquisitions ($42 million), Education Services (Deltak) program growth ($10 million), technology investments in internal systems and digital platforms ($9 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 ($25 million).
 
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 the first nine months of fiscal years 2015 and 2014, the Company recorded pre-tax restructuring charges of $23.9 million ($0.27 per share) and $27.3 million ($0.31 per share), respectively, which are described in more detail below:
 
The following tables summarize the pre-tax restructuring charges related to this program, which are reflected in Restructuring Charges in the Condensed Consolidated Statements of Income (in thousands):
 
       
Cumulative
   
For the Nine Months
 
Program Charges
   
Ended January 31,
 
Incurred to Date
   
2015
 
2014
   
 
Charges by Segment:
         
 
Research
$4,322
 
$4,590
 
$14,992
 
Professional Development
3,833
 
4,834
 
21,977
 
Education
1,084
 
375
 
3,092
 
Shared Services
14,640
 
17,528
 
50,992
 
Total Restructuring Charges
$23,879
 
$27,327
 
$91,053
             
 
Charges by Activity:
         
 
Severance
$12,605
 
$14,661
 
$58,271
 
Process reengineering consulting
301
 
8,199
 
11,475
 
Other activities
10,973
 
4,467
 
21,307
 
Total Restructuring Charges
$23,879
 
$27,327
 
$91,053
 
Other Activities mainly reflect leased facility consolidations and other contract termination costs. The cumulative charge recorded to-date related to the Restructuring and Reinvestment program of $91.1 million is expected to be fully recovered by the end of fiscal year 2016.
 
 
28

 
 
Impairment Charges
 
In the second quarter of 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 $5.8 million to $38.9 million in the first nine months of fiscal year 2015 and was mainly driven by Talent Solutions acquisitions in Professional Development.
 
Interest Expense/Income, Foreign Exchange and Other:
 
Interest expense for the first nine months of fiscal year 2015 increased $2.7 million to $13.0 million.  The increase was driven by higher average debt mainly due to acquisition financing and higher interest rates. The Company’s average cost of borrowing in the first nine months of fiscal years 2015 and 2014 was 1.9% and 1.8%, respectively.  In the first nine months of fiscal year 2015, the Company recognized foreign exchange transaction gains of $2.8 million mainly related to U.S. dollar intercompany receivables in the U.K. and Germany.
 
Provision for Income Taxes:
 
The effective tax rate for the first nine months of fiscal year 2015 was 24.3% compared to 17.6% in the prior year. During the first quarter of 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 deferred tax benefit described above, the Company’s effective tax rate decreased from 24.6% to 24.3% principally due to a lower proportion of income from high tax jurisdictions in the current year and lower U.K. income tax rates, partially offset by lower net tax reserve releases of $2.0 million. Current year results included proportionately higher restructuring charges related to U.S. operations.
 
Earnings Per Share:
 
Earnings per diluted share for the first nine months of fiscal year 2015 increased 4% to $2.18 per share.  Excluding the impact of the third quarter 2015 ($0.27 per share) and third quarter 2014 ($0.31 per share) restructuring charges, the prior year impairment charges ($0.06 per share), the prior year deferred tax benefit related to the change in the U.K. statutory income tax rate ($0.18 per share) and the unfavorable impact of foreign exchange ($0.02 per share), earnings per diluted share increased 8%. The increase was mainly driven by growth in higher margin digital revenue and company-wide restructuring and other cost savings, partially offset by the dilutive impacts of investments in Talent Solutions and Education Services (Deltak).
 
 
SEGMENT RESULTS FOR THE NINE MONTHS ENDED JANUARY 31, 2015
 
As part of Wiley’s restructuring and reorganization program, in the first quarter of fiscal year 2015, the Company consolidated certain decentralized business functions (Content Management, Vendor Procurement Services, Marketing Services, etc.) into global shared service functions. These newly centralized service groups enable 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 the shared service functions. In addition, the Company has modified its segment product/service revenue categories to reflect recent changes to the business. Prior year amounts have been restated to reflect the same reporting methodology.
 
 
29

 
 
 
   
For the Nine Months
   
   
Ended January 31,
 
% change
 
RESEARCH:
2015
2014
% change
w/o FX (a)
           
 
Revenue:
       
 
Research Communication:
 
 
 
 
 
Journal Subscriptions
 $490,893
 $478,374
3%
2%
 
Funded Access
 16,562
 11,538
44%
43%
 
Other Journal Revenue
 90,720
 76,487
19%
19%
   
 598,175
 566,399
6%
5%
 
Books and References:
       
 
Print Books
 80,658
 89,483
-10%
-10
 
Digital Books
 30,154
 31,588
-5%
-4%
   
 110,812
 121,071
-8%
-8%
           
 
Other Research Revenue
 57,162
 60,062
-5%
-4%
           
 
Total Revenue
 $766,149
 $747,532
2%
2%
           
 
Cost of Sales
 (206,707)
 (204,428)
1%
1%
           
 
Gross Profit
 $559,442
 $543,104
3%
3%
 
Gross Profit Margin
73.0%
72.7%
   
           
 
Direct Expenses
 (189,500)
 (183,408)
3%
3%
 
Amortization of Intangibles
 (21,465)
 (20,927)
3%
1%
 
Restructuring Charges (see Note 7)
 (4,322)
 (4,590)
   
           
 
Direct Contribution to Profit
 $344,155
 $334,179
3%
3%
 
Direct Contribution Margin
44.9%
44.7%
   
           
 
Shared Services and Administrative Costs:
       
 
Distribution and Operational Services
 (34,141)
 (34,801)
-2%
-2%
 
Technology and Content Management
 (75,440)
 (75,969)
-1%
-1%
 
Occupancy and Other
 (17,971)
 (18,763)
-4%
-5%
           
 
Contribution to Profit
 $216,603
 $204,646
6%
7%
 
Contribution Margin
28.3%
27.4%
   
 
(a)   Adjusted to exclude the fiscal year 2015 and 2014 Restructuring Charges
 
Revenue:
 
Research revenue for the first nine months of fiscal year 2015 increased 2% to $766.1 million.  The growth was driven by Journal Subscriptions, Funded Access and Other Journal Revenue, partially offset by declines in Print and Digital Books and Other Research Revenue. Journal Subscription revenue growth was driven by new subscriptions ($4 million), publication timing ($4 million) and new titles ($3 million).  As of January 31, 2015, calendar year 2015 journal subscription renewals were up approximately 1% over calendar year 2014 on a constant currency basis with approximately 81% of targeted business closed.
 
 
30

 
 
Funded Access revenue, which represents article publication fees that provide for free access to author articles grew $5.0 million in the first nine months of fiscal year 2015. Growth in Other Journal Revenue, which includes service charges for journal page counts and color charges and sales of journal licensing rights, backfiles and individual articles, was mainly driven by the sale of a journal backfile license ($10 million) and journal rights ($3 million).  Print Books declined 10% to $80.7 million and Digital Books declined 4% to $30.2 million. Other Research Revenue, which includes journal reprint revenue, advertising, book licensing rights, distribution services and the sale of protocols, decreased 4% mainly due to lower journal reprint ($2 million) and advertising ($1 million) revenue.
 
Revenue by Region is as follows (in millions):
   
For the Nine Months
   
   
Ended January 31,
% of
% change
   
        2015
        2014
Revenue
w/o FX
 
Revenue by Region
 
 
 
 
 
Americas
$294.0
$295.2
38%
-1%
 
EMEA
429.8
412.0
56%
4%
 
Asia-Pacific
42.3
40.3
6%
8%
 
Total Revenue
 $766.1
$747.5
100%
2%
 
Cost of Sales:
 
Cost of sales for the first nine months of fiscal year 2015 increased 1% to $206.7 million.  The increase reflects higher royalty rates on society owned journals  ($5 million) and higher journal volume ($5 million), partially offset by cost savings from outsourcing and procurement initiatives and lower cost digital products ($9 million).
 
Gross Profit:
 
Gross Profit Margin for the first nine months of fiscal year 2015 of 73.0% was 30 basis points higher than prior year mainly due to cost savings from outsourcing and procurement initiatives and growth in digital products (110 basis points), partially offset by higher royalty rates on society owned journals (80 basis points).
 
Direct Expenses and Amortization:
 
Direct Expenses for the first nine months of fiscal year 2015 increased 3% to $189.5 million.  The increase was mainly driven by higher employment costs ($3 million) and higher editorial costs to support business growth ($2 million).  Amortization of Intangibles increased $0.5 million to $21.5 million in the first nine months of fiscal year 2015, but was flat excluding the unfavorable impact of foreign exchange.
 
Contribution to Profit:
 
Contribution to Profit for the first nine months of fiscal year 2015 increased 6% to $216.6 million, or 7% 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 90 basis points to 28.3% mainly due to the cost savings from outsourcing and procurement initiatives and growth in digital products, partially offset by higher royalty rates on society owned journals.
 
Society Partnerships
·  
7 new society journals were signed with combined annual revenue of approximately $1.4 million
·  
34 renewals/extensions were signed with approximately $25.2 million in combined annual revenue
·  
9 journals were not renewed with combined annual revenue of approximately $3.3 million
 
 
31

 

   
For the Nine Months
   
   
Ended January 31,
 
% change
 
PROFESSIONAL DEVELOPMENT (PD):
2015
2014
% change
w/o FX (a)
           
 
Revenue:
       
 
Knowledge Services:
 
 
 
 
 
Print Books
 $164,567
 $180,599
-9%
-9%
 
Digital Books
 36,316
 38,739
-6%
-6%
 
Online Test Preparation and Certification
 12,517
 10,666
17%
17%
 
Other
 20,479
 19,203
7%
7%
 
 
 233,879
 249,207
-6%
-6%
 
Talent Solutions:
       
 
Assessment
 41,200
 21,625
91%
91%
 
Online Learning and Training
 31,502
 -
-
-
 
 
 72,702
 21,625
236%
236%
           
 
Total Revenue
 $306,581
 $270,832
13%
13%
           
 
Cost of Sales
 (86,251)
 (84,559)
2%
2%
           
 
Gross Profit
 $220,330
 $186,273
18%
18%
 
Gross Profit Margin
71.9%
68.8%
   
           
 
Direct Expenses
 (101,902)
 (76,367)
33%
33%
 
Amortization of Intangibles
 (10,241)
 (4,997)
105%
105%
 
Restructuring Charges (see Note 7)
 (3,833)
 (4,834)
   
           
 
Direct Contribution to Profit
 $104,354
 $100,075