JOHN WILEY & SONS, INC. - Annual Report: 2018 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 10-K

☒          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

          THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended:  April 30, 2018

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)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☒   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 ☒

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 ☒   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 ☒   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, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ☐    No☒

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, 2017, was approximately $2,453 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, 2018 was 48,346,657 and 9,153,493 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 27, 2018, are incorporated by reference into Part III of this Form 10-K.

JOHN WILEY & SONS, INC. AND SUBSIDIARIES

FORM 10-K

FOR THE FISCAL YEAR ENDED APRIL 30, 2018

INDEX

Cautionary Notice Regarding Forward-Looking Statements "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995:

This report contains "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 concerning our business, consolidated financial condition and results of operations. The Securities and Exchange Commission ("SEC") encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. Forward-looking statements are subject to risks and uncertainties, many of which are outside our control, which could cause actual results to differ materially from these statements. Therefore, you should not rely on any of these forward-looking statements. Forward-looking statements can be identified by such words as "anticipates," "believes," "plan," "assumes," "could," "should," "estimates," "expects," "intends," "potential," "seek," "predict," "may," "will" and similar references to future periods. All statements other than statements of historical facts included in this report regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements we make regarding our fiscal year 2019 outlook, 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 our control, 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 our 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 our educational business and the impact of the used-book market; (vii) worldwide economic and political conditions; (viii) our ability to protect our copyrights and other intellectual property worldwide; (ix) our ability to successfully integrate acquired operations and realize expected opportunities and (x) other factors detailed from time to time in our filings with the SEC. We undertake no obligation to update or revise any such forward-looking statements to reflect subsequent events or circumstances.

Please refer to Part I, Item 1A, "Risk Factors," of our Annual Report on Form 10-K for important factors that we believe could cause actual results to differ materially from those in our forward-looking statements. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Non-GAAP Financial Measures:

We present financial information that conforms to Generally Accepted Accounting Principles in the United States of America ("U.S. GAAP"). We also present financial information that does not conform to U.S. GAAP, which we refer to as non-GAAP.

In this report, we may present the following non-GAAP performance measures:



Adjusted Earnings Per Share "(Adjusted EPS)"



Free Cash Flow less product development spending;



Adjusted Operating Income and margin;



Adjusted Contribution to Profit and margin; and



Results on a constant currency basis.

Management uses these non-GAAP performance measures as supplemental indicators of our operating performance and financial position as well for internal reporting and forecasting purposes, when publicly providing its outlook, to evaluate our performance and calculate incentive compensation. We present these non-GAAP performance measures in addition to U.S. GAAP financial results because we believe that these non-GAAP performance measures provide useful information to certain investors and financial analysts for operational trends and comparisons across accounting periods. The use of these non-GAAP performance measures provides a consistent basis to evaluate operating profitability and performance trends by excluding items that we do not consider to be controllable activities for this purpose.

For example:



Adjusted EPS, Adjusted Operating Profit, and Adjusted Contribution to Profit provide a more comparable basis to analyze operating results and earnings and are measures commonly used by shareholders to measure our performance.



Free Cash Flow less Product Development Spending helps assess our ability, over the long term, to create value for our shareholders as it represents cash available to repay debt, pay common dividends and fund share repurchases and new acquisitions.



Results on a constant currency basis removes distortion from the effects of foreign currency movements to provide better comparability of our business trends from period to period. We measure our performance before the impact of foreign currency (or at "constant currency"), which means that we apply the same foreign currency exchange rates for the current and equivalent prior period.

In addition, we have historically provided these or similar non-GAAP performance measures and understand that some investors and financial analysts find this information helpful in analyzing our operating margins, and net income and comparing our financial performance to that of our peer companies and competitors. Based on interactions with investors, we also believe that our non-GAAP performance measures are regarded as useful to our investors as supplemental to our U.S. GAAP financial results, and that there is no confusion regarding the adjustments or our operating performance to our investors due to the comprehensive nature of our disclosures. We have not provided our 2019 outlook for the most directly comparable U.S. GAAP financial measures, as they are not available without unreasonable effort due to the high variability, complexity, and low visibility with respect to certain items, including restructuring charges and credits, gains and losses on foreign currency, and other gains and losses. These items are uncertain, depend on various factors, and could be material to our consolidated results computed in accordance with U.S. GAAP.

Non-GAAP performance measures do not have standardized meanings prescribed by U.S. GAAP and therefore may not be comparable to the calculation of similar measures used by other companies, and should not be viewed as alternatives to measures of financial results under U.S. GAAP. The adjusted metrics have limitations as analytical tools and should not be considered in isolation from or as a substitute for U.S. GAAP information. It does not purport to represent any similarly titled U.S. GAAP information and is not an indicator of our performance under U.S. GAAP. Non-U.S. GAAP financial metrics that we present may not be comparable with similarly titled measures used by others. Investors are cautioned against placing undue reliance on these non-U.S. GAAP measures.

PART I

Item 1.

Business

The Company, founded in 1807, was incorporated in the state of New York on January 15, 1904. Throughout this report, when we refer to "Wiley," the "Company," "we," "our," or "us," we are referring to John Wiley & Sons, Inc. and all of our subsidiaries, except where the context indicates otherwise.

Please refer to Part II, Item 8, "Financial Statements and Supplementary Data," for financial information about the Company and its subsidiaries, which is incorporated herein by reference. Also, when we cross reference to a "Note," we are referring to our "Notes to Consolidated Financial Statements," unless the context indicates otherwise.

We are a global research and learning company. Through the Research segment, we provide scientific, technical, medical, and scholarly journals, as well as related content and services, to academic, corporate, and government libraries, learned societies, and individual researchers and other professionals. The Publishing segment provides scientific, professional, and education books and related content in print and digital formats, as well as test preparation services and course workflow tools, to libraries, corporations, students, professionals, and researchers.  The Solutions segment provides online program management services for higher education institutions and learning, development, and assessment services for businesses and professionals. Our operations are primarily located in the United States ("U.S."), Canada, United Kingdom ("U.K."), Germany, Singapore, and Australia.

Business growth strategies include driving pricing and volume growth from existing journal and book brands and titles, as well as learning services related to education and professional development, the development of new journal titles or through publishing partnerships, technology and content acquisitions which complement our existing businesses, designing and implementing new methods of delivering products to our customers, and the development of new products and services.

We report our segment information in accordance with the provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 280, "Segment Reporting" ("FASB ASC Topic 280"). Our segment reporting structure consists of three reportable segments, which are listed below, and a Corporate category:



Research;



Publishing; and



Solutions

Research:

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 provides scientific, technical, medical, and scholarly journals, as well as related content and services, to academic, corporate, and government libraries, learned societies, and individual researchers and other professionals. Journal publishing areas include the physical sciences and engineering, health sciences, social sciences and humanities and life sciences. Research also includes our acquisition of Atypon Systems, Inc. ("Atypon"), a publishing software and service provider that enables scholarly and professional societies and publishers to deliver, host, enhance, market, and manage their content on the web through the Literatum platform. 

Research's customers include academic, corporate, government, and public libraries, funders of research, researchers, scientists, clinicians, engineers and technologists, scholarly and professional societies, and students and professors. Research's 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, and other customers. Publishing centers include Australia, China, Germany, India, the United Kingdom, and the United States. Research's revenue accounted for approximately 52% of our consolidated revenue in fiscal year 2018.

Research's major products are: Journal Subscriptions, Licensing, Reprints, Backfiles, and Other, Open Access and Publishing Technology Services (Atypon). The graphs below present Research revenue by product type for fiscal years 2018 and 2017:

Key growth strategies for the Research business include evolving and developing new licensing models for our institutional customers, developing new open access products and 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.

Journal Subscriptions

We publish approximately 1,700 academic research journals. We sell journal subscriptions directly through our 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, making up approximately 38% of our consolidated fiscal year 2018 total company revenue, are primarily licensed through contracts for digital content available online through Wiley Online Library. In March 2018, we migrated our Wiley Online Library platform to our Literatum platform, which we acquired as part of our purchase of Atypon in fiscal year 2017. Contracts are negotiated by us 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. We do not own or manage printing facilities. Subscription revenue is generally collected in advance and deferred until we have fulfilled our obligation to the customer, at which time the revenue is earned.

Approximately 50% of Journal Subscription revenue is derived from publishing rights owned by us. Publishing alliances also play a major role in Research's success. Approximately 50% of Journal Subscription revenue is derived from publication rights that are owned by professional societies and published by us pursuant to a long-term contract (generally 5–10 years) 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. Societies that sponsor or own such journals generally receive a royalty and/or other financial consideration. We may procure editorial services from such societies on a pre-negotiated fee basis. We also enter 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 our journal portfolio transfer publication rights to us or a professional society, as applicable. We publish 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.

Literatum, our online publishing platform for our Research segment, delivers integrated access to over 7 million articles from 1,700 journals, as well as 19,000 online books and hundreds of multi-volume reference works, laboratory protocols and databases. Wiley Online Library, which is delivered through our Literatum platform, provides the user with intuitive navigation, enhanced discoverability, expanded functionality, and a range of personalization options. Access to abstracts is free and 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. Our online publishing platforms provide revenue growth opportunities through new applications and business models, online advertising, deeper market penetration, and individual sales and pay-per-view options. The Literatum platform hosts over 40% of the world's English language journals.

In 2017, Wiley saw an increase in impact factors across more than half of its indexed titles. An impact factor is an industry measure of the importance of a journal within its field and is determined based on the number of citations received by the journal, from other journals. According to the 2016 Journal Citation Reports ("JCR"), re-released in September 2017 by Clarivate Analytics, 66% of Wiley journals increased their impact factor between 2015 and 2016.  Wiley had 1,205 journals indexed (73% of the Wiley portfolio), with 11 Wiley titles receiving their first impact factor in this year's JCR release. In addition, 20 Wiley journals achieved a top-category rank, including CA:A Cancer Journal for Clinicians (Impact Factor of 187.040, ranked #1 in Oncology), World Psychiatry (Impact Factor of 26.561, ranked #1 in Psychiatry – an increase of 31% on last year) and WIREs Computational Molecular Science (Impact Factor of 14.016, ranked #1 in Mathematical & Computational Biology). The Clarivate Analytics index is a barometer of journal influence across the research community.

Licensing, Reprints, Backfiles, and Other

Licensing, Reprints, Backfiles, and Other includes advertising, backfile sales, the licensing of publishing rights, journal and article reprints, and individual article sales. We generate advertising revenue from print and online journal subscription products, our online publishing platform, Literatum, online events such as webinars and virtual conferences, community interest Web sites such as spectroscopyNOW.com, and other Web sites.  A backfile license provides access to a historical collection of Wiley journals, generally for a one-time fee. We also engage with international publishers and receive licensing revenue from photocopies, reproductions, translations, and other digital uses of our content. Journal and article reprints are primarily used by pharmaceutical companies and other industries for marketing and promotional purposes. Through the Article Select and PayPerView programs, we provide fee-based access to non-subscribed journal articles, content, book chapters, and major reference work articles. The Research business is also a provider of content and services in evidence-based medicine ("EBM"). Through our alliance with The Cochrane Collaboration, we publish The Cochrane Library, a premier source of high-quality independent evidence to inform healthcare decision-making. EBM facilitates the effective management of patients through clinical expertise informed by best practice evidence that is derived from medical literature.

Open Access

Under the Open Access business model, accepted research articles are published subject to payment of Author Publication Charges ("APCs"). All Open Access articles are immediately free to access online. Contributors of Open Access articles retain many rights and typically license their work under terms that permit re-use.

Open Access offers authors choices in how to share and disseminate their work, and it serves the needs of researchers who may be required by their research funder to make articles freely accessible without embargo. APCs are typically paid by the individual author or by the author's funder, and payments are often mediated by the author's institution. We provide specific workflows and infrastructure to authors, funders, and institutions to support the requirements of the Open Access model.

We offer two Open Access publishing models. The first of these is Hybrid Open Access where, upon payment of an APC, authors publishing in the majority of our paid subscription journals are offered, after article acceptance, the opportunity to make their individual research article openly available through the OnlineOpen service.

The second offering of the Open Access model is a growing portfolio of fully open access journals, also known as Gold Open Access Journals, in which all accepted articles are published subject to receipt of an APC. All Open Access articles are subject to the same rigorous peer-review process applied to our subscription-based journals. As with our subscription portfolio, a number of the Gold Open Access Journals are published under contract for, or in partnership with, prestigious societies, including the American Geophysical Union, the American Heart Association, the European Molecular Biology Organization and the British Ecological Society. The Open Access portfolio spans life, physical, medical and social sciences and includes a choice of high impact journals and broad-scope titles that offer a responsive, author-centered service.

Publishing:

Our Publishing segment acquires, develops, and publishes scientific, professional and education books and related content, as well as test preparation services and course workflow tools, to libraries, corporations, students, professionals, and researchers. Communities served include business, finance, accounting, workplace learning, management, leadership, technology, behavioral health, engineering/ architecture, science and medicine, and education.  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, Web sites, distributor networks and other online applications. Publishing centers include Australia, Germany, India, the United Kingdom, and the United States. Publishing accounted for approximately 34% of our consolidated revenue in fiscal year 2018.

Publishing revenue by product type are: STM (Scientific, Technical and Medical) and Professional Publishing, Education Publishing, Test Preparation and Certification, Course Workflow (WileyPLUS), and Licensing, Distribution, Advertising and Other. The graphs below present Publishing revenue by product type for fiscal years 2018 and 2017:

Key growth strategies for the Publishing 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, and innovating digital book formats while expanding their global discoverability and distribution. We continue to implement strategies to manage declines in print revenue through cost improvement initiatives and focusing our efforts on growing its digital lines of business. We are continuing to perform portfolio reviews and workforce realignment, restructuring, and operational excellence initiatives. In certain areas, we will explore new formats or promote digital-only, and in other areas, we may rationalize our portfolio. Our approach is to continue to realign our cost structure to help mitigate the market changes that are contributing to revenue decline, and to sharpen our focus on high performing areas and digital opportunities, while improving operating efficiency.

Publishing

Book products accounted for approximately 26% of our consolidated fiscal year 2018 revenue. Categories include STM, Professional, and Education Publishing.

STM books 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.

Professional books, which include business and finance, technology, and other professional categories, as well as the For Dummies brand, are sold to bookstores and online booksellers serving the general public, wholesalers who supply such bookstores, warehouse clubs, college bookstores, individual practitioners, industrial organizations and government agencies. We employ 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.

Education textbooks and related supplementary material and digital products are sold primarily to bookstores and online booksellers serving both for-profit and nonprofit educational institutions (primarily colleges and universities), and direct-to-students. We employ 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. The textbook business is seasonal, with the majority of textbook sales occurring during the July-through- October and December-through-January periods. There are active used and rental print textbook markets, which adversely affect the sale of new textbooks. We are exploring opportunities to expand into the print rental market through partnerships.

Book sales are generally made on a returnable basis with certain restrictions. We provide for estimated future returns on sales made during the year based on historical return experience and current market trends.

Materials for book publications are obtained from authors throughout most of the world, utilizing 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. We enter 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. We may make advance royalty payments against future royalties to authors of certain publications. Royalty advances are reviewed for recoverability and a reserve for loss is maintained, if appropriate.

We continue to add new titles, revise existing titles, and discontinue the sale of others in the normal course of our business, and we also create adaptations of original content for specific markets based on customer demand. Our general practice is to revise our textbooks approximately every three years, if warranted, and to revise other titles as appropriate. Subscription-based products are updated on a more frequent basis.

We generally contract with independent printers and binderies globally for their services. Management believes that adequate printing and binding facilities and sources of paper and other required materials are available to it, and that it is not dependent upon any single supplier.

In fiscal year 2016, we entered into an agreement to outsource our US-based book distribution operations to Cengage Learning, with the continued aim of improving efficiency in our distribution activities and moving to a more variable cost model.  As of April 30, 2018, we had only one global warehousing and distribution facility remaining, which is in the United Kingdom.

We develop 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 (delivered through our Literatum platform), WileyPLUS, Wiley Custom Select, and other proprietary platforms. Digital books are delivered to intermediaries, including Amazon, Apple, Google and Ingram/Vital-Source, 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 online 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. Our online presence not only enables us to deliver content online, but also to sell more books. The growth of online booksellers benefits us because they provide unlimited virtual "shelf space" for our entire backlist.

Publishing alliances and franchise products are important to our strategy. Professional publishing alliance partners include the AICPA, the CFA Institute, ACT (American College Test), IEEE, American Institute of Chemical Engineers, and many others.  Education publishing alliance partners include Microsoft®, Blackboard, Instructure, and the Culinary Institute of America. 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 our success.

We also promote active and growing custom professional and education publishing programs. Our custom professional publications are used by professional organizations for internal promotional or incentive programs and include digital and print books written specifically for a customer and customizations of existing publications to include custom cover art, such as imprints, messages, and slogans. More specific 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. Our custom education publishing program offers an array of tools and services designed to put the creation of customized content in instructors' hands to create high-quality, affordable education solutions tailored to meet individual classroom needs. Through Wiley Custom Select, an online custom textbook system, instructors can build print and digital materials tailored to their specific course needs and add their own content to create a customized solution.

Course Workflow (WileyPLUS)

We offer high-quality online learning solutions, including 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. WileyPLUS revenue is deferred and recognized over the timeframe that each student is enrolled in the course.

Test Preparation and Certification

The Test Preparation and Certification business represents learning solutions and training activities that are delivered to customers directly through online digital delivery platforms.  Products include CPAExcel, a modular, digital platform comprised of online self-study, videos, mobile apps, and sophisticated planning tools to help professionals prepare for the CPA exam, and test preparation products for the CFA®, CMA, CIA®, CMT®, FRN®, FINRA, Banking, and PMP® exams. Revenue for these products and services is deferred until our 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.

Licensing, Distribution, Advertising, and Other

Marketing and distribution services are made available to other publishers under agency arrangements. We also engage in co-publishing titles with international publishers and receive licensing revenue from photocopies, reproductions, translations, and digital uses of our content. Wiley also realizes advertising revenue from branded Web sites (e.g., Dummies.com, etc.) and online applications.

Solutions:

Our Solutions segment provides online program management services for higher education institutions and learning, development, and assessment services for businesses and professionals. Key growth strategies include developing new products and services for existing university partners, increasing enrollments for online program management programs, signing new and prestigious university partners, and developing new digital learning solutions by integrating our professional assessment products and services with our Corporate Learning content and technology.

Solutions revenue by product type are Education Services Online Program Management ("OPM"), Professional Assessment, and Corporate Learning. The graphs below present Solutions revenue by product type for fiscal years 2018 and 2017:

Education Services (OPM)

As student demand for online degree and certificate programs continues to increase, traditional institutions are partnering with OPM providers to develop and support these programs. Education Services (OPM) include market research, marketing, student recruitment, enrollment support, proactive retention support, academic services to design courses, faculty support, and access to the Engage Learning Management System, which facilitates the online education experience. Graduate degree programs include Business Administration, Finance, Accounting, Healthcare, Engineering, Communications, and others.  Revenue is derived from pre-negotiated contracts with institutions that provide for a share of tuition generated from students who enroll in a program. Education Services (OPM) revenue is deferred and recognized over the timeframe that each student is enrolled in the online degree program. As of April 30, 2018, the Education Services (OPM) business had 34 university partners and 239 degree programs under contract.

Corporate Learning

The Corporate Learning business offers online learning and training solutions for global corporations, universities, and small and medium-sized enterprises, which are sold on a subscription or fee basis. Learning formats and modules on topics such as leadership, diversity, value creation, client orientation, change and corporate strategy are delivered on a cloud-based Learning Management System ("LMS") platform that hosts over 20,000 content assets (videos, digital learning modules, written files, etc.) 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 France, England, and other European markets, and newer markets, such as the U.S. and Brazil. In addition, content and LMS offerings are continuously refreshed and expanded to serve a wider variety of customer needs.

Professional Assessment

Our professional assessment services include pre-hire screening and post-hire personality assessments, which are delivered to business customers through online digital delivery platforms, either directly or through an authorized distributor network of independent consultants, trainers, and coaches. Wiley's leadership assessment offerings also include Kouzes and Posner's Leadership Practices Inventory® and The Five Behaviors of a Cohesive Team^TM.

Our assessment tools enable employers to optimize candidate selections and develop the full potential of their employees. These 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. Professional Assessment revenue is deferred until the obligation has been performed, typically when an online assessment has been completed.

As of April 30, 2018, we employed approximately 5,000 persons on a full-time equivalent basis worldwide.

 

The information set forth in Note 18, "Segment Information," of the Notes to Consolidated Financial Statements and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," 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 our securities. The risks below are the most significant risks we face, but are not the only risk factors we face. Additional risks not currently known to us or that we presently deem insignificant could impact our consolidated financial position and results of operations. Our business, consolidated financial position, and results of operations could be materially adversely affected by any of these risks. The trading price of our securities could decline due to any of these risks, and investors in our securities may lose all or part of their investment.

If we are unable to introduce new technologies, products, and services, our ability to be profitable may be adversely affected.

We must continue to invest in technology and other innovations to adapt and add value to our products and services to remain competitive. This is particularly true in the current environment, where investment in new technology is ongoing and there are rapid changes in the products competitors are offering, the products our customers are seeking, and our sales and distribution channels. In some cases, investments will take the form of internal development; in others, they may take the form of an acquisition. There are uncertainties whenever developing or acquiring 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.

The demand for digital and lower cost books could impact our sales volumes and pricing in an adverse way.

A common trend facing each of our 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 risks and opportunities to our traditional publishing models, potentially impacting both sales volumes and pricing.

As the market has shifted to digital products, customer expectations for lower-priced products have increased due to customer awareness of reductions in production costs and the availability of free or low-cost digital content and products.  As a result, there has been pressure to sell digital versions of products at prices below their print versions.  Increased customer demand for lower prices could reduce our revenue.

We publish educational content for undergraduate, graduate, and advanced placement students, lifelong learners, and in Australia, for 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. The internet has made the used and rental textbook markets more efficient and has significantly increased student access to used and rental books.  Further expansion of the used and rental book markets could further adversely affect our sales of print textbooks, subsequently affecting our consolidated financial position and results of operations.

A reduction in enrollment at colleges and universities could adversely affect the demand for our higher education products.

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, increases in tuition, 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 global and local economic factors, 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, which could adversely impact our consolidated financial position and results of operations.

The competitive pressures we face in our business, as well as our ability to retain our business relationships with our authors and professional societies, could adversely affect our consolidated financial position and results of operations.

We operate in highly competitive markets. Success and continued growth depend 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 is critical to our success. If we are unable to retain our existing business relationships with authors and professional societies, this could have an adverse impact on our consolidated financial position and results of operations.

Our intellectual property rights may not be protected, which could adversely affect our consolidated financial position and results of operations.

A substantial portion of our publications are protected by copyright, held either in our name, in the name of the author of the work, or in the name of a sponsoring professional society. Such copyrights protect our 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. Our ability to continue to achieve our expected results depends, in part, upon our ability to protect our intellectual property rights. Our consolidated financial position and results of operations may be adversely affected by lack of legal and/or technological protections for its intellectual property in some jurisdictions and markets.

Adverse publicity could negatively impact our reputation, which could adversely affect our consolidated financial position and results of operations.

Our professional customers worldwide rely upon many of our publications to perform their jobs. It is imperative that we consistently demonstrate our ability to maintain the integrity of the information included in our publications. Adverse publicity, whether valid or not, may reduce demand for our publications and adversely affect our consolidated financial position and results of operations.

In our journal publishing business we have a trade concentration and credit risk related to subscription agents, and in our book business the industry has a concentration of customers in national, regional, and online bookstore chains. Changes in the financial position and liquidity of our subscription agents and customers, could adversely impact our consolidated financial position and results of operations.

In the journal publishing business, subscriptions are primarily sourced through journal subscription agents who, acting as agents for library customers, facilitate ordering by consolidating the subscription orders/billings of each subscriber with various publishers. Cash is generally collected in advance from subscribers by the subscription agents and is principally remitted to us between the months of December and April. Although at fiscal year-end we had minimal credit risk exposure to these agents, future calendar-year subscription receipts from these agents are highly dependent on their financial position and liquidity. Subscription agents account for approximately 20% of total annual consolidated revenue and no one agent accounts for more than 10% of total annual consolidated revenue.

Our book business is not dependent upon a single customer; however, the industry is concentrated in national, regional, and online bookstore chains. Although no one book customer accounts for more than 8% of total consolidated revenue and 8% of accounts receivable at April 30, 2018, the top 10 book customers account for approximately 13% of total consolidated revenue and approximately 15% of accounts receivable at April 30, 2018. We maintain approximately $25 million of trade credit insurance, subject to certain limitations, covering balances due from certain named customers, which expires in June 2019.

Changes in laws and regulations, including regulations related to open access, could adversely impact our consolidated financial position and results of operations.

We maintain 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 our future consolidated financial position and results of operations.

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 and privately held funding bodies 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 final version of the article on the publisher's Web site, and elsewhere under permissive licensing terms, following payment of an Article Publication Charge ("APC"). These mandates have the potential to put pressure on subscription-based publications. If such regulations are widely implemented, our consolidated financial position and results of operations 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, price, and rate of transition negotiated are acceptable.

A disruption or loss of data sources could limit our collection and use of certain kinds of information, which could adversely impact our communication with our customers.

A number of our businesses rely extensively upon content and data from external sources. Data is obtained from public records, governmental authorities, customers and other information companies, including competitors. Legal regulations, such as the European Union's General Data Protection Regulation ("GDPR"), relating to internet communications, privacy and data protection, e-commerce, information governance, and use of public records, are becoming more prevalent worldwide. The disruption or loss of data sources, either because of changes in the law or because data suppliers decide not to supply them, may impose limits on our collection and use of certain kinds of information about individuals and our ability to communicate such information effectively with our customers. In addition, GDPR imposes a strict data protection compliance regime with severe penalties of up to 4% of worldwide revenue or €20 million, whichever is greater.

We may not realize the anticipated cost savings and benefits from, or our business may be disrupted by, our business transformation and restructuring efforts.

We continue to transform our business from a traditional publishing model to being a global provider of content-enabled solutions with a focus on digital products and services. The acquisitions of Deltak.edu, LLC ("Deltak"), Inscape Holdings, Inc. ("Inscape"), Profiles International ("Profiles"), and CrossKnowledge Group Limited ("CrossKnowledge") comprise our Solutions reporting segment and, along with Atypon Systems, Inc. ("Atypon") in our Research segment, which was acquired in September 2016, represent examples of strategic initiatives that were implemented as part of our business transformation. We 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 our business activities, which could adversely affect our consolidated financial position and results of operations.

We continue to restructure and realign our cost base with current and anticipated future market conditions. Significant risks associated with these actions that may impair our ability to achieve the anticipated cost savings or that may disrupt our 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, our 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 consolidated financial position and results of operations could be adversely affected.

We may not realize the anticipated cost savings and processing efficiencies associated with the outsourcing of certain business processes.

We have outsourced certain business functions, principally in technology, content management, printing, manufacturing, warehousing, fulfillment, distribution, returns processing, and certain other transactional processing functions, to third-party service providers to achieve cost savings, and efficiencies. If these third-party service providers do not perform effectively, we may not be able to achieve the anticipated cost savings, and depending on the function involved, we may experience business disruption or processing inefficiencies, all with potential adverse effects on our consolidated financial position and results of operations.

We may be susceptible to information technology risks that may adversely impact our business, consolidated financial position and results of operations.

Information technology is a key part of our business strategy and operations. As a business strategy, Wiley's technology enables us to provide customers with new and enhanced products and services and is critical to our success in migrating from print to digital business models. Information technology is also a fundamental component of all of our business processes, collecting and reporting business data, and communicating internally and externally with customers, suppliers, employees, and others.

Our business is dependent on information technology systems to support our businesses. We provide internet-based products and services to our customers. We also use complex information technology systems and products to support our business activities, particularly in infrastructure, and as we move our products and services to an increasingly digital delivery platform.

We face technological risks associated with internet-based product and service delivery in our businesses, including with respect to information technology capability, reliability and security, enterprise resource planning, system implementations and upgrades. Failures of our information technology systems and products (including because of operational failure, natural disaster, computer virus, or hacker attacks) could interrupt the availability of our internet-based products and services, result in corruption or loss of data or breach in security, and result in liability or reputational damage to our brands and/or adversely impact our consolidated financial position and results of operations.

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, we have disaster recovery plans in place 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 we have taken steps to address these risks, there can be no assurance that a system failure, disruption, or data security breach would not adversely affect our business and could have an adverse impact on our consolidated financial position and results of operations.

We are continually improving and upgrading our computer systems and software. We are in the process of implementing a new Enterprise Resource Planning ("ERP") system as part of a multi-year plan to integrate and upgrade our operational and financial systems and processes. As of April 30, 2018, we have completed the implementation of record-to-report, purchase-to-pay, and several other business processes within all locations and will continue to roll out additional processes and functionality of the ERP in phases over the next  year. Implementation of a new ERP 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 having an adverse effect on our ability to timely report our financial results, all of which could materially adversely affect our business, consolidated financial position and results of operations.

Cyber risk and the failure to maintain the integrity of our operational or security systems or infrastructure, or those of third parties with which we do business, could have a material adverse effect on our business, consolidated financial condition, and results of operations.

Cyber-attacks and hackers are becoming more sophisticated and pervasive. Our business is dependent on information technology systems to support our businesses. We provide internet-based products and services to our customers. We also use complex information technology systems and products to support our business activities, particularly in infrastructure and as we move our products and services to an increasingly digital delivery platform. Across our businesses, we hold personal data, including that of employees and customers.

Efforts to prevent cyber-attacks and hackers from entering our systems are expensive to implement and may limit the functionality of our systems. Individuals may try to gain unauthorized access to our systems and data for malicious purposes, and our security measures may fail to prevent such unauthorized access. Cyber-attacks and/or intentional hacking of our systems could adversely affect the performance or availability of our products, result in loss of customer data, adversely affect our ability to conduct business, or result in theft of our funds or proprietary information, the occurrence of which could have an adverse impact on our consolidated financial position and results of operations.

Fluctuations in interest rates and foreign currency exchange rates could materially impact our consolidated financial condition and results of operations.

Non-U.S. revenues, as well as our substantial non-U.S. net assets, expose our consolidated results to volatility from changes in foreign currency exchange rates. Non-U.S. dollar denominated revenues accounted for 47% of our total consolidated revenues for fiscal year 2018, which primarily includes revenues in British pound sterling of 27% and euro of 12%. 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 mitigate them are discussed in Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," of this Annual Report on Form 10-K. We may, from time-to-time, use derivative instruments to hedge such risks. Notwithstanding our efforts to foresee and mitigate the effects of changes in external market or fiscal circumstances, we cannot predict with certainty changes in foreign currency exchange rates and interest rates, inflation, or other related factors affecting our business, consolidated financial position and results of operations.

We may not be able to mitigate the impact of inflation and cost increases, which could have an adverse impact on our consolidated financial position and results of operations.

From time to time, we experience cost increases reflecting, in part, general inflationary factors. There is no guarantee that we can increase selling prices or reduce costs to fully mitigate the effect of inflation on our costs, which may adversely impact our consolidated financial position and results of operations.

Changes in tax laws, including the U.S. recently enacted comprehensive Federal tax legislation originally known as the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), could have a material impact on our consolidated financial position and results of operations.

We are subject to tax laws within the jurisdictions in which we conduct business. In addition to the recently enacted Tax Act in the U.S., changes in tax laws in other jurisdictions where we do business, such as the U.K. and Germany, could significantly impact the taxation of our non-U.S. earnings. This could have a material impact on our consolidated financial position and results of operations as most of our income is earned outside the U.S. In addition, we are subject to audit by tax authorities and are regularly audited by various 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 could have a material impact on our consolidated financial position and results of operations.

The final impacts of the Tax Act could be materially different from our current estimates.

The Tax Act was enacted on December 22, 2017. The provisions are broad and complex and depend upon future guidance as well any legislative action to address questions. Our estimated amounts are based on information available at this time and our current understanding of the Tax Act. The final transition impacts of the Tax Act may differ from our estimate, possibly materially.

Challenges and uncertainties associated with operating in developing markets has a higher risk due to political instability, economic volatility, crime, terrorism, corruption, social and ethnic unrest, and other factors, which may adversely impact our consolidated financial position and results of operations.

We sell our products to customers in certain sanctioned and previously sanctioned developing markets where we do not have operating subsidiaries. We do not own any assets or liabilities in these markets except for trade receivables. In fiscal year 2018, we recorded revenue and net earnings of $4.8 million and $0.9 million, respectively, related to sales to Cuba, Sudan, Syria and Iran. While sales in these markets are not material to our consolidated financial position and results of operations, adverse developments related to the risks associated with these markets may cause actual results to differ from historical and forecasted future consolidated operating results.

We have 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 our operations in this area. While we have developed business continuity plans to address these issues, further adverse developments in the region could have a material impact on our consolidated financial position and results of operations.

Approximately 16% of Research journal articles are sourced from authors in China. Any restrictions on exporting intellectual property could adversely affect our business and consolidated financial position and results of operations.

Changes in global economic conditions could impact our ability to borrow funds and meet our future financing needs.

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 consolidated financial position and results of operations will not be adversely 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.

Changes in pension costs and related funding requirements may impact our consolidated financial position and results of operations.

We provide defined benefit pension plans for certain employees worldwide. Our 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 our plan funding, consolidated financial position, and results of operations.

We may not be able to realize the expected benefits of our growth strategies, including successfully integrating acquisitions, which could adversely impact our consolidated financial position and results of operations.

Our growth strategy includes title, imprint, and other business acquisitions, including knowledge-enabled services, which complement our existing businesses. Acquisitions may have a substantial impact on our consolidated financial position and results of operations. Acquisitions involve risks and uncertainties, including difficulties in integrating acquired operations and in realizing expected opportunities, cost synergies, diversions of management resources, and loss of key employees, challenges with respect to operating new businesses, and other uncertainties.

 

As a result of acquisitions, we may record a significant amount of goodwill and other identifiable intangible assets and we may never realize the full carrying value of the related assets.

As a result of acquisitions, we record a significant amount of goodwill and other identifiable intangible assets, including customer relationships, trademarks and developed technologies. At April 30, 2018, we had $1,019.8 million of goodwill and $848.1 million of intangible assets, of which $232.8 million are indefinite-lived intangible assets, on our consolidated balance sheet. The intangible assets are principally composed 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 our consolidated results of operations. 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, which were $615.3 million at April 30, 2018, 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 management to make significant estimates and judgments. A non-cash intangible asset impairment charge could have a material adverse effect on our consolidated financial position and results of operations.

If we are unable to retain key employees and other personnel, our consolidated financial condition or results of operations may be adversely affected.

We have a significant investment in our employees around the world. We offer 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.

We are highly dependent on the continued services of key employees who have in-depth market and business knowledge and/or key relationships with business partners. The loss of the services of key personnel for any reason and our 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 our business, consolidated financial position, and results of operation. 

Item 1B.

Unresolved Staff Comments

None

Item 2.

Properties

We occupy 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 our business.

Item 3.

Legal Proceedings

The information set forth in Note 14, "Commitments and Contingencies," of the Notes to Consolidated Financial Statements is incorporated herein by reference.

We are involved in routine litigation in the ordinary course of our business. In the opinion of management, the ultimate resolution of all pending litigation will not have a material effect upon our consolidated financial position or results of operations.

Item 4.

Mine Safety Disclosures

Not applicable

 

Set forth below are the current executive officers of the Company. Each of the officers listed will serve until the next organizational meetings of the Board of Directors of the Company and until each of the respective successors are duly elected and qualified.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our 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:

On a quarterly basis, the Board of Directors considers the payment of cash dividends based upon its review of earnings, our financial position, and other relevant factors. As of May 31, 2018, the approximate number of holders of our Class A and Class B Common Stock were 777 and 62, respectively, based on the holders of record.

During fiscal year 2017, our Board of Directors approved an additional share repurchase program of four million shares of Class A or B Common Stock. During the fourth quarter of fiscal year 2018, we made the following purchases of Class A Common Stock under this publicly announced stock repurchase program.

 

Item 6.

Selected Financial Data

(a)

See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," for a discussion of the factors that contributed to our consolidated operating results for the three years ended April 30, 2018. Certain tax benefits and charges included in fiscal 2018 – 2014 include:

·

Fiscal year 2018 includes a favorable impact of $25.1 million ($0.43 per share) from the U.S. government enacted comprehensive Federal tax legislation originally known as the Tax Cuts and Jobs Act of 2017 (the "Tax Act"). Given the significant complexity of the Tax Act, anticipated guidance from the U.S. Treasury, and potential additional guidance from the SEC or the Financial Accounting Standards Board, these estimates may be adjusted within 12 months of the enactment date.

·

Fiscal year 2017 includes the effect of the German Tax litigation of $49.1 million ($0.85 per share).

·

Fiscal years 2017, 2016, and 2014 include tax benefits of $2.6 million, ($0.04 per share), $5.9 million ($0.10 per share), and $10.6 million ($0.18 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.

(b)

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 us for a number of purposes, including funding operating activities, acquisitions, debt repayments, dividend payments, and repurchasing 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 period.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The information in our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read together with our Consolidated Financial Statements and related notes set forth in Part II, Item 8, as well as the discussion included above, "Cautionary Notice Regarding Forward-Looking Statements "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995" and "Non-GAAP Financial Measures," along with Part I, Item 1A, "Risk Factors," of this Annual Report on Form 10-K.  All amounts and percentages are approximate due to rounding and all dollars are in thousands, except per share amounts or where otherwise noted. When we cross-reference to a "Note," we are referring to our "Notes to Consolidated Financial Statements," unless the context indicates otherwise.

FISCAL YEAR 2018 SUMMARY RESULTS

Revenue:

Revenue for fiscal year 2018 increased 5% to $1,796.1 million, or 1% on a constant currency basis as compared with prior year. The increase was mainly driven by an increase in Research revenue due to a full year of revenue from the Atypon acquisition in fiscal year 2018 and growth in Open Access and, to a lesser extent, higher Education Services (OPM) revenue in Solutions. These increases were partially offset by a decline in Publishing revenue, primarily in STM and in Professional and Education Publishing, which reflected market conditions.

See the "Segment Operating Results" below for additional details on each segment's revenue and contribution to profit performance.

Cost of Sales and Gross Profit Margin:

Cost of sales for fiscal year 2018 increased 5% to $485.2 million, or 2% on a constant currency basis as compared with prior year. The increase was primarily a result of higher revenues and higher royalty costs on Research journals due to title mix and an increase in new titles at a higher royalty rate.

Gross profit margin for fiscal year 2018 was 73.0% and decreased slightly compared with the prior year on a constant currency basis, primarily in our Publishing segment as a result of the decline in revenue.

Operating and Administrative Expenses:

Operating and administrative expenses for fiscal year 2018 remained flat at $994.6 million, but decreased 1% on a constant currency basis as compared with prior year due to the following:



lower technology costs in the current year of $18 million associated with our ERP implementation and other reductions in outsourcing and system development consulting costs;

·

a one-time pension settlement charge in the prior year related to changes in our retiree and long-term disability plans of $9 million; and



savings from operational excellence initiatives and restructuring activities.

These factors were partially offset by:



one-time benefits in the prior year related to changes in our retiree and long-term disability plans of $4 million and a life insurance recovery of $2 million;



a full year of costs in fiscal year 2018 associated with the Atypon acquisition, which resulted in an incremental impact of $9 million;



an increase in strategy consultation costs in the current year of $7 million; and



an impairment charge in the current year related to one of our Publishing brands of $4 million.

Restructuring and Related Charges:

Beginning in fiscal year 2013, we initiated a global program (the "Restructuring and Reinvestment Program") to restructure and realign our cost base with current and anticipated future market conditions. We are targeting a majority of the cost savings achieved to improve margins and earnings, while the remainder will be reinvested in high-growth digital business opportunities.

In fiscal years 2018 and 2017, we recorded pre-tax restructuring charges of $29 million and $13 million, respectively, related to this program. These charges are reflected in Restructuring and Related Charges on the Consolidated Statements of Income and summarized in the following table:

Other Activities in 2017 reflects leased facility consolidations contract termination costs, and the curtailment of certain defined benefit pension plans.

Amortization of Intangibles:

Amortization of intangibles for fiscal year 2018 declined 3% to $48 million, or 5% on a constant currency basis compared with prior year. The decrease was a result of the completion of amortization of certain acquired intangible assets.

Interest Expense:

Interest expense for fiscal year 2018 decreased $4 million to $13 million on a reported and constant currency basis. This decrease was due to lower average debt balances outstanding, partially offset by a higher average effective borrowing rate.

Foreign Exchange Transaction (Losses) Gains:

We reported foreign exchange transaction losses of $13 million for fiscal year 2018 compared to gains of $0.4 million in the prior year.  The losses in fiscal year 2018 were primarily due to the impact of the change in average foreign exchange rates as compared to the U.S. dollar on our intercompany and third-party accounts receivable and payable balances.

Provision for Income Taxes:

The following table summarizes the effective tax rate for fiscal years 2018 and 2017:

On December 22, 2017, the U.S. government enacted comprehensive Federal tax legislation originally known as the Tax Cuts and Jobs Act of 2017 (the "Tax Act").  In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act ("SAB 118"), which allows us to record provisional amounts related to the effect of the Tax Act during a measurement period not to extend beyond one year of the enactment date. As the Tax Act was passed in December 2017, and ongoing guidance and accounting interpretation are expected over the 12 months following enactment, we consider the accounting of the transition tax, deferred tax re-measurements, and other items to be provisional due to the forthcoming guidance and our ongoing analysis of final data and tax positions. We expect to complete our analysis within the measurement period in accordance with SAB 118.

The effective tax rate was lower in fiscal 2018 as compared with fiscal 2017 due to the estimated net tax benefit from non-recurring items in the Tax Act and the effect of the German Tax litigation in fiscal year 2017 as described below. Estimated non-recurring items in the Tax Act reduced our income tax expense by $25 million ($0.43/share) or a reduction in our effective tax rate of 11.7 percentage points for fiscal year 2018. Excluding the effect of the Tax Act, the rate was 21.9% for fiscal year 2018.

The rate excluding the benefit from the non-recurring items in the Tax Act was lower than the U.S. statutory rate for the year ended April 30, 2018, primarily due to lower rates applicable to non-U.S. earnings.

German Tax Litigation Expense: In fiscal 2017, the German Federal Fiscal Court affirmed a lower court decision disallowing deductions related to a stepped-up basis in certain assets. As a result, we incurred an income tax charge of approximately $49 million ($0.85 per share).

Deferred Tax Benefit from U.K. Statutory Tax Rate Change: In fiscal year 2016, the U.K. reduced its statutory rate to 19% beginning April 1, 2017 and 18% beginning April 1, 2020, and in fiscal year 2017, the U.K. further reduced its statutory rate beginning on April 1, 2020, from 18% to 17%. This resulted in a non-cash deferred tax benefit from the re-measurement of our applicable U.K. deferred tax balances of $6 million ($0.10 per share) in fiscal year 2016 and $3 million ($0.04 per share) in fiscal year 2017.

The Tax Act

On December 22, 2017, the U.S. government enacted comprehensive tax legislation. The Tax Act significantly revises the future ongoing U.S. corporate income tax system by, among other changes, the following:

·

lowering the U.S. federal corporate income tax rate to 21% with a potentially lower rate for certain foreign derived income;

·

accelerating deductions for certain business assets;

·

changing the U.S. system from a worldwide tax system;

·

requiring companies to pay a one-time transition tax on post-1986 unrepatriated cumulative non-U.S. earnings and profits ("E&P") of foreign subsidiaries;

·

eliminating certain deductions such as the domestic production deduction;

·

establishing limitations on the deductibility of certain expenses including interest and executive compensation; and

·

creating new taxes on certain foreign earnings.

The key impacts for the period were the re-measurement of U.S. deferred tax balances to the new U.S. corporate tax rate and the accrual for the one-time transition tax liability. While we have not yet completed our assessment of the effects of the Tax Act, we are able to determine reasonable estimates for the impacts of these key items and reported provisional amounts for these items. In accordance with SAB 118, we are providing additional disclosures related to these provisional amounts.

Deferred tax balances – We remeasured our U.S. deferred tax assets and liabilities based on the federal rate at which they are expected to reverse in the future, generally 21% for reversals anticipated to occur after April 30, 2018. We are still analyzing certain aspects of the Tax Act and refining our calculations, including our estimates of expected reversals, which could affect the measurement of these balances and give rise to new deferred tax amounts. The provisional amount recorded related to the re-measurement of our net deferred tax liability was an estimated benefit of $47 million.

Foreign tax effects – In connection with the transition from a global tax system, the Tax Act establishes a mandatory deemed repatriation tax. The tax is computed using our post-1986 E&P that was previously deferred from U.S. income taxes.  The tax is based on the amount of foreign earnings held in cash equivalents and certain net assets, which are taxed at 15.5%, and those held in other assets, which are taxed at 8%. We recorded a provisional amount of $14.2 million. We also established an estimated valuation allowance of $6.5 million. This resulted in a corresponding decrease in deferred tax assets due to the utilization of foreign tax credit carryforwards. The determination of the transition tax requires further guidance as to its applicability to non-calendar year end taxpayers and analysis regarding the amount and composition of our historical foreign earnings. We no longer assert that we intend to permanently reinvest earnings outside the U.S. and accrued a provisional $2.0 million related to our estimated taxes from repatriating earnings with available cash. In addition, we accrued a $0.1 million provisional state tax liability, pending further guidance and legislative action from various states regarding conformity with the Tax Act.

The Tax Act reduces the Federal statutory tax rate from 35% to 21% effective January 1, 2018.  As a result, our U.S. federal statutory tax rate for our fiscal year ended April 30, 2018, is a blended rate of 30.4%. Other than the benefit from remeasuring our U.S. deferred tax assets and liabilities, the reduced rate did not have a significant impact on our effective tax rate for fiscal year 2018.

We have not determined a reasonable estimate of the tax liability, if any, under the Tax Act for our remaining outside basis difference.  We will continue to evaluate our position for this matter as we finalize our Tax Act calculations.

The Tax Act creates new taxes, effective for us on May 1, 2018, including a provision designed to tax global low taxed income ("GILTI") and a provision establishing new minimum taxes, such as the base erosion anti-abuse tax ("BEAT"). We continue to evaluate the Tax Act, but due to the complexity and incomplete guidance of various provisions, we have not completed our accounting for the income tax effects of certain elements of the Tax Act, including the new GILTI and BEAT taxes.  We have not yet determined whether such taxes should be recorded as a current-period expense when incurred or factored into the measurement of our deferred taxes.  As a result, we have not included an estimate of any tax expense or benefit related to these items for the year ended April 30, 2018.

Because of our estimated benefit from the Tax Act as well as other factors, we expect an approximate estimated effective tax rate of 23%–24% in fiscal year 2019. This effective tax rate excludes the tax impact of certain provision of the Tax Act whose impact is not yet known, as well as the tax impact of certain items we cannot yet provide. These items are not available without unreasonable effort due to the high variability, complexity, low visibility or uncertainty, including restructuring charges and credits, gains and losses on foreign currency, and other gains and losses.

Earnings Per Diluted Share ("EPS"):

EPS for fiscal year 2018 was $3.32 per share compared with $1.95 per share in the prior year. EPS results included the following items, which impacted comparability:

Excluding the impact of the items included above, Adjusted EPS for fiscal year 2018 increased 14% to $3.43 per share compared with $3.01 per share in the prior year. On a constant currency basis, Adjusted EPS increased 3%.

SEGMENT OPERATING RESULTS:

(a)	Adjusted to exclude Restructuring Charges

Revenue:

Research revenue increased 9% to $934.4 million, or 4% on a constant currency basis as compared with prior year. The increase was primarily due to:



a full year of revenue from Atypon, which was acquired in September 2016, of which $14 million was the incremental impact;



Open Access growth driven by the strong performance of existing titles and, to a lesser extent, new title launches; and



other Journal revenue increases, particularly in reprints, backfiles and the licensing of intellectual content.

As of April 30, 2018, calendar year 2018 journal subscription renewals were 2% higher than calendar year 2017 on a constant currency basis with approximately 97% of targeted business under contract.

Gross Profit:

Gross profit increased 8% to $686.7 million, or 3% on a constant currency basis as compared with prior year. The increase was driven by higher revenues. Gross profit margin declined by 80 basis points due primarily to higher journal royalty costs associated with title mix and an increase in new titles at higher royalty rates. We anticipate that we will continue to experience gross margin pressure due to higher journal royalty rates in fiscal year 2019. To offset this gross margin pressure, we will continue to pursue additional operations efficiencies.

Contribution to Profit:

Contribution to profit increased 9% to $275.5 million as compared with prior year. On a constant currency basis and excluding restructuring charges, contribution to profit remained flat as compared with prior year as the increase in gross profit was fully offset by higher operating expenses.

The increase in operating expenses was primarily due to:

·

a full year of costs in fiscal year 2018 from Atypon which resulted in an incremental impact of $9 million;

·

higher employment-related costs of $5 million, which included higher incentive compensation from the achievement of certain financial goals and targets;

·

higher content and editorial costs of $3 million; and

·

an increase in product technology costs of $5 million.

These factors were partially offset by savings from operational excellence initiatives and restructuring activities.

Society Partnerships

For calendar year 2018, 15 new society contracts were signed, with combined annual revenue of approximately $14 million, and 10 society contracts were not renewed with combined annual revenue of approximately $3 million.

(a)	Adjusted in fiscal year 2018 and 2017 to exclude Restructuring Charges, and in fiscal year 2018 also excludes a Publishing brand impairment charge.

Publishing revenue decreased 2% to $617.6 million, or 4% on a constant currency basis as compared with prior year. The decline was driven by lower print book revenues, particularly in Education Publishing, due to overall softness in the market as well as other retail options such as rental and digital. Also contributing to the decline in Publishing revenue was a decline in Course Workflow (WileyPLUS), primarily due to the timing of revenue recognition associated with multi-semester offerings, which are recognized in periods extending across two semesters.

Gross Profit:

Gross profit decreased 4% to $422.7 million, or 5% on a constant currency basis as compared with prior year. The decrease was mainly driven by the decline in revenues, partially offset by lower inventory costs due to cost savings initiatives.

Contribution to Profit:

Contribution to profit decreased 1% to $123.9 million as compared with prior year. On a constant currency basis and excluding restructuring charges and a brand impairment charge in the first quarter of fiscal year 2018, contribution to profit increased 2%. This was primarily due to lower operating expenses, which primarily savings from operational excellence initiatives and restructuring activities.

(a)	Adjusted to exclude Restructuring Charges

Revenue:

Gross Profit:

 

Contribution to Profit:

Education Services (OPM) Partners and Programs

CORPORATE EXPENSES:

·

lower technology costs of approximately $10 million driven by reduced spending on our ERP system and other reductions in depreciation, outsourcing, and systems development consulting costs; and

·

savings from operational excellence initiatives and restructuring activities;

·

strategy consultation costs in the current year of $7.1 million; and



one-time benefits in the prior year related to changes in our retiree and long-term disability plans of $4.2 million and a life insurance recovery of $2 million.

FISCAL YEAR 2017 SUMMARY RESULTS

Revenue:

Revenue for fiscal year 2017 of $1,718.5 million was consistent with fiscal year 2016, but was 2% higher on a constant currency basis. This increase was primarily due to the following:

·

the impact of the previously announced transition to time-based digital journal subscriptions for calendar year 2016 of $34 million;

·

higher Solutions revenue of $28 million;

·

incremental revenue from the acquisition of Atypon of $19 million; and

·

growth in author-funded access of $7 million and other journal revenue of $4 million.

These factors were partially offset by a decline in Publishing revenue of $48 million, mainly in print books and the impact of a large backfile sale in the prior year of $10 million.

As previously disclosed, we transitioned from issue-based to time-based journal subscription agreements for calendar year 2016. The transition to time-based digital journal subscription agreements shifted revenue from fiscal year 2016 to the remainder of calendar year 2016 (fiscal year 2017), which resulted in a favorable impact of approximately $34 million in fiscal year 2017. The change had no impact on cash flow from operations. We 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 2017 decreased 1% to $460.8 million, but increased 2% on a constant currency basis. This decrease was mainly driven by lower print book sales volume of $15 million and lower inventory costs due to cost savings initiatives and product mix of $5 million. These factors were partially offset by the following:

·

incremental costs associated with the Atypon acquisition of $8 million;

·

higher royalty costs due to the transition to time-based digital journal subscription agreements of $5 million and new journal titles of $4 million;

·

higher Solutions sales volume of $5 million;

·

higher Corporate Learning content development costs of $4 million;

·

and Online Program Management employment costs of $3 million to support business growth.

Gross Profit Margin for fiscal year 2017 increased 20 basis points to 73.2% mainly driven by product mix in Research, partially offset by higher Online Program Management and Corporate Learning costs to support business growth.

 

Operating and Administrative Expenses:

Operating and administrative expenses for fiscal year 2017 decreased 1% to $988.6 million, but increased 2% on a constant currency basis. This decrease was mainly driven by the following:

·

benefits related to changes in our retiree and long-term disability health plans of $4 million;

·

a life insurance recovery of $2 million in the current year and a disability settlement charge in the prior year of $2 million;

·

lower advertising costs of $7 million due to title and volume reductions and timing;

·

lower shipping and handling costs of $3 million;

·

a market gain on nonqualified pension plan assets of $2 million; and

·

restructuring and other cost savings.

The factors above were partially offset by the following:

·

incremental costs associated with the Atypon acquisition of $14 million;

·

a charge related to lump-sum payments offered to terminated vested employees within our U.S. defined benefit pension plans of $9 million;

·

spending for our Enterprise Resource Planning ("ERP") and related systems of $6 million and other technology, development and maintenance costs of $4 million;

·

increased headcount in Solutions of $4 million and Research of $3 million;

·

higher incentive compensation of $8 million; and

·

higher Solutions event promotional costs of $3 million.

Pension Plan Settlement:

We announced a voluntary, limited-time opportunity for terminated vested employees who are participants in the U.S. Employees' Retirement Plan of John Wiley & Sons, Inc. (the Pension Plan) to request early payment of their entire Pension Plan benefit in the form of a single lump sum payment. Eligible participants who wished to receive the lump sum payment were required to make an election by August 29, 2016. Approximately 780 eligible participants made the election to receive the lump sum, totaling $28 million which was paid from Pension Plan assets in October 2016. Settlement accounting rules were applied in the second quarter of fiscal year 2017, which resulted in a plan remeasurement and a recognition of a pro-rata portion of unamortized net actuarial loss of $9 million, which was recorded in Operating and Administrative Expenses in the Consolidated Statements of Income.

Restructuring and Related Charges:

Beginning in fiscal year 2013, we initiated a program (the "Restructuring and Reinvestment Program") to restructure and realign its cost base with current and anticipated future market conditions. We are 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 2017 and 2016, we recorded pre-tax restructuring charges of $13.4 million and $28.6 million, respectively, related to this program. These charges are reflected in Restructuring and Related Charges on the Consolidated Statements of Income and summarized in the following table:

Other Activities reflects leased facility consolidations, contract termination costs and the curtailment of certain defined benefit pension plans.

Amortization of Intangibles:

Amortization of intangibles for fiscal year 2017 was $49.7 million and consistent with the prior year period.

Interest Expense:

Interest expense for fiscal year 2017 increased $0.2 million to $16.9 million due to an increase in the average borrowing rate, partially offset by lower average debt balances outstanding.

Provision for Income Taxes:

The effective tax rate for fiscal year 2017 was 40.5%, compared to 16.6% in the prior year. The increase was due to the unfavorable German court decision described below. Excluding the expense related to that decision, the rate for fiscal year 2017 would have been 14.9%. The rate for fiscal year 2017, excluding the German court decision, was lower than the prior year's rate due to non-recurring foreign and domestic tax benefits and a favorable earnings mix, partially offset by the impact of non-cash deferred tax benefits related to legislation enacted in the U.K. In fiscal year 2016, the U.K. reduced its statutory rate to 19% beginning April 1, 2017, and 18% beginning April 1, 2020, and in fiscal year 2017, the U.K. further reduced its statutory rate beginning on April 1, 2020, from 18% to 17%.  This resulted in a tax benefit from the re-measurement of our applicable U.K. deferred tax balances of $5.9 million in fiscal year 2016 and $2.6 million in fiscal year 2017.

In fiscal year 2003, we reorganized several of our German subsidiaries into a new operating entity which enabled us to increase ("step-up") the tax deductible net asset basis in certain assets and claim additional tax amortization deductions over 15 years beginning that fiscal year.

In May 2012, as part of its routine tax audit process, the German tax authorities challenged our tax position. In September 2014, we filed an appeal with the local finance court.  As required by German law, we paid all contested taxes and the related interest to avail ourselves of our right to defend our position. We made all required payments with cumulative total deposits of 56.6 million euros, including interest.

In October 2014, we received an unfavorable decision from the local finance court, which we appealed in January 2015 to the German Federal Fiscal Court. On September 26, 2016, we learned that the court denied our appeal and its tax position. No further appeals are available. As a result, we forfeited our deposit and incurred an income tax charge of $49 million. This one-time charge is included in our income tax expense for fiscal year 2017.

Earnings Per Share:

Earnings per diluted share for fiscal year 2017 was $1.95 per share, compared to $2.48 per share in the prior year. The decrease was mainly driven by the impact of the unfavorable German court tax decision described above ($0.85 per share), lower Publishing revenue, the impact of a large backfile sale in the prior year ($0.10 per share), a one-time charge related to the Pension Plan Settlement ($0.09 per share), lower non-cash deferred tax benefits related to changes in the U.K. corporate income tax rates ($0.06 per share), technology spending for our ERP and other related systems ($0.08 per share), and the unfavorable impact of foreign exchange translation ($0.04 per share).

Partially offsetting the decreases were the impact of the transition to time-based digital journal subscription agreements ($0.38 per share), lower restructuring charges in the current year ($0.17 per share), one-time tax benefits ($0.12 per share), and favorable employment cost reductions. The favorable employment cost reductions include the benefit for changes in our retiree and long-term disability health plans ($0.07 per share), a life insurance recovery in the current year ($0.02 per share) and a disability settlement charge in the prior year ($0.03 per share).

SEGMENT OPERATING RESULTS:

Effective August 1, 2016, we completed a number of changes to our organizational structure that resulted in a change in how we manage our businesses, allocate resources, and measure performance. As a result, we revised our segments into three new reporting segments to reflect how management currently reviews financial information and makes operating decisions. All prior period amounts have been restated to reflect the new reporting segment structure. The new reporting structure consists of Research (Journals and related content and services), Publishing (Books and related content, Course Workflow, and Test Preparation), and Solutions (Online Program Management, Corporate Learning, and Professional Assessment).

(a)	Adjusted to exclude the fiscal year 2017 and 2016 Restructuring Charges

Revenue:

Research revenue for fiscal year 2017 increased 3% to $853.5 million, or 7% on a constant currency basis. This increase was mainly driven by the following:

·

Journal Subscriptions revenue of $35 million due to the transition to time-based digital journal subscription agreements from issue-based;

·

incremental revenue from the acquisition of Atypon of $19 million; and

·

Author-Funded Access revenue growth of $7 million, reflecting new titles and increased business as well as growth associated with the Journal of American Heart Association.

These factors were partially offset by a decline in Licensing, Reprints, Backfiles, and Other of $6 million, primarily due to a large backfile sale in the prior year.

Excluding the transition to time-based revenue and the impact of foreign exchange, journal subscription revenue was consistent with the prior period. As of April 30, 2017, calendar year 2017 journal subscription renewals were 1% higher than calendar year 2016 on a currency neutral basis, with approximately 97% of targeted business under contract.

Platform Services includes publishing-software and services that enable scholarly and professional societies and publishers to deliver, host, enhance, market and manage their content on the web. In addition to providing its customers with dedicated technology resources, Atypon provides subscription licenses to its platform, Literatum, through contracts over one to five years in duration. Revenue is recognized evenly over the subscription period.

Cost of Sales:

Cost of Sales for fiscal year 2017 increased 2% to $219.8 million, or 6% on a constant currency basis. The increase was mainly driven by the following:

·

incremental costs associated with the Atypon acquisition of $8 million;

·

higher royalty costs due to the transition to time-based digital journal subscription agreements of $5 million; and

·

society title growth of $4 million.

These factors were partially offset by lower inventory costs due to print run efficiency initiatives and increased digital products of $2 million and unfavorable product mix.

Gross Profit:

Gross Profit Margin increased 30 basis points to 74.3% in fiscal year 2017 due to favorable foreign exchange translation (20 basis points), lower journal production costs, and product mix.

Contribution to Profit:

Contribution to Profit for fiscal year 2017 of $252.2 million was flat with the prior year, but increased 2% on a constant currency basis and excluding Restructuring Charges. This increase was primarily due to the increase in revenue discussed above, partially offset by increased operating expenses. The increase in operating expenses was mainly driven by the following:

·

incremental costs associated with the Atypon acquisition of $10 million;

·

higher content-related costs to support business growth of $4 million; and

·

higher employment costs of $3 million, mainly higher incentive compensation and increased headcount.

Amortization of Intangibles in fiscal year 2017 increased 6% to $26.1 million, or 13% on a constant currency basis due to acquired publication rights of $2 million and the Atypon acquisition of $1 million.

Contribution to Profit Margin was 29.6%, compared to 30.5% in the prior year period.

Society Partnerships

For calendar year 2017, 6 new society contracts were signed, with combined annual revenue of approximately $9 million, and 15 society contracts were not renewed, with combined annual revenue of approximately $9 million.

Atypon Acquisition

On September 30, 2016, we acquired the net assets of Atypon, a Silicon Valley-based publishing-software company, for approximately $121 million in cash, net of cash acquired. Atypon is a publishing-software and service provider that enables scholarly and professional societies and publishers to deliver, host, enhance, market, and manage their content on the web. Atypon is headquartered in Santa Clara, CA, with approximately 260 employees in the U.S. and EMEA. Atypon provides services through Literatum, an innovative platform that primarily serves the scientific, technical, medical, and scholarly industry. This software gives publishers direct control over how their content is displayed, promoted, and monetized on the web. Atypon generated over $31 million in calendar year 2015 revenue. Literatum hosts nearly 9,000 journals, 13 million journal articles, and more than 1,800 publication Web sites for over 1,500 societies and publishers, accounting for a third of the world's English-language scholarly journal articles. 

(a)	Adjusted to exclude the fiscal year 2017 and 2016 Restructuring Charges

Publishing revenue for fiscal year 2017 decreased 9% to $633.4 million, or 7% on a constant currency basis. This decline was driven by lower sales of STM and Professional Publishing of $40 million and Education Publishing of $34 million, and partially offset by growth in Course Workflow (WileyPlus) of $4 million, Test Preparation and Certification of $8 million, and Licensing, Distribution, Advertising and Other of $2 million.

The decline in Books and Reference Materials was mainly driven by softness in the book market, title reductions, and the impact of a large digital book sale in the prior year of $4 million. Education books continue to be impacted by rental and other market forces, while STM and Professional Books also saw a continued decline in demand for print books.  Growth in Course Workflow (WileyPLUS) reflected continued focus on digital course workflow with particular growth in accounting courses. Online Test Preparation and Certification growth was mainly driven by proprietary sales of our new college entrance examination ACT test preparation products and other professional test certification products. Licensing, Distribution, Advertising, and Other growth was principally driven by licensing of intellectual property rights.

Cost of Sales:

Cost of Sales for fiscal year 2017 decreased 9% to $194.8 million, or 7% on a constant currency basis reflecting the decline in lower sales volume.

Gross Profit:

Gross Profit Margin was 69.2% in fiscal year 2017 and consistent with the prior year period.

Contribution to Profit:

Contribution to Profit was $125.7 million in fiscal year 2017 and flat with the prior year period, both on a reported and constant currency basis and excluding Restructuring Charges. Lower print book revenue was offset by operational efficiencies and restructuring and other cost savings. Contribution Profit Margin was 19.8%, compared to 18.1% in the prior year

(a)	Adjusted to exclude the fiscal year 2017 and 2016 Restructuring Charges

Revenue:

Solutions revenue for fiscal year 2017 increased 13% to $231.6 million, or 14% on a constant currency basis.

Growth in Education Services (OPM) of $15 million primarily reflects the impact of increased partners new revenue generating programs, higher enrollments and other related service revenue. As of April 30, 2017, Wiley had 39 university partners and 250 degree programs under contract compared to 38 university partners and 226 degree programs as of April 30, 2016. During fiscal year 2017, Wiley signed several new partners, including George Mason University, Seton Hall University, St. John's University, and the Vlerick Business School in Belgium.

Professional Assessment revenue growth of $3 million was driven by increased post-hire assessment and retail revenue of $4 million, partially offset by a decline in pre-hire assessment revenue of $1 million following portfolio actions to optimize longer-term profitable growth.

The increase in Corporate Learning of $9 million reflected growth from existing customers in the core e-learning business, primarily in Europe.

Cost of Sales:

Cost of Sales for fiscal year 2017 increased 28% to $46.1 million, or 29% on a constant currency basis. This increase was mainly due to higher sales volume of $5 million, higher employment costs in Education Services (OPM) of $3 million, and higher content development costs in Corporate Learning of $4 million to support business growth. These factors were partially offset by restructuring and other cost savings.

Gross Profit:

Gross Profit Margin for fiscal year 2017 declined 230 basis points to 80.1%, principally due to higher content and employment costs to support new business growth in Corporate Learning and Education Services (OPM).

Contribution to Profit:

Contribution to Profit was $14.8 million in fiscal year 2017, compared with $4.0 million in the prior year. The improvement was mainly driven by revenue growth in all areas, partially offset by operating costs incurred to support new business growth in Education Services (OPM) and Corporate Learning. Contribution Margin was 6.4%, compared to 2.0% in the prior year period.

Ranku acquisition:

In September 2016, Wiley acquired Ranku, a recruitment technology and predictive analytics software company for universities, community colleges, and state systems, for $5 million. Ranku has been a partner to more than 1,000 online degree programs at the undergraduate and graduate level. Ranku also offers tech-enabled reporting that helps universities forecast what curriculum to develop based on real-time consumer demand and the needs of the labor market. Ranku plays a critical role in supporting enrollment growth and market research at its partner institutions.

CORPORATE EXPENSES:

Corporate Expenses were $186.6 million and $194.0 million in fiscal year 2017 and 2016, respectively.  Excluding restructuring charges and a one-time pension settlement charge in fiscal 2017, these expenses decreased 2%, primarily due to one-time benefits in fiscal 2017 related to changes in our retiree and long-term disability plans of $4 million, a life insurance recovery of $2 million, savings from operational excellence initiatives and restructuring activities.

·

Wiley anticipates low-single digit revenue growth in Research and Solutions offset by a low-single digit revenue decline in Publishing.

·

Adjusted EPS is expected to decline primarily due to increased investment in revenue growth initiatives, particularly in Research and Education Services.

·

Cash Provided by Operating Activities reflects the impact of growth investments and substantially lower gains in working capital.

·

Capital Expenditures are expected to decline modestly with the completion of our headquarters transformation. Increased investment is expected in areas of product development and business optimization.

Principal Sources of Liquidity

We believe that our operating cash flow, together with our revolving credit facilities and other available debt financing, will be adequate to meet our operating, investing, and financing needs in the foreseeable future, although there can be no assurance that continued or increased volatility in the global capital and credit markets will not impair our ability to access these markets on terms commercially acceptable. We do not have any off-balance-sheet debt.

As of April 30, 2018, we had cash and cash equivalents of $169.8 million, of which approximately $147.9 million, or 87% was located outside the U.S.  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 our operations. Notwithstanding the Tax Act which generally eliminated federal income tax on future cash repatriation to the U.S., cash repatriation may be subject to state and local taxes or withholding or similar taxes. We no longer intend to permanently reinvest cash outside the U.S. As described in Note 11, "Income Taxes," of the Notes to the Consolidated Financial Statements, we accrued a provisional $2.0 million related to reversing our permanent reinvestment assertion related to estimated taxes from repatriating earnings and $0.1 million for state taxes related to the Tax Act, in addition to using foreign tax credits to offset a provisional deemed repatriation tax of $14.2 million. Other than the above accruals, we have no additional accrued liability for U.S. income tax on the repatriation of non-U.S. earnings and estimate that if such earnings were repatriated, the U.S. income tax liability would not be material to our consolidated financial position or results of operations.

As of April 30, 2018, we had approximately $360.0 million of debt outstanding and approximately $742.8 million of unused borrowing capacity under our Revolving Credit and other facilities.

Contractual Obligations and Commercial Commitments

A summary of contractual obligations and commercial commitments, excluding unrecognized tax benefits further described in Note 11, "Income Taxes," of the Notes to the Consolidated Financial Statements, as of April 30, 2018 is as follows:

(1)	Interest on Debt includes the effect of our interest rate swap agreements and the estimated future interest payments on our unhedged variable rate debt, assuming that the interest rates as of April 30, 2018 remain constant until the maturity of the debt

Analysis of Historical Cash Flow

The following table shows the changes in our Consolidated Statement of Cash Flows in the fiscal years ended April 30, 2018, 2017 and 2016.

Free Cash Flow less Product Development Spending helps assess our ability, over the long term, to create value for our shareholders, as it represents cash available to repay debt, pay common dividends, and fund share repurchases and new acquisitions. Below are the details of Free Cash Flow less Product Development Spending for the fiscal years ended April 30, 2018, 2017, and 2016:

Net Cash Provided by Operating Activities

2018 compared to 2017